The opinion of the court was delivered by: Korman, J.
Plaintiff United Central Bank filed this diversity action for foreclosure pursuant to New York Real Property Actions and Proceedings Law § 1301 et seq. against defendants Team Gowanus, LLC, Square One Holding Corp., Peter Moore, Peter Kovacs, John Sutter, and several named and fictitious holders of judgments, liens or other interests in the mortgaged property. United Central Bank moves for summary judgment on its claims pursuant to Fed. R. Civ. P. 56 and to dismiss the defendants' counterclaims pursuant to Fed. R. Civ. P. 12(b)(6).
I. Team Gowanus Purchased the Property with Loans from Mutual Bank and Square One
On or about May 1, 2008, Team Gowanus, LLC ("Team Gowanus") purchased property located at 68-92 Third Street, Brooklyn, New York, Block: 465, Lot: 12 (the "Property) from Square One Holding Corp. ("Square One") for $12.5 million. Square One Def. 56.1 Cntrstmnt. ¶ 1, ECF No. 56. There were two sources of funding utilized by Team Gowanus: (1) a $9 million loan from Mutual Bank secured by a mortgage and guaranties of the members of Team Gowanus ("Mutual Bank Note" and "Mutual Bank Mortgage"); and (2) a $2.25 million loan from Square One secured by a purchase money mortgage ("Square One Note"). Id. ¶¶ 2-3.
The Mutual Bank Note obligated Team Gowanus to make monthly payments of interest at 8% per annum and to repay the entire principal upon maturity on May 1, 2009. Pl. 56.1 Stmnt. ¶ 1, ECF No. 50. The Mutual Bank Mortgage granted Mutual Bank a first-priority security interest in the Property. Id. ¶ 4. In addition, Messrs. Moore, Kovacs and Sutter individually guaranteed Team Gowanus' loan up to specified percentages of the aggregate amount borrowed (collectively, "Team Gowanus Defendants"). Id. Mr. Sutter's guaranty lists his maximum liability as 28.18%. Id. In addition, Messrs. Moore, Kovacs and Sutter executed a Commercial Loan Agreement on Team Gowanus' behalf on the date of the purchase. Id. ¶ 6.
The Square One Note obligated Team Gowanus to make monthly payments of interest at 8.5% per annum and to repay the entire principal upon maturity on December 15, 2008. Id. ¶ 8; Square One Def. 56.1 Cntrstmnt. ¶ 4. The loan by Square One to Team Gowanus was secured by a purchase money mortgage in the amount of $2.25 million, which granted Square One a second-priority security interest in the Property. Pl. 56.1 Stmnt. ¶ 8; Square One Def. 56.1 Cntrstmnt. ¶¶ 3, 5. In addition, Messrs. Moore, Kovacs and Sutter guaranteed Team Gowanus' loan. Id. ¶ 6.
II. Team Gowanus Negotiated with Mutual Bank and Square One to Restructure the Loans
From June 1 to December 15, 2008, Team Gowanus failed to make their monthly interest payments in the amount of $15,937.50, as well as late payment charges, to Square One as required by the Square One Note and Mortgage. Id. ¶ 7. On or about December 12, 2008, Team Gowanus requested an extension of the maturity date of the Square One Note, which Square One rejected. Id. ¶ 8. On December 15, 2008, the Square One Note and Mortgage matured and the entire principal balance plus interest, costs and fees became due and payable. Id. ¶ 9. From that date through May 1, 2009, Team Gowanus and its guarantors did not make any payments toward the principal balance of $2.25 million or any of the accrued interest. Id. ¶ 10.
From January through March 2009, Team Gowanus made repeated, but unsuccessful, efforts to enter into a forbearance agreement with Square One. Id. ¶ 12. Sometime in March 2009, Mutual Bank learned that Square One was threatening to declare Team Gowanus in default because it had failed to pay $2.25 million in principal and $160,000 in interest that was due to Square One on December 15, 2008. Pl. 56.1 Stmnt. ¶ 27. Such a declaration by Square One would trigger a cross-default on the loan from Mutual Bank. Id. ¶ 28. At that time, Mr. Sutter requested that Robert Hoholik, the Mutual Bank loan officer responsible for the bank's relationship with Team Gowanus, consider restructuring the bank's loan to Team Gowanus. Id. ¶¶ 25, 28.
On March 9, 2009, Mr. Hoholik drafted and submitted to Mutual Bank's Special Assets Group Committee (the "Committee") a loan presentation which included a proposal to restructure the Team Gowanus loan based on Mr. Sutter's request. Id. ¶¶ 28-29. The presentation suggested several conditions precedent to restructuring of the loan, including a restructuring of Square One's loan and a payment of interest arrears to Square One in the amount of $160,000. Id. ¶ 30. Furthermore, Mr. Hoholik's presentation included the requirement that any new five-year loan to Team Gowanus satisfy a maximum 65% loan-to-value ratio. Id. ¶ 32. The presentation was ultimately signed "Recommended By" Charles Cantro, a Mutual Bank vice president, and signed "Approved By" David Clark, a Mutual Bank senior vice president. Id. ¶
34. The parties agree that the presentation was not signed by the Team Gowanus Defendants. Id. ¶ 34.
On March 13, 2009, a second record of the presentation was created in the form of an unexecuted Minute of the Special Assets Committee Meeting for March 13, 2009 ("the Minute"). Id. ¶ 37. The Minute's two signature lines were left blank and the Minute contains no substantive information about the proposed restructuring, but simply states that "[t]he Committee reviewed and approved the following recommendations: Workout Presentations -- Restructures . . . Team Gowanus LLC -- R. Hoholik." Hoholik Aff., Ex. K. at 1163, ECF No. 48-11, & Ex. L at 277, ECF No. 48-12. After the presentation was approved, Mr. Hoholik sent a letter to Mr. Sutter which included some of the terms for a proposed restructuring. Pl. 56.1 Stmnt. ¶ 40. Soon after, Mutual Bank and Team Gowanus began negotiation of a term sheet. Id. ¶ 42.
Also in or about March 2009, Square One entered into negotiations with Team Gowanus regarding a revision of their loan agreement with the intention that it "be part of a global restructuring of the Team Gowanus debt." Square One Def. 56.1 Cntrstmnt. ¶ 13. Team Gowanus communicated to Square One that any restructuring of its debt to Mutual Bank would require, among other conditions, that Team Gowanus restructure its debt to Square One "on the same terms Mutual Bank had proposed for restructuring its loan with Team Gowanus." Id. ¶ 15.
On April 6, 2009, Team Gowanus sent its first draft of a term sheet to Mutual Bank. Pl. 56.1 Stmnt. ¶ 44. In the email transmitting the draft, Mr. Sutter wrote to Mutual Bank that Team Gowanus "wanted to take our discussions to the next step and draft up a more detailed term sheet that can be the basis of the modification and extension of the loan." Id. This draft of the term sheet, and all subsequent drafts, contained a provision drafted by Team Gowanus which stated that except for a provision relating to one of the guarantors, "all the other terms in this term sheet shall be non-binding to either party unless and until substantive agreements between the parties are executed and exchanged." Id. ¶ 45.
On April 13, 2009, Mr. Sutter emailed Mr. Hoholik with a revised draft of the term sheet and wrote in the accompanying email: "If it does not need any additional comments from you, if you can sign, I will then send it to Square One so they can subscribe to the same restructuring logic." Id. ¶ 46. Later that day, Mr. Sutter again emailed Mr. Hoholik urging Mutual Bank "to sign the Term Sheet we sent you Friday today" so that Team Gowanus could work with Square One to restructure the secondary loan and mortgage. Id.
On April 15, 2009, Mr. Sutter emailed Mutual Bank to advise that Team Gowanus' attorney was revising a new draft of the term sheet which would separate part of the project into five separate loans with separate tax lots, deeds and personal guaranties. Id. ¶ 47. Mr. Sutter again stressed the importance of getting "the term sheet signed" in order to get Square One to "buy into the restructuring." Id.
On April 16, 2009, Mr. Sutter emailed Mutual Bank a revised draft term sheet that incorporated the proposed separation of the Property into seven different tax lots and contained several other material alterations from the previous draft, including a proposal that his personal guaranty be reduced from 28.18% to 6.79%, instead of from 28.18% to 7.74%. Id. ¶¶ 48-49. Sometime between April 16 and April 20, 2009, Mutual Bank executed this draft of the term sheet and returned it to Team Gowanus. Id. ¶ 52.
On April 20, 2009, Mr. Sutter requested that Mutual Bank re-execute the term sheet in light of several typographical errors. Id. ¶ 53. Mutual Bank re-executed the term sheet after making the changes that Mr. Sutter had requested and adding a provision specifying certain conditions that must be met prior to closing on any restructuring of the loan. Id. ¶ 55. Team Gowanus subsequently executed this term sheet as well. Id.
On April 29, 2009, Mr. Sutter requested that the term sheet be further modified. Id. ¶ 56. Specifically, Mr. Sutter proposed that his personal guaranty be reduced from 28.18% to 4.20%, instead of 28.18% to 6.79%. Id. Mutual Bank executed the revised term sheet to accommodate Mr. Sutter's request. Id. ¶ 57.
The final iteration of the Mutual Bank-Team Gowanus Term Sheet ("Term Sheet") was fully executed on or about May 1, 2009. Id. ¶ 59. The Term Sheet's first paragraph included a disclaimer that the proposed restructuring was subject to the receipt of financial statements and other underwriting requirements and that ". . . the terms herein are non-binding and are intended solely as a summary of terms currently proposed by the parties." Id. ¶ 60. Furthermore, the final paragraph of the Term Sheet included the provision that except for a provision relating to the "contemplated" reduction in Mr. Sutter's personal guaranty, "all the other terms in this term sheet shall be non-binding to either party unless and until substantive agreements between the parties are executed and exchanged." Id. ¶ 61.
This final version included additional conditions precedent to the restructuring of Mutual Bank's loan to Team Gowanus. See id. ¶¶ 65-67. Specifically, the Term Sheet stated that "[f]unding of the loans referred to in this restructuring is subject to confirmation by Lender of the net worth and credit standing of each of the New Companies and other credit information submitted to Lender by Gowanus." Id. ¶ 65.
The proposed closing did not take place "on our about" May 1, 2009, the date provided in the Term Sheet. Id. ¶ 85. In addition, Team Gowanus did not repay the Mutual Bank Note on or before its maturity date of May 1, 2009. Id. ¶ 9.
On May 6, 2009, Mr. Sutter notified Mutual Bank that he had wired a $200,000 equity contribution to Team Gowanus to pay interest arrears to Square One. Id. ¶ 69.
On or about May 12, 2009, Square One agreed to the terms in the Term Sheet that referenced Square One's loan to Team Gowanus. Square One Def. 56.1 Cntrstmnt. ¶ 18. The Term Sheet made clear that the restructuring of Square One's loan to Team Gowanus was one, but not the sole, condition precedent to "further action" by Mutual Bank. Id. ¶ 21. In substance, the Square One Amended Note replaced the Square One Note, reduced the interest rate to 5%, and extended the term of the loan for five years to December 15, 2013. Pl. 56.1 Stmnt. ¶ 74; Square One Def. 56.1 Cntrstmnt. ¶ 22. Simultaneously, Mr. Sutter's guaranty in favor of Square One was also amended, lowering his maximum liability to 4.20% of the total amount owed. Pl. 56.1 Stmnt. ¶ 76; Square One Def. 56.1 Cntrstmnt. ¶ 23.
On May 15, 2009, Team Gowanus transmitted to Mutual Bank a "Written Consent of Members of Team Gowanus" which authorized Team Gowanus to execute the Term Sheet with Mutual Bank and a forbearance agreement with Square One. Pl. 56.1 Stmnt. ¶ 79. However, the Written Consent specified that the members simply approved of the Term Sheet and that the "restructuring prior to closing will be subject to final approval of the Members." Id. ¶ 80.
Also on or about May 15, 2009, Team Gowanus paid Square One $178,584.25, representing the interest owed from May 1, 2008 to April 30, 2009. Pl. 56.1 Stmnt. ¶ 73; Square One Def. 56.1 Cntrstmnt. ¶ 26. From May 2009 through June 2010, Team Gowanus made monthly payments of $9,350 to Square One pursuant to the terms of the Square One Amended Note and Mortgage. Id. ¶ 27. However, Team Gowanus has not made any payment to Square One since June 2010. Id. ¶ 28.
Also on or about May 15, 2009, Mutual Bank sent to Team Gowanus draft loan documents to be used as a starting point for the proposed restructuring, including a draft commercial loan agreement, guaranty, mortgage and security agreement, promissory note, assignment of rents and leases, and environmental indemnity agreement. Pl. 56.1 Stmnt. ¶¶ 83-84. The parties agree that the draft loan documents did not include the material terms of the proposed agreement because they had not yet been discussed or negotiated. Id. ¶ 84. Team Gowanus never returned the draft loan documents to Mutual Bank with proposed changes. Id.
On or about May 22, 2009, Mutual Bank entered into an agreement with the Federal Reserve Bank of Chicago which required Mutual Bank's parent corporation to submit a plan within two months to replenish depleted capital levels. Id. ¶ 86. Importantly, this agreement restricted Mutual Bank's ability to increase any debt without prior written approval of the Federal Reserve. Id.
On May 22, 2009, Mr. Sutter wrote to the other members of Team Gowanus via email that he was concerned that Mutual Bank was "in considerable trouble." Id. ¶ 89. Mr. Sutter explained that since Team Gowanus was currently in default, a "'distressed lender' who comes in after Mutual . . . can immediately foreclose on us." Id. Thus, he stressed the "need to move quickly and sign onto our new loans to avoid this new risk." Id.
On May 29, 2009, Mr. Sutter requested that Mutual Bank agree to a one-page draft amendment to the original Mutual Bank-Team Gowanus loan documents in order to formalize "the interim period during which we are working towards a restructuring and refinancing of our existing loan." Id. ¶ 91. The draft amendment proposed that Mutual Bank forbear from treating the loan as in default between May 1 and September 1, 2009, and that Team Gowanus make a payment in the amount of $24,375 to Mutual Bank. Id.
On June 23, 2009, Mr. Sutter acknowledged in writing to Mutual Bank that Team Gowanus was "in default since May 1, and I think that this is a defaulted loan on the bank's books," and requested that Mutual Bank reconsider its apparent rejection of the forbearance agreement proposed on May 29, 2009 in order to "take the loan out of the default category for both of us." Id. ¶¶ 92-93.
On July 7, 2009, Mr. Sutter requested that Mutual Bank agree to book a single new loan for a five-year term and later convert the loan to seven loans as contemplated in the Term Sheet. Id. ¶ 94. On July 9, 2009, Mr. Sutter again requested that Mutual Bank agree to an immediate five-year extension of the existing loan at a reduced rate of interest in order to provide Team Gowanus "with security in the even that Mutual is taken over by the FDIC or a successor banking institution . . . ." Id. ¶ 95. Shortly thereafter, Mutual Bank and Team Gowanus entered into negotiations regarding Mr. Sutter's proposal. Id. ¶¶ 96-98.
On or about July 31, 2009, Mutual Bank sent a revised draft of the proposed amendment to the Mutual Bank Note and Mortgage, requesting that, if agreeable, Team Gowanus should execute two originals and return them to Mutual Bank "for execution by the bank." Id. ¶ 102.
III. Mutual Bank's Assets Sold to UCB via the FDIC
On July 31, 2009, Mutual Bank was declared insolvent, closed by regulators, and the Federal Deposit Insurance Corporation ("FDIC") was appointed as Receiver. Id. ¶¶ 1, 105; Square One Def. 56.1 Cntrstmnt. ¶ 29. On that same day, United Central Bank ("UCB") entered into a Purchase and Assumption Agreement with the FDIC to purchase a portion of Mutual Bank's assets. Pl. 56.1 Stmnt. ¶¶ 1, 106. Among those assets purchased by UCB were the Mutual Bank Note and Mortgage. Id. ¶ 1; Square One Def. 56.1 Cntrstmnt. ¶ 29. At that time the Mutual ...