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Blue Wolf Capital Fund Ii, L.P. v. American Stevedoring Inc.

March 7, 2013


Blue Wolf Capital Fund II, L.P. v American Stevedoring Inc.

Decided on March 7, 2013

Appellate Division, First Department

Freedman, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Luis A. Gonzalez,P.J. David Friedman Karla Moskowitz Leland G. DeGrasse Helen E. Freedman, JJ.

Plaintiff appeals from an order of the Supreme Court, New York County (O. Peter Sherwood, J.), entered August 29, 2011, which, to the extent appealed from as limited by the briefs, denied its motion for partial summary judgment and granted defendant American Stevedoring, Inc. (ASI)'s cross motion for summary judgment dismissing the complaint. Patrick F. McManemin, New York, and Peter R. Ginsberg Law, LLC, New York (Peter R. Ginsberg and Christopher Deubert of counsel), for appellant. Weiss & Hiller, PC, New York (Michael S. Hiller of counsel), for respondent. FREEDMAN, J.

This foreclosure action arises from a secured loan that plaintiff Blue Wolf, an investment firm, made to defendant American Stevedoring Inc. (ASI), an incorporated stevedore business. The parties sharply disagree about many of the circumstances surrounding the loan, but the following is not in dispute: in December 2009, ASI was suffering a self-described "cash crunch" and needed immediate financing to meet its current liabilities, including payroll. After negotiations, the parties agreed to a framework in which Blue Wolf would provide funds to ASI to keep the company afloat while Blue Wolf conducted "due diligence" to evaluate whether to make an equity investment in the company.

The loan transaction closed on January 7, 2010. The parties executed a loan agreement, pursuant to which ASI executed and delivered a promissory note in the principal amount of $1,130,000, bearing interest at a stated rate of 12% per annum and immediately payable at any time on Blue Wolf's demand. The parties also executed a collateral agreement that secured ASI's payment of its loan obligations with liens on substantially all of the company's assets, including industrial equipment it used for its stevedoring business.

At the closing, ASI only received $805,000 of the loan principal of $1,130,000 because, as authorized by the terms of the loan agreement, Blue Wolf withheld $325,000 of the principal in connection with certain fees and deposits. These included, first, a $50,000 "commitment fee," and, second, a $75,000 deposit against Blue Wolf's costs and expenses in connection with the loan.

The third withholding, for $200,000, was designated in the loan agreement as a "deposit against future commitment fees" if ASI's obligations under the note were "rolled over into a future financing transaction" between the parties. The loan agreement further provided both that the $200,000 deposit did not "constitute a commitment with respect to any future transaction," and that if a second financing was not completed by March 31, 2010 "for any reason," Blue Wolf "reserve[d] the right to retain all or a portion" of the deposit "as compensation for [Blue Wolf's] time and expenses, as determined by [Blue Wolf] in its sole discretion."

Blue Wolf acknowledges that, after the demand loan closed and before the end of January 2010, it decided not to buy an equity interest in ASI or otherwise enter into a further financing transaction with the company. In March 2010, Blue Wolf sent ASI a letter demanding immediate payment of ASI's obligations under the note, which Blue Wolf calculated to be $1,056,569, and informing ASI it "does not wish to pursue any further transactions" with the company because of its "loss of confidence" in it. Blue Wolf further informed ASI that it would only return half of the $200,000 deposit and would keep the remainder.

On May 14, 2010, Blue Wolf sent ASI another letter demanding payment of $1,172,513 and stating that it would keep the entire $200,000 deposit. On May 15, the lender began pursuing a strict foreclosure on the collateral pursuant to UCC 9-620. Blue Wolf first sent ASI a letter proposing that Blue Wolf take possession of collateral in full satisfaction of ASI's debt, and then retracted the letter because it did not comply with the notice requirements for strict foreclosure. Blue Wolf claims that, on July 14, 2010, it sent ASI another letter, which effectively notified the company that Blue Wolf would accept ASI's industrial machinery in full satisfaction of the loan, and that, pursuant to UCC 9-620, ASI would be deemed to have accepted Blue Wolf's proposal if it did not object within 20 days. ASI, however, contends that it never received the July 14 letter and disputes Blue Wolf's claimed ownership of the industrial machinery.

On July 22 and August 23, 2010, ASI wired payments totaling about $54,000 to Blue Wolf which it designated interest payments on the outstanding principal. Blue Wolf responded by letters stating that it had already foreclosed on the collateral and that ASI held it for Blue Wolf's benefit. Blue Wolf offered to sell back the collateral to ASI for $1,300,000 no later than September 7, 2010, and indicated that it would ...

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