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HSBC Bank USA, N.A. v. Hunter Delivery Systems

June 28, 2010

HSBC BANK USA, N.A., PLAINTIFF,
v.
HUNTER DELIVERY SYSTEMS, INC., D/B/A HUNTER DELIVERY SYSTEMS, INC. AND MICHAEL SECONDO A/K/A MICHAEL C. SECONDO, MICHAEL CHARLES SECONDO, INDIVIDUALLY, DEFENDANTS.
HUNTER DELIVERY SYSTEMS, INC., D/B/A HUNTER DELIVERY SYSTEMS, INC. AND MICHAEL SECONDO A/K/A MICHAEL C. SECONDO, MICHAEL CHARLES SECONDO, INDIVIDUALLY, THIRD-PARTY PLAINTIFFS,
v.
UNITED STATES SMALL BUSINESS ADMINISTRATION, WILLIAM YOUNG, IN AN OFFICIAL CAPACITY, AND RACHEL BARANICK, IN AN OFFICIAL CAPACITY, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Laura Taylor Swain, U.S.D.J.

MEMORANDUM OPINION AND ORDER

This action arises from defaults on a loan agreement and guaranty delivered to plaintiff HSBC Bank, USA, N.A. ("HSBC" or "Plaintiff") by defendants Hunter Delivery Systems, Inc. ("HDS") and Michael Secondo ("Secondo" and, with HDS, "Defendants") pursuant to the SBAExpress Loan Program of third-party defendant United States Small Business Administration ("SBA"). Defendants have asserted various counterclaims and commenced the third-party action against the SBA. The Court has jurisdiction of this action pursuant to 28 U.S.C. § 1331. Removal to this district was proper under 28 U.S.C. § 1442(a)(1) which provides, inter alia, that a civil action commenced in a State court against any agency of the United States or agency employee sued in their official capacity "may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending."

Before the Court are HSBC's motions for summary judgment and for dismissal of Defendants' counterclaims pursuant to Federal Rules of Civil Procedure 56 and 12(b)(6) respectively; Defendants' cross-motion for summary judgment pursuant to Rule 56, and Third-Party Defendant SBA's motion to dismiss the third-party complaint pursuant to Rules 12(b)(1) and 12(b)(6). For the following reasons, Plaintiff's motion is granted, Defendants' motion is denied and Third-Party Defendants' motion is granted.

BACKGROUND AND PROCEDURAL HISTORY

The following material facts are undisputed.*fn1 On or about December 20, 2004, HSBC Bank USA, N.A., ("HSBC" or "Plaintiff") entered into an "Agreement for Revolving Credit Term Loan" (the "Loan Agreement") with Hunter Delivery Systems, Inc. ("HDS"), in the amount of one hundred thousand dollars. (Pl. 56.1 St. ¶¶ 1-2.) HDS was a "home-based Delaware S- corporation" wholly owned by Secondo. (Secondo SJ Aff. ¶¶ 1-2.) The loan was made pursuant to the SBA's "SBAExpress" Loan Program. (Pl. 56.1 St. ¶ 1.) See Section 7(a) of the Small Business Act, 15 U.S.C. § 631, et seq. On December 20, 2004, HDS, by Secondo, executed a "General Security Loan Agreement" (the "Security Agreement") which granted HSBC a blanket security interest in HDS' personal property. (Id. ¶ 3.) The Loan thus was secured by certain issued and pending HDS patents (the "Patents" or the "Collateral").*fn2 (Secondo SJ Aff. ¶¶ 2-3.) The closing of the Loan, scheduled for December 20, 2004, was adjourned at Secondo's request in order to allow him additional time to review the Borrower's Certificate. (Pl. 56.1 St. ¶ 5.)

On December 23, 2004, Secondo, as HDS' authorized representative, executed the Borrower's Certificate. (Id. ¶ 6.) On December 23, 2004, Secondo, in his personal capacity, executed an Unlimited Continuing Guaranty (the "Guaranty"). (Id. ¶ 7.) Paragraph 4(b) of the Guaranty expressly provides that, in the event of a default, the Guarantor (Secondo) shall immediately pay all of HDS' obligations "without deduction by reason of any setoff, defense or counterclaim of Debtor." (Id. ¶ 8.) Paragraph 4(c) of the Guaranty expressly provides that Secondo's obligations under the Guaranty are not affected by and that he waived objections relating to, inter alia, loss of or failure to preserve the Collateral and failure by HSBC in enforcing its claims against Secondo or the Collateral. (Id. ¶ 9.)

The Loan Agreement provides for a non-default interest rate of 2.25% over HSBC's prime interest rate, and a default interest rate of an additional 3% over the non-default rate (i.e., a total of 5.25% over the HSBC prime rate). (Id. ¶ 10.) The Loan Agreement further provides that HDS is responsible for HSBC's costs, expenses and attorneys' fees incurred in enforcing the Loan Agreement. (Id.¶11.) In the Guaranty, Secondo agreed to pay on demand the costs, expenses and attorneys' fees incurred in enforcing the Guaranty and/or collecting amounts owed by HDS. (Id. ¶ 12.)

Secondo dissolved HDS on December 30, 2008 in an attempt to avoid forfeiting the Collateral in an unrelated case in New York State Supreme Court. (Secondo SJ Aff. ¶¶ 2, 5.) See ReSeal International Limited Partnership and ReSeal International Corporation v. Michael Secondo, Hunter Group, Inc. and Hunter Delivery Systems, Inc., Index No. 60302/2007. (The "ReSeal Action"). Secondo did not inform HSBC about the ReSeal Action until December 8, 2008, more than one year after it had been commenced. (Pl. 56.1 St. ¶ 19.) The New York State Court ordered HDS to forfeit the Collateral following the entry of default judgment in the ReSeal Action on January 26, 2009.

HSBC provided statements of account to HDS on a regular basis. (Id. ¶ 13.) HDS failed to make the payment on the loan that was due on January 10, 2009. (Id. ¶ 15.) On February 11, 2009, Secondo informed HSBC and the SBA that a default judgment had been granted in the ReSeal Action and that he intended to oppose the proposed entry of judgment. (Secondo SJ Aff. ¶ 119.) On March 16, 2009, HSBC issued a demand letter (the "Demand Letter") requiring that all sums due under the Loan Documents and Guaranty be paid in full. (Pl. 56.1 St. ¶ 16.) On March 18, 2009, Secondo responded to the Demand Letter by informing HSBC about his communications with SBA and his opposition to the proposed judgment in the ReSeal Action. (Id. ¶ 14, Amd. Ans. ¶¶ 98-99.) As a result of HDS' loan default and Secondo's Guaranty default, HSBC is owed the principal amount of $74,216,17 outstanding under the terms of the Loan Agreement, along with interest, fees and other costs. (Pl. 56.1 St. ¶ 20.)

On April 9, 2009, HSBC initiated the instant action against Secondo and HDS in New York State Supreme Court to recover amounts due under the Loan (the "HSBC Action"). On May 22, 2009, Secondo, as successor and assignee of HDS, filed a notice of removal to the Southern District of New York. On June 1, 2009, Secondo served a verified answer in the HSBC Action in New York State Supreme Court. (Kaplan Aff. Ex. B.) On June 16, 2009, in state court, Secondo filed a summons and third-party complaint against the United States Small Business Administration ("SBA"), and two of its employees, William Young and Rachel Baranick (collectively, the "SBA Defendants" or "Third-Party Defendants") in the HSBC Action. On June 16, 2009, Secondo "withdrew" his original notice of removal and filed an amended notice of removal, including the third-party action against the SBA Defendants, to this Court. (Docket Entry No. 1 in this action.) On July 13, 2009, the SBA Defendants filed a notice of removal to this Court. (Docket Entry No. 6.) On August 3, 2009, HSBC sent a letter indicating that it was rejecting HDS' answer on the grounds that it was untimely. (Docket Entry No. 11.) On August 17, 2009, during a conference before Magistrate Judge Pitman, HSBC stipulated that it would accept HDS' answer, but HSBC did not waive its right to object to or otherwise move against HDS's answer. (Kaplan Reply Aff. Ex. L, PP. 28-29.)

HSBC's Summary Judgment Motion

Summary judgment should be rendered when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is therefore entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). For the purposes of summary judgment, the Court must construe the evidence in the light most favorable to, and draw all inferences in favor of, the non-moving party. Spinelli v. City of New York, 579 F.3d 160, 166 (2d Cir. 2009). The moving party bears the burden of establishing the absence of any genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed. 2d 202 (1986). Nevertheless, "Rule 56(c) mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed. 2d 265 (1986). The non-moving party cannot avoid summary judgment through vague assertions regarding the existence of disputed material facts, or "defeat the motion through mere speculation or conjecture." W. World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990).

When cross-motions for summary judgment are filed, "the standard is the same as that for individual motions for summary judgment." Natural Res. Def. Council v. Evans, 254 F. Supp. 2d 434, 438 (S.D.N.Y. 2003). "The court must consider each motion independently of the other and, when evaluating each, the court must consider the facts in the light most favorable to the non-moving party." Id. (citing Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001)).

To establish its claim for breach of contract under New York law, HSBC must show: (1) a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages. Rosenblatt v. Christie, Manson & Woods Ltd., 195 Fed. Appx. 11, 12 (2d Cir. 2006). These elements are satisfied here because there is no dispute that (1) the loan documents were signed by Mr. Secondo in his personal and/or authorized corporate capacity; (2) HDS received $100,000 pursuant to the terms of the loan, which it retained for over four years; (3) HDS defaulted by failing to make its ...


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