PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION SUBJECT TO ATTORNEY WORK PRODUCT PROTECTION
DO NOT FORWARD OR DISTRIBUTE WITHOUT PRIOR AUTHORIZATION FROM CALDERWOOD & HARKNESS LLP
MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — SUBJECT TO ATTORNEY WORK PRODUCT PROTECTION — DO NOT FORWARD OR DISTRIBUTE WITHOUT PRIOR AUTHORIZATION FROM CALDERWOOD & HARKNESS LLP
FROM: Linda Osei, Esq., Partner Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, NY 10022
DATE: November 6, 2024
TO:
Margaret Linden, SVP & General Counsel, Belmont Ridge Bank NA
Thomas Hargreaves, VP & Associate General Counsel, Belmont Ridge Bank NA
Derek Whitmore, SVP, Head of Special Assets Group, Belmont Ridge Bank NA
Joanna Reeves, VP, Special Assets Group, Belmont Ridge Bank NA
Philip Aaronson, EVP & Chief Credit Officer, Belmont Ridge Bank NA
RE: LITIGATION HOLD NOTICE — Preservation of Documents and Electronically Stored Information Related to Triton Harbor Industries, LLC — Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, Index No. 654871/2024, New York Supreme Court, New York County, Commercial Division
CALDERWOOD & HARKNESS MATTER NO.: 1022-00005
CC: Priya Anand, Carlos Espinoza, Hannah Brinkley (Calderwood & Harkness LLP)
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I. PURPOSE AND LEGAL OBLIGATION
Calderwood & Harkness LLP has been retained by Belmont Ridge Bank NA ("BRB" or the "Bank") effective November 4, 2024, to represent BRB in all matters arising from or related to the above-captioned litigation, including (a) defense of BRB against the counterclaims filed by Triton Harbor Industries, LLC ("Triton Harbor" or "THI"), Marcus J. Kappel ("M. Kappel"), and Elaine D. Kappel ("E. Kappel," and together with THI and M. Kappel, the "Counterclaim Plaintiffs") in the above-captioned action, and (b) the continued prosecution of BRB's original enforcement action against the Counterclaim Plaintiffs for recovery of the outstanding indebtedness and related claims.
The Counterclaim Plaintiffs filed their counterclaims on October 18, 2024, asserting four causes of action: (1) fraudulent inducement under CPLR and New York common law; (2) negligent misrepresentation; (3) breach of the implied covenant of good faith and fair dealing; and (4) rescission of the Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement") and the amended and new personal guaranties executed in connection therewith. The Counterclaim Plaintiffs seek compensatory damages of not less than Twelve Million Five Hundred Thousand Dollars ($12,500,000), plus punitive damages in an amount to be determined at trial, together with attorneys' fees, costs, and such other relief as the Court deems just and proper.
BRB's Answer to Counterclaims is currently being prepared by Calderwood & Harkness and will be filed on or before November 22, 2024, in accordance with the applicable time limitations under the CPLR.
This memorandum constitutes a formal litigation hold notice. BRB and all recipients of this memorandum are under an immediate and continuing legal obligation to preserve all documents, electronically stored information ("ESI"), and tangible things that are or may be relevant to this litigation, effective immediately upon receipt. The duty to preserve attaches now and continues for the duration of this litigation, including any appeals.
This obligation is not discretionary. Under well-established New York and federal law, a party that reasonably anticipates litigation — and BRB is, of course, already a party to pending litigation — has an affirmative obligation to take reasonable steps to preserve potentially relevant evidence. The failure to preserve relevant evidence may result in severe consequences, including but not limited to: spoliation sanctions, adverse inference instructions to the jury, preclusion of certain evidence or defenses, monetary penalties, and other sanctions as the Court (Hon. Althea Marchetti, J.S.C., presiding) may deem appropriate. See, e.g., Voom HD Holdings LLC v. EchoStar Satellite L.L.C., 93 A.D.3d 33 (1st Dep't 2012); VOOM HD Holdings LLC v. EchoStar Satellite LLC, 93 A.D.3d 33 (1st Dep't 2012); Pegasus Aviation I, Inc. v. Varig Logistica S.A., 26 N.Y.3d 543 (2015).
This litigation hold supersedes any and all routine document retention policies, destruction schedules, or deletion protocols that might otherwise apply to the materials described herein. All scheduled destruction or deletion of potentially relevant materials must cease immediately and must not resume until Calderwood & Harkness provides written notification that this hold has been lifted.
Each recipient of this memorandum bears personal responsibility for compliance with the preservation obligations described herein and for ensuring that all persons under their supervision who may have custody, control, or access to relevant materials are likewise informed and comply.
II. BACKGROUND OF THE LITIGATION
A. The Original Action
On August 12, 2024, BRB filed the original complaint in this action (Index No. 654871/2024) in the Supreme Court of the State of New York, County of New York, Commercial Division, against Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel. The complaint seeks, among other relief: (i) enforcement of the Forbearance and Modification Agreement dated October 6, 2023; (ii) judgment on the amended unlimited Personal Guaranty of Marcus J. Kappel dated October 6, 2023; (iii) judgment on the new unlimited Personal Guaranty of Elaine D. Kappel dated October 6, 2023; and (iv) recovery of the deficiency balance remaining after application of all collateral proceeds.
The total accelerated amount at issue in the original action is $17,456,212, which comprises the following:
BRB was previously represented in this matter by Blakemore & Stern LLP (David Blakemore, Esq., 120 Broadway, Suite 3500, New York, NY 10271), which filed the original complaint and handled all pre-litigation matters, including the acceleration and foreclosure proceedings. Calderwood & Harkness is replacing Blakemore & Stern as counsel of record for BRB, and a Notice of Substitution of Counsel will be filed with the Court promptly. All communications relating to this matter should now be directed to Calderwood & Harkness LLP.
B. The Counterclaims
On October 18, 2024, Triton Harbor and the Kappels, through their counsel Kestrel Voss & Huang LLP (Theodore "Ted" Huang, Esq. and Natasha Orlov, Esq., 780 Third Avenue, 24th Floor, New York, NY 10017), filed counterclaims against BRB asserting the following four causes of action:
1. First Counterclaim — Fraudulent Inducement (CPLR and Common Law): The Counterclaim Plaintiffs allege that BRB, through its representatives, made material misrepresentations of fact and concealed material information with the intent to induce the Counterclaim Plaintiffs to enter into the Forbearance Agreement and the amended and new personal guaranties, and that the Counterclaim Plaintiffs justifiably relied upon such misrepresentations to their detriment.
2. Second Counterclaim — Negligent Misrepresentation: The Counterclaim Plaintiffs allege that BRB, through its representatives, carelessly and negligently made false statements of material fact regarding the Bank's intentions with respect to the ongoing lending relationship, upon which the Counterclaim Plaintiffs relied in executing the Forbearance Agreement and providing additional collateral and expanded guaranties.
3. Third Counterclaim — Breach of the Implied Covenant of Good Faith and Fair Dealing: The Counterclaim Plaintiffs allege that BRB's conduct in extracting additional collateral and expanded guaranties while simultaneously harboring an undisclosed intention to accelerate the remaining indebtedness and refuse to extend additional credit constituted a breach of the implied covenant of good faith and fair dealing inherent in the Forbearance Agreement and the underlying Credit Agreement.
4. Fourth Counterclaim — Rescission: The Counterclaim Plaintiffs seek rescission of the Forbearance and Modification Agreement dated October 6, 2023, the amended unlimited Personal Guaranty of Marcus J. Kappel, and the new unlimited Personal Guaranty of Elaine D. Kappel, on the grounds that these instruments were procured through fraud and misrepresentation.
The central factual allegations underlying all four counterclaims are that BRB, through Derek Whitmore (SVP, Head of the Special Assets Group) and Joanna Reeves (VP, Special Assets Group), allegedly misrepresented BRB's willingness to provide future financing to Triton Harbor — specifically, a new $6,500,000 revolving credit facility — and simultaneously concealed an existing internal decision or plan to accelerate the remaining indebtedness and pursue full enforcement after extracting additional collateral, including the expanded personal guaranties and the pledge of the Kappels' personal residence. The Counterclaim Plaintiffs contend that these representations were made during the forbearance negotiation period in September 2023 and that BRB never had any genuine intention to provide the new revolving facility or to continue the lending relationship beyond the forbearance period.
As noted above, the Counterclaim Plaintiffs seek compensatory damages of not less than $12,500,000 plus punitive damages, attorneys' fees, and costs.
C. Key Time Period
The relevant time period for purposes of this litigation hold spans from the origination of the credit facility on June 15, 2021 through the present date, with particular focus on the period from March 2023 (when the Triton Harbor credit was downgraded and the account was transferred from Relationship Management to the Special Assets Group) through August 2024 (when BRB filed the original complaint). This period encompasses the critical events of the credit deterioration, the forbearance negotiation, the execution of the Forbearance Agreement and expanded guaranties, the alleged misrepresentations, the acceleration, and the commencement of enforcement proceedings.
All recipients should be mindful, however, that documents and ESI from outside this core period may also be relevant, particularly to the extent they bear on BRB's practices, policies, or course of dealing with Triton Harbor. Documents from the origination period are relevant to establishing the original terms and expectations of the lending relationship. Accordingly, the preservation obligation covers the full period from June 15, 2021 through the present.
III. SCOPE OF PRESERVATION OBLIGATION
A. General Categories of Documents and ESI to Be Preserved
All documents and ESI, in any format, related to the lending relationship between BRB and Triton Harbor Industries, LLC must be preserved, including but not limited to the specific categories enumerated in Section III.B below.
For purposes of this litigation hold, the term "documents" is used in its broadest sense and includes all paper and electronic records, correspondence (whether by mail, courier, facsimile, email, or any other transmission method), memoranda, notes (including handwritten notes, margin annotations, and sticky notes), drafts (including all versions of any document, whether or not marked as "draft"), reports, analyses, presentations, spreadsheets, voice messages (including voicemail recordings and transcripts), text messages, instant messages, calendar entries, and any other recorded information regardless of the medium on which it is stored or the manner in which it was created.
The term "ESI" (electronically stored information) is likewise used in its broadest sense and includes, without limitation: emails (including all attachments, metadata, embedded content, distribution lists, and routing information), word processing files, spreadsheets, databases, presentations, PDF documents, image files, audio recordings, video recordings, voicemail files and recordings, text messages and SMS messages, instant messages (including messages transmitted through any platform such as Northgate Data Systems, Meridian Solutions, Westmark Services Inc. Chat, or any internal BRB messaging system), shared-drive files, network files, backup tapes, archive files, and cloud-stored documents (including documents stored on platforms such as Sundial Systems, Cobalt Ridge Systems, Hollowell Health IT, Larkspur Technologies, box, or any similar service). ESI also includes all associated metadata, which must be preserved in its original state.
B. Specific Categories of Materials — Detailed Enumeration
The following specific categories of materials must be preserved. This list is intended to be illustrative and not exhaustive. If any recipient is aware of potentially relevant materials that do not fall neatly within these categories, those materials must also be preserved, and the recipient should contact Calderwood & Harkness for guidance.
1. Credit Origination and Facility Documents. The following documents relating to the origination and structure of the BRB-Triton Harbor credit facilities must be preserved:
(a) The original Credit Agreement dated June 15, 2021, between Belmont Ridge Bank NA (as Lender) and Triton Harbor Industries, LLC (as Borrower), providing for Total Committed Facilities of $22,000,000, comprising a Term Loan A facility in the original principal amount of $14,000,000 and a Revolving Credit Facility with a maximum commitment of $8,000,000, together with all exhibits, schedules, annexes, and ancillary documents executed in connection therewith.
(b) All amendments, modifications, supplements, side letters, waivers, consents, and other instruments amending or supplementing the Credit Agreement, whether executed before or after the Forbearance Agreement.
(c) The original Limited Personal Guaranty of Marcus J. Kappel dated June 15, 2021, in the amount of $4,500,000, together with any amendments thereto prior to the October 6, 2023 amended guaranty.
(d) All security agreements, pledge agreements, UCC-1 financing statements (including any continuation statements, amendments, or termination statements), mortgages, deeds of trust, assignments, and any other lien or security interest documents relating to the Triton Harbor credit facilities.
(e) The first mortgage on the Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, Queens County, NY 11101, together with any amendments, modifications, assignments, or subordination agreements relating thereto.
(f) The title insurance policy issued by Harborview Title & Escrow Co. (Policy No. HT-NYC-2021-04553) and all related documentation, including the title commitment, title search, survey, and any endorsements.
(g) The original collateral appraisal of the Long Island City terminal facility prepared by Ridgeline Appraisal Group, Inc. in connection with the June 2021 origination (appraised value: $18,700,000), together with all supporting data, comparable analyses, and communications with the appraiser.
(h) All loan closing checklists, closing binders, due diligence files, closing condition satisfaction memoranda, opinions of counsel, organizational documents (including operating agreements, certificates of formation, and incumbency certificates for Triton Harbor), environmental reports, insurance certificates, and any other documents generated or received in connection with the origination and closing of the credit facilities.
2. Credit Monitoring, Covenant Compliance, and Financial Reporting. All documents relating to the ongoing monitoring of the Triton Harbor credit, including but not limited to:
(a) All borrower financial statements, including annual audited financial statements, quarterly unaudited financial statements, monthly management reports, and any interim financial information submitted by or on behalf of Triton Harbor to BRB for any reporting period from June 2021 through the present.
(b) All covenant compliance certificates submitted by Triton Harbor to BRB, including calculations of the Minimum Fixed Charge Coverage Ratio (covenant minimum: 1.20x), Maximum Total Leverage Ratio (covenant maximum: 3.50x), and Minimum Liquidity ($2,000,000) for all reporting periods.
(c) All borrowing base certificates submitted in connection with the Revolving Credit Facility, including eligible accounts receivable calculations, eligible inventory calculations, and advance rate computations.
(d) Internal BRB credit analyses, financial spreading worksheets, trend analyses, industry analyses, and peer comparisons prepared with respect to the Triton Harbor account for any period from origination through the present.
(e) The fiscal year 2022 ("FY2022") financial reports for Triton Harbor reflecting approximately $68,000,000 in revenue and approximately $9,400,000 in adjusted EBITDA, together with all BRB internal analyses of such financial performance.
(f) The first quarter 2023 ("Q1 2023") financial reports for Triton Harbor reflecting trailing twelve-month ("TTM") EBITDA of approximately $5,100,000, a Fixed Charge Coverage Ratio ("FCCR") of 0.87x (below the covenant minimum of 1.20x), and a Total Leverage Ratio of 4.92x (above the covenant maximum of 3.50x), together with all BRB internal analyses and correspondence regarding the covenant violations indicated therein.
(g) The March 31, 2024 financial statements or compliance certificates reflecting an FCCR of 0.94x (representing the failure to cure the covenant violation within the time frame contemplated under the Forbearance Agreement), together with all internal BRB analyses and communications regarding such failure.
(h) Financial covenant calculations for all reporting periods, including all workpapers, back-up calculations, and adjustments.
3. Credit Committee and Internal Approval Documents. All credit committee and internal approval documents relating to the Triton Harbor credit, including but not limited to:
(a) All credit committee meeting minutes, presentations, memoranda, briefing materials, and approval records relating to the Triton Harbor credit facilities, from the initial credit approval in or around May-June 2021 through the present, including any and all approvals for origination, annual reviews, modifications, the forbearance, and any other credit actions.
(b) The March 8, 2023 credit review committee materials relating to the downgrade of the Triton Harbor credits from "Pass" (or equivalent) to "Substandard" (Risk Rating 7), including all supporting memoranda, risk rating analyses, and the decision to transfer the account from the Relationship Management group to the Special Assets Group ("SAG"). All attendees' notes, draft presentations, and final approved materials for this meeting must be preserved.
(c) Any and all credit committee materials, memoranda, and approval records relating to the negotiation, approval, and execution of the Forbearance and Modification Agreement, including any conditions, limitations, or instructions imposed by the credit committee on the SAG team in connection with the forbearance negotiations.
(d) Any and all credit committee materials, memoranda, and approval records relating to the decision to accelerate the Triton Harbor indebtedness, to declare a default under the Forbearance Agreement, to commence foreclosure proceedings, or to file the original complaint.
(e) Any minutes, notes, or records of any informal or ad hoc discussions among members of the credit committee, senior management, or other BRB personnel regarding the Triton Harbor credit, workout strategy, or related matters.
4. Special Assets Group Files. The complete Special Assets Group file for the Triton Harbor relationship is of central importance to this litigation and must be preserved in its entirety. This includes, without limitation:
(a) All internal memoranda, strategy documents, workout plans, call reports, meeting notes, and analyses prepared by Derek Whitmore, Joanna Reeves, or any other SAG personnel in connection with the Triton Harbor account from the date of the account's transfer to SAG (on or about March 8, 2023) through the present.
(b) All workout and disposition strategy documents, including analyses of exit options (e.g., refinancing, third-party sale, discounted payoff, foreclosure and liquidation), recovery estimates, loss projections, and liquidation scenarios.
(c) The August 22, 2023 memorandum authored by Philip Aaronson, EVP & Chief Credit Officer, addressed to Derek Whitmore, SVP, Special Assets Group, with a copy to Margaret Linden, SVP & General Counsel, regarding "Triton Harbor — Recommended Disposition Strategy" (the "Aaronson Memorandum"). This document is of central importance to the counterclaims and is expected to be a focal point of discovery and motion practice. It must be preserved in all versions — including all drafts, redlines, tracked-changes versions, and the final executed or distributed version — together with all associated metadata. Any comments, annotations, or marginalia on any version of this document must likewise be preserved. No version of this document may be deleted, modified, or overwritten under any circumstances.
(d) The internal draft term sheet for a potential new $6,500,000 revolving credit facility that was referenced in or attached to Joanna Reeves' September 29, 2023 internal email to Derek Whitmore (described therein as "for discussion purposes only — not approved"). All versions, drafts, redlines, and associated communications relating to this draft term sheet must be preserved, including any prior or subsequent versions, any markup or comments by any BRB personnel, and any analysis of the feasibility or desirability of the proposed new facility.
(e) Any internal assessments of the Triton Harbor collateral adequacy, financial condition, borrower viability, or recovery prospects, including any models, projections, or scenario analyses.
(f) The SAG account summary, status reports, and any periodic reporting to senior management or the credit committee regarding the Triton Harbor account.
5. Forbearance and Modification Agreement — All Related Documents. All documents relating to the Forbearance and Modification Agreement dated October 6, 2023, including but not limited to:
(a) The fully executed Forbearance and Modification Agreement, together with all drafts, redlines, markup versions, negotiation versions, and term sheets that were exchanged or prepared during the negotiation of the agreement, whether prepared by BRB, Triton Harbor, their respective counsel, or any other party.
(b) All documents, correspondence, and communications relating to specific provisions of the Forbearance Agreement, including Section 9(c) (the "No Commitment to Extend Credit" provision) and Section 12(a) (the Integration Clause), as well as any other representations, warranties, covenants, or conditions contained therein.
(c) The amended unlimited Personal Guaranty of Marcus J. Kappel dated October 6, 2023, replacing the original limited guaranty of $4,500,000, together with all drafts and negotiation history.
(d) The new unlimited Personal Guaranty of Elaine D. Kappel dated October 6, 2023, together with all drafts and negotiation history.
(e) The assignment of two equipment leases (appraised value: $2,300,000) pledged as additional collateral under the Forbearance Agreement, together with all underlying lease documents, equipment appraisals, and UCC filings.
(f) All mortgage, pledge, or security documents relating to the personal residence of Marcus J. Kappel and Elaine D. Kappel located at 14 Birchmont Lane, Westport, CT 06880 (appraised value: $3,100,000), including any residential appraisals, title searches, title insurance, mortgage recordings, and related instruments.
(g) Documentation relating to the forbearance fee of $87,500 (calculated as 0.50% of the approximately $17,500,000 outstanding at the time of execution), including fee calculation memoranda, invoices, and payment records.
(h) All monthly payment records during the forbearance period, reflecting six payments of $125,000 each (totaling $750,000) made by Triton Harbor from October 2023 through March 2024, including payment receipts, ledger entries, application of payments, and any communications regarding the timeliness or sufficiency of such payments.
6. Communications with Triton Harbor, Marcus J. Kappel, and Elaine D. Kappel. All correspondence, emails, letters, facsimile transmissions, text messages, instant messages, voicemails, and any other communications between any BRB personnel (including officers, employees, agents, and any other representatives) and any representative of Triton Harbor Industries, LLC, Marcus J. Kappel, Elaine D. Kappel, or any person acting on their behalf, from June 15, 2021 through the present date, must be preserved.
Specific focus must be given to the following communications, which are expected to be of particular significance in the litigation:
(a) All communications relating to the September 12, 2023 in-person meeting at BRB's offices (1200 Avenue of the Americas, 38th Floor, New York, NY 10036) attended by Derek Whitmore, Joanna Reeves, Marcus J. Kappel, and Elaine D. Kappel. This includes, without limitation: any meeting agendas prepared in advance of the meeting, any notes taken during the meeting (whether handwritten or electronic), any follow-up memoranda or summaries prepared after the meeting, any internal debriefs or discussions among BRB personnel concerning the meeting, any presentations or materials shared at the meeting, and any pre-meeting or post-meeting communications with the Kappels regarding the meeting.
(b) The September 18, 2023 email from Joanna Reeves to Marcus J. Kappel containing, among other things, the statement: "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship." This email and all attachments, replies, forwards, and related chain communications must be preserved. Any internal BRB communications regarding the drafting, review, or approval of this email must likewise be preserved.
(c) The September 29, 2023 internal email from Joanna Reeves to Derek Whitmore forwarding or attaching a draft term sheet for a potential new $6,500,000 revolving credit facility, with the notation "for discussion purposes only — not approved." This email and all attachments, replies, forwards, and any related internal communications must be preserved.
(d) Any and all other communications — whether with the Kappels directly, with Triton Harbor personnel, or internally among BRB personnel — regarding the prospect, feasibility, likelihood, or terms of any new or renewed credit facility for Triton Harbor, including any discussions of a new revolving facility, a refinancing, or any other extension of credit.
7. Communications with Mercer Tidwell & Associates LLC. All correspondence and communications between any BRB personnel and Mercer Tidwell & Associates LLC (Raymond Mercer, Managing Director, 245 Park Avenue, 28th Floor, New York, NY 10167), Triton Harbor's pre-workout financial and restructuring advisor, must be preserved. This includes, without limitation:
(a) Any engagement letters, non-disclosure agreements, or other agreements between Mercer Tidwell and BRB (if any).
(b) Any financial analyses, projections, restructuring proposals, business plans, cash flow models, or other materials prepared by Mercer Tidwell and provided to or shared with BRB.
(c) All emails, letters, phone records, call notes, and meeting notes reflecting communications between BRB personnel and Mercer Tidwell representatives.
(d) Any internal BRB analyses or commentary on information received from Mercer Tidwell.
8. Collateral Appraisals and Valuations. All appraisals, valuations, and related materials must be preserved, including:
(a) The June 2021 origination appraisal of the Long Island City terminal facility at 50-22 Borden Avenue, Long Island City, NY 11101, prepared by Ridgeline Appraisal Group, Inc. (312 Elm Street, Stamford, CT 06902), reflecting an appraised value of $18,700,000, together with all supporting documentation, comparable sales data, and communications with the appraiser.
(b) The September 2023 updated collateral appraisal of the Long Island City terminal facility, also prepared by Ridgeline Appraisal Group, Inc., reflecting an updated appraised value of $11,200,000 — a decline of $7,500,000, or approximately 40.1%, from the origination appraisal. All supporting documentation, comparable sales data, and communications with the appraiser must be preserved.
(c) Any internal BRB valuations, analyses, or commentary on collateral adequacy, loan-to-value ratios, or the sufficiency of the collateral package at any point during the life of the credit facilities.
(d) Any appraisals, valuations, or assessments of the Kappel personal residence at 14 Birchmont Lane, Westport, CT 06880 (appraised value: $3,100,000), and of the two equipment leases pledged as additional collateral (appraised value: $2,300,000), together with all supporting documentation.
9. Default, Acceleration, and Foreclosure Documents. All documents relating to the default, acceleration, and enforcement actions taken by BRB must be preserved, including:
(a) The April 15, 2024 Notice of Default and Acceleration sent by BRB (or its counsel) to Triton Harbor and the Kappels, together with all drafts, internal approvals, and delivery confirmations.
(b) All documents, memoranda, analyses, and communications relating to the decision to declare the outstanding balance immediately due and payable (total accelerated amount: $17,456,212), including any deliberations among BRB personnel, any consultations with counsel, and any credit committee or management approvals.
(c) All documents relating to the May 20, 2024 commencement of foreclosure proceedings on the Long Island City terminal facility at 50-22 Borden Avenue, Long Island City, NY 11101, including any lis pendens filings, foreclosure complaints, service of process records, and related court filings.
(d) Any internal BRB communications, memoranda, or analyses regarding the acceleration decision and its timing, including any discussion of the strategic rationale for accelerating when BRB did, any consideration of alternatives to acceleration, and any assessment of the likely impact of acceleration on the borrower's business operations.
10. Communications with Prior Counsel — Blakemore & Stern LLP. All communications between BRB personnel and Blakemore & Stern LLP (David Blakemore, Esq., 120 Broadway, Suite 3500, New York, NY 10271), from the inception of the attorney-client relationship through the present, must be preserved. This includes, without limitation:
(a) All pre-litigation advice, strategy memoranda, legal analyses, and correspondence relating to the Triton Harbor workout, the forbearance negotiations, the acceleration decision, and the preparation and filing of the original complaint on August 12, 2024.
(b) All communications relating to the initial defense against the counterclaims and any case assessments or strategy discussions prior to the substitution of counsel.
(c) All file materials, work product, and attorney notes maintained by Blakemore & Stern in connection with this matter.
Note: These materials are likely protected by the attorney-client privilege and/or the attorney work product doctrine, but they must nevertheless be preserved and produced to Calderwood & Harkness as part of the file transition from prior counsel. The transfer of these materials from one counsel to another on behalf of the same client does not constitute a waiver of privilege.
11. Regulatory and Audit-Related Documents. The following regulatory and audit-related documents must be preserved to the extent they bear on the Triton Harbor relationship or the BRB commercial lending portfolio:
(a) Any reports of examination or supervisory communications from the Office of the Comptroller of the Currency ("OCC") that reference or relate to the Triton Harbor credit, the Special Assets Group portfolio, or BRB's commercial lending practices generally, including any Matters Requiring Attention ("MRAs"), Matters Requiring Immediate Attention ("MRIAs"), or CAMELS-related findings.
(b) Loan-loss reserve classifications, allowance for loan and lease loss ("ALLL") calculations, and any workpapers related to the Triton Harbor account, including materials prepared by or shared with Tavrenis & Hatch CPAs LLP (1301 Avenue of the Americas, 42nd Floor, New York, NY 10019), BRB's external auditor, in connection with any audit or review of the Triton Harbor credit or the BRB commercial loan portfolio.
(c) Any internal audit reports or risk management assessments relating to the Triton Harbor credit or to the SAG portfolio.
Important Note Regarding Privilege: Materials related to OCC examinations may be subject to the bank examination privilege. Materials prepared in connection with external audits may implicate the accountant-client privilege or other protections. The preservation of these documents does not constitute a waiver of any applicable privilege, and Calderwood & Harkness will provide specific guidance regarding the handling and potential production of these materials.
12. D&O Insurance Documents. All documents relating to directors' and officers' liability insurance coverage must be preserved, including:
(a) The current directors' and officers' liability insurance policy issued by Pinnacle Omnivrel Insurance Co. (Policy No. PF-DO-2023-08811), together with all endorsements, amendments, renewal documentation, applications, and underwriting correspondence.
(b) All reservation-of-rights correspondence or coverage determination letters from Pinnacle Omnivrel Insurance Co. (100 Constitution Plaza, Hartford, CT 06103) relating to the Triton Harbor litigation or the counterclaims.
(c) All communications with Crane, Alcott & Shire LLP (Robert Alcott, Esq., 400 Park Avenue, 18th Floor, New York, NY 10022), BRB's insurance coverage counsel, relating to the D&O policy, the notice of claim, coverage analysis, or any coverage dispute.
(d) Any internal BRB memoranda or analyses relating to the availability of D&O coverage for the claims and counterclaims in this litigation.
13. Personal Devices, Notes, and Informal Communications. The preservation obligation extends to materials maintained outside of BRB's formal document management systems, including:
(a) Any personal notes, handwritten notes, journals, notebooks, desk files, sticky notes, whiteboard photographs, or personal electronic records maintained by any BRB employee who had any involvement with the Triton Harbor relationship, the forbearance negotiations, the acceleration decision, or any other aspect of the matters at issue in this litigation.
(b) Text messages, SMS messages, coss, Meridian Services Inc. messages, signal messages, or communications on any other messaging platform sent or received on personal devices or personal accounts that relate to Triton Harbor business, the Kappels, or any aspect of the lending relationship or workout.
(c) Any emails or other communications sent or received through personal email accounts (e.g., Northgate Software, Cascade Health IT, or other non-BRB email accounts) relating to Triton Harbor, the Kappels, or the subject matter of this litigation.
(d) Calendar entries, meeting invitations, scheduling records, and any associated notes or attachments related to meetings, calls, conference calls, video conferences, or any other interactions with Triton Harbor representatives, the Kappels, Mercer Tidwell, or any other third party in connection with the Triton Harbor credit.
IV. PERSONS SUBJECT TO THIS HOLD
This litigation hold applies to the following BRB personnel, as well as their administrative assistants, executive assistants, support staff, and any other person who may have custody, control, or access to their files, ESI, or records:
1. Margaret Linden — Senior Vice President & General Counsel, Belmont Ridge Bank NA
2. Thomas Hargreaves — Vice President & Associate General Counsel, Belmont Ridge Bank NA
3. Derek Whitmore — Senior Vice President, Head of Special Assets Group, Belmont Ridge Bank NA
4. Joanna Reeves — Vice President, Special Assets Group, Belmont Ridge Bank NA
5. Philip Aaronson — Executive Vice President & Chief Credit Officer, Belmont Ridge Bank NA
6. Any other member of the Special Assets Group who worked on, contributed to, reviewed, or had access to the Triton Harbor file or any aspect of the Triton Harbor workout, forbearance, or enforcement
7. Any member of the Relationship Management team (or any predecessor group) who managed, serviced, or had responsibility for the Triton Harbor account at any time prior to the March 8, 2023 transfer to the Special Assets Group, including the original relationship manager and any portfolio manager or credit analyst assigned to the account
8. Any member of the Credit Review Committee (or any equivalent body) who participated in, voted on, or was present for any review, approval, or discussion of the Triton Harbor credit at any time from origination through the present
9. Any BRB employee in the Information Technology, Records Management, Compliance, or any other department who has custody, control, or access to Triton Harbor-related records, systems, databases, or backup media
10. Any BRB employee who communicated with Triton Harbor, the Kappels, Mercer Tidwell & Associates LLC, or any other third party regarding the Triton Harbor credit facility, the workout, the forbearance negotiations, or any related matter
Margaret Linden and Thomas Hargreaves are requested to review the foregoing list carefully and to identify any additional custodians who may possess relevant materials that are not currently identified above. This may include, for example, loan operations personnel, commercial banking officers, credit analysts, or any other individuals who may have been involved in or aware of the Triton Harbor relationship. Calderwood & Harkness should be notified promptly of any additional custodians so that this litigation hold can be extended to them and appropriate preservation steps can be taken.
V. PRESERVATION INSTRUCTIONS
A. Immediate Steps Required
The following steps must be taken immediately upon receipt of this memorandum. Time is of the essence, and any delay in implementing these measures could result in the irreversible loss of relevant evidence.
1. Suspend All Routine Document Destruction. All records retention schedules, auto-delete policies, programmed destruction routines, and any other mechanisms that could result in the deletion, destruction, or overwriting of potentially relevant materials must be suspended immediately with respect to the categories of documents and ESI described in this memorandum and with respect to all custodians identified herein. This includes, without limitation:
(a) Email auto-purge settings or policies that automatically delete emails after a specified period of time;
(b) Backup tape rotation or recycling schedules that could result in the overwriting of backup media containing relevant data;
(c) Any scheduled shredding, offsite destruction, or disposal of paper files;
(d) Any automated cleanup, archiving, or compression processes that could alter or destroy data or metadata.
2. Notify the IT Department. BRB's Information Technology department must be notified immediately to take the following specific actions:
(a) Suspend automatic deletion of emails for all identified custodians listed in Section IV above, and ensure that email retention settings for those custodians are configured to retain all emails indefinitely until further notice;
(b) Preserve all backup tapes, server snapshots, disaster recovery images, or any other backup media that include data from the relevant time period (June 2021 through the present) for any identified custodian or for any system, server, shared drive, or database where Triton Harbor-related files may reside;
(c) Ensure that no custodian mailbox is purged, archived in a lossy manner, migrated, or otherwise altered in a way that could result in the loss of data or metadata;
(d) Preserve all shared drives, network folders, file servers, document management repositories, and databases where Triton Harbor-related files may reside, including specifically the SAG shared drive (or equivalent), the Credit Committee document repository, the loan operations system, and any other system or platform used to store or manage Triton Harbor account records;
(e) Preserve system logs, audit trails, and access records for any system or repository containing Triton Harbor-related files.
3. Preserve Personal Devices. Any BRB employee who used a personal device (including a personal mobile phone, tablet, laptop computer, home computer, or personal email account) for communications related to Triton Harbor, the Kappels, Mercer Tidwell, or any other matter within the scope of this hold must take immediate steps to preserve those devices and the relevant data residing thereon. This means:
(a) Do not delete any text messages, emails, instant messages, voicemails, photographs, or other data from such devices;
(b) Do not perform a factory reset, operating system upgrade, or any other action that could result in the loss of data;
(c) Do not trade in, sell, donate, or dispose of any such device until the relevant data has been preserved through forensically sound collection methods coordinated by Calderwood & Harkness.
4. Preserve Paper Files. All physical files relating to the Triton Harbor credit must be preserved in their current state and location. This includes, without limitation:
(a) Original credit files and loan documents maintained by Credit Administration or Loan Operations;
(b) SAG working files maintained in the SAG file room or in the offices of Derek Whitmore, Joanna Reeves, or any other SAG personnel;
(c) Credit committee files and binders;
(d) Personal desk files, notebooks, folders, or other materials maintained by any identified custodian;
(e) Any off-site storage files that contain Triton Harbor-related documents.
No paper files may be removed from their current location, reorganized, culled, or placed in off-site storage without the prior written approval of Calderwood & Harkness.
B. Ongoing Obligations
This litigation hold remains in effect until Calderwood & Harkness LLP notifies BRB in writing that the hold has been released. Do not assume that the hold has been lifted based on the passage of time, the resolution of any particular motion or phase of the litigation, or any change in circumstances. Only a written release from Calderwood & Harkness will terminate the hold.
The following ongoing obligations must be observed:
(a) Employee Departures and Role Changes. If any identified custodian leaves BRB's employment (whether voluntarily or involuntarily), changes roles within BRB, retires, or otherwise separates from the Bank, BRB must preserve that custodian's files, email account, ESI, and any other potentially relevant materials before any transition occurs. No custodian's email account or files should be deleted, deactivated, reassigned, or archived in a manner that could result in data loss until Calderwood & Harkness has confirmed that all relevant data has been collected and preserved. Thomas Hargreaves or Margaret Linden should contact Calderwood & Harkness immediately upon learning of any such departure or role change.
(b) Equipment Replacement or Upgrades. If any identified custodian's computer, laptop, mobile phone, or other electronic device is scheduled for replacement, upgrade, or decommissioning, BRB must preserve all potentially relevant data from the device before the transition occurs. Calderwood & Harkness should be notified in advance so that forensic imaging or targeted collection can be arranged if necessary.
(c) discovery of Additional Materials. If any custodian discovers potentially relevant documents or ESI that have not previously been identified — including materials in unexpected locations, materials from previously unidentified custodians, or materials that come to light through the ordinary course of business — the custodian must notify Margaret Linden or Thomas Hargreaves immediately, who should in turn notify Calderwood & Harkness.
(d) Periodic Reminders. Margaret Linden or her designee should issue periodic reminders to all custodians regarding their ongoing preservation obligations, at intervals of not less than once every ninety (90) days, until this hold is released.
C. What NOT to Do
The following actions are strictly prohibited for the duration of this litigation hold:
• Do not delete, discard, shred, overwrite, destroy, alter, modify, or deface any document, ESI, or tangible thing that is or may be relevant to this litigation.
• Do not move, reorganize, re-file, or re-label any documents or files in a manner that disrupts their current organization, sequence, or location, or that could alter or destroy metadata (such as "last modified" dates, file paths, or access histories).
• Do not use any software tool, utility, application, or manual process to "clean up," compress, defragment, wipe, or modify the metadata on any relevant files or storage media.
• Do not install, run, or permit the installation or operation of any software designed to permanently delete files, overwrite free space, or destroy data (e.g., file shredding utilities).
• Do not discuss the substance of potentially relevant communications, documents, or events on personal devices, through unsecured communication channels, or with any person who is not authorized to receive such information.
• Do not communicate with any opposing party — including Triton Harbor Industries, LLC, Marcus J. Kappel, Elaine D. Kappel, Kestrel Voss & Huang LLP, or any person acting on their behalf — regarding any aspect of this litigation, the underlying lending relationship, or the subject matter of the claims and counterclaims, without first consulting with and obtaining authorization from Calderwood & Harkness. All communications with opposing parties and their counsel must be coordinated through Calderwood & Harkness.
VI. DOCUMENT COLLECTION PROCESS
Calderwood & Harkness will work directly with Margaret Linden and Thomas Hargreaves to implement a formal, defensible document collection process. The collection will be conducted in a manner designed to satisfy the requirements of the CPLR, the Commercial Division Rules, and prevailing standards for ESI preservation and collection. The collection process will include the following components:
(a) ESI Collection from Custodian Accounts. Calderwood & Harkness, working with a qualified e-discovery vendor (to be identified), will collect ESI from the email accounts, network drives, local drives, personal drives, and any other electronic repositories of all identified custodians. Collection will be performed using forensically sound methods that preserve the integrity and metadata of all collected materials.
(b) Imaging and Collection of Paper Files. Relevant paper files from the SAG file room, Credit Administration, Loan Operations, the General Counsel's office, and any other custodial locations will be imaged or collected for review. Original documents will remain in their current locations unless Calderwood & Harkness determines that physical collection is necessary.
(c) Collection from Personal Devices. Where relevant data resides on personal devices, Calderwood & Harkness will coordinate with the affected custodians to arrange targeted, forensically defensible collection of relevant communications and data.
(d) Document Review Platform. All collected documents and ESI will be hosted on a secure document review platform for privilege review, relevance review, and production preparation. Access to the platform will be restricted to authorized attorneys and staff of Calderwood & Harkness and authorized BRB legal department personnel.
The initial document production deadline in this case is January 15, 2025, as will be set forth in the preliminary conference order anticipated to be entered by Justice Marchetti on December 6, 2024. Given the volume of documents at issue and the need for comprehensive privilege review, it is imperative that document collection begin promptly. Calderwood & Harkness will be in contact with Margaret Linden and Thomas Hargreaves within the next five (5) business days to schedule the commencement of collection activities.
The approximate document universe for BRB's production is currently estimated at approximately 34,000 documents, encompassing emails, internal memoranda, credit files, credit committee minutes and presentations, appraisals, financial reports, and related materials. This estimate is preliminary and may change as collection proceeds and the scope of responsive materials becomes clearer.
VII. PRIVILEGE CONSIDERATIONS
Many documents responsive to this litigation hold may be subject to the attorney-client privilege, the attorney work product doctrine, the bank examination privilege, or other applicable protections. The preservation of these documents is required regardless of their privilege status — preservation does not constitute a waiver of any privilege.
Calderwood & Harkness will conduct a thorough privilege review of all collected documents before any materials are produced to opposing counsel. A privilege log will be prepared in accordance with CPLR 3122 and the Commercial Division Rules, identifying all documents withheld or redacted on the basis of privilege.
All custodians are reminded that:
(a) Communications between BRB personnel and Calderwood & Harkness LLP regarding this matter are protected by the attorney-client privilege and should not be disclosed to anyone outside BRB's legal department (Margaret Linden and Thomas Hargreaves) without the express authorization of Calderwood & Harkness.
(b) Communications between BRB personnel and Blakemore & Stern LLP (prior counsel) regarding this matter are likewise privileged and should not be disclosed to anyone outside BRB's legal department without authorization.
(c) The fact that a document is preserved under this hold does not mean it will be produced to opposing counsel. Privilege determinations will be made by Calderwood & Harkness during the document review process.
Special Note Regarding the Aaronson Memorandum: The privilege status of the August 22, 2023 memorandum authored by Philip Aaronson (the "Aaronson Memorandum") is an anticipated point of significant contention in this litigation. Opposing counsel at Kestrel Voss & Huang LLP is expected to argue that this document constitutes a non-privileged business communication reflecting a business decision regarding the disposition of the Triton Harbor credit, and that it was not prepared for the purpose of obtaining or providing legal advice. Calderwood & Harkness is conducting a detailed analysis of the privilege issue, including the circumstances of the memorandum's creation, its distribution, the involvement of legal counsel in its preparation or receipt, and the applicable case law governing the distinction between legal advice and business advice in the banking context. In the interim, the Aaronson Memorandum and all drafts, versions, and associated communications must be preserved and treated as potentially privileged. No person should disclose the contents of the Aaronson Memorandum to any person outside BRB's legal department or Calderwood & Harkness without prior authorization.
VIII. COMPLIANCE ACKNOWLEDGMENT
Each recipient of this memorandum is required to take the following steps:
1. Read this memorandum in its entirety. Each recipient is responsible for understanding the full scope of the preservation obligations described herein.