Court Opinion

ID: 4102765
Source: CourtListenerOpinion
Date Created: 2016-11-29 15:00:41.314775+00
Date Added: 2024-06-11T08:49:56.306450
License: Public Domain

14-1463
     CP III Rincon Towers, Inc. v. Richard D. Cohen

                                UNITED STATES COURT OF APPEALS
                                    FOR THE SECOND CIRCUIT

                                              SUMMARY ORDER

     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
     SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
     BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
     WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
     MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
     NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A
     COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1           At a stated term of the United States Court of Appeals for the Second Circuit, held at the
 2   Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
 3   29th day of November, two thousand sixteen.
 4
 5   Present:
 6               RALPH K. WINTER,
 7               DEBRA ANN LIVINGSTON,
 8               DENNY CHIN,
 9                     Circuit Judges.
10   _____________________________________
11
12   CP III RINCON TOWERS, INC.,
13
14                            Plaintiff-Appellant,
15
16                    v.                                                    14-1463
17
18   RICHARD D. COHEN,
19
20                     Defendant-Appellee.
21   _____________________________________
22
23   For Plaintiff-Appellant:                         BARRY W. LEE, Manatt, Phelps & Phillips, LLP, San
24                                                    Francisco, CA (Kimo S. Peluso, Nirav S. Shah, New
25                                                    York, NY, on the brief)
26
27   For Defendant-Appellee:                          JANICE MAC AVOY, Fried, Frank, Harris, Shriver &
28                                                    Jacobson LLP, New York, NY (Justin Santolli, Jesse
29                                                    Ryan Loffler, on the brief)
30
31
32

                                                           1
       Appeal from a judgment of the United States District Court for the Southern District of

New York (Batts, J.)

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is VACATED, and the case is REMANDED

for further proceedings consistent with this order.

       Plaintiff-Appellant CP III Rincon Towers, Inc. (“CP III”) appeals from a judgment

entered on April 7, 2014 in the United States District Court for the Southern District of New

York (Batts, J.) granting Defendant-Appellee Richard D. Cohen’s motion for summary judgment

on CP III’s claim, which sought enforcement of certain provisions of a guaranty agreement

Cohen had signed.      We assume the parties’ familiarity with the facts, procedural history of the

case, and the issues on appeal.

       A. Background

       In 2005, Beacon Capital Partners (“Beacon”) purchased a mixed-use development project

in San Francisco (the “Project”). The Project included a high-rise apartment building (the

“Property”) with 320 units that Beacon intended to convert into condominiums.          Cohen is a

successful real estate investor who, in 2007, indicated an interest in purchasing the Property from

Beacon.   Cohen set up three special purpose entities, Rincon EV Realty LLC, Rincon ET Realty

LLC, and Rincon Residential Towers LLC (collectively, “Borrower”).               Cohen serves as

president of all three LLCs. In order to purchase, and subsequently develop, the Property,

Cohen needed to secure financing, and he wished to do so quickly to take advantage of tax

benefits for like-kind exchanges. Cohen contacted Bear Stearns Commercial Mortgage, Inc.

(“Bear Stearns”; it, and each of its successors, the “Lender”) seeking $110 million in financing.

Negotiations began in mid-May and continued for approximately three weeks.

                                                 2
       Because Bear Stearns anticipated that, at least initially, the net operating income from the

Property would be less than the interest due, Bear Stearns required Cohen to enter into an

agreement guaranteeing the loan in his personal capacity. Cohen agreed to the guaranty in

concept, but sought to cabin his liability under the guaranty in practice. The record reflects that

the parties thereafter engaged in substantial negotiations over the terms of that guaranty. On

June 8, 2007, Borrower and Bear Stearns entered into a $110 million loan agreement (the “Loan

Agreement”).    Cohen and Bear Stearns entered into an accompanying agreement as to the

guaranty (the “Guaranty Agreement”), the terms of which are discussed in greater detail below.

       Under the Loan Agreement, Borrower was required to invest in renovations of the

Property. Angotti & Reilly (“Angotti”) was hired as the Property’s general contractor, and

Angotti, in turn, retained, as one of its subcontractors, a company called Interior Design

Services.   In late 2008, Borrower issued only a conditional payment to Agnotti, asserting

Angotti’s work was unsatisfactory, and on December 23, 2008, Angotti filed a notice and claim

of mechanic’s lien in the amount of $766,420.30.          Interior Design Services also filed a

mechanic’s lien, in the amount of $142,700.51. Two other companies – Bacon Plumbing Co.,

Inc. and Allsite Construction Company – also filed mechanics liens, which, together, totaled

approximately $100,000.

       Agnotti subsequently brought its claims to arbitration. The arbitrator awarded Agnotti

over $1.5 million, including amounts past due, attorneys’ fees, and costs.       This award was

thereafter confirmed in California state court. On June 7, 2010, Agnotti recorded a judgment

lien against the Property.

       Borrower was separately party to a common development agreement administered by

Beacon (the “REOA”), under which certain easements and covenants necessary to the Project

                                                3
had been established. The Loan Agreement required Borrower to remain current with the

payments required by the REOA, and to comply with all of its terms.       By mid-2008, Borrower

had fallen into arrears on its payments under the REOA, and, on December 23, 2008, Beacon

recorded a notice of delinquency and a claim of lien against Borrower for nearly $700,000.

This initial lien was released in January of 2009, but, by May, Beacon had filed another claim for

about $650,000, later amended down to a claim for just over $400,000.      We refer to these liens

collectively – Angotti’s original lien, the mechanic’s liens, Angotti’s judgment lien, and the lien

filed pursuant to the REOA – as the “Disputed Liens.”

       The term of the loan ran through mid-2009, though Borrower sought to exercise its

contingent contractual right under the Loan Agreement to extend the term of the loan through

June 2010.   By this time, rights under the Loan Agreement had passed from Bear Stearns to a

vehicle created by the Federal Reserve Bank of New York during the financial crisis that began

in 2007 to hold certain of the assets that JPMorgan Chase & Co. declined to assume as part of its

government-backed acquisition of the Bear Stearns parent company.         In early 2010, the loan

was sold to CP III at auction for about $83 million.    CP III waited until after June 12, 2010 –

the maturity date on the loan if Borrower had legitimately exercised its right to extend the term

of the loan – to file notice of default and seek to foreclose on the Property. CP III acquired the

Property at the subsequent foreclosure sale with a credit bid of $73 million.   To recover on the

unpaid loan, CP III filed suit against Cohen in the Southern District of New York, alleging that

the recording of the Disputed Liens triggered Cohen’s personal liability under the Guaranty

Agreement.

                                                4
        B. The Guaranty Agreement

        The Guaranty Agreement provides for a springing, rather than an absolute, guaranty. In

other words, the loan itself is structured to be non-recourse with respect to Cohen, except that,

under the Guaranty Agreement, certain events trigger Cohen’s personal liability.                    Cohen’s

liability under the Guaranty Agreement is bifurcated: in some circumstances, Cohen’s liability is

merely “loss recourse,” requiring Cohen to cover losses sustained by the Lender as a result of

Borrower’s failure to comply with certain of the obligations imposed by the Loan Agreement,

while in other circumstances, the guaranty becomes “full recourse,” exposing Cohen to liability

for the entire amount of the loan.1

        Particularly relevant here are three provisions of the Guaranty Agreement triggering full

recourse to Cohen: the Indebtedness Clause, the voluntary Lien Clause, and the Transfer Clause.

The subsection in which the Indebtedness Clause and the voluntary Lien Clause appear states

that Cohen shall be liable for the entire amount of the debt “if Borrower fails to obtain Lender’s

prior written consent to any Indebtedness . . . or voluntary Lien encumbering the Property (to the

extent such consent is required under the Loan Agreement[)].”                  App’x 23.      The Transfer

Clause makes the loan full recourse to Cohen “if Borrower fails to obtain Lender’s prior written

consent to any Transfer if required by the Loan Agreement . . . .” Id.

        “Indebtedness,” “Lien,” and “Transfer” are all defined terms under the Loan Agreement,

incorporated by reference into the Guaranty Agreement.                   The Loan Agreement defines

“Indebtedness” as the sum of, inter alia, “(a) all indebtedness or liability . . . and (g) obligations
1
   Loss- and full-recourse provisions like the ones Cohen agreed to are frequently termed “bad boy
guarantees.” Bad boy guarantees are frequently required by lenders providing financing to special
purpose entities, often in real estate transactions, to permit the lender to pursue the individual controlling
the special purpose borrower for actions that undermine the value of the lender’s collateral. However, as
is the case here, these “bad boy guarantees” are by and large a creature of contract and we therefore apply
general principles of contract interpretation in construing their scope.

                                                      5
secured by any Liens, whether or not the obligations have been assumed (other than the

Permitted Encumbrances and Permitted Equipment Financing).”                App’x 49-50.    “Lien” is

defined as “any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security

interest, or any other encumbrance, charge or transfer of, on or affecting Borrower, the Property,

any portion thereof or any interest therein, including, without limitation, any conditional sale or

other title retention agreement, any financing lease having substantially the same economic

effect as any of the foregoing, the filing of any financing statement, and mechanic’s,

materialmen’s and other similar liens and encumbrances.”       App’x 52.

       A “Transfer” occurs when Borrower, by action or inaction does, inter alia, any of the

following: “sell, convey, mortgage, grant, bargain, encumber, pledge, assign, grant options with

respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily,

by operation of law or otherwise, and whether or not for consideration or of record) the Property

or any part thereof or any legal or beneficial interest therein.”           App’x 102.     The Loan

Agreement further provides that “Lender shall not be required to demonstrate any actual

impairment of its security or any increased risk of default hereunder in order to declare the Debt

immediately due and payable upon Borrower’s Transfer without Lender’s consent.                   This

provision shall apply to every Transfer regardless of whether voluntary or not, or whether or not

Lender has consented to any previous Transfer.” App’x 103.

       C. Proceedings Below

       On April 7, 2014, the district court denied CP III’s motion, and granted Cohen’s

cross-motion, for summary judgment.       The district court held that, under the plain language of

the Loan and Guaranty Agreements, any Lien – including the Disputed Liens at issue here –

would trigger the Guaranty Agreement’s Transfer Clause, but found the Guaranty Agreement

                                                  6
ambiguous because reading the Transfer Clause this broadly would render the voluntary Lien

Clause superfluous.     The district court therefore turned to the extrinsic evidence, concluding

that the course of negotiations demonstrated that the parties had not intended that the Disputed

Liens trigger Cohen’s full recourse guaranty. As further support for its conclusion, the district

court found that allowing the Disputed Liens to trigger full recourse liability would be

commercially unreasonable, because the Guarantor had no control over when and whether the

companies conducting the renovations on the Property contemplated by the Loan Agreement

might file a lien.   Finally, the district court concluded that though certain of the Disputed Liens

undoubtedly constituted “liabilities,” and so Indebtedness under the Loan Agreement, the

Indebtedness Clause had not been triggered because the Loan Agreement did not require written

consent prior to incurring these Disputed Liens and the Indebtedness Clause, by its terms, applies

only to debts for which the Loan Agreement requires the Lender’s prior written consent.

        D. Discussion

        We review the district court’s grant of summary judgment de novo, drawing all factual

inferences against the party seeking summary judgment, and affirm only when there are no

genuine issues of fact to be resolved at trial. Lucente v. Int’l Bus. Machs. Corp., 310 F.3d 243,

253-54 (2d Cir. 2002). In the context of a contract dispute, a motion for summary judgment is

generally granted only where the agreement’s language is unambiguous and conveys a definite

meaning.2    Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091,

1094 (2d Cir. 1993).

2
  Pursuant to the terms of the Guaranty Agreement, we apply New York law in interpreting the parties’
contract.

                                                  7
       The primary objective of contract interpretation is to give effect to the intent of the

contracting parties “as revealed by the language they chose to use.” Id.    We do not resort to

extrinsic evidence unless the contract’s language itself is ambiguous; if, in the context of the

entire agreement, the plain meaning of the text is clear, our inquiry ends there. Id. at 1095.

We have explained that ambiguity exists when contract language is not susceptible of “a definite

and precise meaning, unattended by danger of misconception in the purport of the contract itself,

and concerning which there is no reasonable basis for a difference of opinion.” Id. (internal

quotation marks and modifications omitted).

       The core of CP III’s argument is that the Disputed Liens triggered the Transfer Clause

and, independently, the Indebtedness Clause, of the Guaranty Agreement, thus making Cohen

personally liable for the full amount of the debt. As described above, the Loan Agreement

defines Transfers broadly, and as including any encumbrance of the Property, whether Borrower

agreed to so encumber the Property or not, and whether the encumbrance occurred by operation

of law or otherwise.   The Transfer covenant in the Loan Agreement indisputably requires that,

except as otherwise specifically provided, Borrower obtain the Lender’s written consent prior to

any Transfer.    Because a lien against the Property is, by definition, an encumbrance, the

Disputed Liens – whether incurred voluntarily or not – were Transfers for which Borrower

needed to obtain the Lender’s prior written consent.      Neither party credibly contends that

Borrower obtained the required consent with respect to each of the Disputed Liens.         Thus,

looking solely to the Transfer Clause of the Guaranty Agreement, the Disputed Liens would

trigger Cohen’s personal liability.

       However, as the district court recognized, this reading of the Transfer Clause is in some

tension with the provision of the Guaranty Agreement immediately prior to it. Under the

                                               8
voluntary Lien Clause, voluntary Liens on the Property recorded without the prior consent of the

Lender (and for which such prior consent is required) trigger Cohen’s full recourse liability.     As

is clear, and as the definition of the term in the Loan Agreement reiterates, an encumbrance on

the Property would constitute a Lien.        As applied to encumbrances, therefore, the Transfer

Clause covers much the same substantive territory as the voluntary Lien Clause. Thus, if we

read the voluntary Lien Clause as identifying a subset of Liens triggering full recourse to Cohen,

that clause would be entirely subsumed within the scope of the Transfer Clause that immediately

follows it. In other words, the voluntary Lien Clause would be superfluous.

       It is well-established that we disfavor readings of a contract that render provisions of an

agreement superfluous. Int’l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 86

(2d Cir. 2002).   This is reflected in the basic rule that “contracts should be construed to give

force and effect to their provisions and not in a manner so as to render [those provisions]

meaningless.” Yoi-Lee Realty Corp. v. 177th St. Realty Assocs., 208 A.D.2d 185, 190 (1st

Dep’t 1995); see also Columbus Park Corp. v. Dep’t of Hous. Pres. & Dev., 80 N.Y.2d 19, 31

(1992) (“[A] construction which makes a contract provision meaningless is contrary to basic

principles of contract interpretation.”).   Though superfluity is not necessarily fatal to a contract,

we do take the fact that a given interpretation would render a provision superfluous into account

in evaluating whether the relevant provisions, read together, are ambiguous. See RJE Corp. v.

Northville Indus. Corp., 329 F.3d 310, 314 (2d Cir. 2003).

       Here, the tension between the voluntary Lien Clause and the Transfer Clause, and

between the opposing principles of contract interpretation which would support giving effect to

one clause or the other, renders the Guaranty Agreement ambiguous.           If we were to give full

effect to the Loan Agreement’s expansive definition of Transfer, we would necessarily be

                                                   9
rendering the voluntary Lien Clause a nullity, contrary to the principle that we seek to give effect

to every provision of an agreement. See Golden Gate Yacht Club v. Société Nautique de

Genève, 12 N.Y.3d 248, 256-57 (2009). On the other hand, giving the voluntary Lien Clause

independent meaning requires carving encumbrances out of the Transfer Clause, cutting against

the rule that the meaning the parties have clearly ascribed to a term in their agreement (here,

“Transfer”) is controlling. See Law Debenture Trust Co. v. Maverick Tube Corp., 595 F.3d
458, 469 (2d Cir. 2010); Banco Espírito Santo, S.A. v. Concessionária do Rodoanel Oeste S.A.,

100 A.D.3d 100, 107-08 (1st Dep’t 2012).      Absent a clearer explanation for how these clauses

should be coordinated solely by reference to the four corners of the agreement, the Guaranty

Agreement’s treatment of encumbrances like the Disputed Liens is ambiguous.

       Finding the agreement ambiguous, the district court turned to extrinsic evidence to

resolve the question whether the Disputed Liens triggered full recourse to Cohen. In particular,

to establish the status of the Disputed Liens under the agreement, the district court looked to the

course of negotiations between the parties, including the proposed and final modifications to the

draft contract. This analysis focused specifically on the removal of a provision in an early draft

of the agreement which provided for loss recourse in the event of Borrower non-payment of bills

for labor, materials, or other similar charges which, in the absence of payment, would generate

liens against the Property (the “Mechanic’s Lien Clause”).         Observing that, if the parties

removed the loss recourse trigger embodied in the Mechanic’s Lien Clause, the parties

presumably did not expect mechanic’s liens to trigger full-recourse liability, the district court

held this drafting history to have conclusively resolved the parties’ intended treatment of all

Disputed Liens under the Guaranty Agreement.

                                                10
       Given the posture of this case, this determination was inappropriate. Standard rules

governing the disposition of motions for summary judgment apply to resolving ambiguities in a

contract, and, therefore, as a general rule, we leave determination of the parties’ intent to the

ultimate factfinder. Compagnie Financiere de CIC et de L’Union Europeenne v. Merrill Lynch,

Pierce, Fenner & Smith, Inc., 232 F.3d 153, 158 (2d Cir. 2000).                Though, as discussed

immediately below, this general rule demands refinement, none of our clarifications of the rule

make the grant of summary judgment suitable in this case.

       First, paralleling the general rule on summary judgment, extrinsic evidence can help to

set the interpretation of a contract at summary judgment where the evidence “is so one-sided”

that no reasonable factfinder could read the contract differently. Id. at 159.        However, this is

not the case here.     As CP III points out, removal of the Mechanic’s Lien Clause had no

substantive effect on the rights of the parties, because the revised draft that followed provided for

loss recourse in nearly identical circumstances under a clause (the “SPE Clause”) triggered upon

Borrower’s breach of the Loan Agreement’s special purpose entity covenant.3            While it is true

that the parties removed the Mechanic’s Lien Clause, incorporation of the more-expansive SPE

Clause – which provides for loss recourse whenever Borrower has “Liens of any nature against

it” – undermines the inference that the parties intended to remove coverage of all liens similar to

the Disputed Liens from the contract.4     App’x 65.     Put simply, it is the rare circumstance when

3
  The Loan Agreement defines a “Special Purpose Entity” as, inter alia, an entity that “has no judgments
or Liens of any nature against it except for tax liens not yet due and the Permitted Encumbrances.”
App’x 65. Borrower covenanted to maintain its status as a Special Purpose Entity so long as the loan
was outstanding. Though the Guaranty Agreement refers to a “Single Purpose Entity” rather than a
Special Purpose Entity, neither party contends that this is anything other than scrivener’s error.
4
  We need not give definitive meaning to the SPE Clause to recognize that its inclusion creates an open
factual question not properly resolved on summary judgment.

                                                  11
an alteration without apparent legal effect conclusively resolves the meaning of the parties’

contract.

        Moreover, the mere fact that the Mechanic’s Lien Clause was removed in the course of

the parties’ negotiations does not resolve the textual ambiguity the district court was confronted

with.   Insofar as it reflects on the meaning of ambiguous text or the import of facially

conflicting provisions of a contract, extrinsic evidence can be useful. In such a case, extrinsic

evidence can allow the court to discern the intended meaning of the ambiguous language.

British Int’l Ins. Co. Ltd. v. Seguros La Republica, S.A., 342 F.3d 78, 82 (2d Cir. 2003).      In

other words, such evidence can sometimes clarify the meaning of the explicit terms of the

agreement. See Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 430 (2d Cir. 1992)

(holding that “because the interrelationship of the two provisions . . . is susceptible to several

reasonable interpretations . . . [i]t cannot be definitely and precisely gleaned which reading was

intended by the parties” and extrinsic evidence is properly considered).

        That is not the case here.   At most, the removal of the Mechanic’s Lien Clause reflects

that the parties did not intend Borrower’s failure to pay for labor, materials or other charges,

which failure could generate a lien against the Property as a matter of state law, to operate as a

full recourse trigger. But this evidence does not clarify the interaction between the voluntary

Lien and Transfer Clauses.     Even if the extrinsic evidence suggests that the Transfer Clause

should not be read to apply to the liens formerly covered by the Mechanic’s Lien Clause, the

import of this evidence is purely negative: it identifies only one specific set of liens that the

Transfer Clause does not cover. This evidence does not reflect whether the Transfer Clause

applies to liens not covered by the Mechanic’s Lien Clause, such as the liens entered pursuant to

the Angotti judgment and the terms of the REOA.      It also does not clarify whether the voluntary

                                                12
Lien Clause displaces the Transfer Clause, or, if it does, the scope of the carve-out from full

recourse liability implied by the voluntary Lien Clause.5           Because the extrinsic evidence neither

supplies an unambiguous interpretation of the terms of the Guaranty Agreement nor indisputable

evidence of the parties’ intent with respect to the interaction between the Transfer and voluntary

Lien Clauses, the district court should not have resolved these ambiguities on summary

judgment.6       We therefore vacate the district court’s grant of summary judgment in favor of

Cohen on this point and remand for further proceedings.

          The district court also incorrectly granted summary judgment to Cohen with respect to

the Indebtedness Clause. The entirety of the subsection of the Guaranty Agreement containing

the Indebtedness and voluntary Lien Clauses provides for full recourse “if Borrower fails to

obtain Lender’s prior written consent to any Indebtedness (provided such Indebtedness exceeds

$250,000.00 or if any such Indebtedness is in the form of mezzanine debt or preferred equity) or

voluntary Lien encumbering the Property (to the extent such consent is required under the Loan

Agreement[)]”        App’x 23.      The district court correctly understood the phrase “prior written

consent” to mean what it says, an interpretation that is only further confirmed by the closing

parenthetical.      As a result, this provision of the Guaranty Agreement is triggered only when

Borrower has both failed to obtain Lender’s prior written consent for, for instance, Indebtedness,

and was required to obtain such consent under to the terms of the Loan Agreement.             The district

court held that, because the Loan Agreement did not require the Lender’s written consent prior to

5
    In this respect, we note that the term “voluntary Lien” is not self-defining.
6
  For similar reasons, analysis of the commercial reasonability of the agreement is insufficient, absent an
accompanying clear interpretation of the agreement’s terms, to resolve the ambiguity in the Guaranty
Agreement. See Greenwich Capital Fin. Prods., Inc. v Negrin, 74 A.D.3d 413, 415 (1st Dep’t 2010).

                                                       13
Borrower’s incurring the liabilities embodied in the Disputed Liens, the Disputed Liens did not

trigger this full recourse provision of the Guaranty Agreement.

         However, the district court did not fully consider the interaction between this provision of

the Guaranty Agreement and the special purpose entity provisions of the Loan Agreement.                As

CP III points out, the special purpose entity covenant in the Loan Agreement requires Borrower

to secure consent from the Lender prior to taking any action affecting Borrower’s special

purpose entity status.7     As noted above, the term “Special Purpose Entity” is defined broadly,

and, as relevant here, its definition provides that each special purpose entity “shall have no

Indebtedness other than (i) the Loan, (ii) liabilities incurred in the ordinary course of business . . .

in amounts not to exceed [$1,000,000] which liabilities are not more than sixty [] days past the

date incurred . . . and (iii) such other liabilities that are permitted pursuant to [the Loan]

Agreement.”       App’x 63.

         For one of the special purpose vehicles used by Cohen to hold the Property to incur more

than one million dollars in ordinary course Indebtedness without obtaining the Lender’s prior

written consent to Borrower’s carrying such liabilities forward would, therefore, plainly be a

breach of the Loan Agreement’s special purpose entity covenant.              The district court did not,

however, consider whether, and under what circumstances, the same might trigger full recourse

to Cohen under the Guaranty Agreement as Indebtedness for which the Lender’s prior written

consent is required under the Loan Agreement.8            Because it did not reach this question, the

district court also did not have the opportunity to evaluate how the interaction between these

7
    All consents required under the Loan Agreement must be in writing.
8
  We note, however, that the district court correctly rejected Cohen’s argument that a broad reading of the
Guaranty Agreement’s full recourse provisions would make the Guaranty Agreement’s loss recourse SPE
Clause – triggered upon breach of the Loan Agreement’s special purpose entity covenant – superfluous.

                                                    14
provisions of the two agreements would affect the treatment of the Disputed Liens under the

Guaranty Agreement.     We decline to consider these questions in the first instance, and therefore

vacate and remand the matter to the district court for further proceedings.

                                          *      *      *

       We have considered the parties’ remaining arguments and find them to be without merit.

Accordingly, we VACATE the judgment of the district court and REMAND for further

proceedings consistent with this order.

                                                     FOR THE COURT:
                                                     Catherine O’Hagan Wolfe, Clerk

                                                15