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LVP Associates L.L.C. v. Bank of China

United States District Court, S.D. New York

November 16, 2017

LVP ASSOCIATES L.L.C. and 349 ASSOCIATES L.L.C., Plaintiffs,

          OPINION & ORDER

          SIDNEY H. STEIN, U.S. District Judge.

         This contract dispute concerns three loans issued by defendant Bank of China, New York Branch to three New Jersey limited liability companies controlled by the same real estate investor. The loans are secured by mortgages on three commercial buildings in New Jersey. Two of the limited liability companies - LVP Associates LLC and 349 Associates LLC - now wish to repay their loans in order to sell the encumbered properties. However, the Bank refuses to allow them to do so, or to release its security interests in the underlying properties, until the separate loan to the third company (non-party 769 Associates LLC) is also repaid.

         LVP Associates and 349 Associates have now brought this action seeking a declaration that 1) the loan agreements permit them "to repay in full their respective loans and have all repayment proceeds be applied strictly to their respective loans and no other loans, " and 2) they are entitled to "a release of any security interest held by the Bank on their commercial buildings upon repayment in full of their respective loans." (Compl. at 12.)

         Plaintiffs have now moved for summary judgment granting those declarations and the Bank has cross-moved for summary judgment dismissing the complaint. For the reasons that follow, the Court grants plaintiffs' motion in part and defendant's cross-motion in part and otherwise denies those motions.

         I. Background

         A. The Original Agreements

         349 Associates LLC, LVP Associates LLC, and 769 Associates LLC are New Jersey limited liability companies managed and controlled by real estate investor Paul V. Profeta. (Profeta Decl., Doc. 15 ¶¶ 1-2; Profeta Aff., Doc. 32.) On May 22, 2007, each of the three companies entered into a separate written agreement with defendant Bank of China to obtain loans -ranging in amount from $7.35 million to $14.35 million - in order to refinance three commercial buildings in Essex County, New Jersey. (Profeta Decl. ¶¶ 3-4.) At the same time, each company executed a promissory note and mortgage agreement granting the Bank a security interest in the property for which the loaned money was to be used. The LVP building is located in Maplewood, the 349 building in Livingston, and the 769 building in West Orange, New Jersey. (See Original Mortgages, Doc. 16-7; 16-8; 16-9.)

         The parties' present dispute turns on a small number of provisions scattered throughout these contracts.[1] As relevant here, the original mortgage provided the following "express condition" on the grant of the Bank's security interest in the underlying property, in a passage later identified as Section 2(b):

[I]f Mortgagor shall well and truly pay to Mortgagee [Bank of China] the Debt at the time and in the manner provided in the Loan Documents and shall well and truly abide by and comply with each and every covenant and condition set forth in the Loan Documents in a timely manner, these presents and the estate hereby granted shall cease, terminate and be void....

(Original Mortgage, Doc. 16-7 at 5 (emphasis added).)

         In the original loan agreement, Section 2.3.1, entitled "Repayment, " provided in relevant part:

Except during the continuance of an Event of Default, all proceeds of any repayment, including permitted prepayments, of the Loan shall be applied by Lender as follows in the following order of-priority'. First, accrued and unpaid interest at the Interest Rate; Second, to Principal; and Third, any other amounts then due and owing under the Loan Documents. ... During the continuance of an Event of Default, all proceeds of repayment... shall, unless otherwise provided in the Loan Documents, be applied in such order and in such manner as Lender shall elect in Lender's discretion.

(Original Loan, Doc. 16-1 at 6-7 (emphases added).) In each agreement, the defined term "Loan Documents" referred to the specific loan agreement, mortgage, and promissory note associated with that particular loan. (Id. at 3; Original Mortgage at 2.)

         Section 8.1 of each loan agreement enumerated twenty-one circumstances that constituted events of default with respect to the loan. (Original Loan at 33-35.) Various consequences and remedies for default - including the ability of the Bank to accelerate the debt by declaring it immediately due and payable - were specified in a series of provisions including loan agreement Section 8.2 and Mortgage Paragraph 10. (Id. at 35-37; Original Mortgage at 8-11.) In addition, loan agreement Section 5.16 provided for defendant to receive reimbursement for "reasonable out-of-pocket costs and expenses" incurred in connection with the loans, including costs of litigation. (Original Loan at 23-24.)

         B. The 2010 Amendments

          Three years later, in 2010, the parties agreed to amend both the loan agreements and the mortgages as part of the settlement of a totally separate dispute. Among other changes, Section 2(a) of the amendment to the mortgage provides for the cross-collateralization of the three loans. (Mortgage Amendment, Doc. 16-13 at 2-3.) Thus, each loan became secured by mortgages on the three properties underlying all three of the loans instead of the single property specified in each original mortgage.

         The amendment to the loan agreement created new defined terms (viz., "Related Loan Documents, " "Related Loan Parties, " and "Related Property Loans") to refer in each agreement to the loans entered into by Profeta's other two companies. (Loan Amendment, Doc. 16-10 at 1-2.) Those terms appear in a number of amended loan agreement provisions including Section 5.15.3, a new subsection governing transfers of the underlying properties to third parties who will not assume the borrower's obligations pursuant to the loan documents. In relevant part, Section 5.15.3(a) provides that the original borrower must pay the Bank 115% of the outstanding principal as consideration for such a transfer, and that that amount shall be allocated in the following order of priority:

First, to the payment of the outstanding Principal of the Loan; Second, to the payment of any outstanding costs and expenses (including Late Payment charges and reasonable attorney's fees and expenses), then due to the Lender under the Loan Documents; Third, to the payment of accrued and unpaid interest; Fourth, the balance, if any, shall be applied to the reduction of the outstanding principal balance of either or both of the Related Property Loans.

(Id. at 5 (emphasis added).) The parties also added a cross-default provision, Section 8.1(k), whereby a default on any one loan constituted a default on the other two ...

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