87 MEZZ MEMBER LLC v. GERMAN AMERICAN CAPITAL CORPORATION (2018)

Order, Supreme Court, New York County (Anil C. Singh, J.), entered May 24, 2017, which granted defendant's motion to dismiss the complaint based on the documentary evidence and failure to plead a cause of action, unanimously affirmed, with costs.

The court correctly determined that, under the unambiguous language of the Additional Interest Agreement (AIA), an “Event of Default” within the meaning of the AIA occurred when plaintiff 87 Mezz Member LLC (87 Mezz) failed to make a payment under the Mezzanine Loan Agreement (the Loan Agreement) when due thereunder.  Because the AIA uses the capitalized term “Event of Default” without defining it, the meaning of the term as used in the AIA is to be found in the Loan Agreement pursuant to section 1.1 of the AIA, which provides that “[a]ll capitalized terms used herein shall have the meanings assigned to such terms in the Loan Agreement.”  It is undisputed that 87 Mezz failed to make a payment when due under the Loan Agreement, and this failure constituted an “Event of Default” as defined in the Loan Agreement.  Accordingly, as a matter of law, an “Event of Default” occurred under the AIA. The court also correctly determined that the AIA's liquidated damages provision may be given effect before the units of the subject property became individually saleable under the Condominium Act. 87 Mezz's remaining contentions concerning its liability for liquidated damages under the AIA, and the calculation of such damages, are unavailing.

Dismissal of plaintiffs' claim for breach of the implied covenant of good faith and fair dealing was also proper.  Under the Loan Agreement, German American Capital Corporation (GACC) had a right to foreclose on its collateral.  Moreover, neither the Loan Agreement nor the pre-negotiation agreement required GACC to permit plaintiffs to refinance the loans or to engage in negotiations with plaintiffs.  As such, plaintiffs cannot use this claim to “nullify other express terms of a contract, or to create independent contractual rights” (Fesseha v. TD Waterhouse Inv'r Servs., Inc., 305 A.D.2d 268, 268, 761 N.Y.S.2d 22 [1st Dept. 2003];  see also Baker v. 16 Sutton Place Apt. Corp., 110 A.D.3d 479, 480, 973 N.Y.S.2d 63 [1st Dept. 2013] ).

Finally, Supreme Court also properly dismissed plaintiffs' conversion claim as GACC possessed the right to foreclose on the collateral following 87 Mezz's failure to make the necessary payments at maturity, and therefore was not “unauthorized” in its possession of the collateral (Republic of Haiti v. Duvalier, 211 A.D.2d 379, 384, 626 N.Y.S.2d 472 [1st Dept. 1995];  see also Schwartz v. Hotel Carlyle Owners Corp., 132 A.D.3d 541, 542, 20 N.Y.S.3d 341 [1st Dept. 2015] ).