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Transit Funding Associates, LLC v. Capital One Equipment Finance Corp.

Supreme Court of New York, First Department

February 28, 2017

Transit Funding Associates, LLC, et al., Plaintiffs-Respondents-Appellants,
v.
Capital One Equipment Finance Corp., Formerly known as All Points Capital Corp. doing business as Capital One Taxi Medallion Finance, et al., Defendants-Appellants-Respondents.

         Cross appeals from the order of the Supreme Court, New York County (Saliann Scarpulla, J.), entered July 21, 2016, which, to the extent appealed from as limited by the briefs, denied defendants' motion to dismiss as to the claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory judgments with respect to the loan agreement and the guaranties, and granted the motion as to the claims for fraud and breach of the letter agreement.

          Skadden, Arps, Slate, Meagher & Flom LLP, New York (Alexander C. Drylewski, George A. Zimmerman and Patrick G. Rideout of counsel), for appellants-respondents.

          Molo Lamken LLP, New York (Robert Kry, Steven F. Molo and Michelle J. Parthum of counsel), for respondents-appellants.

          Peter Tom, J.P. Dianne T. Renwick David B. Saxe Paul G. Feinman Ellen Gesmer, JJ.

          SAXE, J.

         This appeal requires us to consider whether a loan agreement that gives the lender broad authority to deny "any" funding requests "in its sole and absolute discretion" and allows the lender to condition its approval "for any [] reason" can be violated, or the covenant of good faith breached, by the lender's rejection during the term of the contract of all further funding requests, for its own business reasons. We conclude that the contract's language precludes holding the lender liable on either theory.

         Plaintiff Transit Funding Associates, LLC. (TFA), a financing company that loaned money to Chicago taxi owners and drivers for the purchase of taxi medallions, entered into a commercial loan agreement with defendant lender, Capital One Taxi Medallion Finance, under which Capital One agreed to fund a loan facility for plaintiff. From 2006 to 2009, before it entered into the credit facility with Capital One, TFA had worked with a local Chicago bank, Cole Taylor Bank, where it had a $20 million credit facility. In March 2009, Capital One allegedly induced Transit Funding to leave Cole Taylor and embark on a joint venture with it whereby TFA would generate business, handle collections, and perform back-office functions, while Capital One provided funding for the venture. The parties would share profits and losses, and TFA affiliates would guarantee TFA's obligations.

         Initially, Capital One provided TFA with a $35 million credit line that allowed TFA to draw down advances as it made medallion loans. Over the years, Capital One increased the credit line in successive steps so that, by April 2012, it stood at $80 million. Accordingly, TFA expanded its business from 130 medallion loans to more than 750 medallion loans.

         On April 6, 2012, Capital One and TFA entered into the loan agreement in question, which provided TFA with an $80 million credit line. The agreement provided that Capital One would continue funding advances, as in Section 2.1(c), which provided that Capital One "will make Advances to [TFA] from time to time until the close of business on [the Termination Date]... in such sums as [TFA] may request." However, that general obligation of Capital One was substantially limited by section 2.1(g) of the loan agreement, which gave Capital One the complete authority to decline to advance funds:

         "Notwithstanding anything to the contrary contained herein, [Capital One] reserves the right to make or decline any request for an Advance in its sole and absolute discretion and may condition the availability of an Advance upon, among other things, (i) that no Default or Event of Default occurring hereunder or under any Loan Document exists and continues beyond the expiration of applicable notice and cure periods; or (ii) the maintenance of a satisfactory financial condition by [TFA] and all Guarantors; or (iii) for any other reason determined by [Capital One] in its sole and absolute discretion."

         In connection with the loan agreement, Capital One and TFA entered into a "Revolving Advised Line of Credit Promissory Note" for the $80 million principal. Plaintiffs Patton Corrigan and Michael Levine, the principals and sole owners of TFA, along with various TFA affiliates, entered into written guaranties dated April 6, 2012, unconditionally and absolutely guaranteeing TFA's obligations to Capital One under the loan agreement.

         In April 2013, Capital One began internal discussion of the possibility that it would abandon the joint venture and the Chicago medallion market. However, in reliance on assurances by Capital One representatives, on July 31, 2013, the parties renewed the credit facility under the loan agreement to July 1, 2014, with an automatic three-month extension to October 1, 2014.

         However, before expiration of the loan agreement, Capital One abruptly began denying all loan advances, regardless of the creditworthiness or circumstances of particular medallion owners. In fact, on February 25, 2014, Capital One denied a request for $1.3 million to fund three loans, even though it had previously approved those loans. TFA later learned that Capital One had begun collaborating with the ride-sharing service Uber, a direct competitor to medallion taxi drivers. In particular, Capital One entered into a joint venture with Uber whereby Uber customers received a discount when they paid with their Capital One credit card, and new customers got two free rides up to $60.

         In March 2014, TFA asked Capital One for permission to sell the 48 medallions that its affiliates had pledged as security, and offered to substitute all cash proceeds as security. Capital One refused, thereby ...


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