USA v. LLC (2013)

MEMORANDUM OF DECISION

CUSTOMERS BANK

This complaint has been filed by the plaintiff, lending institutions against the defendants Wisse Sinis Enterprises, LLC, and The Defendant, Robert Wisse, who are engaged in real estate speculation.   The plaintiff is seeking the unpaid balance for a promissory note executed and delivered by Robert Wisse as well as a commercial loan and security agreement executed between Wisse Sinis and the plaintiff's financial predecessor.   In addition, the defendant, Robert Wisse executed a guarantee agreement in which he personally guaranteed payments of all sums that were due or would become due under the promissory note and loan agreement.

Based on the credible testimony and evidence submitted at this hearing, as well as the post-trial briefs of the respective parties, the court has reached the following factual and legal conclusions.

Under the terms of the promissory note, dated March 20, 2007, the defendants were permitted to borrow up to $5,200,000 under a variable interest that began at 8.25% and decreased to 8.25% of the Current Index.   The purpose of the financing was the defendant's intention to purchase property, which they would subdivide into four lots which they anticipated would sell at a profit by sales from $2.250 million to $2.750 million for each residence constructed.

The defendants were only able to build two houses on two of the four lots.

The initial financial institution extended the maturity date of the promissory note until August 31, 2009.   The defendants hired a financial consultant for distressed properties who corresponded with an official of the initial bank.   The correspondents did reference the possibility of the bank requiring all of the properties be sold.   The parties never entered into any agreement specifying the conditions of a discount, which was required under the original commercial documents.   Before the properties could be sold, the superintendent of banks, Richard Nyman issued an order of possession of the predecessor, Bank USA and appointed the Federal Deposit Insurance Corporation as receiver of Bank USA on July 9, 2010.   At the same time, the FDIC transferred all right, title and interest in the promissory note loan agreement guarantees to the plaintiff, Customers Bank became the owner and holder of the promissory note, and the party entitled to enforce the loan agreement.

On September 13, 2012 the plaintiffs filed a motion for summary judgment as to the two counts of the complaint claiming that there were no genuine issues of material fact with respect to liability for those counts.   The plaintiffs submitted supporting affidavits and documents.   The plaintiffs are seeking recovery of an unpaid balance of $2,557,416.07 from the two defendants.

On May 16, 2013 Judge Sommer granted summary judgment.   As the parties were located in New York, Judge Sommer ruled New York law governed this dispute although subject to Connecticut procedure.

Judge Sommer found that the loan documents were valid contracts;  the promissory note and security agreement were duly executed by an authorized member of Wisse Sinis;  the signatures on the loan document were determined to have been admitted as valid pursuant to C.G.S., Sec. 42a–3–308(a).   In conclusion the court found that Wisse Sinis defaulted on the loan and Robert Wisse defaulted on the guarantee.   The court further found that the plaintiff was the proper holder of the note.   As such, the court granted the plaintiff's motion for summary judgment as to the first and second counts of the complaint.   While the court did actually grant a judgment as to the first counts, it should be noted that this court fully concurs with the conclusions reached in the Court's Memorandum Of Decision.   Judge Sommer indicated that she would not review the special defenses filed by the defendants which, by amendment granted on January ninth 2013, were increased to a total of 15.   This court review each and every of the 15 various special defenses filed and the claimed basis for each.

It is the finding of the court that the defendants failed to sustain their burden of proof with respect to any of the special defenses most of which had been nullified by the court's granting of a summary judgment.

In May 2013 the defendants amended their special defenses by adding a claim of novation, according satisfaction, promissory estoppel, impossibility/impracticality and frustration of purpose.

With respect to novation or according satisfaction, there was evidence that prior to being closed by the FDIC, defendants and the initial lender, USA Bank, did discuss conditions under which the property could be sold at a discount which required that all of the properties must be sold at a price approved by the bank.   There was never any required writing or modification executed by the parties and, in fact, not all of the properties were sold when the FDIC closed USA Bank and assigned the debt to the present plaintiff.

The defendants requested the present plaintiff entered into an agreement.   Completion of the arrangement suggested with its predecessor was never completed or in writing in violation of the terms and condition of the original loan documents and of more significance 12 U.S.C. Section 1823(e) provides:

“In general.   No agreement which tends to diminish or defeat the interest of the corporation in any asset acquired by it under the this section or section 11(12) U.S.C.S. section 18218 as security for a loan or by purchase or as a receiver of any insured depository institution shall be valid against the corporation unless such agreement

A) It is in writing;

B) It was executed by the depository institution in a person, claiming adverse interest thereunder including the obligor, contemporaneously with the acquisition of the assets by the depository institution;

C) It was approved by the Board of Directors of the depository institution or its loan committee which approval shall be reflected in the minutes of the said board or committee.   And;

D) Has been continuously from this time of his execution and official record of the depository institution.”

The statue prevents parole evidence from altering the rights and obligations of the parties to any notes or other documents of insured institutions that pertain to assets required by the FDIC. FDIC v. Suna Associates, 80 F35.d 681, 685 (Second Circuit 1996).   As was indicated, the defendant also failed to sustain its burden of proof with respect to that special defense.

Finally, in somewhat problematic special defenses with respect to engaging in speculative projects, the defendants claim the defenses of impossibility/impracticability or frustration of purpose.   While there are cases involving the death of a party or the destruction of the subject property rendering completion of the contract impossible.   In this case, the defendants requested and received a loan for the sole purpose of investing in the real estate market.   It is axiomatic that it is inherent that in speculating in the status of the real estate market that the market will possibly increase or decline.   In this case it apparently declined.

In a letter dated September 16, 2009 to the initial lender, Paul Trantillo, a financial consultant hired by the defendants, admitted “the only thing I can tell you about the work needed to be completed and the work to be paid that this is what exists.   You can't change history, as my client has advised you repeatedly, this is the end result of Sinis is mismanagement and pilfering of the account ․” According to the defendants own financial consultant mismanagement and the dishonesty of a member of the defendant company was a factor in its loss.

Is the finding of the court that the plaintiff lenders to the defendants were not guarantors, insurers or even conservators for the profit or loss of the defendants real estate speculation as well as the mismanagement and dishonesty of a member of the defendants' company.

It is the finding of the court that the plaintiff has sustained its burden of proof with respect to the complaint and finds for the plaintiff with respect to the complaint and as to the special defenses filed by the defendants.

Accordingly, the plaintiff is awarded the amount of $2,557,416.07.   In damages.   Judgment shall enter accordingly and it is further ordered a postjudgment hearing be held to determine a reasonable attorneys fees and collection costs.

GILARDI, J.T.R.

Gilardi, Richard P., J.T.R.