Fortress Credit Corp. v. Cohen

Fortress Credit Corp. v Cohen

2024 NY Slip Op 33509(U)

October 3, 2024

Supreme Court, New York County

Docket Number: Index No. 651498/2024

Judge: Joel M. Cohen

Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York

State and local government sources, including the New

York State Unified Court System's eCourts Service.

This opinion is uncorrected and not selected for official

publication.

INDEX NO. 651498/2024

NYSCEF DOC. NO. 40 RECEIVED NYSCEF: 10/03/2024

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 03M

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FORTRESS CREDIT CORP. INDEX NO. 651498/2024

Plaintiff,

MOTION DATE 03/25/2024

- V -

MOTION SEQ. NO. 001

CHARLES S. COHEN,

Defendant. DECISION+ ORDER ON

MOTION

----------------------------------------------------------------------------------- X

HON. JOEL M. COHEN:

The following e-filed documents, listed by NYSCEF document number (Motion 001) 2, 12, 14, 15, 16,

17, 18, 19,20,21,22,23,24,25,26,27,28,29,30,31,32,33, 34,35, 38,39

were read on this motion for SUMMARY JUDGMENT IN LIEU OF COMPLAINT

Plaintiff, Fortress Credit Corp. ("Plaintiff'), seeks summary judgment in lieu of

complaint under CPLR 3213 to recover $187,250,000, together with costs, legal fees and

expenses, under a guaranty signed by Defendant Charles S. Cohen ("Defendant") to ensure

repayment (in part) of a loan made to Cohen Realty Enterprises LLC ("CRE") and related

entities (with CRE, the "Borrowers") in the original aggregate principal amount of

$533,641,618.47 (NYSCEF 5). For the reasons set forth below, Plaintiff motion is granted.

Defendant's cross-motion to dismiss is denied and his counterclaims are dismissed. 1

1

Defendant's argument that he was not properly served is without merit. "Parties can

contractually agree to other methods of service beyond those set forth in the CPLR, and a

contract provision designating a party's service agent is valid" (GSO RE Onshore LLC v Sapir,

29 Misc 3d 1234(A), at *4 (NY County Sup Ct 2010]; see also Orix Credit All., Inc. v. Fan Sy

Prods., Inc., 215 AD2d 113, 113-14 [1st Dept 1995]). Here, the parties agreed that service via

email to Defendant Cohen would be an effective form of service (NYSCEF 5 § 14.24). Plaintiff

sent Defendant an email notifying him of the motion and the completion of service of process on

March 26 - more than 30 days before the return date of May 2 - provided adequate notice.

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FACTUAL BACKGROUND

The basic facts regarding the parties' contractual relationship are undisputed.

On September 15, 2022, Plaintiff executed a Loan Agreement with the Borrowers (NYSCEF 5).

The Loan Agreement included an Initial Term Loan of $507,157,367.09, and also funded certain

Additional Expense Advances (id. at 1). The maximum loan amount was $533,641,618.47 (id.).

The Loan Agreement defined Defendant Charles S. Cohen as Personal Guarantor and named

Cohen Realty Enterprises Holdings LLC as a Guarantor (id.).

The Loan Agreement required Borrowers to make payments pursuant to a loan schedule

(id. § 2.3[a]). Failure to pay any scheduled amount of principal or interest when due would

constitute an Event of Default (id. §§ 9.1 [a]). The Loan Agreement allowed Plaintiff to

accelerate the entire Loan upon default (id. §§ 9.2[a], 9.3).

The Guaranty at issue in this case was executed by Plaintiff and Defendant on the same

day as the Loan Agreement (id. at 31, 33; NYSCEF 4). Under the Guaranty, Defendant

"unconditionally and irrevocably guarantee[ d] to Agent ... the payment of the Obligations of

Borrowers and the Credit Parties as and when the same shall be due and payable ... until all of

the Guaranteed Obligations shall have been fully and indefeasibly paid" (NYSCEF 4 § 1). The

maximum amount for which Defendant would be liable under the Guaranty was $187,250,000

(NYSCEF 4, at 2).

The Guaranty incorporates the meaning of "Event of Default" set forth in the Loan

Agreement and enumerates several more Events of Default under the Guaranty itself (id. § 5).

Furthermore, the fact that Defendant submitted to the Court a detailed memorandum in

opposition to Plaintiffs motion indicates that Defendant was not prejudiced by the type or timing

of the service in question.

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Defendant would also be liable for Plaintiffs costs and expenses, including attorneys' fees

incurred in enforcing Plaintiffs rights under the Guaranty (id. § 6[n]). Additionally, the

Guaranty requires Defendant to furnish certain financial statements and information until the

Loan is satisfied (id. §§ 6[f]; 6[t]).

Between May 12, 2023, and December 21, 2023, the parties executed four amendments

to the Loan Agreement, agreeing to extend the payment schedule and defer payments (NYSCEF

20, Schedule 2.3; NYSCEF 21-23; NYSCEF 16 ,i 9). The parties entered a Pre-Negotiation

Agreement ("PNA") on November 30, 2023, indicating they were "willing to have discussions

... regarding the status of the Loan" and "preserv[ing] the status quo legally during" the

discussions "so that no Party has given up or gives up any rights or incurs any obligations unless

and until a further written agreement is executed and delivered by such Party" (NYSCEF 24, at

1-2). Any agreement under the PNA would be in a signed writing (id. ,i 2).

Between December 13 and December 14, 2023, representatives of CRE and Fortress

exchanged emails in an attempt to agree upon a further extension of the "scheduled

am[ortization] holiday" into 2025 (NYSCEF 25, at 7). Those emails ended in an exchange of

terms between Randall Shy (Fortress's representative) and Rob Horowitz, a representative for

Defendant and his companies, and a statement by Shy that he would "get th[e terms] in f[r]ont of

senior management" and "get [Kirkland & Ellis] re-working on the interim agreement so that

that can be signed tomorrow or Monday" (id. at 2-3). Horowitz responded, "This works. We are

good to go" (id.). Shy replied, "Thank you/same. [Kirkland & Ellis] will be in touch w[ith] Lisa

tomorrow" (id.).

Despite the foregoing exchange, no written agreement was ever signed extending the

payment due date beyond February 2024. Plaintiff issued a letter to CRE noticing default on

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March 11, 2024 (NYSCEF 7). It noticed acceleration of the loan and demanded payment by

Defendant under the Guaranty on March 19, 2024 (NYSCEF 8). Plaintiff filed this action on

March 25, 2024, seeking summary judgment in lieu of complaint under CPLR 3213 based on the

Guaranty (NYSCEF 1-2).

LEGAL ANALYSIS

Under CPLR 3213, a party may commence an action by motion for summary judgment in

lieu of complaint when the action is "based upon an instrument for the payment of money only

or upon any judgment[.]" An "instrument for the payment of money only" is one that "requires

the defendant to make a certain payment or payments and nothing else." (Seaman-Andwall Corp.

v Wright Mach. Corp., 31 AD2d 136, 137 [1 st Dept 1968]; Weissman v Sinorm Deli, Inc., 88

NY2d 437,444 [1996]).

Generally, "[a]n unconditional guaranty is an instrument for the payment of 'money only'

within the meaning of CPLR 3213" (Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v

Navarro, 25 NY3d 485,492 [2015]). "To meet its prima facie burden on its summary judgment

motion, [a movant under CPLR 3213] must prove 'the existence of the guaranty, the underlying

debt and the guarantor's failure to perform under the guaranty'" (id.). Once a plaintiff makes out

a prima facie showing, the burden shifts "to the defendant to submit evidence establishing the

existence of a triable issue of fact with respect to a bona fide defense" (Zyskind v FaceCake

Marketing Technologies, Inc., 101 AD3d 550,551 [!81 Dept 2012]).

Based on the record presented, the Court finds that Plaintiff has made its prima facie

showing for summary judgment in lieu of complaint, and Defendant has failed to raise triable

issues of fact to warrant denial of Plaintiffs motion.

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First, Defendant's suggestion that relief under CPLR 3213 is precluded because reference

must be made to the Loan Agreement to define default is unavailing. "[T]he fact that reference

must be made to documents beyond the Guaranty does not take it out of the purview of CPLR

3213, because liability under a Guaranty necessarily depends on the existence of a third party's

obligation defined in other documents" (GSO Re Onshore LLC v. Sapir, 29 Misc3d 1234(A)

[Sup Ct NY County 2010] [citing Bank ofAm., NA. v. Solow, 19 Misc3d 1123(A), 2008 N.Y.

Slip Op 50830(U) [Sup Ct NY County 2008], aff'd 59 A.D.3d 304 [1 st Dept 2009]]; see also

Acquiom Agency Servs. LLC v Fox Capital LLC, 2024 NY Slip Op 51 000(U), at 3 [Sup Ct NY

County 2024]). Indeed, virtually every CPLR 3213 action based on a loan guaranty will require

reference to the underlying loan documents to establish a default. The notion that such reference

forecloses access to CPLR 3213 is meritless.

Second, Defendants' reliance on "performance guaranty" cases (e.g., Punch Fashion,

LLC v Merchant Factors Corp., 180 AD3d 520, 521 [1 st Dept 2020]; PDL Biopharma, Inc. v

Wohlstadter, 147 AD3d 494,495 [1 st Dept 2017]; Manhattan Real Estate Fund, LP v Paz, 2024

N.Y. Slip Op. 32017[U] [N.Y. Sup Ct, New York County 2024]) is misplaced. In those cases,

the guarantor expressly (or at least arguably) assumed responsibility for the borrower's non-

monetary obligations under the loan agreement, thus placing the instrument outside the "payment

of money only" confines of CPLR 3213. Here, by contrast, the parties defined "Guaranteed

Obligations" solely and specifically with regard to "the payment of the Obligations of Borrowers

and the Credit Parties as and when the same shall be due and payable whether by lapse of time,

by acceleration of maturity or otherwise" (NYSCEF 4 ,i 1 [emphasis added]). Given that

language, the follow-on reference in the Guaranty to Defendant's obligation lasting "until all of

the Guaranteed Obligations shall have been fully and indefeasibly paid, performed and

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discharged" (id.) cannot reasonably be read to guarantee borrower's "performance" of non-

monetary obligations in the Loan Agreement. For the same reason, Defendant's reference to the

long list of potential events of default enumerated in the Loan Agreement, which include certain

non-monetary performance obligations, does not transform the Guaranty into a promise to ensure

performance of non-monetary obligations. The Guaranty is strictly limited to an obligation to

pay money if the Borrowers fail to do so when such amounts are due and owing under the Loan

Agreement. It is the paradigmatic instrument for the payment of money only.

Nor do Sections 6(f) and 6(t) of the Guaranty, which require Defendant (as a guarantor)

to provide quarterly and annual financial information to Plaintiff, impact the applicability of

CPLR 3213. "[T]he mere presence of additional provisions in the Guaranty does not constitute a

bar to CPLR 3213 relief, provided that the provisions do not require additional performance as a

condition precedent to repayment, or otherwise alter Defendant's promise of payment" ( UBS AG,

London Branch v. Greka Integrated, Inc., 2020 WL 1957530, at *5 [SD NY 2020]; Park Union

Condominium v. 910 Union St., LLC, 140 AD3d 673, 674 [!81 Dept 2016] [finding that an

instrument was within the scope of CPLR 3213 because it "required no additional performance

by plaintiff as a condition precedent to payment or otherwise made defendant[ s'] promise to pay

something other than unconditional"]). Those ancillary provisions do not affect or limit the

Guaranty's unequivocal obligation to make payment if the Borrower fails to do so when due and

owmg.

Third, Defendant's assertion of various equitable defenses and counterclaims - estoppel,

fraudulent inducement, bad faith, prima facie tort - is unavailing. Section 3 of the Guaranty

states "[t]o the extent permitted by law, Guarantor hereby irrevocably waives and agrees not to

assert or take advantage of ... any other defenses, set-offs or counterclaims which may be

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available to any Borrower, Credit Party or Guarantor, and any and all other defenses now or at

any time hereafter available to Guarantor (including without limitation those given to sureties) at

law or in equity" (NYSCEF 4, § 3[o]). Such waivers are enforceable (Cooperatieve Centrale

Raif.feisen-Boerenleenbank, B.A. v Navarro, 25 NY3d 485,493 [2015] ["Guaranties that contain

language obligating the guarantor to payment without recourse to any defenses or counterclaims,

i.e., guaranties that are 'absolute and unconditional,' have been consistently upheld by New York

courts"]; United Orient Bank v Lee, 223 AD2d 500, 500 [1st Dept 1996] ["As the guarantees

contained waivers of all defenses other than payment, defendants were precluded from asserting

claims ofrelease"]; Gannett Co. v. Tesler, 177 AD2d 353,353 [1st Dept 1991]).

Fourth, and most substantively, Defendant argues that genuine factual disputes exist as to

whether there was an Event of Default under the Loan Agreement, which is the triggering event

for application of the Guaranty. Although Defendant does not dispute that the borrower failed to

make payments when due under the terms of the original Loan Agreement, he asserts that the

agreement was effectively amended in a December 2023 email exchange between

representatives of Fortress and CRE, and thus summary judgment is inappropriate at this time

(NYSCEF 25). These emails discussed deferral of the repayment date under the Loan

Agreement to the third quarter of 2025 in return for new Liens on several other of Defendant's

properties (id.). In response, Plaintiff argues that the Loan Agreement, by its express terms,

cannot be amended without a signed writing (NYSCEF 5 § 14.4[a]), which it claims precludes an

amendment via the email exchange upon which Defendant relies.

The Court has reviewed the December emails and other documents submitted by

Defendant, interpreting them in the light most favorable to Defendant as the non-moving party,

and concludes that they do not as a matter of law constitute a valid and binding amendment of

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the Loan Agreement. Section 14.4(a) of the Loan Agreement provides unambiguously that "No

amendment or waiver of any provision of [the Loan Agreement] ... shall be effective unless the

same shall be in writing and signed" (NYSCEF 5). Such provisions are regularly enforced (e.g.,

Nassau Beekman, LLC v Ann/Nassau Realty, LLC, 105 AD3d 33, 39 [1st Dept 2013]; Barry

Indus. LLC v Barry Street Holdings LLC, 2024 WL 1257205, at *2 [NY Sup Ct NY Cty Mar. 25,

2024]).

Section 14.4(d) of the Loan Agreement does not, as Defendant argues, permit acceptance

of the December Emails as a viable amendment of the agreement. That provision reads as

follows:

( d) Notwithstanding anything to the contrary contained in this

Section 14.4, (i) Agent and the Borrowers may amend or modify

this Agreement and any other Loan Document to grant a new Lien

for the benefit of the Secured Parties, extend an existing Lien over

additional Property for the benefit of the Secured Parties or join

additional Persons as Credit Parties, and (ii) if the Agent and the

Borrowers shall have jointly identified an obvious error,

ambiguity, defect, inconsistency or any error or omission of a

technical or immaterial nature, in each case, in any provision of the

Loan Documents, then the Agent and the Borrowers shall be

permitted to amend such provision and such amendment shall

become effective without any further action or consent of any other

party to any Loan Document if the same is not objected to in

writing by the Required Lenders within three (3) Business Days

following receipt of notice thereof.

(Id. § 14.4[ d].)

Although the purported agreement described in the December Emails includes the

granting of a new Lien for the benefit of Secured Parties (which can be accomplished under

Section 14.4( d) without a signed writing), it goes well beyond that. Most significantly, of

course, the email "agreement" purportedly would excuse a payment default by the borrower and

extend the payment terms by more than one year. Section 14.4( d) cannot reasonably be read to

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permit such an unsigned amendment of the Loan Agreement, in derogation of the clear terms of

Section 14.4(a), simply because it is joined with an otherwise lender-friendly provision adding

collateral to the loan. The Court sees no ambiguity in the language of either 14.4(a) or 14.4(d)

that would warrant a trial before a finder of fact. The bottom line is that under the plain language

of the Loan Agreement no amendment of the loan repayment schedule-a clearly material

term-is effective unless contained in a signed writing agreed by the parties. The December

Emails do not, as a matter oflaw, constitute a signed writing as required by Section 14.4(a) of

the Loan Agreement (Eaglehill Genpar LLC v. FPCG, LLC, 188 AD3d 527,529 [1st Dept

2020]).

Moreover, even if the Court were to find that the December Emails were permissible in

form to amend the Loan Agreement, the documents themselves do not suffice to create a triable

factual dispute as to whether the parties actually reached an agreement to extend the payment

term of the Loan Agreement into 2025. At best, the correspondence indicates that the negotiator

for Fortress (Mr. Shy) had reached the point of elevating the proposed agreement to the level of

the final decisionmaker. In the crucial email upon which Defendant principally relies, Mr. Shy

says only that he will "get th[e terms] in f[r]ont of senior management" and "get [Kirkland &

Ellis] re-working on the interim agreement so that that can be signed tomorrow or Monday."

Although an interim Fourth Amendment was signed to extend the payment date through

February 2024, there is no evidence that the proposed agreement to extend the repayment term

into 2025 - which is what is necessary to avoid summary judgment in this action - was ever

approved by Fortress senior management and no agreement to that effect was signed.

Finally, Plaintiff has shown entitlement to attorneys' fees under the Loan Agreement and

Guaranty (NYSCEF 4 § 6[n]; NYSCEF 5 § 14.1).

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Accordingly, it is

ORDERED that Plaintiffs motion for Summary Judgment in Lieu of Complaint is

granted; it is further

ORDERED that Defendant's cross-motion to dismiss is denied; it is further

ORDERED that entry and enforcement of judgment in this action is deferred pending the

auction of the underlying Borrowers' collateral that is the subject of a related action pending in

this Court (Cohen Realty Enterprises Holdings LLC v Fortress Credit Corp, 652147/2024)

which may result in the satisfaction of some or all of the amount sought in this action; it is

further

ORDERED that the parties submit a joint letter following the auction providing their

respective positions as to the form and substance of judgment, if any, to be entered in this action;

and it is further

ORDERED that Plaintiff shall serve this Order with Notice of Entry on Defendant

within seven (7) days of the date of this Order.

This constitutes the Decision and Order of the Court.

10/3/2024

DATE JOEL M. COHEN, J.S.C.

~

CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION

GRANTED □ DENIED GRANTED IN PART □ OTHER

APPLICATION: SETTLE ORDER SUBMIT ORDER

CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT □ REFERENCE

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