What Do a Cat and Black Bear Teach Us About “Inextricably Intertwined” Claims and Contracts?

21-Jul-2015

CPLR 3213 permits, among other things, a plaintiff seeking to secure a judgment on an instrument for the payment of money only to do so on an expedited basis, bypassing the initial pleading stage and proceeding, right out of the gate, to summary disposition.  Where, however, a plaintiff’s claims under the instrument (e.g., a promissory note or guaranty) are “inextricably intertwined” with claims – often counterclaims – arising under a related contract, a defendant may be able to mount a meritorious defense to the CPLR 3213 motion.

New York’s Appellate Division recently issued two back-to-back decisions that nicely illustrate the contours and operation of this possible defense to what otherwise presents a plaintiff with a streamlined approach to securing a judgment on the instrument.

In a decision issued on May 13, 2015, Montecalvo v. Cat East, LLC, 128 A.D.3d 783 (2d Dep’t 2015), the Second Department explained that, “[w]hile, generally, a 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 the instrument are inextricably intertwined.”  Id. at 783 (quotation and citations omitted).

In that case, commenced to recover on a promissory note and personal guaranty, the defendant previously had brought an action to recover damages against the plaintiff, alleging that the plaintiff had breached an operating agreement that the Court held was “inextricably intertwined” with the instruments the plaintiff had sued upon.  See id.  In particular:  (i) by the time of the appeal, the two actions had been joined for trial; (ii) the promissory note referred to the operating agreement for the purpose of defining certain terms set forth in the note; and (iii) the promissory note and personal guaranty were referred to in, and were appended as exhibits to, the operating agreement.  See id.

In another decision issued the very next day, Black Bear Fuel Oil, Ltd. v. Swan Lake Developers LLC, 128 A.D.3d 1191 (3d Dep’t 2015), the Third Department affirmed the trial court’s denial of the plaintiff’s CPLR 3213 motion, holding that, because the defendant’s counterclaims – for breach of the implied covenant of good faith and fair dealing, for tortious interference with business relations and for prima facie tort – were “intextricably intertwined” with the underlying settlement and mortgage subordination agreements, summary judgment was precluded.

Before doing so, the Court recognized that, because one of the defendants was not a party to the relevant guaranty agreement, the plaintiff was not entitled to summary judgment as against that defendant.  With respect to the remaining defendants, however, the Court acknowledged the defendants’ allegations that “actions undertaken by plaintiff following the execution of the relevant agreements that . . . resulted in the loss of [the defendants’] tenant, otherwise impaired their rights and/or ability to utilize the subject property and ultimately led to their inability to comply with the terms of the subordination agreement.”  Id.  One member of the Court dissented, in part, asserting that “defendants’ factual allegations and evidence do not support a legal basis to provide them any relief.”  Id

Despite the dissent rationale in Black Bear Fuel Oil, Ltd., the fundamental and well-established proposition remains – in general, a breach of a related contract cannot defeat a motion for summary judgment on an instrument for money only, except where the contract and the instrument are “inextricably intertwined.”  Cat East, LLC, 128 A.D.3d at 783.  As a result, parties to agreements that are guaranteed by a separate instrument (for the payment of money only) should remain cognizant of the fact that the nature and extent of the relationship between the instrument and the underlying agreement can affect a party’s ability to enforce the instrument/guaranty in a streamlined and efficient fashion.  Of course, whether and to what extent the separate agreements are, or should be, “inextricably intertwined” is a factual issue that inevitably will vary with the circumstances.

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Aldous PLLC is a law firm located in mid-town Manhattan and Westchester (New York), dedicated to providing quality and cost-effective legal services to its clients.  The Firm works with global companies and individuals to avoid legal problems and to resolve the ones they have.  Aldous PLLC’s founding member, Kenneth E. Aldous, is an experienced lawyer, qualified to practice in both the U.S. and UK, who has represented a broad range of diverse interests in complex litigation before various federal and state courts, as well as in domestic and international arbitration.

With the right experience, an unwavering dedication to client needs, and a strong commitment to quality – not to mention a strategic network of outside legal professionals in a variety of specializations and geographic locations – Aldous PLLC offers its clients an attractive alternative. Whatever your legal needs, Aldous PLLC is well situated to help you and your business find your way through a complex and fast-paced world.

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