Court Opinion

ID: 5141566
Source: CourtListenerOpinion
Date Created: 2021-12-30 15:07:45.13321+00
Date Added: 2024-06-11T08:24:29.876322
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-1777-19
                                                                   A-1778-19

BANK OF CHINA, NEW YORK
BRANCH,

          Plaintiff-Respondent,

v.

L.V.P. ASSOCIATES, LLC,

          Defendant-Appellant,

and

PAUL V. PROFETA,

     Defendant.
___________________________

BANK OF CHINA, NEW YORK
BRANCH,

          Plaintiff-Respondent,

v.

349 ASSOCIATES, LLC,

          Defendant-Appellant,
and

PAUL V. PROFETA,

     Defendant.
___________________________

            Argued February 24, 2021 – Decided December 30, 2021

            Before Judges Ostrer, Vernoia and Enright.

            On appeal from the Superior Court of New Jersey,
            Chancery Division, Essex County, Docket Nos. F-
            018514-17 and F-018508-17.

            Marc J. Gross argued the cause for appellants (Fox
            Rothschild LLP, attorneys; Marc J. Gross, of counsel
            and on the briefs; Christine F. Marks, on the briefs).

            Joseph Lubertazzi, Jr., argued the cause for respondent
            (McCarter & English, LLP, attorneys; Joseph
            Lubertazzi, Jr., of counsel and on the briefs; Danielle
            Weslock, on the briefs).

      The opinion of the court was delivered by

OSTRER, P.J.A.D.

      In these back-to-back appeals, we consider again, but from a different

vantage point, the inter-related commercial mortgage loans that the Bank of

China ("the Bank") made to three limited liability companies owned by Paul V.

Profeta: defendant LVP Associates, LLC ("LVP"), defendant 349 Associates,

LLC ("349"), and 769 Associates, LLC ("769"). In 2007, the bank loaned:

                                                                       A-1777-19
                                      2
$14.35 million to 769, $10.5 million to 349, and $7.35 million to LVP, secured

by, respectively, mortgages on commercial office buildings at 769 Northfield

Avenue in West Orange, 349 East Northfield Avenue in Livingston, and 2128-

2144 Millburn Avenue in Maplewood. Each interest-only loan matured on July

1, 2017.

      We previously affirmed a final judgment of foreclosure of the mortgage

securing the 769 loan. Bank of China, New York Branch v. 769 Assocs., LLC,

No. A-2100-18 (App. Div. Oct. 8, 2020). And before that, the federal court in

New York interpreted disputed provisions of the loan agreements. LVP Assocs.,

LLC v. Bank of China, New York Branch, No. 17-cv-5274 (SHS), 2017 U.S.

Dist. LEXIS 190188 (S.D.N.Y. Nov. 16, 2017).           We assume the reader's

familiarity with those decisions, including the facts discussed therein, and give

collateral estoppel effect to the federal court's interpretation of the loan

agreements in its summary judgment ruling. See Tarus v. Borough of Pine Hill,

189 N.J. 496, 520 (2007) (barring relitigation of issues determined in prior

federal action between same parties involving same issue). 1

1
   Each transaction also included three other documents: the promissory note
(which incorporated the loan agreement's terms), a mortgage, and an assignment
of leases and rents and security agreement.
                                                                           A-1777-19
                                       3
      We consider here the Bank's foreclosure actions against 349 and LVP.

There is no dispute that defendants did not pay the balance due on their loans at

maturity. But that nonpayment occurred only after the Bank refused to permit

defendants to prepay their loans a month before maturity and to secure the

release of the mortgage liens, so they could sell their properties. In defense of

the foreclosure action, defendants argue that but for the Bank's wrongful actions,

there would have been no default.

      The Bank invoked the loan agreements' cross-default provision, which

makes it an event of default by one borrower, if there is an event of default by

one of the two other borrowers. The Bank contends that multiple pre-maturity

defaults by 769 constituted defaults by defendants, which justified the Bank's

refusal to release the mortgage liens upon prepayment. The bank alleges that

(1) there was a "material adverse change" in 769's "financial condition or results

of operations . . . or . . . the value of [its] Property"; (2) the Bank "in the exercise

of its sole reasonable discretion, deem[ed] itself insecure"; and (3) the ratio of

769's net operating income to its debt service — the "Debt Service Coverage

Ratio" or "DSCR" — had fallen below the required 1.25 to 1.

      The General Equity Part agreed that 769's pre-maturity defaults justified

the Bank's actions. The trial court granted the Bank summary judgment, striking

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                                           4
defendants' answers and counterclaims, and deeming the Bank's foreclosure

complaints as uncontested; and the court later entered final judgments for

foreclosure.

      On appeal from those orders, defendants contend there were genuine

issues of material fact contesting each alleged pre-maturity default. They also

contend that the bank breached the loan documents, violated the implied

covenant of good faith and fair dealing and acted inequitably. They also argue

summary judgment was premature because discovery was incomplete.

      We review the trial court's summary judgment order de novo, applying the

same Rule 4:46-2(c) standard as the trial court — that is, whether "there is no

genuine issue as to any material fact challenged and that the moving party is

entitled to a judgment or order as a matter of law."        Davis v. Brickman

Landscaping, Ltd., 219 N.J. 395, 405-06 (2014). To perform our role, we

"review the competent evidential materials submitted by the parties," just as the

trial court did. Bhagat v. Bhagat, 217 N.J. 22, 38 (2014). Not any factual issue

will defeat summary judgment; the issue must be material and the motion may

be granted "when the evidence 'is so one-sided that one party must prevail as a

matter of law.'" Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)

(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)). We also

                                                                           A-1777-19
                                       5
review de novo legal issues, including issues of contract interpretation, "[a]bsent

an ambiguity arising from disputed facts." Ace Am. Ins. Co. v. Am. Med.

Plumbing, Inc., 458 N.J. Super. 535, 539 (App. Div. 2019).

      Applying those standards, we affirm.

                                           I.

      We first consider defendants' argument that there are genuine issues of

material fact regarding 769's pre-maturity defaults: (1) material adverse change

in 769's financial condition, operating results or property value; (2) the Bank,

exercising its reasonable discretion, deemed itself insecure; and (3) 769 failed

to meet the DSCR.

                                           A.

      We begin by reviewing the record evidence to support the Bank's claim

that there was a "material adverse change" in 769's financial condition,

operations results, or property value. 2

2
  We agree with defendants that the Bank provided no support for its contention,
in its May 4, 2017, default letters to defendants, that there was a material adverse
change in their (not 769's) financial condition, operating results or property
value. However, in May 10, 2017 letters to defendants, the Bank invoked the
cross-default provision to assert that defendants were in default because of 769's
default, including the material adverse change in 769's financial condition,
operating results or property value.
                                                                              A-1777-19
                                           6
      There is no reasonable factual dispute that there were adverse changes.

The third-party vacancy rate at 769's building grew from twenty-seven percent

in 2010, to the low-to-mid-forties between 2012 and 2015, to sixty-two percent

in 2016. Though the parties do not attempt to define "results of operations" or

"financial condition" as set forth in the Amendment to Loan Agreement, the

plain meaning of the terms would appear to encompass this change. Cf. Herman

v. Sunshine Chem. Specialties, 133 N.J. 329, 345 (1993) (stating, in context of

punitive damages determination, that "financial condition" "roughly means the

ability to pay"). Furthermore, although Profeta or his entities leased the balance

of space, as they were entitled to do under the loan agreements, the drop in third-

party leases was indisputably a negative development.                That is so,

notwithstanding Profeta employee Steven Coleman's assertion that 769 was

accumulating a large vacant space in the hopes of leasing it to a single large

tenant. Unless and until he succeeded, the building was worse off.

      The value of the property had also fallen from almost $16 million in 2009

to just over $8 million in 2017. It matters not that the Bank did not obtain a

formal appraisal until after it declared the default. The Bank relied on the

expertise of its employees who opined, based on the rent rolls and general

economic conditions, the property's value had fallen. The appraisal bore that

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                                        7
opinion out. Furthermore, Coleman confirmed that 769's own employees were

aware the property's value was less than the indebtedness. And Profeta candidly

admitted that both he and the Bank were "aware that [the 769] property [was]

worth less than the loan balance." He also admitted that he had not "express[ed]

any disagreement" with executive vice-president of the Bank Raymond Qiao's

May 2017 estimate that the property was worth about $8 million.

      In April 2017, Coleman provided the Bank with a statement of operations

showing 769's net operating income had fallen from $409,000 in 2014 to

$10,700 in 2016 (after dropping consistently from over $2 million in 2009 to

$542,000 in 2013).      Defendants contend that Coleman (unintentionally)

mischaracterized numerous Profeta leases as month-to-month, instead of annual

leases. That depressed the net operating income because Coleman omitted

month-to-month rent revenue from his calculations. Defendants allege the Bank

must have recognized Coleman's mistake, because Bank employee Jeffrey

Goldman admitted he reviewed the loan file, including the leases, earlier that

month. We need not resolve this factual dispute, because the vacancy rate

increase and property value decrease sufficed as adverse changes.

      The question is whether these adverse changes were material. Notably,

the loan agreements do not define "material adverse change." However, material

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                                       8
adverse change clauses and related material adverse effect clauses are

commonly found in lending and merger and acquisition agreements. See e.g.

Hexion Specialty Chems., Inc. v. Huntsman Corp., 965 A.2d 715, 738 (Del. Ch.

2008) (referring to "the ubiquitous material adverse effect clause" in mergers

and acquisition agreements); 5 Banking Law § 112.10 (identifying material

adverse change clause as one of several common acceleration provisions in loan

transactions). Therefore, we turn to case law and common usage to interpret the

clause.

      At the outset, we reject defendants' contention that determining if a

material adverse change has occurred involves a subjective standard.3 See In re

Chatham Parkway Self Storage, LLC, 507 B.R. 13, 20 (Bankr. S.D. Ga. 2014)

(rejecting argument that "material adverse change" clause granted lender unfettered

discretion based on what it subjectively believed was adverse). Rather, in deciding

if an adverse change is material, we consider what a reasonable lender under the

circumstances would deem material. See In re IBP S'holders Litig. v. Tyson

3
   One might think a subjective standard — as in, "I know when I see it" —
would disadvantage defendants. But defendants contend a subjective standard
implicates the state of the mind of the party invoking the material adverse
change clause, and issues of state of mind are inappropriately resolved on
summary judgment. Also, delving into the Bank's "subjective" state of mind,
defendants contend the Bank did not really deem the changes material; rather,
they used the changes as a pretext to declare default.
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                                        9
Foods, 789 A.2d 14, 68 (Del. Ch. 2001) (viewing analogous material adverse

effect clause in acquisition agreement through eyes of "reasonable acquir or");

Joseph B. Alexander, Jr., The Material Adverse Change Clause, 51 No. 5 Prac. Law

11 (Oct. 2005) (stating, regarding "material adverse event clauses" in merger and

acquisition agreements, "courts generally adopt the objective standard of what a

reasonable purchaser would view as being material").

      Transitory changes in a borrower's finances are unlikely to qualify as

material. Applying New York law to a material adverse effect clause in an

acquisition agreement, the Delaware Court of Chancery held: "[a] short-term

hiccup in earnings should not suffice; rather the Material Adverse Effect should

be material when viewed from the longer term perspective . . . . " IBP S'holders

Litig., 789 A.2d at 68. In other words, the material adverse effect should

"substantially threaten the overall earnings potential of the target in a

durationally-significant manner." Ibid. See also Hexion Specialty Chems., 965

A.2d at 738 (stating that "poor earnings results must be expected to persist

significantly into the future" to qualify as a "material adverse effect").

Furthermore, in determining whether a material adverse change or effect has

occurred, the factfinder must consider the adverse change "in the context in

which the parties were transacting." Ibid.

                                                                           A-1777-19
                                      10
      Also, a material adverse change may be one that is unforeseen or

unexpected. In Capitol Justice LLC v. Wachovia Bank, N.A., 706 F.Supp.2d

23, 29 (D.D.C. 2010), the bank invoked a provision entitling it to terminate a

loan commitment upon a "material adverse change in the capital, banking and

financial market conditions that could impair the sale of the loan ." The court

held the provision was ambiguous as to whether the change had to be

unforeseeable; and there was a genuine issue of fact as to whether the change in

market conditions "could impair" the loan sale. Id. at 29-31. See also Liberty

Media Corp. v. Vivendi Universal, S.A., 874 F. Supp. 2d 169, 176 (S.D.N.Y.

2012) (permitting expert to testify the material adverse effect clauses "are meant

to protect against unknown risks").

      We also look to dictionary definitions absent a contractual one. See 10

Ellicott Square Ct. Corp. v. Mountain Valley Indem. Co., 634 F.3d 112, 120 (2d

Cir. 2010) (permitting resort to dictionary to determine undefined contractual

terms); James v. Fed. Ins. Co., 5 N.J. 21, 25 (1950) (resorting to dictionary

definition to construe word in insurance contract). Black's Law Dictionary (11th

ed. 2019) defines "material" to mean "[o]f such a nature that knowledge of the

item would affect a person's decision-making; significant; essential."

                                                                            A-1777-19
                                       11
        Here, importantly, the "material adverse change" pertains to 769, not

markets or economic conditions that might impact 769. With that as the focus,

we conclude that the "material adverse change" in 769's operations or property

value must have been more than a foreseeable "hiccup" in the ups and downs of

the commercial real estate business in which 769 was engaged. The change must

have been enduring and of significant proportion.        To be "material" in the

"context" of the loan transaction and the Bank's decision-making, the adverse

change had to affect the financial risks associated with making and holding the

loan.

        Measured against this standard, we are satisfied that the vacancy rate rise

and property value drop were material adverse changes. Particularly once the

property's value dropped significantly below the $14.35 million indebtedness,

the loan was significantly under-collateralized.           It would have been

unreasonable for the Bank to loan $14.35 million secured by a mortgage on an

$8 million building. Furthermore, the vacancy rate rise was no transitory blip.

It was a consistent trend that played out over several years, which raised

reasonable questions about 769's capacity to sustain itself without continued and

growing infusions of cash from Profeta. Consequently, the vacancy rate rise

significantly increased the Bank's risk in holding the loan.

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                                        12
      Defendants contend the adverse changes were not material because if they

had been, the Bank would have acted sooner. But 769's finances worsened over

time. Besides, "a creditor's temporary forbearance in exercising its remedies

upon its debtor's default does not preclude the creditor from subsequently

exercising those rights." Glenfed Fin. Corp. v. Penick Corp., 276 N.J. Super.

163, 177 (App. Div. 1994). To hold otherwise would have the ill effect of

encouraging "lenders to play hardball in the face of every default, no matter how

minor." Id. at 178 (quoting Fasolino Foods Co. v. Banca Nazionale Del Lavoro,

961 F.2d 1052, 1059 (2d Cir. 1992)).        Furthermore, the loan agreements

expressly provided that the Bank did not waive a right to declare default because

it had failed to act sooner.

      Finally, defendants contend that they should have been allowed to present

an expert's opinion that there were no material adverse changes. We recognize

that defendants' expert had not completed his report when the Bank filed its

motion. Instead, he wrote a short letter summarizing his conclusions. But,

without providing the reasoning for those conclusions, they failed to create a

genuine issue of material fact. See Townsend v. Pierre, 221 N.J. 36, 53-54

(2015) (stating the net opinion rule bars an expert's conclusion unsupported by

factual evidence and explanation of reasoning).

                                                                           A-1777-19
                                      13
      In sum, there was a material adverse change in 769's financial condition

and operating results, which constituted a pre-maturity default by 769, and,

based on the cross-default provision, an event of default by defendants.

                                          B.

      The Bank also declared 769 in default — and therefore, defendants were

in default, too — because the Bank deemed itself "insecure."          A lender's

"[i]nsecurity may be found either as to the debt itself or as to the collateral"

securing it. Van Bibber v. Norris, 419 N.E.2d 115, 124 (Ind. 1981).

      The same developments that produced the material adverse change

support the Bank's claim of insecurity: the vacancy rate rise and the DSCR non-

compliance, which pertain to the ability to pay the debt, and the property value

drop, which pertains to the collateral.

      But the Bank adds one more significant development that made it

insecure: 769's own statements — by its representative Coleman — that it would

not be able to repay the 769 loan upon maturity and it would instead assist the

Bank — which presumably would take title after default — in the Bank's efforts

to lease space there. We conclude that there is no genuine issue of material fact

that 769 communicated it would not pay off the loan on time; and that such

                                                                           A-1777-19
                                          14
communication was sufficient to cause a reasonable lender in good faith to deem

itself insecure.

      Coleman made the insecurity-causing statements at an April 25, 2017,

meeting that included Profeta, Goldman and Qiao. Profeta had orally informed

the Bank's representatives that he wanted to prepay defendants' loans so he could

sell the buildings to buyers he identified. Qiao responded that the Bank would

not permit defendants to do so if it did not pay down or pay off the 769 loan.

Coleman confirmed in his deposition that he informed the Bank's representatives

that 769 would not pay its loan at maturity.

             Q.    During the meeting did either Mr. Profeta or you
             say to the bank that the 769 Associates loan would be
             paid in full by July 1, 2017?

             A.     No.

             A.    Did you ever say it [(the 769 loan)] would not be
             paid by July 1, 2017

             A.     Yes, sir.

             Q.     During the [April 25, 2017] meeting?

             A.     During the meeting.

Coleman also said he and Profeta would help the Bank lease and sell 769's

building, impliedly after it took title, because 769 would be unable to pay the

loan at maturity.

                                                                           A-1777-19
                                      15
Q.    . . . . Was there any discussion at the meeting of
April 25, 2017 about selling the 769 Associates
building?

A.    Yes.

Q.    And what was discussed?

A.   We would help them, them being the Bank of
China.

Q.    Help them what?

A.    Lease up and sell the building.

Q.     Why were you saying that you would help the
bank. The bank wasn't the owner of the 769 property
at the time of the meeting, correct?

A.    As of April 25th, correct.

Q.    So, therefore, why was the borrower — why were
Mr. Profeta and you offering to help the bank lease up
and sell that property?

A.    We needed more time.

Q.    More time past the maturity dates?

A.    More time past July 1, 2017.

Q.   And it was discussed that the 769 Associates
borrower was not in the position as of the time of the
meeting to pay off that loan by the July 1, 2017
maturing date, correct?

A.    Correct.

                                                           A-1777-19
                          16
Qiao confirmed in his affidavit that Profeta and Coleman told him that the 769

loan would not be paid on July 1, 2017, and they asked to extend the maturity

date.

        Defendants dispute that Profeta and Coleman said 769's loan would not be

paid and 769 wanted an extension. They rely on Coleman's recantation of his

testimony. Soon after his disclosure, a brief recess was taken in his deposition

and then Coleman did an about-face and claimed 769's loan was never discussed.

              A.   I'm a little confused about this April 25th
              meeting.

              Q.    Go ahead.

              A.    My original testimony talked about we were
              going to prepay those two loans.

              Q.    Correct.

              A.    And that's all we talked about. We never
              discussed at all the 769 loan.          We came with
              documentation on 349 and 2130 [LVP's building
              address], to sell those two loans and to prepay them.

              Q.    Sell those two loans?

              A.    We came with documentation to show that we
              were going to prepay those two loans. And that was the
              only thing discussed at that meeting. We never
              discussed what we were going to do with regard to 769
              Associates.

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                                       17
            Q.   And if Mr. Profeta testified differently he would
            be wrong?

            A.    My recollection is that we only discussed
            prepaying those two loans and we never discussed the
            resolution of the 769 mortgage.

      Defendants also note that in a memo Goldman wrote to the Bank's risk

management department five days after the meeting, he did not expressly report

that Profeta or Coleman said that 769 would default. However, Goldman said

that "PVP asked if BOC would provide either an extension to him on 769

Associates or consider financing all three properties as a package to a new

buyer" and Goldman expressed concern that 769 would default.

      We hold the evidence is so one-sided that no reasonable jury would find

that neither Coleman nor Profeta conveyed to the Bank's representatives that 769

was unable to pay off its loan at maturity. Coleman's own contradiction of his

detailed testimony fails to create a genuine issue of material fact. Rather, "the

alleged factual issue . . . can be perceived as a sham, and as such it is not an

impediment to a grant of summary judgment." Shelcusky v. Garjulio, 172 N.J.

185, 194 (2002).

      The so-called "sham affidavit doctrine" can be used to prevent a party

opposing a summary judgment motion from creating material issues of fact by

presenting the party's own contradicting statements. Id. at 201-02. The doctrine

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                                      18
may not be applied "mechanistically." Id. at 201. Courts should not reject

alleged sham factual disputes "where the contradiction is reasonably explained,"

or the subsequent statement "does not contradict patently and sharply the earlier

deposition testimony," or "confusion or lack of clarity existed" during the initi al

deposition questioning and the subsequent statement "reasonably clarifies" the

first one. Id. at 201-02.

      Here, defendants provide no reason to withhold applying the doctrine.

There was nothing confusing or unclear about the questioning that elicited

Coleman's admissions. Aside from baldly claiming confusion, Coleman did not

explain, let alone "reasonably explain," how he was able to recall in such detail

the statements about the 769 loan made at the April 25 meeting, and then,

moments after a recess, conclude it was all mistake. Besides, defendants have

consistently admitted that the 769 loan came up in discussion, because they

assert that Qiao rebuffed Profeta's proposal to pay off the 349 and LVP loans

unless the 769 loan was paid too.

      There is ample authority for holding that a lender would reasonably and

in good faith deem itself insecure when the borrower states it does not intend to

pay its obligation. In First Bank of Savannah v. Kilpatrick-Smith Construction

Co., Inc., 264 S.E.2d 576, 577 (Ga. App. 1980), the court held that a bank was

                                                                              A-1777-19
                                        19
entitled to summary judgment on the question whether it in good faith deemed

itself insecure and accelerated promissory notes where the borrowers

"themselves informed officers of the defendant-bank that they would be unable

either to pay the notes as they became due or put up additional collateral to

secure payment." In United States v. Grayson, 879 F.2d 620, 623 (9 th Cir. 1989),

the court affirmed summary judgment for the bank, holding no rational

factfinder could find the bank lacked good faith where it deemed itself insecure

after the borrower missed one payment (we recognize 769 never missed ) but

then "advised . . . it would have difficulty making any further payments ." See

also Sturman v. First Nat'l Bank, 729 P.2d 667, 677 (Wyo. 1986) (affirming

summary judgment where bank in good faith deemed itself insecure where

debtor, among other things, brought federal action to rescind the debt).

      Threats of bankruptcy — which imply a threat not to pay — also justify a

finding of insecurity. See Fort Knox Nat'l Bank v. Gustafson, 385 S.W.2d 196,

199-200 (Ky. 1964) (holding that bank acted in good faith in accelerating a note

based on insecurity where the borrower, among other things, discussed possible

bankruptcy proceedings with bank's attorney); Jack M. Finley, Inc. v. Longview

Bank & Trust Co., 705 S.W.2d 206, 208 (Tex. App. 1985) (affirming summary

judgment granted bank that deemed itself insecure, stating that undisputed

                                                                           A-1777-19
                                      20
evidence "that the debtor had threatened bankruptcy is a sufficient basis to

establish the bank's good faith").4

      In sum, we are satisfied that the Bank had an objectively reasonable basis

to deem itself insecure and, based on that insecurity, to declare that 769 was in

default, which caused 349 and LVP to be in default as well.

                                        C.

      The Bank also contends that 769's Debt Service Coverage Ratio fell below

the required 1.25 to 1.00, which was another pre-maturity default that triggered

the loan agreements' cross-default provision.        This argument implicates

Coleman's April 2017 statement of operations, which we discussed above

regarding 769's net operating income. Assuming Coleman's submission was

accurate, 769's net operating income was a mere fraction of its debt service, far

less than the required 1.25 to 1.00 ratio.

4
    We recognize the courts in these cases applied their state's Uniform
Commercial Code provision on insecurity. See UCC § 1-309 (stating that where
a loan agreement authorizes a lender to accelerate a loan or require additional
collateral when the lender "deems itself insecure," the lender "has the power to
do so only if [it] in good faith believes that the prospect of payment or
performance is impaired" and the borrower bears the burden to prove lack of
good faith). See also former UCC § 1-208, which section 309 replaced. But the
parties have not adverted to the UCC here. Therefore, we have not addressed it.
Nonetheless, the foregoing cases are instructive on the issue of what causes a
lender to deem itself insecure.
                                                                           A-1777-19
                                       21
      However, defendants contend that Coleman mistakenly characterized the

Profeta leases as month-to-month. That mistake depressed the DSCR because

the loan agreements expressly stated that only annual leases could be utilized in

calculating the DSCR. Defendants argue that the Bank must have recognized

Coleman's error, because Goldman had reviewed the leases earlier that month.

      We may assume for argument's sake that there exists a genuine issue of

material fact as to whether 769's DSCR did fall below 1.25 to 1.00. That

disputed fact does not defeat summary judgment because there existed the other

pre-maturity defaults by 769, which we have identified. Those defaults justified

invoking the cross-default provisions and declaring 349 and LVP in default.

Under the loan agreements, defendants were not entitled to prepay their loans if

they were in default.

                                       II.

      Defendants also argue that the Bank breached the loan agreements and the

covenant of good faith and fair dealing; that the bank acted inequitably; and that

the grant of summary judgment was premature because discovery was

incomplete.

      We acknowledge that the Bank misinterpreted the loan agreements. As

the federal court discussed, so did defendants. For its part, the Bank insisted,

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                                       22
mistakenly, that to be able to prepay their loans, each defendant had to pay 115

percent of the then outstanding loan principal, which could be allocated to the

other outstanding loans once the defendant's debt was satisfied.           Profeta

correctly protested that the 115 percent provision only applied if a defendant

sold the property directly to a third party; and Profeta proposed to prepay the

loan with his own funds first and then sell the property to a third party. As noted

above, the Bank also initially sent default notices to defendants alleging direct

defaults by them based on material adverse changes and insecurity; but the

record is barren of any evidence justifying those notices of default.

      However, those mistakes do not constitute material breaches of the loan

agreements. In order to prepay their loans, defendants were required to provide

written notice, at least fifteen days before prepayment. Profeta gave written

notice by letter dated May 10, 2017, that he intended to prepay the 349 and LVP

loans on June 1, 2017, and sought the Bank's assurance that it would release the

associated liens. But before June 1, 2017, the Bank declared the cross-default.

And, as the federal court found, defendants were not entitled to the liens' release

if defendants were in default. LVP Assocs., 2017 U.S. Dist. LEXIS 190188, at

*17-*22. Thus, regardless of the Bank's unjustified demand of 115 percent and

its unsupported default notices, defendants were not entitled to the release of the

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liens if it prepaid the two loans. And defendants clearly proposed to prepay the

loans only if they could secure the liens' release, so they could sell the properties.

      Defendants also argue that they were not in default because the notices of

default were not issued in compliance with the Bank's internal practices,

including those of its Loan Risk Subcommittee. However, we are unaware of

any authority — and defendants point to none — that a borrower may defend a

default on the ground that the lender did not follow its own internal guidelines,

even if the default was justified under the borrower's agreement with the lender.

Defendants lack standing to object to the bank's compliance with its own internal

practices. Cf. Rajamin v. Deutsche Bank Nat'l Trust Co., 757 F.3d 79, 87-90

(2d Cir. 2014) (holding that mortgagors lacked standing to complain of

foreclosing lender's alleged violation of a securitization trust agreement). In any

event, even if Anthony Wong, a Bank vice president and author of the default

letters, lacked authority to declare defendants in default — because he violated

internal guidelines of the Bank — his actions were not void; they were only

voidable, at the election of his principal, the Bank, and the Bank did not elect to

do so. See id. at 89 (concluding that unauthorized acts of a trustee may be

ratified by the trust's beneficiaries, as such acts are "not void but merely voidable

by the beneficiary").

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      We also reject defendants' claim that the Bank breached the implied

covenant of good faith and fair dealing, in refusing to release the liens upon

Profeta's proposed repayment. Every contract contains "an implied covenant

that 'neither party shall do anything which will have the effect of destroying or

injuring the right of the other party to receive the fruits of the contract; in other

words, in every contract there exists an implied covenant of good faith and fair

dealing.'" Ass'n Grp. Life, Inc. v. Catholic War Veterans, 61 N.J. 150, 153

(1972) (quoting 5 Williston on Contracts § 670, 159-160 (3d ed. 1961)).

      "[A] debtor may defend against enforcement of lender's rights where the

lender has engaged in bad faith, misconduct or the like." Nat'l Westminster

Bank NJ v. Lomker, 277 N.J. Super. 491, 496 (App. Div. 1994). However, the

"good faith requirement does not impose upon a lender obligations that alter the

terms of its deal or preclude it from exercising its bargained for rights." Ibid.

Put another way, the covenant of good faith and fair dealing "may not be invoked

by a commercial debtor to preclude a creditor from exercising its bargained-for

rights under a loan agreement." Glenfed Fin., 276 N.J. Super. at 175 (rejecting

argument that lender breached the covenant).

      Defendants contend the Bank schemed to grab the profits that defendants

projected for themselves if they had been able to consummate the sale of 349's

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and LVP's buildings once it prepaid the loans and the liens were released. But

the record evidence shows that the Bank was not grabbing profits; it was

avoiding losses. Defendants wanted to pay off their loans and get their liens

released, while letting 769, which was undercollateralized by $6 million, head

for predicted default. The loan agreements' cross-default provisions entitled the

Bank to abate its projected loss by declaring defaults by 349 and LVP.

      Both defendants and the Bank are sophisticated parties. They sought to

exploit their contractual rights to maximum benefit. We discern no genuine

issue of material fact regarding the alleged breach of the covenant of good faith

and fair dealing.

      For the same reasons that we reject defendants' good-faith-and-fair-

dealing argument, we reject defendants' argument that the Bank's inequitable

conduct bars it from the equitable remedy of foreclosure. This is not a case

where the lender caused the borrower's default by interfering with its business.

Cf. Leisure Technology-Northeast, Inc. v. Klingbeil Holding Co., 137 N.J.

Super. 353, 355-56 (App. Div. 1974).

      Finally, we consider defendants' contention that summary judgment was

premature because discovery was not complete.         "A motion for summary

judgment is not premature merely because discovery has not been completed

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. . . ." Badiali v. N.J. Mfrs. Ins. Grp., 220 N.J. 544, 555 (2015). Rather, to defeat

summary judgment based on incomplete discovery, the opponent must

"demonstrate with some degree of particularity the likelihood that further

discovery will supply the missing elements of the cause of action," or the

defense. Ibid. (quoting Wellington v. Est. of Wellington, 359 N.J. Super. 484,

496 (App. Div. 1977)). See also Friedman v. Martinez, 242 N.J. 449, 472 (2020)

(rejecting argument that summary judgment was premature).

      Defendants want to depose Wong and Bank of China New York Branch

president Chen Xu, and further depose Qiao. In part, defendants seek further

information regarding the Bank's compliance (or non-compliance) with its own

internal guidelines. But we have already rejected that line of attack. Defendants

have not shown that the requested depositions would likely undermine the

Bank's claim that 769 defaulted, and, consequently, defendants did, too. Thus,

the discovery defendants sought would not have supported the release of the

liens they claim was necessary for the prepayment of their loans.

      Affirmed.

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