On appeal from the Superior Court of New Jersey, Chancery Division, General Equity, Hudson County, Docket No. C-52-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 22, 2010 - Decided Before Judges Fisher and Sapp-Peterson.
Plaintiff/counterclaim-defendant Dilawez Hoda appeals from the trial court order granting summary judgment in favor of counterclaimant Applied Monroe Lender, LLC (AML).*fn1 In granting summary judgment, Judge Thomas P. Olivieri found Hoda jointly and severally liable for the repayment of funds advanced by Strategic Peformance Fund-II, Inc. (SPF) to Monroe Center II Urban Renewal Corporation, LLC (Monroe II). We affirm.
The facts underlying the dispute arise out of the default on a construction loan issued to Monroe II. Monroe II was part of a five-phase real estate development project in Hoboken, collectively known as Monroe Center. Hoda and plaintiff/counterclaim-defendant Gerard Saddel, Jr. were each fifty percent holders of membership interests in Monroe II.
On July 20, 2005, Monroe II, as borrower, and Sovereign Bank (Sovereign), as lender, entered into a construction loan agreement in which Sovereign agreed to loan Monroe II up to $41 million for the construction of improvements for Phase II of the project. The loan was secured by a mortgage on real estate located at 630 8th Street in Hoboken. On that same date, in conjunction with the Sovereign loan, SPF agreed to loan Monroe II $12 million for the principal mezzanine part (Mezzanine Loan) of Phase II.
To secure payment of the Mezzanine Loan, Monroe II executed loan documents. In addition, SPF required that Hoda and Saddel execute a "Carveout Guaranty" agreement in which each agreed, as guarantors of the Mezzanine Loan, among other conditions, that "[a]s a condition precedent to Lenders making the Loan, Lender has required that Guarantors enter into this Guaranty to unconditionally guarantee payment to Lender of the Guaranteed Obligations (as herein defined)."
The agreement further provided:
Each Guarantor hereby consents and agrees to each of the following, and agrees that none of such Guarantor's obligations under this Guaranty shall be released, diminished, impaired, reduced or adversely affected by any of the following, and waive any common Law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following:
(b) The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantors or any other party at any time liable for the payment of all or part of the Guaranteed obligations; or any dissolution of Borrower, Guarantors or any other Loan Party; or any sale, lease or transfer of any or all of the assets of Borrower, Guarantors or any other Loan Party; or any changes in the shareholders, partners or members of Borrower or any other Loan Party; or any reorganization of Borrower or any other Loan Party.
The obligations of Hoda and Saddel under the Carveout Guaranty also included their agreement to be personally liable on the loan in the event certain "recourse events" occurred. The definition of "recourse events" triggering their guaranty obligations included the filing of "voluntary bankruptcy or insolvency proceedings" by any party to the loan documents.
Monroe II defaulted on the loan in January 2008. The following month, SPF purchased the Sovereign loan along with the first mortgage on the 630 8th Street property. It subsequently assigned all of its rights, claims and interest as lender to SPF Monroe Center Lender, LLC (SPF Lender), which in turn assigned all of its rights, claims, and interests under the loan documents to AML.
AML commenced an action in Superior Court against Hoda and Saddel under the Carveout Guaranty, arguing that the bankruptcy filing by Monroe II triggered their personal guarantees under the Carveout Garanty. AML subsequently moved for summary judgment seeking a declaration that Hoda was jointly and severally liable for the repayment of what had accumulated to $23,369,195.55 at the time the motion was filed.*fn2 In opposing the motion, Hoda argued that AML was not entitled to a judgment holding him personally liable for repayment of the loan because it had breached its duty of good faith and fair dealing. Further, Hoda urged that the ipso facto clause termination rule, found under 11 U.S.C. § 365(e)(1) of the Bankruptcy Code, precluded enforcement of the Carveout Guaranty. Following oral argument on the motion, Judge Olivieri rejected Hoda's argument, concluding that Hoda failed to raise a genuinely disputed issue of fact demonstrating a breach of the duty of good faith and fair dealing by AML and that § 365(e) protection precluding the imposition of personal liability against a debtor did not extend to Hoda. The present appeal followed.
On appeal, Hoda argues that summary judgment was improperly granted because he is entitled to protections under § 365(e) and that AML's commencement of default proceedings based upon its failure to complete the construction by September 2007 was evidence of its bad faith since an additional ...