The following papers numbered 1 to 10 read herein:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed1-34-5

Opposing Affidavits (Affirmations)5-910

Reply Affidavits (Affirmations)10

Affidavit (Affirmation)

Other Papers

Upon the foregoing papers, Boro P. Health Management, LLC (Boro Health) and Tamara Levy (Levy) (collectively, plaintiffs) move, pursuant to CPLR 3212, for an order granting them summary judgement in this action to enforce a loan agreement and guaranties against Boro for Health, LLC (BFH), Boris Yuabov, Eugene Yuabov, Valeryan Yuabov and Vladimir Portilov (collectively, defendants). Plaintiffs also move to dismiss defendants' eight asserted affirmative defenses. Defendants cross-move for leave to amend their answer with six counterclaims.

Boro Health, Levy's limited liability company, managed and administered Professional Health Imaging, P.C., a medical diagnostic practice in Brooklyn. Plaintiffs contracted, on July 24, 2011, to sell their business, including rights, titles, interests, equipment, furnishings, supplies and intellectual property, to BFH for $1,343,636.42 (the Purchase Agreement).

The Purchase Agreement stipulated that BFH make a $135,000 down payment at signing and a $665,000 payment at closing and that a loan agreement between plaintiffs [*2]and defendants would account for the remaining $543,636.42. This arrangement provided for interest to accrue at two percent yearly and defendants to pay nothing for the first three months and $42,307.69 for each of the following 13 months. The Purchase Agreement also granted BFH a line of credit available for the first two months after the sale.

The Purchase Agreement contained plaintiffs' promise to give BFH, at closing, all necessary documents, titles and records necessary for running the business in return for defendants' delivery of $665,000 and the completed loan documents. Plaintiffs also made a number of warranties, including: the legal validity of the sale; the absence of undisclosed liabilities; their free and clear title to assets and interests transferred; the good condition, legal and regulatory conformity and usability and salability of personal property transferred; their past compliance with applicable laws, regulations and licensing requirements; the absence of adverse conditions; the validity of transferred contracts and instruments; and their completeness of disclosure. The Purchase Agreement further conditioned BFH's obligation to perform at closing on the truth and correctness of plaintiffs' representations and warranties, plaintiffs' performance, release and discharge of any liens or encumbrances and absence of material damages.

Boro Health, by Levy, and BFH, by Boris Yuabov, executed a loan agreement on August 2, 2011 (the Loan Agreement). It conditioned Boro Health's obligations on BFH's delivery of the Loan Agreement, a promissory note (the Note) and full recourse guaranties (the Guaranties), the truth of BFH's representations and the absence of default. It also permitted BFH to withhold payments to Boro Health to the extent that Boro Health defaulted on its agreement to provide BFH a business loan or business line of credit. The Loan Agreement additionally granted plaintiffs the explicit ability to assign their rights or delegate their duties.

The Note, executed on August 2, 2011 by Boris Yuabov as BFH's managing member, restated the loan terms as outlined in the Purchase Agreement and defined default to include late payment of any installment. BFH also agreed, by the terms of the Note, to waive any right to a demand or notice of nonpayment and to pay all costs and reasonable attorney's fees incurred by Boro Health in an enforcement action.

Each of the individual defendants also executed a Guaranty on August 2, 2011, in which he "unconditionally and irrevocably guarantee[d] the prompt and complete payment of the Loan by Borrower." Each individual defendant assumed joint and several liability as guarantor for up to 100% of the loan amount and waived any right to require Boro Health to proceed against BFH or other guarantors, to proceed against any security or to pursue any other remedies. Each guarantor also agreed to pay reasonable attorney's fees and costs arising from an enforcement action against him.

Defendants thereafter took over the business and assets conveyed by plaintiffs. They made loan payments to plaintiffs in November and December of 2011 and January, April and May of 2012, but no other payments. Plaintiffs claim that defendants made even these payments late, and only in response to notices of default and demands to cure.

Plaintiffs commenced this action on August 9, 2012 and alleged causes of action sounding in breach of contract and fraud in the inducement. Plaintiffs alleged that defendants breached the terms of the Purchase Agreement, the Loan Agreement, the Note and the Guaranties by failing to make required payments and subsequently owed plaintiffs $332,111.42 plus interest and penalties. They further alleged that the individual [*3]defendants' Guaranties represented material misrepresentations designed to induce plaintiffs' reliance and that plaintiffs reasonably relied on these misrepresentations in making the loan. Plaintiffs additionally urged that the loan documents rendered defendants liable for plaintiffs' litigation costs and attorney's fees.

Defendants answered and asserted affirmative defenses of (1) failure to state a claim, (2) lack of standing in the absence of a legally cognizable injury, (3) absence of causation, (4) detrimental reliance, (5) "availability of an equitable remedy at law," (6) laches, (7) waiver and estoppel and (8) unclean hands.

Plaintiffs now move for summary judgment and to dismiss defendants' affirmative defenses. They argue that they have established the existence of binding loan documents executed by defendants and subsequent nonpayment and are thus entitled to judgment on the balance due. The Guaranties, allege plaintiffs, are unambiguous in rendering the individual defendants jointly and severally liable for up to 100% of the loan. Plaintiffs calculate that defendants owe $332,111.42 in principal, $7550 in attorney's fees and costs, $4428 for interest accrued between June and November 2012 and additional interest "at the Default rate from June 2012, to the date of entry of judgment."

Plaintiffs further argue that the individual defendants made material misrepresentations that they would unconditionally guarantee payment of BFH's loan obligations when they actually had no intent to pay any loan amounts due. Plaintiffs contend that the individual defendants purposefully made these representations to induce plaintiffs to make the loan to BFH and that plaintiffs suffered damages when they "rightfully relied" on the representations.

Plaintiffs additionally characterize defendants' eight affirmative defenses as conclusory and meritless. They assert that defendants fail to adequately substantiate their affirmative defenses with any supporting facts and urge striking those defenses.

Plaintiffs support their motion with the affidavit of Levy, who recites the facts already outlined above. She recounts that plaintiffs sent default notices and demands for payment and also avers that defendants made only five of the 13 payments due and thus still owe plaintiffs $332,111.42 plus interest and penalties.

Defendants argue, in opposition, that there exist triable factual questions whether plaintiffs breached the Purchase Agreement and whether such breach precludes awarding plaintiffs summary judgment. Case law, assert defendants, bars granting summary judgment for breaching a promissory note intertwined with another agreement that the lender may have breached. Defendants contend that plaintiffs breached their Purchase Agreement promises that the equipment conveyed was in good operating condition and repair, in conformity with applicable laws and regulations and usable and salable.

Specifically, defendants assert that plaintiffs misrepresented the quality and condition of their magnetic resonance imaging (MRI) equipment and the regulatory compliance of their mammography machine. Defendants contend that plaintiffs did not notify them of the MRI machine's defective chiller unit, which had purportedly been malfunctioning since 2007 and caused damage to the cooling system. They assert that plaintiffs had paid their MRI service contract delinquently, thus risking a lapse in required maintenance. Defendants also allege that their mammography accreditation was revoked days after the sale due to plaintiffs' acts or omissions, which accreditation required months and expenses over $10,000 to regain. They further assert that plaintiffs sold them outdated computers with lapsed maintenance contracts, necessitating costly repairs and [*4]replacements, and that plaintiffs had represented that they would convey 32 software licenses, but only conveyed five. Defendants allege that their landlord notified them that plaintiffs left over $59,000 in real estate taxes due on the premises. Finally, defendants assert that plaintiffs never produced multiple schedules of items to be conveyed under the Purchase Agreement, and that they may thus be entitled to unknown, undelivered assets.

Each of the individual defendants also submitted an affidavit recounting the same facts and making the same arguments.

Defendants also cross-move, pursuant to CPLR 3205, for leave to amend their answer with six counterclaims arising out of the sale and sounding in breach of contract, breach of warranty, breach of fiduciary duty, restitution, fraud in the inducement and negligence. Plaintiff should not suffer any prejudice or surprise, allege defendants, because defendants would simply file a separate action on the same grounds, and judicial economy should then favor consolidation.

Plaintiffs, in reply, label defendants arguments conclusory and self-serving, and stress that defendants do not challenge plaintiffs' allegations concerning the validity of the loan documents. Plaintiffs urge that the loan documents stand alone, independent of the purchase agreement, and that they have sufficiently proven the elements of a valid debt and nonpayment. Plaintiffs contend that any problems with the MRI machine occurred after sale to defendants and that defense counsel's representations regarding the chiller unit's purported defects carry no weight because she is not an expert. They stress that their late maintenance contract payments never actually endangered such contract and that defendants offer no evidence supporting the allegation that the facility lost its mammography accreditation. Plaintiffs maintain that they gave defendants ample access and opportunity to inspect their equipment and records, defendants performed "exhaustive due diligence" and defendants thus knew what they were receiving in the sale. Plaintiffs assert that they transferred their property lease free and clear of encumbrances and that the landlord never demanded any real estate taxes from them.

Plaintiffs further argue that defendants' motion for leave to amend merits denial as their proposed counterclaims lack the requisite particularity, and thus are legally insufficient. Defendants present no facts, contend plaintiffs, to support their allegations of breach of contract, breach of warranty and breach of fiduciary duty. Plaintiffs state that defendants never notified them of any problems with the equipment conveyed and that defendants cannot show any harm resulting from plaintiffs' acts. Plaintiffs contend that they owed defendants no fiduciary duty and that case law warrants dismissal of breach of fiduciary duty claims duplicative of breach of contract claims.

Plaintiffs submit the affidavit of Shlomo Levy, Boro Health's administrator, to further support their summary judgment motion. He avers that defendants visited the business several times before the sale's closure to review records and inspect equipment. He also states that plaintiffs consistently kept the MRI, mammography and computer systems in good working order and that any subsequent malfunctions must be due to defendants' acts. Shlomo Levy further asserts that one of Boro Health's payments for its MRI service contract became lost in the mail, but that plaintiffs quickly resolved this issue and never actually risked the service contract's cancellation.

A summary judgment movant must show prima facie entitlement to judgment as a matter of law by producing sufficient admissible evidence demonstrating the absence of [*5]any material factual issues (CPLR 3212 [b]; Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). Failure to make such a showing requires denial of the motion regardless of the sufficiency of any opposition (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012]). The opposing party overcomes the movant's showing only by introducing "evidentiary proof in admissible form sufficient to require a trial of material questions" (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Considering a summary judgment motion requires viewing the evidence in the light most favorable to the motion opponent (Vega, 18 NY3d at 503). Nevertheless, "mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to defeat a summary judgment motion (Zuckerman, 49 NY2d at 562). "The court's function on a motion for summary judgment is to determine whether material factual issues exist, not to resolve such issues" (Ruiz v Griffin, 71 AD3d 1112, 1115 [2010] [internal quotation marks omitted]).

A breach-of-contract cause of action requires showing a contract between plaintiff and defendant, that the plaintiff performed under the contract's terms, that the defendant did not perform and that damages resulted to the plaintiff (Brualdi v IBERIA, Lineas Aereas de España, S.A., 79 AD3d 959, 960 [2010]). A plaintiff seeking summary judgment in a contract action to enforce a debt due under a promissory note and guaranty makes a prima facie showing "by submitting proof of the promissory note and guarantee, and of the defendant's default" (Agai v Diontech Consulting, Inc., 64 AD3d 622, 623 [2009]; see also Goodyear Tire & Rubber Co. v Azzaretto, 103 AD3d 880, 881 [2013]; Estate of Agnes M. Broche v Tai, 98 AD3d 601, 601 [2012]; Sound Shore Med. Ctr. of Westchester v Maloney, 96 AD3d 823, 823-24 [2012]). Thus, introducing a copy of the subject instruments as well as an affidavit of nonpayment sufficiently demonstrates a prima facie case (Poah One Acquisition Holdings V Ltd. v Armenta, 96 AD3d 560, 560 [2012]; Council Commerce Corp. v Paschalides, 92 AD2d 579, 579 [1983]).

"While generally the breach of a related contract cannot defeat a motion for summary judgment on an instrument for money only, that rule does not apply where . . . the contract and instrument are intertwined" (Lorber v Morovati, 83 AD3d 799, 800 [2011]; see also Vecchio v Colangelo, 274 AD2d 469, 471 [2000]; Tibball v Catalanotto, 269 AD2d 386, 387 [2000]; cf. New York Community Bank v Fessler, 88 AD3d 667, 668 [2011] [affirming summary judgment because note and line of credit agreement separately enforceable]; Neuhaus v McGovern, 293 AD2d 727, 728 [2002] [affirming summary judgment because allegedly intertwined lease did not require additional performance as condition precedent to repayment]).

Here, defendants contend that the loan documents were inextricably intertwined with the Purchase Agreement and that plaintiffs' alleged breach of that contract bars its recovery under the loan documents. Although the Purchase Agreement is clearly related to the Loan Agreement, Note and Guaranties, defendants fail to establish that these contracts are intertwined. Indeed, none of the loan documents refer to, much less expressly condition their performance on, the Purchase Agreement's terms. The Loan Agreement begins by stating that borrower and lender agree to the loan "for the purposes and upon the terms set forth herein" and concludes with a merger clause, which states that the Loan Agreement, Note and Guaranties "set forth the entire understanding between Borrower and Lender relative to the Loan and the same supersede all prior agreements and understandings relating to the subject matter hereof or thereof."

Plaintiffs' contractual freedom to assign its rights and obligations under the Loan [*6]Agreement further demonstrates the independence of these two arrangements. Nothing in the loan documents suggests even the least interdependency with the Purchase Agreement; even a hypothetical total repudiation of the Purchase Agreement by plaintiffs (e.g., selling their business to another party) would have raised no apparent legal obstacle to either party's enforcing the Loan Agreement. The loan documents and the Purchase Agreement cannot, therefore, be considered intertwined.

Plaintiffs make a prima facie showing that the Loan Agreement, Note and Guaranties oblige defendants to pay them the agreed-upon amount and that defendants have not paid such amount. Defendants do not contest the validity of the loan documents and, in fact, admit that they have made only five of the 13 required payments. The loan documents are not intertwined with the Purchase Agreement, and summary judgment must therefore be granted on plaintiffs' breach-of-contract cause of action. Defendants' counterclaims, however, and the contingent possibility of offset flowing from those counterclaims, necessitate suspending a damages award until the resolution of all other issues in this action.

"To sustain a claim for fraudulent inducement, there must be a knowing misrepresentation of material fact, which is intended to deceive another party and to induce them to act upon it, causing injury" (Sokolow, Dunaud, Mercadier & Carreras v Lacher, 299 AD2d 64, 70 [2002], see also Jo Ann Homes at Bellmore v Dworetz, 25 NY2d 112, 118-19 [1969]). A promissory statement may constitute a factual misrepresentation only if a plaintiff shows that the promisor harbored an undisclosed intent not to honor the promise (see Venables v Sagona, 85 AD3d 904, 906 [2011]). A plaintiff thus succeeds on a fraud claim based on a promissory misrepresentation by proving facts, aside from mere nonperformance, indicating the promisor's concurrent intent not to perform (see 627 Acquisition Co., LLC v 627 Greenwich, LLC, 85 AD3d 645, 647 [2011]; Brown v Lockwood, 76 AD2d 721, 732-33 [1980]).

Here, plaintiffs submit no evidence indicating that defendants intended not to perform when they executed the loan documents. Merely establishing nonperformance fails to demonstrate a concurrent intent not to perform, and plaintiffs make only a conclusory assertion that "it is now evident that Defendants had no intention of paying any of the moneys due." They have thus failed to make a prima facie showing regarding fraudulent inducement, and summary judgment must be denied for that cause of action.

CPLR 3211 (b) permits "dismissing one or more defenses, on the ground that a defense is not stated or has no merit." To warrant dismissing an affirmative defense, a movant must demonstrate that it lacks merit as a matter of law (Mazzei v Kyriacou, 98 AD3d 1088, 1089 [2012]; Greco v Christoffersen, 70 AD3d 769, 771 [2010]). Reviewing such a motion requires construing the pleadings in favor of the party making the defense and giving that party the benefit of every reasonable inference (Mazzei, 98 AD3d at 1089). "If there is any doubt as to the availability of a defense, it should not be dismissed" (Galasso, Langione & Botter, LLP v Liotti, 81 AD3d 880, 882 [2011] [internal quotation marks omitted], lv denied in part, dismissed in part 17 NY3d 847 [2011], rearg denied 18 NY3d 837 [2011]). A plaintiff may not, however, move to dismiss a defense of failure to state a cause of action "as this amounts to an endeavor by the plaintiff to test the sufficiency of his or her own claim" (Butler v Catinella, 58 AD3d 145, 150 [2008]; see also Mazzei, 98 AD3d at 1089).

Here, defendants assert eight affirmative defenses simply by naming them in their [*7]answer without any factual or legal support. Most of these defenses therefore warrant dismissal as conclusory and meritless. No facts suggest that plaintiffs lack standing or suffered no legally cognizable injury or that plaintiff's damages resulting from defendant's alleged breach of contract or fraud were "not caused by the acts of Defendants." Defendants cannot claim that they detrimentally relied on plaintiffs' acts or omissions or that plaintiffs' claims are barred by waiver or estoppel as they have admitted nonpayment and have not pleaded that plaintiffs gave some indication that payments were not required. Defendants have offered no evidence that plaintiffs have prejudicially delayed in asserting their rights to thereby support a laches defense. Defendants fail even to state a proper defense in asserting that plaintiffs' claims are barred by "the availability of an equitable remedy at law." The unclean hands principle defends only against a plaintiff seeking equitable relief (Wells Fargo Bank v Hodge, 92 AD3d 775, 776 [2012]), but plaintiffs seek only monetary damages. Accordingly, defendant's second through eighth affirmative defenses warrant dismissal. Defendants' first affirmative defense, failure to state a cause of action, however, is not subject to dismissal on this motion as outlined above.

CPLR 3025 (b) states that leave to amend a pleading "shall be freely given upon such terms as may be just." Leave shall not be freely given, however, where the proposed amendment would cause prejudice or surprise to the opposing party or is insufficient or devoid of merit (Seidman v Industrial Recycling Props., Inc., 83 AD3d 1040, 1040-41 [2011]). Nevertheless, "a court should not examine the merits or legal sufficiency of the proposed amendment unless it is palpably insufficient or patently devoid of merit on its face" (Giunta's Meat Farms, Inc. v Pina Cosntr. Corp., 80 AD3d 558, 559 [2011]; Rosicki, Rosicki & Assoc., P.C. v Cochems, 59 AD3d 512, 514 [2009]).

Here, nothing renders any of defendant's proposed counterclaims palpably insufficient or patently devoid of merit on its face. Each of the six proposed counterclaims pleads the elements of a potential legal or equitable action and relates such elements to facts allegedly supporting them. Furthermore, plaintiffs have made no argument that allowing defendants to amend their answer with the proposed counterclaims would surprise or prejudice plaintiffs. Indeed defendants properly note that they could still timely commence an independent action for the same claims, which would likely be consolidated with this action, and plaintiffs thus would suffer no legal detriment by the amendment. Leave to amend must, therefore, be granted.^[FN1] Accordingly, it is

ORDERED that plaintiffs' summary judgment motion is granted regarding the breach-of-contract cause of action, with a damages award suspended until the resolution of all other issues in this case, and is otherwise denied; and it is further

ORDERED that plaintiffs' motion to dismiss defendants' affirmative defenses is granted as to the second through eighth affirmative defenses and denied as to the first affirmative defense; and it is further

ORDERED that defendants' cross motion for leave to amend their answer is granted in its entirety, and defendants shall serve plaintiffs with the amended answer within 20 days after services of this decision and order with notice of entry.

This constitutes the decision and order of the court.

E N T E R, [*8]

J. S. C.