This action arises out of an $8 million loan (the "Loan") made by defendant ACG Credit Company II, LLC ("ACG") to plaintiffs 360 West 11th Street LLC and/or 360 Development Corp. (collectively "360") in February 2006, which was secured by a first mortgage on real property owned by 360 (the "Property"). The Loan was repaid in full on or about January 29, 2007, together with interest at the rate of 11.5%, and fees and associated expenses of approximately $9,000.

ACG now moves for an Order, pursuant to CPLR 2214(b) and 3212(a) and (b), granting summary judgment in its favor on the counterclaims set forth in its answer and dismissing the [*2]causes of action set forth in the complaint. ACG seeks to recover over and above the amounts it already received upon payoff of the Loan based on purported "events of default" committed by 360 prior to and during the term of the Loan Agreement.

The Loan Agreement and the Purported Defaults

The Loan Agreement specifies that an "Event of Default" triggers a "super" default interest rate on the Loan.^[FN1] ACG contends that 360 violated four contractual obligations, and, that as a result, it owes additional money.

360 denies that there has been any default and asserts that even if there was one, it was immaterial or waived by ACG. 360 further contends that it is entitled to conduct discovery with respect to ACG's allegations.

A.Property Free and Clear of Liens

First, ACG contends that, in executing the Loan Agreement on February 10, 2006, 360 represented and warranted that the Property was free and clear of all liens except one disclosed mortgage of approximately $785,000. However, at the time of the closing, the Property was also encumbered by an HSBC Home Equity Mortgage, in the amount of approximately $1.1 million which Julian Schnabel, the majority owner of 360, had entered into in June of 2003, and, through error was not recorded against the Property, and thus omitted from the Title Insurance policy. Apparently, the HSBC loan had been erroneously recorded against the wrong property but the error was corrected in May 2006. According to ACG, it discovered the HSBC loan in January 2007, when its real estate counsel was preparing for 360's refinancing of the Loan.

ACG argues that the failure to disclose the HSBC loan in the Loan Agreement constitutes an Event of Default, entitling it to collect the increased Default Rate of Interest for the entire duration of the Loan. ACG calculates that it is owed $426,201.12 for this default.

In response, 360 alleges that it informed ACG of the HSBC loan prior to the Loan's closing and that ACG responded that it was not a problem and proceeded with the closing. 360 thus maintains that ACG should be barred from now, for the first time, asserting that the HSBC loan placed 360 in default. 360 further maintains that the alleged misrepresentation was not material, as required by section 8.1(1) (v) of the Loan Agreement before establishing a breach, since ACG had prior knowledge of the HSBC loan and was not injured or disadvantaged.

B.Arrangement Fee

Second, ACG contends that, pursuant to the Loan Agreement, 360 was obligated to pay the Arrangement Fee by August 10, 2006. Since 360 did not pay this fee until September 19, 2006, ACG claims that it is owed an additional $204,030.27, representing Default Rate interest from August 10, 2006 to January 29, 2007, when the Loan was paid off. 360 contends that it paid the Arrangement Fee, with interest on September 19, 2006, pursuant to an accommodation [*3]granted by ACG, the terms and circumstances of which are set forth in detail by 360 in its opposition papers. In addition to an accommodation, 360 contends that ACG has waived and should be estopped from claiming a default, and that any "reservation of rights" language set forth by ACG in a letter, dated December 21, 2006, months after the key events took place, is without effect.

C.Interest Reserve

Third, ACG contends that, pursuant to the Loan Agreement's Interest Reserve provisions, 360 was obligated to place six months' worth of pre-paid interest in a fund. ACG claims that 360 failed to comply with its obligations, which constituted an Event of Default entitling it to an additional $141,456.48 (representing Default Rate interest from October 1, 2006 to January 29, 2007).

360 argues that the six-month interest payments were due February and August 2006, not April and October 2006, as ACG claims. According to 360, it made the "six month" for February 2006, but, in August 2006 and September 2006, it made "one month" payments instead of "six month" payments, in accordance with an accommodation granted by ACG. 360 maintains that a dispute arose in October 2006 when ACG demanded a payment of six months' interest rather than four months' interest. 360 asserts that ACG never gave it notice of the alleged default and an opportunity to cure as required by the Loan Agreement, but, instead, threatened to declare a default. 360 further submits that ACG's December 2006 notice of default was ineffectual because it purported to backdate 360's alleged default, and thus, provided neither proper notice nor an opportunity to cure. 360 also maintains that the Loan Agreement is ambiguous as to the meaning of "Payment Date," and therefore, discovery must be conducted to ascertain the parties' intentions and summary judgment must be denied.

D.Attorneys' Fees

Fourth, ACG contends that it incurred attorneys' fees in the amount of $43,000, which the Loan Agreement obligated 360 to pay. That provision, section 5.1.27, provides that 360 shall:

"pay when due all reasonable costs and expenses, including, without limitation. . . attorneys' fees . . . in connection with . . . the administration and enforcement of this Agreement . . . and Borrower will, within 20 days after demand by Lender, reimburse Lender for all such expenses which have been incurred. All amounts incurred by Lender under this Section, together with interest at the Default Rate from the due date until paid by Borrower, shall be added to the Debt and shall be secured by the lien of the Mortgage."

In opposition, 360 contends, among other things, that there is no proof that ACG actually incurred the attorneys'-fee charges or that such fees were reasonable. It interprets section 5.1.27 as meaning that 360 can only be held in breach of the attorneys'-fee provision if it fails to reimburse ACG for fees it paid within 20 days of demand. Again, 360 claims that it did not receive a proper demand for payment of the fees, notice of the alleged default or an opportunity to cure as required by the Loan Agreement.

360's Refinancing and Payoff of the Loan and the Commencement of this Action

In January 2007, 360 notified ACG that it obtained a loan from Commerce Bank, which [*4]would entail refinancing and paying off the Loan. Claiming that funds were due from 360, ACG refused to execute the requested documents and assignments. 360 then commenced this action and sought a preliminary injunction, directing ACG, among other things, to: (a) provide 360 with a payoff letter stating the amount owed to ACG under the Loan; (b) provide 360's new lender, Commerce Bank, with an assignment of the mortgage; and (c) accept the amount of monies claimed to be owed to it, as provided in its payoff letter, provided that to the extent that there were disputes about charges, the parties would deposit money with the Court that would be held in escrow pending a determination of the validity of those claims. 360 also sought a declaration that it was not in default of the Loan Agreement.

By order, dated January 26, 2007, the application for a preliminary injunction was granted in part, and the Court directed that ACG hold $200,000 in escrow pending a determination. On appeal, the Appellate Division, First Department increased the amount to "$572,000 on condition that plaintiffs post a $100,000 undertaking therefor, and otherwise affirmed" [the January 26, 2007 Order].

ACG contends that it is entitled to summary judgment as a matter of law with respect to 360's defaults. In opposition, 360 contends that none of the alleged events relied upon by ACG constitutes an event of default under the Loan Agreement, and, at the very least, there are triable issues of fact requiring denial of summary judgment. 360 further submits that ACG has suffered no damages whatsoever from these alleged defaults, and that the provisions of the Loan Agreement by which ACG seeks recovery are unenforceable liquidated-damage provisions that bear no reasonable relationship to the actual damages sustained. Finally, 360 submits that the motion is improper because there has been no discovery.

A proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issue of fact (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). "[I]t must clearly appear that no material issue of fact has been presented. Issue finding rather than issue determination is the key. Since summary judgment is the procedural equivalent of a trial, any doubt as to the existence of a triable issue, or where the material issue is 'arguable,' requires the denial of summary judgment" (Stalter v Prudential Ins. Co. of America, 220 AD2d 577, 578 [2d Dept 1995] [citations omitted]).

ACG has not met its burden of demonstrating entitlement to judgment as a matter of law. In fact, this case presents numerous material triable issues—such as whether there were any defaults in the first place—that require discovery and cannot be resolved in the absence of a trial.^[FN2] In light of the factual issues presented, this motion is premature insofar as it was made before any discovery was conducted (see, First Bank of Americas v Motor Car Funding, Inc., 257 AD2d 287, 293 [1st Dept. 1999]). To the extent that ACG also seeks summary judgment [*5]dismissing the causes of action set forth in the complaint, ACG proffers only conclusory allegations and no evidentiary support for the relief requested.

Accordingly, it is

ORDERED that ACG's motion for summary judgment is denied in its entirety.

This constitutes the Decision and Order of the Court.

Dated: New York, New York

June 25, 2008

E N T E R

Hon. Eileen Bransten