Summary Judgment in Lieu of Complaint Based on Guaranty Appropriate Even When Court Must Also Look to Underlying Loan Agreement

On December 23, 2021, Justice Margaret Chan of the New York County Commercial Division issued a decision in BSP Agency LLC v. Katzoff, 2021 NYLJ LEXIS 1310, granting the plaintiff's motion for summary judgment in lieu of complaint on a guaranty, and rejecting the defendant's argument that summary judgment in lieu of complaint was unavailable because the court had to look to the underlying loan agreement to determine liability, holding:

Katzoff asserts that BSP must rely on the Loan Agreements to establish the scope of his obligations under the Guarantees. Specifically, Katzoff asserts that the definition of Katzoff's obligations under the Guarantees are identical, and each includes numerous capitalized terms that are only defined in the Loan Agreements. Katzoff also argues that [*11] June 2015 Guarantee is subject to a guarantee cap of $10,000,000, which is reduced to $7,500,000 under certain specified circumstances, and that the court must refer to the June 2015 Loan Agreement to determine whether the guarantee cap applies.

Katzoff's assertions that the Guarantees are not instruments for the payment of money only, because they require proof outside of the Guarantees and impose obligations in addition to the payment of money, or that BSP fails to submit prima facie evidence of the amount owed, are simply unavailing. It is well established that a Guaranty may be the proper subject of a motion for summary judgment in lieu of complaint whether or not it recites a sum certain, and the need to consult the underlying documents to establish the amount of liability does not affect the availability of CPLR 3213 (see European Am. Bank v. Cohen, 183 AD2d 453 [1st Dept 1992]).

Katzoff next argues that the Guarantees require payment and performance of nonpayment obligations, including the payment of fees, commissions, costs, expenses, and indemnities, as well as the performance of all covenants, agreements, obligations, and liabilities of the loan parties. However, the mere presence of additional provisions in the Guarantees does not constitute [*12] a bar to CPLR 3213 relief, provided that the provisions do not require additional performance as a condition precedent to repayment, or otherwise alter the defendant's promise of payment (see Juste v. Niewdach, 26 AD3d 416, 417 [2d Dept 2006]). Here, as stated, Katzoff's promise to pay is absolute, unconditional, and irrevocable. Katzoff's assertion that the Guarantees require more than the payment of money only is insufficient to defeat summary judgment

Katzoff then argues that BSP falsely promised to loan Il Mulino more than $30,000,000, of which $21,000,000 would have been used to pay off existing loans and other debts, and $9,000,000 would have been used toopen new Il Mulino restaurants and expand the brand. Katzoff asserts that BSP structured the Loan Agreements as an initial term loan of $21,000,000 and additional term loans of $9,000,000, while assuring him that it would loan the entire $30,000,000 for the expansion of the Il Mulino restaurants. Katzoff adds that the Loan Agreements expressly provide that the $9,000,000 additional term loan must be used to "fund build-on costs and start-up costs for newly-owned restaurants," and that BSP never intended to fulfill the $30,000,000 commitment for the Il Mulino restaurant expansion. Instead, [*13] Katzoff asserts that BSP intended to replace Il Mulino's existing lenders and keep Il Mulino in a perpetual state of default through financial covenants and required principal payments that BSP knew that Il Mulino could never satisfy without opening new restaurants. However, the Guarantees, which state that they are absolute and unconditional, and that the guarantor waives the right to interpose any defenses, effectively waived the defense of fraud in the inducement (see Citibank v. Papinger, 66 NY2d 90, 92 [1985]), and thus insufficient to defeat summary judgment.

C.P.L.R. 3213 allows a plaintiff to commence its action by moving for summary judgment, and thus avoid the typical requirement that the plaintiff file a complaint and wait until the defendant answers to move for summary judgment. But a plaintiff may take advantage of this rule only when it is suing on an instrument for the payment of money only. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning whether summary judgment in lieu of complaint is appropriate in your case.