United States District Court, S.D. New York
V.E.C. CORP. OF DELAWARE d/b/a LeaseAir, Plaintiff,
Ira HILLIARD, Bridget Hilliard and New Light Church World and Outreach Worship Centers, Inc.; Putnam County National Bank; Dean Ryder, Nancy Molloy; Columbia Enterprises, Inc.; Abu Nasir Syed; Barry Elliot; Curtis W. Simonsen, and Stephen Dalziel, Defendants.
[Copyrighted Material Omitted]
Francis P. Crotty, Fisher, Porter Thomas & Reinfeld, P.C., Englewood Cliffs, NJ, for Plaintiff.
Bruce A. Seidman, Marshall, Dennehey, Warner, Coleman & Goggin, Roseland, NJ, for Defendants Ira Hilliard, Bridget Hilliard, and New Light Church and World Outreach Worship Centers, Inc.
Joseph M. Cerra, Forman Holt Eliades & Ravin LLC, New York, NY, for Defendants Putnam County National Bank, Dean Ryder, and Nancy Molloy.
OPINION AND ORDER
RAMOS, District Judge.
Plaintiff V.E.C. Corp. of Delaware, d/b/a LeaseAir (" VEC" ) commenced this action stemming from four separate leases of aircraft which VEC owned. Now pending are motions to dismiss the Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) by defendants Ira and Bridget Hilliard (the " Hilliards" ) and New Light Church and World Outreach Worship Centers, Inc. (" New Light Church," and collectively the " Hilliard Defendants" ) (Doc. 43), and by defendants Putnam County National Bank (" Putnam" ), Dean Ryder, and Nancy Molloy, the president and an officer of Putnam, respectively (collectively the " Putnam Defendants" ) (Doc. 45). The balance of the named defendants have neither appeared nor filed answers.
By Memorandum Decision filed on December 13, 2011, 2011 WL 7101236 (Doc. 38), The Honorable Vincent Briccetti, to whom this case was previously assigned, dismissed all claims against the Putnam Defendants, as well as all claims against the Hilliard Defendants with the exception of claims for breach of contract and breach of the covenant of good faith and fair dealing. The Plaintiff thereafter filed its Second Amended Complaint (" SAC" ) charging each of the moving defendants with breach of contract and breach of the covenant of good faith and fair dealing. (SAC, ¶¶ 113, 115, 118.) The Putnam Defendants are also separately charged in a third cause of action with fraud. ( Id. ¶¶ 116-17.)
For the reasons discussed below, Defendants' motions to dismiss are GRANTED in full.
The following facts are taken from the Second Amended Complaint unless otherwise indicated, and are assumed to be true for the purposes of the instant motion. Plaintiff VEC is in the aircraft leasing business. (SAC ¶ 3.) In October, 2000, defendants Ira and Bridget Hilliard leased an aircraft from VEC. ( Id. ¶ 8.) Pursuant
to the terms of the lease, the Hilliards were to make monthly payments of $30,645.43 to VEC for 162 months. ( Id. ¶ 26.) Defendant New Light Church guaranteed the payment obligations of the Hilliards under the lease. ( Id. ¶¶ 9, 30.) The transaction was documented by, among other documents, a lease agreement between the Hilliards and VEC (the " Lease" ), ( id., Ex. A), and a guaranty between New Light Church and VEC (the " Guaranty" ), ( id., Ex. C), both executed October 1, 2000. By their terms, both documents are governed by the laws of the State of New Jersey. ( Id. ¶¶ 27, 32.)
Separately, VEC and the Hilliards entered into a Deferred Origination Fee Agreement (" Fee Agreement" ), also dated October 1, 2000, pursuant to which the Hilliards were to pay VEC a $185,000 lease origination fee prior to any transfer of title to the aircraft. ( Id. ¶¶ 28-29, Ex. B.) The Fee Agreement expressly provided that " both parties understand that this [Fee Agreement], together with the entire lease is assignable to Putnam County National Bank, or their designee." ( Id., Ex. B.)
VEC secured a loan from defendant Putnam to purchase the plane that was leased to the Hilliards, ( id. ¶ 34), as it had for the purchase of three other aircraft that are the subject of this litigation. ( Id. ¶¶ 88, 90.) As relevant to the instant motions, each of the four loans was collateralized with the particular aircraft leased, ( id. ¶ 93), but the individual loan agreements did not contain a cross-collateralization provision. ( Id. ¶ 94.) Putnam also required VEC to maintain a cash collateral account with Putnam in the form of a passbook savings account. ( Id. ¶ 96.) VEC had to maintain at least 5% of the total amount due to Putnam on all its aircraft loans in the account. ( Id. ¶ 97.)
Though a copy is not included in the Second Amended Complaint, on October 31, 2000, The Hilliards, VEC and Putnam executed a Notice of Assignment (the " Assignment" ). (Aff. of Bruce A. Seidman in Supp. of Mot. to Dismiss SAC (" Seidman Aff." ), Doc. 49, Ex. 1.) The Assignment grants Putnam a security interest in the Lease and provides that payments due under the Lease otherwise payable to VEC may, upon notice to the Hilliards, be made directly to Putnam. ( Id. )
From October 31, 2000 to January 2002, the Hilliards made lease payments directly to VEC as required. (SAC ¶ 36.) By letter dated January 24, 2002, however, Putnam directed the Hilliards to make their lease payments directly to Putnam. ( Id., Ex. D.) In its January 24 letter, Putnam explicitly refers to the Assignment and that it was exercising its rights thereunder. ( Id. ) VEC alleges that it received no prior notice that Putnam would be invoking the Assignment. ( Id. ¶ 37.)
Approximately two and one-half years later, in June 2004, Putnam sold the aircraft that was the subject of the Lease to the Hilliards in a sale that VEC characterizes as fraudulent. ( Id. ¶ 38.) Putnam also sold the three additional aircraft that are the subject of this action to their lessees in August 2004, mid-2004, and late 2006 or early 2007, respectively. (Pl.'s Mem., Doc. 51, at 4.)
Plaintiff's initial Complaint was filed on March 22, 2010. (Doc. 1.) In its Second Amended Complaint, VEC alleges that Putnam breached its loan agreements with VEC— and in the process the covenant of good faith and fair dealing— by: (1) cross-collateralizing funds received from VEC's various lessees pursuant to the January 24, 2002 letter;  (2) misappropriating the funds in VEC's passbook savings account; and (3) keeping " payment overages" on the sale of VEC aircraft in violation of the loan agreements. (SAC ¶ 113.)
VEC also alleges that the Putnam Defendants committed fraud by " fraudulent concealment," in that when they sold the four aircraft, they
misrepresented a material fact in purporting to convey title to aircraft it did not own and/or by falsifying sale documents purportedly signed on behalf of VEC, thereby inducing the justifiable reliance of third parties and intentionally concealing this fraud from the plaintiff, who suffered the loss of the purchase price of the aircraft, the Early Termination Value due to VEC on the aircraft and, in the case of [the] Hilliard [Defendants], retaining the Deferred Origination Fee due to VEC for itself.
( Id. ¶ 112 (emphasis added).)
VEC alleges that the Hilliard Defendants breached the Fee Agreement by failing to pay the $185,000 fee to VEC when title to the aircraft was transferred to the Hilliards  in June 2004. ( Id. ¶ 115.) By their breach of the Fee Agreement, the Hilliard Defendants are also alleged ...