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Allied Irish Banks, PLC v. Young Men's Christian Association of Greenwich

Supreme Court, New York County

April 12, 2012

Allied Irish Banks, PLC, Plaintiff,
v.
Young Men's Christian Association Of Greenwich, Defendant.

Attorneys for the Plaintiff: WINDELS MARX LANE & MITTENDORF, LLP, Mark A. Slama, Esq.

Attorneys for the Defendant: WHITMAN BREED ABBOTT & MORGAN LLC, John T. Shaban, Esq.

Bernard J. Fried, J.

This is a motion for summary judgment in lieu of complaint under CPLR § 3213 on an interest rate swap agreement entered into by Allied Irish Banks, PLC ("AIB") and the Young Men's Christian Association of Greenwich ("YMCA"). AIB claims that the YMCA breached the swap agreement in a variety of ways, including by failing to pay its side of the swap agreement as payments became due, failing to disclose violations of certain covenants, and misrepresenting the facts of its financial position. I find that the interest rate swap agreement between the parties does qualify as an instrument for the payment of money only, and that summary judgment on the issue of liability should be awarded to AIB based on its claim that the YMCA has breached the agreement by failing to make payments as they became due. I deny summary judgment with respect to the amount of damages owing from the YMCA's breach. I need not reach AIB's claims that the YMCA additionally breached the agreement by violating certain loan covenants and misrepresenting material facts. Plaintiff Allied Irish Banks, PLC is a banking organization organized under the laws of Ireland and licensed to operate a branch in New York. Defendant YMCA is a not-for-profit corporation organized under Connecticut state law and maintains a business address in Greenwich, Connecticut. In an interest rate swap agreement, the parties agree to trade cash flows on a notional amount; often, as in this case, one party agrees to pay a fixed interest rate, while the other agrees to pay a floating interest rate set by reference to a market indicator. [1] The swap was intended to hedge approximately one-half of the YMCA's risk exposure on municipal bonds totaling $20, 165, 000 that were issued by the Connecticut Health and Educational Facilities Authority ("CHEFA") and held by the YMCA. Under the agreement, AIB agreed to pay the YMCA a floating interest rate set by the Securities Industry and Financial Markets Association Municipal Swap ("SIFMA") Index [2] on a notional amount of $10, 000, 000. In turn, the YMCA agreed to pay AIB a fixed interest rate of 3.935% on the same notional amount. The notional amount was not exchanged, but was only a point of reference by which to set payments. Essentially, the amount due between the parties would be the difference between the floating rate and the fixed rate; in the months the floating rate was above the fixed rate, Allied Irish Banks would pay the YMCA the difference between the two rates, while in the months the fixed rate was above the floating rate, the YMCA would pay Allied Irish Banks the difference between the two rates.

Some time into the life of the agreement, the SIFMA market interest rate dropped below the fixed interest rate of 3.935% that the YMCA had covenanted to pay to AIB. The YMCA suffered economic difficulty and ceased payments. It is undisputed that the YMCA has not made payments on the interest rate swap agreement since November 2009. [3] In September 2011, AIB elected "early termination" under the swap agreement. [4]

AIB alleges that the YMCA breached the terms of the contract by failing to provide a compliance certificate when it was required to do so, [5] placing an additional mortgage lien on its property without AIB's permission in violation of the loan covenants, [6] failing to maintain the required expendable resources to operations ratio, [7] and failing to make required monthly interest rate payments. [8] AIB also alleges that by failing to reflect the new mortgage lien and change in the expendable resources to operations ratio on the financial statements provided by the YMCA to AIB, the YMCA made a materially incorrect or misleading statement, which is an Event of Default under the contract, [9] and that the YMCA's failure to notify AIB of the breach of the expendable resources to operations ratio covenant in a timely fashion is an additional Event of Default. [10]

AIB requests summary judgment in lieu of complaint on its claim that the YMCA breached the interest rate swap agreement and seeks enforcement of the contract's early termination provisions, which permit the non-defaulting party to set an early termination date and calculate a contractually-defined "settlement amount, " which is owed when the necessary conditions for an early termination are met. [11]

To prevail on a motion for summary judgment in lieu of complaint, the plaintiff must provide proof of an agreement for money only, unconditional terms of repayment, and the defendant's failure to pay. SCP (Bermuda) Inc. v. Bermudatel Ltd., 224 A.D.2d 214, 216 (1st Dep't 1996). The defendant must explicitly acknowledge the indebtedness, and the fact of the debt must be apparent from the agreement alone. Weissnorm v. Sinorm Deli, Inc., 88 N.Y.2d 437');">88 N.Y.2d 437, 444 (1996).

The core issue in this case is whether the interest rate swap agreement between AIB and YMCA qualifies as an instrument for payment of money only. This question apparently has not been considered by the New York courts; a search of procedurally similar cases in other jurisdictions is similarly unavailing. Based upon our precedent construing CPLR § 3213, and without holding that interest rate swap agreements invariably qualify as instruments for the payment of money only, I rule that within the narrow facts of this case, the swap agreement in question is eligible for CPLR § 3213 treatment.

An agreement does not qualify as an "instrument for payment of money only" if it requires proof outside the agreement to resolve the claim "other than simple proof of nonpayment or a similar de minimis deviation from the face of the document." Weissman, 88 N.Y.2d at 444. While the existence of other terms in an agreement is not a categorical bar to relief under CPLR § 3213, the provisions cannot "require additional performance as a condition precedent to repayment, or otherwise alter the defendant's promise of payment". Juste v. Niewdach, 26 A.D.3d 416, 417 (2d Dep't 2006); Stevens v. Phlo Corp., 288 A.D.2d 56, 56 (1st Dep't 2001). The instrument must qualify for CPLR § 3213 treatment at the time of signing; an instrument's eligibility "can never depend upon the occurrence (or non occurrence) of any unrelated future event." Kerin v. Kaufman, 296 A.D.2d 336, 338 (1st Dep't 2002).Thus, where the agreement includes other conditions that are not satisfied by the instrument itself, summary judgment is inappropriate.

However, an instrument is not rendered ineligible for CPLR § 3213 treatment merely because it does not cite a sum certain on its face. Persichilli v. Metro. Paper Recycling Inc., 30 Misc.3d 1227(A), 2010 NY Slip Op. 52381(U), 2010 WL 5834870, slip op. at 2 (Sup. Ct. Nov. 30, 2010) (stating that it is "generally immaterial" that a note "may not recite a sum certain such that resort to some outside documents may be necessary"); Key Bank of Long Island v. Munkenbeck, 162 A.D.2d 503, 504 (2d Dep't 1990); see Bank of America, N.A. v. Solow, 19 Misc.3d 1123 (A), 2008 NY Slip Op. 50830(U), 2008 WL 1821877, slip op. at 4 (Sup. Ct. NY County Apr. 17, 2008), aff'd 59 A.D.3d 304 (1st Dep't 2009) ("A guaranty may be the proper subject of a motion for summary judgment in lieu of complaint whether or not it recites a sum certain, and the need to consult the underlying documents to establish the amount of liability does not affect the availability of CPLR 3213.") (citations omitted). The interest rate swap agreement at issue in this case thus is not disqualified as an instrument for payment of money only because of the lack of a predetermined sum owed on its face.

Evaluated on the day of signing, the agreement at issue in this case does not contain any condition precedent to payment, or obligate any party to non-monetary performance. Proof of nonpayment coupled with evidence of the applicable interest rates, confirmation of which requires only a minor shift from the focus on the terms of the contract required by CPLR § 3213, establishes a prima facie case. While the interest rate swap contract contains provisions that purport to obligate the defendant to meet a series of other conditions, specified in the loan covenants, these requirements are not conditions precedent to performance, nor do they require any act of performance on the part of the defendant. Rather, they "merely describe[ ] under what conditions the [defendant] is liable for actual damages." Bank of America, N.A. v. Lightstone Holdings, LLC, 32 Misc.3d 1244(A), 2011 NY Slip Op. 51702(U), 2011 WL 4357491, slip op. at 2 (Sup. Ct. NY County July 14, 2011). The rates upon which the swap agreement between the YMCA and AIB depended are publicly available and easy to ascertain. [12] Indeed, the external proof that would be required here is no greater than that which would be required to determine the debt on, for example, a guaranty on a loan subject to a variable interest rate, which already has been determined to be eligible for CPLR § 3213 treatment. See Solow, 19 Misc.3d 1123(A), 2008 NY Slip Op. 50830(U), 2008 WL 1821877, aff'd 59 A.D.3d 304 (1st Dep't 2009); see also GE Capital Commercial, Inc. v. Kazi Foods of New York, Inc., 30 Misc.3d 1230(A), 2011 NY Slip Op. 50298(U), 2011 WL 781473, slip op. at 2-3 (Sup. Ct. Mar. 7, 2011) (rejecting defendants' claim that agreement is ineligible for CPLR § 3213 treatment because "[w]ith regard to the determination of the amount due... the Notes require the calculation of interest based upon a series of complex variable factors'...."); A. Alport & Son, Inc. v. Hotel Evans, Inc., 317 N.Y.S.2d 937, 939—940 (Sup. Ct. 1970). The only difference between a promissory note governed by a floating interest rate and the interest rate swap agreement at issue here is the absence of a principal.

Defendant argues that the agreement at issue in this case is analogous to that analyzed in Grossman v. Clarey, 133 A.D.2d 443');">133 A.D.2d 443 (2d Dep't 1987), and should therefore fail to qualify for CPLR § 3213 treatment. In Grossman, the Second Department considered a contract that required the defendants to provide advance payments or loans to the plaintiffs in the months in which the plaintiff's distributions pursuant to a variety of limited partnership agreements did not reach a stated amount. In the months when the partnership distributions did reach the amount decided between the parties, the plaintiffs were required to repay or give credit for the payment advances that were provided by the defendant. The Court held that such an agreement was not an instrument for payment of money only because the agreement "provided for more than a simple unconditional promise by the defendants to pay a sum of money at a certain time or over a stated period." Grossman, 133 A.D.2d at 444.

However, the agreement involved here differs from that in Grossman in several pertinent respects. The amounts due are determined by reference to an external public source, rather than set by yet another private document between the parties. The amount due in Grossman was difficult to calculate, in part, because of the number of agreements involved. Most importantly, the agreement in Grossman could reasonably be expected to involve issues of fact concerning who paid what and ...


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