his counterclaim is also before the Court. For the following reasons, the
RTC's motion will be granted, and Minassian's motion will be denied.
This case arises from two loans made by Riverside Savings Bank
("Riverside") to Minassian in 1987 for two different real estate
development projects. The first loan, for $3.5 million, was made to
finance the development of a condominium project in Hackensack, New
Jersey ("the Hackensack loan"). A second loan, for $1.72 million, was
made to finance the renovation and expansion of commercial property in
Fairview, New Jersey ("the Fairview loan").
Riverside commenced an action in foreclosure of the Fairview property
in the state courts of New Jersey after Minassian had defaulted on the
Fairview loan. Minassian asserted a counterclaim against Riverside, which
included counts related to the Hackensack loan.
Riverside was subsequently placed in receivership by the RTC, which,
pursuant to a Purchase and Assumption Agreement, sold Riverside's assets
to Riverside Federal Savings Bank ("Riverside Federal"). The RTC was
substituted as a party for Riverside in this action, as a conservator for
Riverside Federal. Minassian thereafter removed the action from state
court to this Court.
RTC has moved for summary judgment on its foreclosure action, and seeks
an order and final judgment of foreclosure. Minassian concedes that he is
in default of the Fairview loan, but claims that the Hackensack loan was
unenforceable because it was usurious, and that he is entitled to setoff
the recoverable amount of the allegedly usurious loan against the
Fairview loan. The RTC also contends that it is entitled to summary
judgment on Minassian's counterclaim because it is based on theories of
recovery cutoff by the D'Oench, Duhme doctrine, and on an untenable
theory of usury. By way of cross-motion, Minassian asserts that he is
entitled to summary judgment on part of the first count of his
counterclaim, which alleges that the Hackensack loan was usurious.
Both parties agree that there are no material facts in dispute.
Therefore, the motions are ripe for summary judgment. Fed.R.Civ.P. 56
(c). Further, Minassian does not oppose the RTC's motion for summary
judgment on part of count one and all of counts two, four and five of his
counterclaim. Those counts relate to claims based on fraudulent oral
agreements or assurances in connection with the two loans, and are
clearly barred by the D'Oench, Duhme doctrine. See Adams v. Madison
Realty & Development, Inc., 937 F.2d 845 (3d Cir. 1991).
A. Did Minassian Waive His Right to Setoff and Counterclaim?
Minassian's opposition to the RTC's motion for summary judgment on the
Fairview loan foreclosure action is based solely on a claim of usury with
respect to the Hackensack loan. Minassian claims that the Hackensack loan
was usurious, and that he is entitled to offset the RTC's liability for
usury on the Hackensack loan against his liability under the Fairview
loan agreements. Therefore, if no right to setoff exists, the RTC is
entitled to summary judgment on the foreclosure action without regard to
the merits of Minassian's usury claim concerning the Hackensack loan.
A setoff is a claim "arising out of a completely independent and
unrelated transaction," which is asserted to offset liability for another
claim. Guarantee Co. of North America v. Tandy & Allen Construction Co.,
66 N.J. Super. 285, 289, 168 A.2d 860 (Law Div. 1961), aff'd,
76 N.J. Super. 274, 184 A.2d 426 (App. Div. 1962). Waiver of the right to
assert a setoff or counterclaim, therefore, merely prevents a defendant
from asserting the unrelated claim as a defense to liability in an action
brought against him. It does not extinguish the unrelated liabilities,
but merely prevents their assertion as a defense to liability to, the
plaintiff for an unrelated
debt. Thus, if the waiver is effective, Minassian is not barred from
asserting the usury claim, but its assertion will not preclude entry of
judgment against him on the foreclosure claim.
The RTC contends that, regardless of the validity of the Hackensack
loan usury claim, it is entitled to judgment because Minassian expressly
and effectively waived the right to interpose a claim of setoff or a
counterclaim in a promissory note signed by Minassian in connection with
the Fairview loan. That waiver provides:
Obligor [Minassian] hereby waives . . . the right to
interpose any set-off or counterclaim of any nature in
any litigation in which the Lender [Riverside] or any
obligor shall be adverse parties.
It is clear and unambiguous. Therefore, unless invalid for other
reasons, the waiver is enforceable.
The validity of contractual waivers of the right of setoff and
counterclaim have not been addressed by the courts of New Jersey. New
York courts, however, have held that such provisions do not violate
public policy and are enforceable unless their enforcement would bar a
"viable setoff or counterclaim sounding in fraud." FDIC v. Borne,
599 F. Supp. 891, 894 (S.D.N.Y. 1984); accord, Barclays Bank of New York
v. Heady Electric Co., ___ A.D.2d ___, 571 N.Y.S.2d 650 (3d Dep't 1991).
This Court predicts that the courts of New Jersey would apply the same
Minassian's usury claim cannot be construed as a claim sounding in
fraud. Even if the rate of interest charged exceeded a legal limit, there
was no deception involved in obtaining Minassian's agreement to pay it.
Further, even if the right to setoff or counterclaim asserted by
Minassian were based on the fraud of Riverside as discussed below, it
would not be "viable" against the RTC due to the D'Oench, Duhme
doctrine. Therefore, Minassian may not defeat the foreclosure action by
asserting a setoff or counterclaim. Accordingly, summary judgment will be
granted on the foreclosure action, and, because Minassian has not
disputed the amount due and owing on the loan, a final judgment will be
entered in the amount sought by the RTC.
B. Can Minassian Assert a Claim of Usury Against the RTC?
The RTC and Minassian have cross-moved for summary judgment on the
usury claim related to the Hackensack loan. The Hackensack loan agreement
provided that Riverside would lend Minassian $3.5 million, and that the
term of the loan was from February 27, 1987 to February 27, 1989.
Prepayment of the loan was permitted "in whole or in part any time
subject to the payment of prepayment fees set forth in the Note."
Minassian executed a Promissory Note on February 27, 1987 in connection
with the Hackensack loan that provided in relevant part:
Unless otherwise agreed to in writing by Debtor, this
Note may be prepaid in whole or in part, at any time
provided that Debtor pays to Lender a prepayment fee
and penalty in the sum of $772,000.00 or in the event
the Project consists of more than 36 units such amount
equal to $22,000 per unit less the amount of release
fee, if any, previously paid for the releases of part
of the mortgaged premises and more particularly set
forth in the Loan Agreement.
During development of the condominium project and the term of the
loan, as Riverside released liens on the individual units that had been
sold, Minassian paid a prepayment penalty to Riverside of, $22,000 per
unit. Minassian contends that the prepayment penalties, together with the
interest charged, exceeded the legal limit that could lawfully be charged
as interest on a loan. Minassian also contends that the loan was
unconscionable, if not usurious.