Opinion
19-cv-6448 (JSR)
2019-10-31
SANTANDER BANK, N.A., Plaintiff, v. Argenis CONTRERAS, Defendants.
Alissa Lightner Poynor, Paul Sherman Samson, Riemer & Braunstein LLP, Boston, MA, for Plaintiff. Daniel Desouza, Dasouza Law, P.A., Ft. Lauderdale, FL, for Defendant.
Alissa Lightner Poynor, Paul Sherman Samson, Riemer & Braunstein LLP, Boston, MA, for Plaintiff.
Daniel Desouza, Dasouza Law, P.A., Ft. Lauderdale, FL, for Defendant.
MEMORANDUM ORDER
JED S. RAKOFF, U.S.D.J.
Plaintiff Santander Bank, N.A. ("Santander") brought a one-count complaint against defendant Argenis Contreras ("Contreras") to recover on a guarantee from Contreras, whereby Contreras had unconditionally guaranteed a loan of over $22 million from Santander to Bonamar Corp. ("Bonamar"), a company wholly owned by Contreras. Complaint, ECF No. 1 ("Complaint"). Now before the Court are Contreras' motion for judgment on the pleadings, based on the doctrine of claim splitting, and Santander's motion to strike Contreras' first, third, and fourth affirmative defenses. For the reasons set forth below, Contreras' motion for judgment on the pleadings is denied, and Santander's motion to strike Contreras' first, third, and fourth affirmative defenses is granted in its entirety.
Background on Contreras' Motion
I. Allegations in the Complaint
The following allegations are taken from the complaint and are assumed true for the purposes of assessing Contreras' motion for judgment on the pleadings.
From January 13, 2017 to March 23, 2018, Santander and Bonamar entered into a Credit Agreement, a Promissory Note, and other related loan documents (collectively, the "Loan Documents") pursuant to which Santander agreed to loan Bonamar up to $30 million. Complaint ¶¶ 6-9. On January 13, 2017, defendant Contreras executed and delivered a guaranty to Santander of all obligations of Bonamar. The guaranty was governed by the laws of the State of New York. Id. ¶¶ 10, 11; Unlimited Guaranty, dated January 13, 2017, ECF No. 1-2, Ex. 4 ("Guaranty").
On November 8, 2018, Santander sent Bonamar a notice that Bonamar was in default. Id. ¶¶ 12-13. On February 11, 2019, Santander made demand on Bonamar for payment in full of all amounts owed to Santander, and Santander also made demand on Contreras, pursuant to the Guaranty, for payment in full of all obligations of Bonamar to Santander. Id. ¶¶ 13, 14. On or about February 25, 2019, Bonamar made an assignment for the benefit of creditors, and, as of the date of the filing of the Complaint, Bonamar was in the process of being liquidated. Id. ¶ 15. Contreras, for his part, has not made any payment pursuant to the Guaranty. Id. ¶¶ 20-21.
As of July 8, 2019, the balance due on Santander's loan to Bonamar was $9,784,957.40, plus interests and other costs. Id. ¶ 16. Accordingly, Santander brings a one-count claim against Contreras, seeking a judgment in the amount of $9,784,957.40 plus interest, costs, and costs of collection, including attorney's fees. Id. ¶¶ 17-21.
II. Procedural Background
On February 18, 2019, Santander filed a complaint against Bonamar and Contreras in the U.S. District Court for the Southern District of New York, making substantially the same allegations as here. Santander Bank, N.A. v. Bonamar Corp. et al., 19-cv-1514 (JGK) (the "Initial SDNY action"). Three days later, on February 21, 2019, Santander brought an in rem replevin action against Bonamar in the Circuit Court of Miami-Dade County, Florida, once again the same allegations. Santander Bank, N.A. v. Bonamar Corp., 2019-004987-CA-01 (the "Miami action"), Dkt. No. 2. After the county court issued a writ of replevin against Bonamar, Bonamar filed an emergency motion to vacate. Miami action, Dkt. No. 12. On February 25, 2019, the county court entered a consent order, under which Bonamar would execute an assignment for the benefit of its creditors under Florida law and, upon such execution, the county court would dissolve the prejudgment writ of replevin and other related orders. Miami action, Dkt. No. 13. On the same day, Santander voluntarily dismissed the Initial SDNY action. 19-cv-1514, ECF No. 8.
After the bulk of Bonamar's assets had been liquidated by the assignee, Santander, on July 11, 2019, brought the present action, which was assigned to the undersigned. Complaint. The Miami action was still pending as of the date of this Memorandum Order.
Analysis of Contreras' Motion
Based on the foregoing, Contreras moves to dismiss the entire action pursuant to the doctrine barring "claim splitting." That doctrine has been described as a "well-established rule that a plaintiff cannot avoid the effect of res judicata by splitting his claim into various suits, based on different legal theories." Waldman v. Village of Kiryas Joel, 207 F. 3d 105, 110 (2d Cir. 2000). This doctrine is "based on the belief that it is fairer to require a plaintiff to present in one action all of his theories of recovery relating to a transaction, and all of the evidence relating to those theories, than to permit him to prosecute overlapping or repetitive actions in different courts or at different times." AmBase Corp. v. City Investing Co. Liquidating Tr., 326 F.3d 63, 73 (2d Cir. 2003).
Unless otherwise indicated, in quoting cases all internal quotation marks, alterations, emphases, footnotes, and citations are omitted.
Contreras argues that Santander is improperly splitting its claims between this action and the Miami action and that the Court should dismiss this action and direct Santander to bring the present claims against Contreras in the Miami action. Defendant's Motion for Judgment on the Pleadings, ECF No. 14 ("Contreras MJP Mem."), at 6. In support of this view, Contreras argues that this action and the Miami action share the same core nucleus of operative facts, in that both actions hinge upon whether Bonamar indeed defaulted under the Loan Documents. Id. Bonamar disputed the existence of a default in the Miami action, just as Contreras disputes the same here. Id.
The Court disagrees. The Miami action and this action are premised on separate contracts with separate defendants. See APF 286 Mad LLC v. Chittur & Assocs., P.C., 132 A.D.3d 610, 610, 20 N.Y.S.3d 4 (N.Y. App. Div. 2015) ("The lease and guarantee are two separate contracts, and the holdover proceeding under the terms of the lease did not extinguish [the landlord's] claims under the guarantee. This action also does not amount to claim-splitting, as the holdover proceeding was brought only against [the tenant], and not against [the guarantor]."). The in personam action against Bonamar and Contreras was properly brought in the U.S. District Court for the Southern District of New York pursuant to the forum selection clauses in relevant documents. But the in rem proceeding against Bonamar had to be brought in the Miami-Dade county, because a "replevin action must be brought in the jurisdiction in which the collateral is located." Orix Credit Alliance v. Riccio, No. 94-cv-4049 (PKL), 1994 WL 512542 (S.D.N.Y. 1994).
The Credit Agreement states, in relevant parts: "THE BORROWER CONSENTS TO THE JURISDICTION OF ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE LENDER UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS...." Credit Agreement dated January 13, 2017, ECF No. 1-1, ¶ 10.13. Similarly, the Guaranty states: "THE GUARANTOR CONSENTS TO THE JURISDICTION OF ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE BOROUGH OF MANHATTAN IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE LENDER UNDER THIS GUARANTY...." Guaranty ¶ 14.
Furthermore, while Contreras argues that there is a potential for conflicting orders between the two actions, Contreras MJP Mem. 7, this seems unlikely. In the Miami action, Bonamar's assets were assigned in February 2019 and its liquidation is almost complete. Indeed, based on the Court's review of the Miami action docket, there has been no activity in the Miami action since March 6, 2019.
For these reasons, Contreras' motion for judgment on the pleadings is denied.
Background on Santander's Motion
In his answer to Santander's complaint, Contreras makes the following affirmative defenses, among others:
First Defense
Plaintiff's claims are barred, in whole or in part, by the doctrine of set-off. On or about February 21, 2019, Plaintiff initiated a lawsuit against Bonamar in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. In that lawsuit, Plaintiff sought and obtained a prejudgment writ of replevin which, pursuant to Florida law, allowed Plaintiff to seize certain personal property over which Plaintiff maintained a secured interest. Rather than seize such personal property, Plaintiff instead padlocked Bonamar's physical premises and caused dozens of Bonamar's employees to vacate the premises without being allowed re-entry for work purposes. Plaintiff also alerted certain seafood industry media outlets with respect to its action which caused multiple stories about the purported shutdown of Bonamar's business to be published. As a result of Plaintiff's illegal activity and tortious interference with Bonamar's business, Bonamar was in fact required to cease its business as both vendors and customers would no longer do business with an entity that had been locked out of is own premises. As Bonamar's sole shareholder, Defendant incurred losses/damages estimated to be greater than $10,000,000 in lost sales, salary, profit distributions, etc. Defendant is entitled to a set-off against Plaintiff's claims commensurate with the damages caused by Plaintiff due to its above-described conduct. Defendant is further entitled to a set-off to the extent Plaintiff has obtained any sums from a collateral source in connection with the subject matter of this lawsuit.
Third Defense
Plaintiff's claims are barred, in whole or in part, because Plaintiff (after obtaining its prejudgment writ of replevin and seizing Bonamar's building and inventory) caused Bonamar's inventory (which was valued at an amount greater than the then-outstanding loan balance) to be liquidated at commercially unreasonable prices in what amounted to a fire sale. Had Plaintiff caused the inventory to be sold at fair market value, Plaintiff would have recovered sufficient amounts to cover the then-outstanding loan balance.
Fourth Defense
Plaintiff's claims are barred, in whole or in part, because Plaintiff has failed to mitigate its damages.
Answer to Complaint, ECF No. 13 ("Answer"), 3-4.
Analysis of Santander's Motion
Under Rule 12(f), the Court may strike any "insufficient defense or any redundant, immaterial, impertinent or scandalous matter." Fed. R. Civ. P. 12(f). In order for the Court to strike a defense as insufficient: "(1) there must be no question of fact that might allow the defense to succeed; (2) there must be no substantial question of law that might allow the defense to succeed; and (3) the plaintiff must be prejudiced by the inclusion of the defense." Specialty Minerals, Inc. v. Pluess-Staufer AG, 395 F. Supp. 2d 109, 111-12 (S.D.N.Y.2005). As to the third factor, it is clear that Santander would be prejudiced by the inclusion of the affirmative defenses, as their inclusion would cause Santander to spend increased time and expense in the course of this action. Id. at 425. The analysis below shows that the first two factors are satisfied.
I. Whether Contreras Has Standing to Bring the Affirmative Defenses at Issue
"As a general rule, guarantors in New York do not have standing to assert affirmative defenses properly belonging to the obligor, the party whose obligations the guarantors have guaranteed." Sterling Financial Services Co., Inc. v. Franklin, 259 Fed. App'x 367, 369 (2d Cir. 2008) ; see also European American Bank v. Lofrese, 182 A.D.2d 67, 73, 586 N.Y.S.2d 816 (N.Y. App. Div. 1992). However, "New York haw recognized an exception to this rule where the guarantor controls the obligor." Sterling, 259 Fed. App'x at 369. Since it is alleged that Contreras, the guarantor, is the President, Chief Executive Officer, and sole shareholder of Bonamar, see ECF No. 1-2, at 9, ECF No. 13, at 4, ECF No. 21, at 3, Contreras can raise defenses that Bonamar is entitled to raise.
And there is no doubt that the affirmative defenses quoted above belong to Bonamar, as the parties also agree. The first affirmative defense relies on an alleged wrong committed by Santander against Bonamar; the third affirmative defense relies on Santander's alleged breach of a duty to act in a commercially reasonable manner in connection with the liquidation; and failure to mitigate damages pursuant to the fourth affirmative defense would arise in connection with the liquidation of Bonamar, where any claim related to liquidation of Bonamar belongs to Bonamar. Answer 3-4.
Rather, the key issue here is whether Contreras can raise these defenses at this time, given that Bonamar's assets have now been assigned to the assignee for the benefit of its creditors. Contreras argues that affirmative defenses are not an "asset" assigned to the assignee under Florida law. Defendant's Memorandum in Opposition to Plaintiff's Motion to Strike Defendant's First, Third, and Fourth Affirmative Defense, ECF No. 21, at 4-6. In support of this proposition, Contreras argues that affirmative defenses are not even an asset to begin with: they are assertions that can avoid plaintiff's claim and reduce potential liability, rather than an interest in property. Id. at 6. In addition, Contreras notes that, under Florida law, unlike in federal bankruptcy, an automatic stay does not apply to an ongoing lawsuit against a debtor corporation in the context of an assignment for the benefit of its creditors. Id. (referencing Exportadora Atlantico, S.A. v. Fresh Quest, Inc., No. 16-cv-23112, 2017 WL 3218465, at *2 (S.D. Fla. July 28, 2017) (noting that there is "no automatic stay provision built into Chapter 727")).
However, the relevant Florida statutory provision defines "asset" as:
a legal or equitable interest of the assignor in property, which includes anything that may be the subject of ownership, whether real or personal, tangible or intangible, including claims and causes of action, whether arising by contract or in tort, wherever located, and by whomever held at the date of the assignment, except property exempt by law from forced sale.
Fla Stat. § 727.103(1). "[A] legal or equitable interest of the assignor in property ... including claims and causes of action" can be broadly interpreted to include affirmative defenses – after all, in a set-off context, there is no reason to treat affirmative defenses differently from claims (which include crossclaims) and causes of action for the purpose of determining whether affirmative defenses are a type of a legal or equitable interest. Accordingly, the Court concludes that Bonamar's affirmative defenses are among the assets already assigned to the assignee.
The same result would be warranted under New York assignment law. See, e.g., General Motors Acceptance Corp. v. Kalkstein, 101 A.D.2d 102, 474 N.Y.S.2d 493, 495-96 (1984) (holding that once a corporate borrower made a general assignment for the benefit of creditors, any right of actions had passed to the assignee, and so a guarantor "may not advance a corporate cause that [borrower] has previously assigned").
Second, as Santander correctly points out, reliance on Exportadora is irrelevant because the fact that Bonamar can continue to be sued after its assets were assigned to the assignee does not mean that Bonamar's shareholder is free to assert set-off affirmative defenses based on the claims that belonged to Bonamar and were thereby assigned to the assignee.
In sum, the relevant affirmative defenses have been assigned to the assignee, and thus the assignee's consent is required for Contreras to raise those defenses. Because no consent as such has been acquired, Contreras does not have standing to raise these defenses, and thus Santander's motion to strike Contreras' first, third, and fourth affirmative defenses are granted.
II. Whether the Third and Fourth Affirmative Defenses Should Be Stricken for Additional Reasons
In addition, the Court finds that there are additional grounds to strike the third affirmative defense and part of the fourth affirmative defense. First, under the Guaranty, Contreras expressly waived
all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshaling of assets of the Borrower.... Without limiting the generality of the foregoing, the Guarantor ... agrees that the obligations of the Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by ... (vi) the impairment of any collateral securing the Obligations, including without limitation the failure to perfect or preserve any rights the Lender might have in such collateral or the substitution, exchange, surrender, release, loss or destruction of any such collateral; or (v) any other act or omission which might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a release or discharge of the Guarantor ....
Guaranty ¶ 4. This provision precludes Contreras from raising the third affirmative defense and parts of the fourth affirmative defense to the extent it relies on Santander's failure to marshal collateral. Similarly, the Security Agreement states:
Each Obligor [defined to include guarantors such as Contreras] waives, to the fullest extent permitted by law, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale or disposition of any of the Collateral.
Security Agreement dated January 13, 2017, Declaration of Paul Samson, ECF No. 17, Ex. 2 ¶ 10. Therefore, to the extent that the fourth affirmative defense relies on Santander's duty to marshal its collateral, the Security Agreement waives any claim that Santander has such duty.
Conclusion
In sum, the Court denies Contreras' motion for judgment on the pleadings and grants Santander's motion to strike Contreras' first, third, and fourth affirmative defenses in its entirety.
SO ORDERED.