Capital One Taxi Medallion Finance, Respondent,v.Patton R. Corrigan et al., Appellants.BriefN.Y.October 11, 2018To be Argued by: GEORGE A. ZIMMERMAN (Time Requested: 20 Minutes) APL-2017-00190 New York County Clerk’s Index No. 651841/15 Court of Appeals of the State of New York CAPITAL ONE TAXI MEDALLION FINANCE, Plaintiff-Respondent, – against – PATTON R. CORRIGAN and MICHAEL LEVINE, Defendants-Appellants. BRIEF FOR PLAINTIFF-RESPONDENT George A. Zimmerman Patrick G. Rideout Alexander C. Drylewski SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Attorneys for Plaintiff-Respondent Four Times Square New York, New York 10036 Tel.: (212) 735-3000 Fax: (212) 735-2000 January 26, 2018 CORPORATE DISCLOSURE STATEMENT Pursuant to Rules 500.1(f) and 500.22(b)(5) of this Court, Respondent hereby states that Capital One Taxi Medallion Finance is a trade name of Capital One Equipment Finance Corp. f/k/a All Points Capital Corp., which is a wholly owned subsidiary of Capital One, National Association, which in turn is a wholly owned subsidiary of Capital One Finance Corporation, a publicly held corporation whose shares are listed on the New York Stock Exchange. ii TABLE OF CONTENTS INTRODUCTION ..................................................................................................... 1 QUESTIONS PRESENTED ...................................................................................... 8 STATEMENT OF FACTS ........................................................................................ 8 A. TFA Borrows $57 Million And Fails To Repay It ................................ 8 B. The Parties File Separate Lawsuits ..................................................... 10 C. The First Department Grants Capital One’s Motion For Summary Judgment ............................................................................. 12 ARGUMENT ........................................................................................................... 13 I. THE FIRST DEPARTMENT’S DECISION SHOULD BE AFFIRMED ................................................................................................... 13 A. Capital One Is Permitted to Enforce The Guaranties Absent A Final Adjudication of A “Valid Defense” To TFA’s Debt ..................................................................................................... 13 B. Denying Capital One’s Enforcement Rights Based On An Independent Counterclaim Would Be Fundamentally Unfair ............ 19 C. Appellants’ Cited Cases Are Inapposite ............................................. 25 1. Appellants’ Waiver Cases Are Irrelevant ................................. 25 2. Appellants’ Deficiency Judgment Cases Do Not Apply .......... 27 II. ALTERNATIVELY, THE CASE SHOULD BE REMITTED TO THE FIRST DEPARTMENT FOR FURTHER CONSIDERATION .......... 32 CONCLUSION ........................................................................................................ 34 iii TABLE OF AUTHORITIES CASES Agri-Best Holdings, LLC v. Sonoma Cattle Exchange, No. 10 C 6976, 2011 WL 2039534 (N.D. Ill. May 24, 2011) ....................... 16 Bank of America, N.A. v. Tatham, 305 A.D.2d 183 (1st Dep’t 2003) .................................................................. 29 Bank of India v. Subramanian, No. 06 Civ. 2026 WHP, 2007 WL 1424668 (S.D.N.Y. May 15, 2007) ....... 26 Barclays Bank of New York, N.A. v. Heady Electric Co., 174 A.D.2d 963 (3d Dep’t 1991) ................................................................... 26 Bedwell v. Braztech International, L.C., No. 17-22335-civ, 2017 WL 4810599 (S.D. Fla. Oct. 25, 2017) .................. 16 Bennett v. Twin Parks Northeast Houses, Inc., 93 N.Y.2d 860 (1999) .................................................................................... 32 Blumenstyk v. Singer, Index No. 651018/2013, 2014 NY Slip Op 32124(U) (Sup. Ct. N.Y. Cnty. Aug. 4, 2014) .............................................................................. 17 Castle Restoration & Construction, Inc. v. Castle Restoration, LLC, 122 A.D.3d 789 (2d Dep't 2014) ................................................................... 21 Chrysler Credit Corp v. Mitchell, 94 A.D.2d 971 (4th Dep’t 1983).............................................................. 29, 31 CMF Virginia Land, L.P. v. Brinson, 806 F. Supp. 90 (E.D. Va. 1992) ................................................................... 16 Color Mate Inc. v. Chase Manhattan Bank N.A., 168 A.D.2d 534 (2d Dep’t 1990) ................................................................... 31 Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro, 25 N.Y.3d 485 (2015) .................................................................................... 26 iv Corn Exchange Bank Trust Co. v. Gifford, 268 N.Y. 153 (1935) ...................................................................................... 14 Digestive Disease & Nutrition Center of Westchester, LLP v. Abrams, 112 A.D.3d 778 (2d Dep’t 2013) ................................................................... 29 Embraer Finance Ltd. v. Servicios Aereos Profesionales, S.A., 42 A.D.3d 380 (1st Dep’t 2007) .................................................................... 21 European American Bank v. Kahn, 175 A.D.2d 704 (1st Dep’t 1991) .................................................................. 31 Executive Bank of Fort Lauderdale, FL. v. Tighe, 54 N.Y.2d 330 (1981) .................................................................................... 27 FDIC v. Frank L. Marino Corp., 74 A.D.2d 620 (2d Dep’t 1980) ............................................................... 25, 26 Fidelity Union Trust Co. v. Robert J. Ball Sales, Inc., 99 A.D.2d 436 (1st Dep’t 1984) .................................................................... 21 Frederick v. Thomas, 174 A.D.2d 860 (3d Dep’t 1991) ................................................................... 18 General Phoenix Corp. v. Cabot, 300 N.Y. 87 (1949) ........................................................................................ 18 General Trading Co. v. A&D Food Corp., 292 A.D.2d 266 (1st Dep’t 2002) .................................................................. 30 Grace v. Sterling, Grace & Co., 30 A.D.2d 61 (1st Dep’t 1968) ...................................................................... 30 Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (2002) ................................................................................ 5, 14 HSBC Bank USA v. IPO, LLC, 290 A.D.2d 246 (1st Dep’t 2002) .................................................................. 28 v IBJ Schroder Bank & Trust Co. v. Kerney, 200 A.D.2d 519 (1st Dep’t 1994) .................................................................. 26 Judarl L.L.C. v. Cycletech Inc., 246 A.D.2d 736 (3d Dep’t 1998) ................................................................... 21 Kohler Co. v. Weiss, No. 90 Civ. 3188(JMC), 1991 WL 146354 (S.D.N.Y. July 23, 1991) ......... 22 Kruger v. State Farm Mutual Automobile Insurance Co., 79 A.D.3d 1519 (3d Dep’t 2010) ................................................................... 16 Louis Dreyfus Energy Corp. v. MG Refining & Marketing, Inc., 2 N.Y.3d 495 (2004) .......................................................................... 14, 31, 33 Marine Midland Bank v. CMR Industries, Inc., 159 A.D.2d 94 (2d Dep’t 1990) ............................................................... 26, 28 Merchants Bank of New York v. Gold Lane Corp., 28 A.D.3d 266 (1st Dep’t 2006) .................................................................... 28 Metropolitan Life Insurance Co. v. Noble Lowndes International, 84 N.Y.2d 430 (1994) .................................................................................... 24 Metropolitan Switch Board Manufacturing Co. v. B&G Electronic Contractors, Division of B&G Industries, Inc., 96 A.D.3d 725 (2d Dep’t 2012) .................................................................................................... 17 MTI Systems Corp. v. Hatziemanuel, 151 A.D.2d 649 (2d Dep’t 1989) ................................................................... 28 NatWest Bank, N.A. v. Grauberd, 228 A.D.2d 337 (1st Dep’t 1996) .................................................................. 26 New Netherlands Bank of New York v. Dernburg, 206 A.D. 212 (1st Dep’t 1923) ................................................................ 29, 30 Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., No. 39, 2017 WL 6327110 (N.Y. Dec. 12, 2017) ................................... 14, 24 vi Nordea Bank Finland PLC v. Holten, 84 A.D.3d 589 (1st Dep’t 2011) .................................................................... 29 Nugent v. Hubbard, 130 A.D.3d 893 (2d Dep’t 2015) ................................................................... 26 Oak Tree Farm Dairy, Inc. v. Beyer Farms, Inc., No. 650568/13, 2013 WL 3477131 (Sup. Ct. N.Y. Cnty. July 1, 2013) ....... 21 P.J.P. Mechanical Corp. v. Commerce & Industry Insurance Co., 65 A.D.3d 195 (1st Dep’t 2009) ................................................................ 3, 15 Paco Corp. v. Vigliarola, 611 F. Supp. 923 (E.D.N.Y. 1985) ................................................................ 31 Quadrant Management Inc. v. Hecker, 102 A.D.3d 410 (1st Dep’t 2013) .................................................................. 20 Quadrant Structured Products Co., Ltd. v Vertin, 23 N.Y.3d 549 (2014) .................................................................................... 16 Schoenfeld v. Shonfeld, 266 A.D.2d 449 (2d Dep’t 1999) ................................................................... 28 Stein v. 615 West 130th Street Corp., 121 A.D.2d 157 (1st Dep’t 1986) .................................................................. 19 Transit Funding Associates, LLC v. Capital One Equipment Finance Corp., 149 A.D.3d 23 (1st Dep’t 2017) .................................................................... 13 U.S. Fidelity & Guaranty Co. v. Annunziata, 67 N.Y.2d 229 (1986) ................................................................................ 4, 17 Valencia Sportswear, Inc. v. D.S.G. Enterprises, Inc., 237 A.D.2d 171 (1st Dep’t 1997) ........................................................ 4, 20, 29 Van Der Lande v. Stout, 13 A.D.3d 261 (1st Dep’t 2004) .................................................................... 33 vii Vinciguerra v. Northside Partnership, 188 A.D.2d 861 (3d Dep’t 1992) ................................................................... 18 Weinsten v. Fleet Factors Corp., 210 A.D.2d 74 (1st Dep’t 1994) .................................................................... 28 Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437 (1996) .................................................................................... 19 RULES AND STATUTES CPLR 214(4) ............................................................................................................ 17 CPLR 2201 ............................................................................................................... 31 CPLR 3213 ........................................................................................................passim UCC § 9-207 .............................................................................................................. 2 UCC § 9-610 ........................................................................................................ 6, 27 OTHER AUTHORITIES 84 N.Y. Jur. 2d, Pleading § 166 ............................................................................... 15 Black’s Law Dictionary (10th ed. 2014) ................................................................. 15 David D. Siegel, N.Y. Practice (5th ed. 2017)................................................... 19, 20 1957 First Preliminary Report of the Advisory Committee on Practice and Procedure ....................................................................................................... 19 1 In the Decision and Order entered on February 28, 2017 (the “Decision”), the Appellate Division, First Department (Tom, J.P., Renwick, Saxe, Feinman, Gesmer, JJ.) unanimously reversed the July 15, 2016 decision and order of the Supreme Court, New York County, and granted the motion of Respondent Capital One Taxi Medallion Finance (“Capital One”) for summary judgment in lieu of complaint pursuant to CPLR 3213. The First Department directed entry of judgment in favor of Capital One and against Appellants Patton R. Corrigan and Michael Levine (“Appellants” or the “Guarantors”). In response to Appellants’ brief in support of their appeal of the Decision, Capital One submits this answering brief and respectfully requests that the Court affirm the Decision or, alternatively, remit to the First Department for consideration of Capital One’s alternative argument not reached in the Decision. INTRODUCTION The First Department’s ruling correctly reflects a straightforward application of New York contract law to Appellants’ clear and unambiguous personal guaranties (“Guaranties”). Appellants agreed to “absolute[ly], irrevocabl[y] and unconditional[ly]” guaranty the debts of their company, Transit Funding Associates, LLC (“TFA”), which has tirelessly avoided repayment of over $57 million that it borrowed from Capital One and which came due years ago. In an attempt to delay their contractual obligations to Capital One, Appellants filed a 2 preemptive lawsuit asserting a laundry list of claims against Capital One which, after years of litigation, have all been dismissed as a matter of law with one exception — a single claim for negligent impairment of collateral under Uniform Commercial Code (“UCC”) § 9-207. Although Capital One submits, and fully intends to prove, that Appellants’ last remaining claim lacks all merit, the issue to be addressed on this appeal is whether Appellants’ mere assertion of that claim can prevent Capital One from enforcing the Guaranties according to their express terms. In its well-reasoned Decision, the First Department correctly answered this question in the negative, holding that Appellants’ negligent impairment claim was just that: a claim for potential money damages that is separate and distinct from TFA’s underlying repayment obligations and thus cannot constitute a defense to repayment, such that Appellants may continue to evade responsibility for the debt TFA had already incurred by the time of Capital One’s alleged actions. In so holding, the court declined to adopt the unworkable recipe for commercial uncertainty advocated by Appellants — i.e., that a lender’s ability to enforce an unambiguous guaranty of payment can be defeated any time the borrower asserts a claim for negligent impairment of collateral, regardless of the actual language of the guaranty. The First Department’s Decision — which promotes fundamental fairness by protecting the goals of CPLR 3213, upholding the clear language to which these 3 highly sophisticated parties agreed, and promoting the type of reasonable contractual certainty that is a bedrock of the commercial lending industry — should be affirmed for at least the following separate and independent reasons: First, the Guaranties unambiguously state that they are “absolute, irrevocable and unconditional,” and that Capital One’s ability to enforce them shall not be impaired in any way except in one narrow circumstance: where there has been a “final adjudication by a court of competent jurisdiction of a valid defense” to TFA’s obligations. (Infra § I.A.) In analyzing this plain language, the First Department correctly held that Appellants’ cause of action for negligent impairment was, at most, a counterclaim for money damages, not a “valid defense” to TFA’s separately arising obligations under the loan agreement. Appellants’ argument that the Decision “rested on an artificial distinction between a ‘defense’ and a ‘counterclaim’” (App. Br. 22) is unavailing. As courts and commentators alike have repeatedly recognized, these terms enjoy fundamentally different meanings and purposes under New York law. See, e.g., P.J.P. Mech. Corp. v. Commerce & Indus. Ins. Co., 65 A.D.3d 195, 200 (1st Dep’t 2009) (distinctions between counterclaims and defenses “are not merely semantic; the[y] are substantive”); (infra pp. 15-16). Indeed, a counterclaim is a cause of action asserted by a defendant against a plaintiff that, by its nature, seeks affirmative relief — as Appellants’ negligent impairment claim does here — 4 whereas a defense serves merely to defeat a plaintiff’s cause of action. Id. The parties themselves expressly recognized this distinction in the Guaranties, using the term “counterclaim” in certain provisions while using the term “defense” in others, including the relevant provision here. (A145, A148); see U.S. Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 233 (1986) (use of particular language in one provision, and “omission of any similar reference” in another, “must be assumed to have been intentional”). While recognizing that Appellants’ negligent impairment claim might potentially result in a money judgment in a separate action against Capital One, the First Department rightly concluded that Appellants’ claim is not a defense because it cannot invalidate or undermine Capital One’s prima facie entitlement to payment, which Capital One indisputably established based on the existence of the debt and non-payment thereof — all that is required under settled New York law. (A11); see Valencia Sportswear, Inc. v. D.S.G. Enters., Inc., 237 A.D.2d 171, 172 (1st Dep’t 1997) (“The separate, prior action that defendants brought in connection with this alleged joint venture involves issues that are separate from plaintiff’s claims on the clear and complete loan agreement and guarantee, and does not serve to defeat plaintiff’s present recovery thereon.”). In short, these highly sophisticated parties agreed that Capital One’s enforcement rights could not be limited in the absence of a final adjudication of a 5 “valid defense,” and Appellants’ attempt to cast aside that bargained-for language — going so far as to argue that “there is no need for this Court to consider the text of the guarantees” because doing so would cause “an unfair result” (App. Br. 20, 22) — was properly rejected by the First Department and should be rejected by this Court. See Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569–70 (2002) (“[A] court is not free to alter the contract to reflect its personal notions of fairness and equity.”). Second, by enforcing the Guaranties according to their terms, the First Department prevented manifest unfairness to Capital One. (Infra § I.B.) Under Appellants’ theory, an admittedly delinquent debtor can potentially avoid repayment for years, regardless of the existence of the debt or the contractual language to which the parties agreed, simply by asserting a separate and independent claim for negligent impairment of collateral. Such a result would undercut the very purpose of CPLR 3213, which was enacted to allow lenders to obtain expedited adjudication on undisputed debts owed — a point of critical importance here, where the Guarantors currently face potential liability to other creditors and, as Capital One has alleged in another proceeding, have fraudulently dissipated their personal assets to avoid repayment. (Infra p. 22.) Accepting Appellants’ position would also do significant harm to the lending industry in New 6 York and lead to more commercial uncertainty, more lending costs, and more lending-related litigation, all to the detriment of lenders and borrowers alike. Third, a central argument posited by Appellants — i.e., that a negligent impairment claim “may not be waived” by contract (infra § I.C.1.) — is completely beside the point. Capital One did not argue, and the First Department did not hold, that Appellants waived their negligent impairment claim. Nor did the First Department hold that Appellants are in any way foreclosed from pursuing damages from Capital One in connection with that claim. Indeed, Appellants currently are doing just that in another action, and there is no evidence in the record to support their thinly veiled suggestion that they will be unable to pursue their claim if required to satisfy their judgment. Rather, the First Department correctly held that the plain terms of the Guaranties permit Capital One to enforce its separate recovery rights against Appellants unless and until there is a final adjudication of a “valid defense” to TFA’s obligations, and none of Appellants’ cases support their request to rewrite that language. Similarly, Appellants mistakenly rely upon cases where courts denied summary judgment regarding a lender’s claim for a deficiency judgment under UCC § 9-610, which is not at issue here. (Infra § I.C.2.) In those cases, the lender was required to establish — as an element of its prima facie case — that it had disposed of the collateral in a “commercially reasonable” manner. Thus, the 7 debtor’s allegation that the lender failed to do so was deemed a “defense” that negated an essential element of the plaintiff’s claim. Here, by contrast, Capital One does not seek a deficiency judgment, and Appellants cannot dispute that Capital One established every element of its prima facie case under CPLR 3213. Indeed, the Guaranties are separate guaranties of payment (not of collection), meaning Capital One was not required to collect upon or dispose of any collateral before seeking full and absolute payment from the Guarantors. (Infra p. 9.) Finally, even if this Court were to agree with Appellants that their claim for negligent impairment of collateral constitutes a “valid defense” to Capital One’s right to repayment (and it is not), there has never been a “final adjudication” of any defense, as expressly required by the Guaranties. (Infra § II.) Although the First Department did not need to reach this issue (and the Court need not reach it here), the Guaranties’ unambiguous language permits Capital One to receive immediate payment and to make use of any funds owed unless and until there is a “final adjudication” of a valid defense, which has not occurred. By advocating that Capital One is precluded from enforcing its rights based solely on mere allegations of negligent impairment, Appellants ignore the clear language of the Guaranties and seek to disrupt the parties’ settled expectations, depriving Capital One of an essential part of its bargain. 8 QUESTIONS PRESENTED 1. Did the First Department err in holding that Appellants’ unadjudicated cause of action for negligent impairment of collateral was a “counterclaim” for damages that cannot prevent Capital One from immediately enforcing the “absolute, irrevocable and unconditional” Guaranties, which provide that the Guarantors’ obligations shall not be limited in any way unless there is a “final adjudication of a valid defense” to the underlying debt? 2. Can Appellants’ unadjudicated counterclaim for negligent impairment of collateral prevent Capital One from immediately enforcing the Guaranties, which unambiguously state that the Guarantors’ obligations shall not be limited in any way absent a “final adjudication” of a defense, and it is undisputed that no “final adjudication” has occurred? STATEMENT OF FACTS A. TFA Borrows $57 Million And Fails To Repay It On April 6, 2012, the parties entered into a loan facility (the “Loan Agreement”) that provided TFA with a line of credit of $80 million from Capital One. TFA borrowed over $57 million during the course of the parties’ relationship that it has never repaid. (A11.) As an express condition to entering into the Loan Agreement, Capital One obtained the “absolute, irrevocable and unconditional” Guaranties from Mr. 9 Corrigan and Mr. Levine, as the disclosed principals and owners of TFA. (A143, A192.) Each Guaranty states that it “is an absolute, unconditional, present and continuing guaranty of payment and performance and not of collection and is in no way conditioned or contingent upon any attempt to enforce Lender’s rights against [TFA] or to collect from [TFA] or upon any other condition or contingency.” (A143, A291.) Thus, the Guaranties provide that “Lender shall have the right to proceed against the Guarantor immediately upon any default without taking any prior action or proceeding to enforce the Loan Documents or any of them or for the liquidation or foreclosure of any security Lender may at any time hold pursuant thereto.” (Id.) The Guaranties also state that Capital One “may at any time from time to time . . . without impairing or releasing the obligations of the [Guarantors] . . . sell, exchange, release, surrender, realize upon or otherwise deal with [in] any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the liabilities hereby guaranteed[.]” (A144, 292 (emphasis added).) Finally, the Guaranties provide that the Guarantors’ repayment obligations shall not be limited or impaired by “any [] action or circumstance whatsoever which constitutes, or might be construed to constitute, a legal or equitable discharge or defense (except full payment and satisfaction) of [TFA] for its obligations under any of the Loan Documents or of Guarantor under this 10 Guaranty.” (A145, A293.) The sole, narrow exception is where there has been a “final adjudication” of a “valid defense” to TFA’s repayment obligations: Guarantor’s liability hereunder shall in no way be limited or impaired by . . . the invalidity, irregularity or unenforceability, in whole or in part, of any of the Loan Documents, this Guaranty or any other instrument or agreement executed or delivered to Lender in connection with the Loan, except to the extent that there is a final adjudication by a court of competent jurisdiction of a valid defense to Borrower’s obligations under the Loan Documents to payment of its liabilities. (Id. (emphasis added).) 1 The above language makes two things clear: first, Capital One’s right to immediate enforcement of Appellants’ guaranties of payment cannot be impaired by the assertion of a mere set-off or counterclaim; and second, in the event of the assertion of what otherwise would be a “valid defense,” only a “final adjudication” validating the defense can potentially impede enforcement. It is undisputed that there has not been a “final adjudication” of any “valid defense” to TFA’s payment obligations in any action. B. The Parties File Separate Lawsuits Rather than repay the $57 million TFA borrowed under the Loan Agreement, Appellants elected to file suit against Capital One on May 19, 2015, in the Circuit __________________________ 1 In another section of the Guaranties, the parties agreed that “[n]othing herein contained shall prevent or prohibit Guarantor from instituting or maintaining a separate action against the lender with respect to any asserted claim.” (A148.) 11 Court of Cook County, Illinois, which was dismissed based on the New York forum selection clause in the Loan Agreement. Appellants refiled their action in New York, alleging nine causes of action for: (i) breach of the Loan Agreement; (ii) breach of the implied covenant of good faith and fair dealing; (iii) breach of fiduciary duty; (iv) fraud; (v) unfair competition; (vi) negligent impairment of collateral; (vii) breach of the “letter agreement”; (viii) declaratory judgment that the Loan Agreement was invalid and unenforceable; and (ix) declaratory judgment that Messrs. Corrigan and Levine were not liable under their Guaranties. See Transit Funding Assocs. LLC, et al. v. Capital One Equip. Fin. Corp., No. 652346/2015 (Sup. Ct. N.Y. Cnty.) (the “TFA Action”). In connection with these claims, Appellants alleged, inter alia, that Capital One single-handedly “caused a liquidity crisis” in the Chicago taxi market when it discontinued its lending in the wake of the emergence of ridesharing companies, such as Uber Technologies, Inc. Id., NYSCEF No. 20 ¶ 164. Capital One moved to dismiss these claims. On May 27, 2015, Capital One filed a motion for summary judgment in lieu of complaint pursuant to CPLR 3213, seeking to enforce the absolute and unconditional Guaranties executed by the Guarantors in connection with the Loan Agreement. In a decision issued on July 15, 2016, the motion court denied Capital One’s motion to dismiss in the TFA Action. The motion court held that Capital One made its prima facie showing of entitlement to relief, but that “‘a valid 12 defense to [TFA’s] obligations under the Loan Documents to payment of its liabilities’ [was] being determined in the TFA Action.” (A19.) Also on July 15, 2016, the motion court granted in part and denied in part Capital One’s motion to dismiss in the TFA Action. The Court dismissed Plaintiffs’ claims for breach of fiduciary duty, fraud, unfair competition and breach of the so-called “letter agreement,” but denied Capital One’s motion as to the breach of contract, good faith and fair dealing, negligent impairment of collateral and declaratory judgment claims. C. The First Department Grants Capital One’s Motion For Summary Judgment On February 28, 2017, the First Department unanimously reversed the motion court’s order and granted Capital One’s motion for summary judgment in lieu of complaint. (A11.) The First Department held that Capital One “established prima facie its entitlement to summary judgment on defendants’ guaranties” and “that it was owed $57,201,109.22” which TFA had borrowed and failed to repay. (A11.) Rejecting Appellants’ argument “that a decision on [Capital One’s] summary judgment motion must await a decision in the other action,” the Court held that “defendants failed to raise an issue of fact” because their “claims of breach of contract and negligent interference with collateral claims are separate from TFA’s unequivocal and unconditional obligation to repay the monies it was loaned, and defendants are still liable under the guaranties and promissory notes.” 13 (A12-13.) Thus, the Court ruled that “[t]he Clerk is directed to enter judgment accordingly” on Capital One’s motion. (A11.) 2 Appellants moved for leave to appeal to this Court, which was granted on September 14, 2017. (A4.) Appellants separately moved for leave to appeal from the First Department, which was denied on October 10, 2017. ARGUMENT I. THE FIRST DEPARTMENT’S DECISION SHOULD BE AFFIRMED A. Capital One Is Permitted to Enforce The Guaranties Absent A Final Adjudication of A “Valid Defense” To TFA’s Debt The First Department correctly granted Capital One’s motion for summary judgment in lieu of complaint based on Capital One’s uncontested proof of TFA’s nearly $60 million debt and the non-payment thereof. (A11.) As the court recognized, the plain language of the Guaranties could not be clearer: the Guarantors’ liability “shall in no way be limited or impaired . . . except to the extent that there is a final adjudication by a court of competent jurisdiction of a valid defense” to TFA’s payment obligations. (A145; A293 (emphasis added).) The First Department correctly concluded that Appellants’ independent claim for __________________________ 2 Also on February 28, 2017, the First Department issued a decision in the TFA Action dismissing Appellants’ claims for breach of contract, breach of good faith and fair dealing, fraud and declaratory judgment, and holding that Capital One’s alleged withdrawal from the Chicago taxi market was expressly permitted under the unambiguous language of the parties’ agreement. Transit Funding Assocs., LLC v. Capital One Equip. Fin. Corp., 149 A.D.3d 23 (1st Dep’t 2017). 14 negligent impairment of collateral, asserted in a different action prior to Capital One’s institution of this action, was “merely [a] counterclaim[]” — not a “valid defense” to TFA’s repayment — and thus Appellants “failed to raise an issue of fact” under the language of the Guaranties. (A11-12.) This result accords with New York’s long-settled rule that “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” and “a court is not free to alter the contract to reflect its personal notions of fairness and equity.” Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569-70 (2002); see also Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., No. 39, 2017 WL 6327110, at *2 (2017) (“[C]ourts must honor contractual provisions that limit liability or damages because those provisions represent the parties’ agreement on the allocation of the risk of economic loss in certain eventualities.”). As this Court has emphasized, “[a] guaranty is a contract, and in interpreting it we look first to the words the parties used.” Louis Dreyfus Energy Corp. v. MG Ref. & Mktg., 2 N.Y.3d 495, 500 (2004). While Appellants’ seek to escape the plain and unambiguous language of the Guaranties — even going so far as to argue that “there is no need for this Court to consider the text of the guarantees” (App. Br. 22) — this is not the law in New York. See Corn Exch. Bank Trust Co. v. Gifford, 268 N.Y. 153, 158 (1935) (“We take the guaranty as we find it as the surest way of determining the rights of these 15 parties.”). Appellants also attempt to conflate the terms “counterclaim” and “defense,” incorrectly referring to them as “functionally indistinguishable.” (App. Br. 22.) To the contrary, they are fundamentally different concepts afforded distinct treatment under New York law. Indeed, “[a] counterclaim is a cause of action asserted by a defendant against a plaintiff” that, “[b]y its very nature, [] seeks affirmative relief.” P.J.P. Mech. Corp. v. Commerce & Indus. Ins. Co., 65 A.D.3d 195, 199 (1st Dep’t 2009). On the other hand, “[f]acts pleaded which controvert the plaintiff’s claim and serve merely to defeat it as a cause of action constitute a defense, and are inconsistent with the legal idea of a counterclaim, which is a separate and distinct cause of action.” Id. at 200 (emphasis added) (citing 84 N.Y. Jur. 2d, Pleading § 166); (compare Black’s Law Dictionary (10th ed. 2014), Counterclaim (“A claim for relief asserted against an opposing party after an original claim has been made”), with id., Defense (“A defendant’s stated reason why the plaintiff or prosecutor has no valid case”); see also id., Defend (“To deny, contest, or oppose (an allegation or claim)”)). As numerous courts have recognized, the differences between counterclaims and defenses “are not merely semantic; the[y] are substantive.” P.J.P. Mech. Corp., 65 A.D.3d at 200 (a defense “does not give the defendant any affirmative relief against a plaintiff, such as money damages”). 3 __________________________ 3 See also Bedwell v. Braztech Int’l, 2017 WL 4810599, at *4 (S.D. Fla. Oct. 25, 16 Moreover, even the Guaranties themselves recognize this difference — they use the term “counterclaim” in certain provisions and “defense” in others. (A145, A148.) This removes all doubt that the parties understood the distinction between a “counterclaim” and a “defense,” and also makes unmistakably clear that, when the parties employed the term “valid defense” — and not “counterclaim” — in the relevant provision at issue here, they never intended for the mere assertion of a “counterclaim” to limit or impair Capital One’s rights to immediately receive the full outstanding payment from Appellants. See Quadrant Structured Prods. Co., Ltd. v. Vertin, 23 N.Y.3d 549, 560 (2014) (where the “parties to a contract omit terms . . . the inescapable conclusion is that the parties intended the omission.”); U.S. Fid. & Guar. Co. v. Annunziata, 67 N.Y.2d 229, 233 (1986) (use of particular language in one provision, and “omission of any similar reference” in another, __________________________ 2017) (“counterclaims are bases on which a jury can award damages while . . . defenses are merely ways in which [a] defendant can avoid liability”); Agri-Best Holdings, LLC v. Sonoma Cattle Exchange, 2011 WL 2039534, at *2 (N.D. Ill. May 24, 2011) (defendant’s defense was actually a “counterclaim” because it “does not simply attempt to excuse [defendant’s] obligation to pay the amounts allegedly owed,” but rather “seeks affirmative relief from [plaintiff]”); CMF Va. Land, L.P. v. Brinson, 806 F. Supp. 90, 93 (E.D. Va. 1992) (converting defendants’ “affirmative defenses” to “compulsory counterclaims” because “[t]he defendants’ [counterclaims] cannot, as a matter of law, render their debt void, but still allows them the opportunity at trial to prove the alleged violation and their entitlement to recoupment damages”). Counterclaims and defenses have other substantive differences, including that defenses may be deemed waived if not asserted in a pre- answer motion to dismiss or responsive pleading. See Kruger v. State Farm Mut. Auto. Ins. Co., 79 A.D.3d 1519, 1520 (3d Dep’t 2010). 17 “must be assumed to have been intentional”). There can be no serious question that Appellants’ cause of action for negligent impairment is an independent counterclaim for affirmative relief, not a defense to Capital One’s prima facie claim under the Loan Agreement and Guaranties. As the court below recognized, “adjudication of [Appellants’ claim] will not affect TFA’s liability for repayment of the amounts borrowed before the [alleged conduct] occurred, although it may entitle TFA to damages.” (A12 (citing Metro Switch Bd. Mfg. Co. v. B&G Elec. Contractors, Div. of B&G Indus., Inc., 96 A.D.3d 725, 726 (2d Dep’t 2012) (party was entitled to “the unpaid balance of what was due to it under the contract” at the time of its own alleged breach)); Blumenstyk v. Singer, 2014 WL 3870616, at *7 (Sup. Ct. N.Y. Cnty. Aug. 4, 2014) (negligent impairment of collateral “is essentially a negligence claim. It seeks damages for injury to property . . . as to which, pursuant to CPLR 214(4), a three- year statute of limitations applies”). 4 Indeed, Appellants’ claim for negligent impairment is separate from Capital One’s right to payment under the Guaranties, and seeks damages that are wholly __________________________ 4 Appellants seem to argue that the negligent impairment claim is a defense that “negate[s] all or part” of Capital One’s entitlement to relief because it may result in a money award owed by Capital One to TFA. (App. Br. 4.) But this reasoning would improperly transform any claim that seeks money damages — no matter how unrelated or remote — into a “defense,” thus eviscerating the well-established distinction between counterclaims and defenses under New York law. 18 independent of TFA’s debt — as evidenced by the fact that Appellants asserted the claim in a different case filed before Capital One’s action was ever brought. (Supra pp. 10-11.) The Guarantors plainly bound themselves to immediately pay upon TFA’s default, and the Guaranties constitute continuing guaranties “of payment and performance” by the Guarantors — “not of collection” against TFA or “conditioned or contingent upon any attempt to enforce [Capital One’s] rights against [TFA] or to collect from [TFA].” (Supra p. 9); see Gen. Phoenix Corp. v. Cabot, 300 N.Y. 87, 92 (1949) (“If [the guarantor] binds himself to pay immediately upon default of the debtor, he becomes a guarantor of payment; if he binds himself to pay only after all attempts to obtain payment from the debtor have failed, he becomes a guarantor of collection.”). Accordingly, Appellants’ separate impairment claim does not, and cannot, invalidate TFA’s underlying debt or limit Capital One’s rights to enforce the Guaranties of payment according to their plain terms. See Vinciguerra v. Northside P’ship, 188 A.D.2d 861, 863 (3d Dep’t 1992) (plaintiff’s alleged violation “which occurred subsequent to the transfer of title does not constitute a defense to defendants’ obligation to pay on the note”); Frederick v. Thomas, 174 A.D.2d 860, 862 (3d Dep’t 1991) (defendant’s counterclaims regarding “violations of the contract of sale subsequent to the transfer of title” could not defeat plaintiff’s entitlement to relief on the mortgage, and thus court properly granted summary 19 judgment and ordered severance of counterclaims). B. Denying Capital One’s Enforcement Rights Based On An Independent Counterclaim Would Be Fundamentally Unfair The result urged by Appellants here would not only contradict the parties’ unambiguous contract, but it would also frustrate the very purpose of CPLR 3213 and the Guaranties themselves. Capital One brought its motion for summary judgment in lieu of complaint under CPLR 3213, setting forth undisputed evidence of the existence of TFA’s $57 million debt and its nonpayment, and seeking immediate judgment. (See A11, A18.) CPLR 3213 proceedings are meant to provide “expeditious treatment” and more accelerated relief than what is afforded through “an ordinary plenary action.” David D. Siegel, N.Y. Practice § 288 (5th ed. 2017); Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437, 443 (1996); Stein v. 615 W. 130th St. Corp., 121 A.D.2d 157, 158 (1st Dep’t 1986). 5 As one leading New York law treatise has explained, it is for this reason that “courts are generally reticent about allowing a counterclaim to impede a legitimate CPLR 3213 claim,” even where they arise out of the “same general transaction,” __________________________ 5 The 1957 First Preliminary Report of the Advisory Committee on the enactment of CPLR 3213 provides that “[i]t is intended to provide a speedy and effective means of securing a judgment on claims presumptively meritorious. In the actions covered, a formal complaint is superfluous and even the delay incident upon waiting for an answer and then moving for summary judgment is needless.” Available at: http://www.nylawz.com/uploads/9/4/2/0/9420885/civ_1.pdf 20 and “[t]he simple remedy for an unrelated counterclaim, which really should not be allowed to impede a CPLR 3213 claim at all, is a severance.” David D. Siegel, N.Y. Practice § 292 (5th ed. 2017). Indeed, New York courts routinely grant summary judgment pursuant to CPLR 3213 in circumstances similar to the instant case, where the defendants’ alleged counterclaims are “separate” and “severable” from the underlying repayment obligation. See Valencia Sportswear, Inc. v. D.S.G. Enters., Inc., 237 A.D.2d 171, 172 (1st Dep’t 1997) (“The separate, prior action that defendants brought in connection with this alleged joint venture involves issues that are separate from plaintiff’s claims on the clear and complete loan agreement and guarantee, and does not serve to defeat plaintiff's present recovery thereon.”); see also Quadrant Mgmt. Inc. v. Hecker, 102 A.D.3d 410, 411 (1st Dep’t 2013) (“The claims asserted by defendant in his separate action against plaintiff, its president, and its affiliates are not ‘inseparable’ from plaintiff's right to payment on the note and therefore do not preclude summary judgment.”); Judarl L.L.C. v. Cycletech Inc., 246 A.D.2d 736, 737 (3d Dep’t 1998) (defendant’s purported defense based on breach of contract was “at best, separate and severable from plaintiff’s claim” and thus insufficient to defeat relief under CPLR 3213); Oak Tree Farm Dairy, Inc. v. Beyer Farms, Inc., 2013 WL 3477131, at *9 (Sup. Ct. N.Y. Cnty. July 1, 2013) (defendants’ fraud allegation was “separate and severable from [plaintiff’s] claim under the Note and guarantees, and does not defeat CPLR 21 3213 treatment”). Similarly, the Appellate Division has repeatedly rejected a defendant’s attempt to defeat 3213 summary judgment through the assertion of claims that were “not inextricably intertwined” with the plaintiff’s right to repayment on the note. See, e.g., Castle Restoration & Constr., Inc. v. Castle Restoration, LLC, 122 A.D.3d 789, 790 (2d Dep't 2014); Fid. Union Trust Co. v. Robert J. Ball Sales, Inc., 99 A.D.2d 436, 437 (1st Dep’t 1984) (claims were “not so inextricably interwoven with plaintiff’s cause of action as to preclude entry of judgment in favor of plaintiff,” and thus “[w]hatever claim defendant possesses for the alleged wrong committed by plaintiff was properly severed”); Embraer Fin. Ltd. v. Servicios Aereos Profesionales, S.A., 42 A.D.3d 380, 381 (1st Dep’t 2007). As explained above, Appellants’ negligent impairment claim involves extrinsic facts and allegations wholly separate from the existence and non-payment of TFA’s debt. (Supra p. 18.) Accordingly, even putting aside the unambiguous language of the Guaranties requiring a final adjudication of a “valid defense” to TFA’s debt to defeat Capital One’s entitlement to expedited relief, Appellants’ mere assertion of a negligent impairment claim cannot prevent such relief in light of the goals of CPLR 3213 and the separate and severable nature of Appellants’ cause of action. Similarly, allowing guarantors to evade their repayment obligations simply 22 by asserting a claim for negligent impairment would defeat the very purpose of unconditional personal guaranties of payment that — like the Guaranties here — permit a lender to proceed against a guarantor immediately upon default without taking any prior action with respect to the underlying borrower or collateral, or otherwise engaging in protracted litigation. (Supra p. 10); Kohler Co. v. Weiss, No. 90 Civ. 3188 (JMC), 1991 WL 146354, at *1 (S.D.N.Y. July 23, 1991) (“Where a guarantor signs an unconditional guaranty, his liability attaches immediately upon a default by the primary obligor.”). The “final adjudication of a valid defense” language is a bargained-for timing requirement giving Capital One the ability to receive full payment under the Guaranties during the pendency of adjudication of any claim or defense by TFA. This timing benefit takes on critical importance here since Appellants currently face potential liability to other creditors, thus jeopardizing Capital One’s ability to later enforce its rights to receive payment. 6 Taken to its logical conclusion, Appellants’ argument is that any time a __________________________ 6 See Compl. ¶ 1, Desmond v. Taxi Affiliation Servs. LLC, et al., 17-cv-8326 (N.D. Ill. Nov. 16, 2017) (alleging that the Guarantors and several of their companies engaged in a pattern of fraudulent conveyances meant to “strip [their company] of all its revenue and transfer[] that revenue to insiders” in order to avoid impending liability). Additionally, Capital One has alleged in another proceeding that the Guarantors engaged in repeated fraudulent transfers of personal assets to avoid repayment to Capital One. See Capital One Equip. Fin. Corp. v. Corrigan, et al., No. 653726/2016 (Sup. Ct. N.Y. Cnty.). 23 defaulted borrower asserts a claim for negligent impairment seeking money damages against a lender, that claim should constitute a “defense” sufficient to defeat a motion for summary judgment made pursuant to CPLR 3213 against a guarantor of payment. There is no basis for this conclusion in law or equity. To the contrary, such a result would only lead to more pre-textual litigation commenced by delinquent debtors or their guarantors seeking merely to delay their guaranteed repayment obligations. This, in turn, would increase the risks and costs of lending in New York to the detriment of lenders and debtors. This Court should decline Appellants’ invitation to derive a rule that would increase commercial risk and cause fundamental unfairness to highly sophisticated contracting parties who have entered into unambiguous agreements to prevent the very outcome advanced by Appellants here. Notwithstanding the plain terms of the absolute, irrevocable and unconditional Guaranties mandating payment in full now, Appellants argue that it would be “unfair” to require them to satisfy their obligations because they may need those funds to pursue their counterclaim against Capital One. (App. Br. 20 (“[T]here is a real risk that the financial pressure on the guarantors will deprive them of their day in court.”).) Even if this supposed “unfairness” could overcome the plain language of the Guaranties (and it cannot), Appellants do not cite any record evidence to support their suggestion that requiring them to comply with the 24 Guaranties “will deprive them of their day in court.” (Id.) Even more significantly, as highly sophisticated parties, Capital One and the Guarantors explicitly agreed that Capital One had the right to immediate payment from the Guarantors, regardless of any affirmative claim for relief the borrowers might have, and courts clearly are not permitted to disregard unambiguous contractual provisions based upon one’s abstract notions of “fairness.” As this Court recently emphasized, “courts must honor contractual provisions that limit liability or damages,” and “the parties ‘may later regret their assumption of the risks of non-performance in this manner, but the courts let them lie on the bed they made.’” Nomura, 2017 WL 6327110, at *3 (quoting Metro. Life Ins. Co. v. Noble Lowndes Int’l, 84 N.Y.2d 430, 436 (1994)). Appellants further suggest that but for Capital One’s supposed negligent impairment of collateral, “the medallion loans TFA had pledged as collateral could have been sold or refinanced, which would have significantly reduced or eliminated the need to collect on [the Guaranties].” (App. Br. 21.) This argument lacks merit. As discussed above, the Guaranties are “guarant[ies] of payment” — not “of collection” — and expressly permit Capital One to proceed against the Guarantors, directly and immediately upon a default, without taking any other action whatsoever with respect to TFA or the collateral. (A143; supra p. 9.) The only limitation on this right to payment is triggered in the event of a final 25 adjudication of a valid defense to TFA’s obligations, which indisputably has never occurred. Accordingly, Appellants’ arguments based on “fairness” are foreclosed by the plain terms of the Guaranties, to which Appellants should be bound. C. Appellants’ Cited Cases Are Inapposite Unable to overcome the clear language of the Guaranties, the case law cited above or the numerous equitable factors supporting affirmance, Appellants resort to citing two inapposite lines of cases that do not even speak to the legal questions presented in this appeal (which is likely why the First Department saw no need to address them in the Decision). 1. Appellants’ Waiver Cases Are Irrelevant First, Appellants rely on a line of cases discussing whether a negligent impairment claim can be waived under a party’s contract. See, e.g., FDIC v. Frank L. Marino Corp., 74 A.D.2d 620, 621 (2d Dep’t 1980) (cited at App. Br. 15) (negligent impairment claim constituted, at most, a “setoff or counterclaim” that “may not be disclaimed by agreement”); Barclays Bank of N.Y., N.A. v. Heady Elec. Co., 174 A.D.2d 963, 965-66 (3d Dep’t 1991) (cited at App. Br. 16). 7 But these __________________________ 7 See also Marine Midland Bank v. CMR Industries, Inc., 159 A.D.2d 94, 104 (2d Dep’t 1990) (cited at App. Br. 18); NatWest Bank, N.A. v. Grauberd, 228 A.D.2d 337, 338 (1st Dep’t 1996) (cited at App. Br. 18); Bank of India v. Subramanian, No. 06 Civ. 2026 WHP, 2007 WL 1424668, at *6 (S.D.N.Y. May 15, 2007) (cited at App. Br. 17); Nugent v. Hubbard, 130 A.D.3d 893, 895 (2d Dep’t 2015) (cited at App. Br. 17); IBJ Schroder Bank & Trust Co. v. Kerney, 200 A.D.2d 519 (1st 26 cases do not support Appellants’ position. Capital One has never argued “waiver,’ and the Decision does not discuss it, much less hold that any rights of Appellants had been waived. To the contrary, the First Department expressly recognized that if Appellants eventually prevail on their claim (which they are currently pursuing), they may be entitled to a money judgment from Capital One. (Supra p. 17; A12.) Thus, Appellants’ waiver argument misses the mark entirely. In this connection, Appellants attempt to rely on Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro, 25 N.Y.3d 485 (2015) (App. Br. 19- 20), a decision that does not involve a negligent impairment claim, but this decision actually supports Capital One. In Navarro, this Court affirmed the First Department’s decision granting a lender’s motion for summary judgment in lieu of complaint, notwithstanding the defendant’s allegations that plaintiff obtained the underlying award through collusion and fraud, which defendant argued raised issues of fact as to “whether a valid underlying debt exists” or “an obligation [] is owed and due.” Id. at 491. Despite these asserted claims, the Court directed entry of summary judgment in plaintiff’s favor based on the defendants’ “absolute and unconditional” guaranty. Id. at 495-96. In language applicable here, the Court __________________________ Dep’t 1994) (cited at App. Br. 16) (citing FDIC, 74 A.D.2d at 621, stating that a guaranty clause waiving a negligent impairment claim in its entirety is unenforceable). 27 concluded that the guarantor, a “sophisticated businessperson,” should not be permitted to escape the language of the guaranty to which he agreed. Id. at 497. Appellants argue that although Navarro did not involve a negligent impairment of collateral claim, the Court’s silence regarding the enforceability of absolute waiver provisions with respect to negligent impairment claims somehow equals an implied endorsement of their position here. (App. Br. 19). This attenuated logic finds no basis in the Navarro decision itself. In any event, the Court’s purported endorsement of Appellants’ non-waiver line of cases is irrelevant to the issues on this appeal, for the reasons discussed above. 8 2. Appellants’ Deficiency Judgment Cases Do Not Apply Second, Appellants’ reliance on cases involving claims for a deficiency judgment under UCC § 9-610 (former § 9-504) is beside the point. (See App. Br. 18.) In those cases, unlike here, the secured lender was required to prove — as part of its initial prima facie case — that it had disposed of the relevant collateral in a “commercially reasonable” manner. See Merchants Bank of N.Y. v. Gold Lane __________________________ 8 Even if the issue of waiver were relevant here (and it is not), the Guaranties expressly permit Capital One to “deal [in] any manner” with the collateral “without impairing or releasing the obligations of [the Guarantors].” (Supra p. 9.) This Court has held that language of this type precludes a guarantor from arguing release or discharge from a guaranty based on assertions of negligent impairment. Exec. Bank of Fort Lauderdale, FL. v. Tighe, 54 N.Y.2d 330, 337 (1981) (analyzing similar UCC provisions and holding that “a guarantor may consent to impairment of collateral and [] such consent ‘operates as a waiver of the consenting party’s right to his own discharge’”). 28 Corp., 28 A.D.3d 266, 268 (1st Dep’t 2006) (McGuire, J., concurring) (cited at App. Br. 18) (“To succeed on its [] claim for a deficiency judgment, [a plaintiff] must carry its burden of establishing the commercial reasonableness of every aspect of the disposition of the collateral.”). Thus, courts deciding such claims have found issues of fact regarding whether the plaintiff’s disposition of collateral was “commercially reasonable,” precluding summary judgment. Id.; see also HSBC Bank USA v. IPO, LLC, 290 A.D.2d 246, 246 (1st Dep’t 2002) (cited at App. Br. 18) (plaintiff failed to establish its prima facie case based on a triable issue of fact regarding the disposition of the collateral under UCC [former] § 9-504). In stark contrast to such cases, both the motion court and the First Department here correctly held that Capital One established its prima facie claim for CPLR 3213 relief under the Guaranties, which only required proof of the existence of the debt and non-payment thereof (which is undisputed here) — not that Capital One attempted to proceed against the collateral. (A11, A18); see Chrysler Credit Corp v. Mitchell, 94 A.D.2d 971, 971 (4th Dep’t 1983). 9 Appellants do not, and cannot, claim that anything more is required to make a __________________________ 9 All cases cited by Appellants discussing the UCC’s requirements regarding post- default disposition of collateral (App. Br. 18) are similarly inapposite. See Marine Midland, 159 A.D.2d at 100; Schoenfeld v. Shonfeld, 266 A.D.2d 449 (2d Dep’t 1999); MTI Sys. Corp. v. Hatziemanuel, 151 A.D.2d 649 (2d Dep’t 1989); Weinsten v. Fleet Factors Corp., 210 A.D.2d 74 (1st Dep’t 1994). 29 prima facie showing under CPLR 3213. See Bank of Am., N.A. v. Tatham, 305 A.D.2d 183, 183 (1st Dep’t 2003) (“Plaintiff’s motion for summary judgment was properly granted upon proof of the loan documents, including the guaranty agreement, and failure to pay in accordance therewith.”); Digestive Disease & Nutrition Ctr. of Westchester, LLP v. Abrams, 112 A.D.3d 778, 779 (2d Dep’t 2013) (“[P]laintiff made a prima facie showing of its entitlement to judgment as a matter of law by submitting proof of the existence of two underlying promissory notes, which contained guarantees executed by the defendant, and a failure to make payment in accordance with the terms of the notes and guarantees.”); Nordea Bank Finland PLC v. Holten, 84 A.D.3d 589, 590 (1st Dep’t 2011). Accordingly, Appellants’ cases concerning deficiency judgments and attendant issues regarding the marshalling and disposition of collateral have no bearing here. See Valencia Sportswear, 237 A.D.2d at 172. Appellants also mistakenly rely on New Netherlands Bank of New York v. Dernburg, 206 A.D. 212 (1st Dep’t 1923) (cited at App. Br. 2, 14). There, however, the First Department merely addressed the now well-settled issue of whether principal debtors and individual guarantors alike can assert a claim alleging that the lender plaintiff improperly sold the collateral before maturity of the note. Id. at 213. As with the line of cases involving deficiency judgment actions, New Netherlands Bank is inapplicable where, as here, the lender has no 30 obligation to prove that it disposed of the collateral in a reasonable manner in order to establish its prima facie claim for payment on a guaranty. 10 Appellants also rely on cases granting summary judgment on guarantors’ liability on the ground that, at most, allegations regarding the improper disposition of collateral present a separate issue pertaining to damages and thus cannot preclude the finding of liability under individual guaranties. See, e.g., Gen. Trading Co. v. A&D Food Corp., 292 A.D.2d 266, 267 (1st Dep’t 2002) (cited at App. Br. 18) (“Whether defendants are liable upon their guarantee is an issue which may be resolved apart from and in advance of any determination as to whether the sale of the collateral was conducted in commercially reasonable fashion, the latter being relevant in the present litigation only to the determination of damages.”). 11 That result, as well as those reached in similar cases cited by Appellants (App. Br. 18-19), is entirely consistent with the Decision, which held __________________________ 10 Furthermore, New Netherlands Bank was decided nearly a hundred years ago, before the legislature enacted CPLR 3213, a vehicle meant to provide creditors with expeditious and immediate recovery upon undisputed money instruments. (See supra § I.B.) Similarly, Grace v. Sterling, Grace & Co., 30 A.D.2d 61 (1st Dep’t 1968) (cited at App. Br. 13), is inapplicable here as it discusses a clearly separate and distinguishable issue — i.e., the defendant-broker’s failure to convert debentures into stock — and did not have occasion to address, let alone decide, the issues presented on this appeal in light of the language of the Guaranties. Id. 11 See also European Am. Bank v. Kahn, 175 A.D.2d 704, 707-08 (1st Dep’t 1991); Color Mate Inc. v. Chase Manhattan Bank N.A., 168 A.D.2d 534, 535 (2d Dep’t 1990); Chrysler Credit Corp. v. Mitchell, 94 A.D.2d 971, 971 (4th Dep’t 1983). 31 that Appellants’ negligent impairment claim is a “counterclaim” that could “entitle TFA to damages” in the other action. (A112); see also Paco Corp. v. Vigliarola, 611 F. Supp. 923, 925 (E.D.N.Y. 1985), aff’d, 835 F.2d 1429 (2d Cir. 1987). Finally, it bears emphasis that none of Appellants’ cases involved the same unambiguous contractual language at issue here, which makes clear that the Guaranties are “absolute, irrevocable and unconditional” and cannot be limited or impaired in the absence of a “valid defense.” 12 This explicit language distinguishes the present case from the others upon which Appellants rely and reinforces Capital One’s protection against the ability of a Guarantor to defeat CPLR 3213 relief simply by asserting a counterclaim that does not constitute a defense to liability. 13 __________________________ 12 While Appellants argue, without support, that the “valid defense” language in the Guaranties “favored the guarantors” (App. Br. 7), they do not cite anything to support this ipse dixit contention. In any event, whether any language in the Guaranties — including the “valid defense” language giving Capital One a timing benefit in terms of receiving payment — was meant to “favor” one party or the other is irrelevant, as that language is unambiguous and thus should be enforced according to its terms. Louis Dreyfus, 2 N.Y.3d at 500. 13 Appellants argue that the motion court should not be permitted to determine whether to stay enforcement of Capital One’s judgment pursuant to CPLR 2201. (App. Br. 23 n.6.) The fact that Appellants apparently do not believe they could convince the motion court to stay enforcement of the judgment certainly cannot provide justification for reversing the entry of that judgment to begin with, which the First Department correctly held was warranted as a matter of law. 32 II. ALTERNATIVELY, THE CASE SHOULD BE REMITTED TO THE FIRST DEPARTMENT FOR FURTHER CONSIDERATION Finally, assuming arguendo that this Court agrees with Appellants that their claim for negligent impairment of collateral could somehow constitute a “defense” to TFA’s obligations (which, for the reasons discussed above, we respectfully submit the Court should not do), Capital One respectfully requests that this case be remitted to the First Department to address an issue that was not reached in the Decision — i.e., that the Guaranties require a “final adjudication” of a valid defense in order to limit Capital One’s enforcement rights, which undisputedly has not occurred here. See Bennett v. Twin Parks Ne. Houses, Inc., 93 N.Y.2d 860, 861-62 (1999) (remitting to Appellate Division to address issue raised by party but not decided below). The reason for the “final adjudication” language is self-evident: Capital One bargained for and received the right to receive full payment on the Guaranties and to make use of those funds pending a “final adjudication” of any purported defenses thereto. Indeed, the Guaranties specifically provide that Appellants’ repayment obligations shall not be limited or impaired by “any [] action or circumstance whatsoever which constitutes, or might be construed to constitute, a legal or equitable discharge or defense (except full payment and satisfaction) of [TFA] for its obligations under any of the Loan Documents or of Guarantor under this Guaranty.” (A145, A293 (emphasis added).) In other words, the mere 33 assertion of a defense (as opposed to a “final adjudication” of that defense) cannot defeat Capital One’s rights to enforce the Guaranties. Under this framework, there can be no excuse for withholding payment based on mere allegations of a “defense,” thus affording Capital One the benefit of this time difference unless the borrower were to bring suit sufficiently in advance and procure a final adjudication before the amount of the loan became due. By arguing that Capital One may not obtain relief on the Guaranties now — before any final adjudication and based solely on mere allegations — Appellants attempt to rewrite the Guaranties and upset this agreed-upon time frame without any basis, thus depriving Capital One of an essential part of its bargain. See Louis Dreyfus, 2 N.Y.3d at 500; see also Van Der Lande v. Stout, 13 A.D.3d 261, 261-62 (1st Dep’t 2004) (denying injunction based on defendants’ use of certain funds where statute allowed such use in the absence of a “final adjudication” of bad faith, and no “final adjudication” had occurred). Accordingly, Appellants’ continued attempts to avoid their bargained-for repayment obligations under the unambiguous Guaranties should be rejected, and their motion for leave to appeal denied. CONCLUSION For the foregoing reasons, the Decision should be affirmed in its entirety or, alternatively, remanded to the First Department for further proceedings. Dated: New York, New York January 26, 2018 ■S,SLATE, MEAGHER /"7 SKADDEN, &FLOMLJ A\George A. Zimmerman Patrick G. Rideout Alexander C. Drylewski Four Times Square New York, New York 10036 Telephone: (212)735-3000 Phone: (212)735-2000 Attorneys for Plaintiff-Respondent Capital One Taxi Medallion Finance 34 35 PRINTING SPECIFICATION STATEMENT Pursuant to Rule 500.1(j) of this Court, Respondent hereby specifies that this brief was prepared in Microsoft Word using fourteen-point Times New Roman font. Respondent further specifies that, as calculated by Microsoft Word, this brief contains 8,188 words, excluding table of contents, table of authorities and any addenda.