Transit Funding Associates, LLC, et al., Plaintiffs-Respondents-Appellants,
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.
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.
Lamken LLP, New York (Robert Kry, Steven F. Molo and Michelle
J. Parthum of counsel), for respondents-appellants.
Tom, J.P. Dianne T. Renwick David B. Saxe Paul G. Feinman
Ellen Gesmer, JJ.
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.
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.
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.
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:
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."
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.
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
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.
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 ...