1045-00004 · Client 1045 · Engagement & Administration

prior-counsel-transition-letter.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

BLAKEMORE & STERN LLP Attorneys at Law 120 Broadway, Suite 3500 New York, NY 10271 Telephone: (212) 554-7200 Facsimile: (212) 554-7201

November 8, 2024

Linda Osei, Esq. Responsible Partner, Litigation Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, NY 10022

Re: Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel New York Supreme Court, New York County, Commercial Division Index No. 654871/2024 Assigned Justice: Hon. Althea Marchetti Calderwood & Harkness Matter No. 1022-00005

Dear Ms. Osei:

We write to confirm that Blakemore & Stern LLP ("Blakemore & Stern" or "the Firm") has been informed by our mutual client, Belmont Ridge Bank NA ("BRB" or the "Bank"), through Margaret Linden, Senior Vice President and General Counsel of BRB, that Calderwood & Harkness LLP ("Calderwood & Harkness") has been retained effective November 4, 2024 to assume defense of the counterclaims asserted against BRB and to continue prosecution of the original enforcement action in the above-captioned matter. Blakemore & Stern hereby consents to the substitution of counsel and is cooperating fully with the transition of this matter to your firm. The purpose of this letter is to provide you with a comprehensive summary of the engagement, the current posture of the litigation, the materials being transferred to your firm, and certain key issues and observations that we believe will be of importance to successor counsel. We reference Calderwood & Harkness Matter No. 1022-00005 for your internal tracking purposes.

I. Background of Blakemore & Stern's Engagement

Blakemore & Stern was originally retained by BRB in connection with the pre-litigation workout and enforcement of a Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement") between BRB and Triton Harbor Industries, LLC ("Triton Harbor" or the "Borrower"). Our engagement encompassed advising the Bank on the enforcement of its remedies following Triton Harbor's default under the Forbearance Agreement, as well as pursuing the Bank's claims against the individual guarantors.

Following the failure of the workout process and the expiration of the forbearance period, Blakemore & Stern prepared and filed the original Summons and Verified Complaint on behalf of BRB on August 12, 2024, in the New York Supreme Court, New York County, Commercial Division. The Complaint seeks: (i) enforcement of the Forbearance Agreement; (ii) judgment on the personal guaranties of Marcus J. Kappel and Elaine D. Kappel (the "Kappels"); and (iii) recovery of the deficiency balance owed to the Bank following the acceleration of the credit facilities.

The total accelerated amount claimed in the Complaint is $17,456,212, comprising the following components:

On October 18, 2024, the Defendants — Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel — through their counsel, Kestrel Voss & Huang LLP ("Kestrel Voss"), filed an Answer with Counterclaims. Kestrel Voss's litigation team is led by Theodore ("Ted") Huang as lead trial counsel, with Natasha Orlov serving as senior associate. Kestrel Voss's offices are located at 780 Third Avenue, 24th Floor, New York, NY 10017. The Counterclaims assert the following four causes of action against BRB:

1. Fraudulent Inducement — alleging that BRB officers made material misrepresentations to the Borrower and the Kappels to induce their execution of the Forbearance Agreement and the amended and new personal guaranties;

2. Negligent Misrepresentation — alleging that BRB owed and breached a duty of care in providing information and assurances upon which the Borrower and the Kappels relied to their detriment;

3. Breach of the Implied Covenant of Good Faith and Fair Dealing — alleging that BRB acted in bad faith in its administration of the Forbearance Agreement and in the exercise of its remedies; and

4. Rescission of the Forbearance Agreement and Amended Guaranties — seeking to void the Forbearance Agreement dated October 6, 2023, the amended unlimited personal guaranty of Marcus J. Kappel, and the unlimited personal guaranty of Elaine D. Kappel on the grounds of fraud and duress.

The Counterclaims seek compensatory damages of not less than $12,500,000, plus unspecified punitive damages, attorneys' fees, and such other and further relief as the Court deems just and proper.

Following the filing of the Counterclaims, BRB determined that the nature and scope of the lender-liability allegations warranted the retention of litigation defense counsel with specific expertise in defending claims of this type. This determination led to Calderwood & Harkness's engagement, and we understand that Ms. Linden has communicated the same to your firm.

II. Inventory of Materials Being Transferred

The following is a comprehensive inventory of the materials that Blakemore & Stern is transferring to Calderwood & Harkness in connection with the transition of this matter. A detailed file inventory index is attached separately as an enclosure to this letter.

A. Court Filings and Pleadings

The following court filings and related documents are being transferred:

1. Summons and Verified Complaint, filed August 12, 2024, together with all exhibits annexed thereto, including:

(a) the original Credit Agreement dated June 15, 2021;

(b) the Forbearance and Modification Agreement dated October 6, 2023;

(d) the amended unlimited personal guaranty of Marcus J. Kappel, dated October 6, 2023; and

(e) the unlimited personal guaranty of Elaine D. Kappel, dated October 6, 2023.

2. Affidavit of Service evidencing proper service of the Summons and Complaint upon all Defendants.

3. Answer with Counterclaims, filed October 18, 2024, by Kestrel Voss & Huang LLP on behalf of all Defendants.

4. Request for Judicial Intervention filed in connection with the assignment of this matter to the Commercial Division.

5. All correspondence with the Clerk of the Court and the Commercial Division of the New York Supreme Court, New York County, including any communications relating to the assignment of the case to Justice Marchetti.

B. Pre-Litigation Workout File

The following materials relating to Blakemore & Stern's pre-litigation workout efforts on behalf of BRB are being transferred:

1. Complete correspondence file between Blakemore & Stern (on behalf of BRB) and Triton Harbor Industries, LLC, as well as Kestrel Voss & Huang LLP (on behalf of the Defendants), dating from approximately July 2024 through October 2024. This file encompasses demand letters, responses, and settlement-related communications exchanged during the period leading up to the filing of the Complaint and continuing through the filing of the Counterclaims.

2. Notice of Default and Acceleration, dated April 15, 2024, issued by BRB to Triton Harbor Industries, LLC and the individual guarantors. This notice constitutes the formal acceleration of the credit facilities and is a predicate document for the enforcement action.

3. Foreclosure commencement documents related to the Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, NY 11101, filed on May 20, 2024. These documents relate to BRB's exercise of its remedial rights under the first mortgage encumbering the LIC terminal property.

4. Title insurance policy issued by Harborview Title & Escrow Co., Policy No. HT-NYC-2021-04553, covering the LIC terminal facility.

5. Correspondence with BRB's in-house legal team, specifically Margaret Linden, Senior Vice President and General Counsel, and Thomas Hargreaves, Vice President and Associate General Counsel, relating to strategy, enforcement decisions, and the preparation of the Complaint. This correspondence is privileged and should be treated accordingly.

C. Credit and Loan Documentation

The following credit and loan documentation is being transferred. This documentation forms the contractual foundation for BRB's claims and will be central to both the prosecution of the enforcement action and the defense of the Counterclaims:

1. Original Credit Agreement, dated June 15, 2021, between Belmont Ridge Bank NA, as Lender, and Triton Harbor Industries, LLC, as Borrower, including all schedules and exhibits. The facility structure under the Credit Agreement is as follows:

(a) Term Loan A: $14,000,000 principal amount, with an 84-month term maturing on June 15, 2028; and

(b) Revolving Credit Facility: $8,000,000 committed amount, maturing on June 15, 2026.

Total committed facilities under the Credit Agreement are $22,000,000.

2. Interest rate documentation, reflecting the applicable pricing under the Credit Agreement: Term Loan A bears interest at SOFR plus 275 basis points, and the Revolving Credit Facility bears interest at SOFR plus 250 basis points. Rate adjustment and floor provisions are set forth in the Credit Agreement.

3. Financial covenant documentation, reflecting the following maintenance covenants applicable to the Borrower under the Credit Agreement:

(a) Minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x;

(b) Maximum Total Leverage Ratio of 3.50x; and

4. Security documents, including:

(a) UCC-1 financing statements filed with respect to the Borrower's personal property and equipment;

(b) First mortgage on the LIC terminal facility at 50-22 Borden Avenue, Long Island City, NY 11101; and

5. Original limited personal guaranty of Marcus J. Kappel, dated June 15, 2021, in the amount of $4,500,000.

6. Forbearance and Modification Agreement, dated October 6, 2023, including all exhibits thereto. We draw your particular attention to the following provisions, which we expect will be of central importance to the defense of the Counterclaims:

(a) Section 9(c) — "No Commitment to Extend Credit" disclaimer, which states expressly that nothing in the Forbearance Agreement or in any communications between the parties shall be construed as a commitment, promise, or agreement by BRB to extend additional credit, modify the terms of any existing credit facility, or forbear from exercising its remedies beyond the express terms of the Forbearance Agreement; and

(b) Section 12(a) — Integration clause, which provides that the Forbearance Agreement constitutes the entire agreement between the parties with respect to the subject matter thereof and supersedes all prior oral and written representations, communications, and agreements.

7. Amended unlimited personal guaranty of Marcus J. Kappel, dated October 6, 2023, replacing and superseding the original limited guaranty and expanding the scope of the guaranty obligation to an unlimited amount.

8. New unlimited personal guaranty of Elaine D. Kappel, dated October 6, 2023, providing an unlimited personal guaranty by the spouse of Marcus J. Kappel in connection with the Forbearance Agreement.

9. Assignment of additional collateral, executed in connection with the Forbearance Agreement, including:

(a) Two equipment leases, with an aggregate appraised value of $2,300,000; and

(b) A mortgage on the Kappel residence located at 14 Birchmont Lane, Westport, CT 06880, with an appraised value of $3,100,000.

10. Forbearance fee documentation, reflecting the payment by the Borrower of a forbearance fee in the amount of $87,500, paid at the signing of the Forbearance Agreement on October 6, 2023.

D. Internal BRB Documents Received from Client

The following internal BRB documents were provided to Blakemore & Stern by the client in connection with the preparation and prosecution of the Complaint:

1. Credit review committee materials relating to the March 8, 2023 downgrade of the Triton Harbor credit facilities from a "Pass" rating to "Substandard" (Risk Rating 7) and the concurrent transfer of the Triton Harbor account from BRB's Relationship Management division to the Special Assets Group ("SAG").

2. Borrower financial reporting, including:

(a) Triton Harbor FY2022 audited financial statements, reflecting revenue of approximately $68 million and adjusted EBITDA of approximately $9.4 million; and

(b) Triton Harbor Q1 2023 unaudited financial statements, reflecting trailing-twelve-month EBITDA of approximately $5.1 million, an FCCR of 0.87x (versus the minimum covenant of 1.20x), and a Total Leverage Ratio of 4.92x (versus the maximum covenant of 3.50x).

3. Outstanding balance records as of March 8, 2023, reflecting:

(a) Term Loan A outstanding principal of $11,375,000; and

(b) Revolving Credit Facility drawn balance of $6,200,000 (fully drawn);

4. Ridgeline Appraisal Group, Inc. appraisal reports, consisting of:

(a) Original collateral appraisal, dated June 2021, reflecting a total appraised value of $18,700,000; and

(b) Updated collateral appraisal, dated September 2023, reflecting a total appraised value of $11,200,000 — representing a decline of $7,500,000, or approximately 40.1%, from the original appraisal.

5. Monthly forbearance payment records, reflecting six monthly payments of $125,000 each ($750,000 in total) made by Triton Harbor during the forbearance period.

6. Covenant compliance reporting through March 31, 2024, reflecting an FCCR of 0.94x. The Borrower's attempt to cure the FCCR covenant failed, as the minimum required ratio was 1.20x.

Important Note Regarding Scope of Internal BRB Documents: Blakemore & Stern received certain internal BRB documents from the client for the limited purpose of preparing the Complaint and assessing the Bank's enforcement position. However, the Firm did not conduct a comprehensive review of BRB's internal files, and the materials transferred to Calderwood & Harkness should not be understood to constitute the entirety of relevant internal BRB documentation. Specifically, Blakemore & Stern did not review — and does not possess — the following categories of documents, which Calderwood & Harkness should obtain directly from the client in connection with discovery preparation and defense of the Counterclaims:

• Special Assets Group internal memoranda and strategy documents;

• Credit committee minutes and related deliberation materials;

• Internal communications among BRB officers, including but not limited to communications involving Derek Whitmore, Senior Vice President and Head of SAG; Joanna Reeves, Vice President, SAG; and Philip Aaronson, Executive Vice President and Chief Credit Officer.

Given the nature of the allegations in the Counterclaims — particularly the fraudulent inducement and negligent misrepresentation claims — we regard the collection, review, and preservation of these internal materials as a matter of high priority for successor counsel.

E. Third-Party Correspondence

The following third-party correspondence is being transferred:

1. Correspondence with Mercer Tidwell & Associates LLC (Raymond Mercer, Managing Director; 245 Park Avenue, 28th Floor, New York, NY 10167), which served as Triton Harbor's restructuring advisor during the pre-litigation period. This correspondence was received by Blakemore & Stern in connection with the workout negotiations and includes restructuring proposals and financial projections submitted on behalf of the Borrower.

2. Correspondence with Ridgeline Appraisal Group, Inc. (312 Elm Street, Stamford, CT 06902) regarding the September 2023 updated collateral appraisal and related valuation matters.

3. Correspondence with Tavrenis & Hatch CPAs LLP (1301 Avenue of the Americas, 42nd Floor, New York, NY 10019) regarding auditor inquiries relating to the classification of the Triton Harbor loan on BRB's books and related financial reporting considerations.

III. Key Issues and Observations for Successor Counsel

While we are confident that Calderwood & Harkness will conduct its own independent assessment of the matter, we offer the following observations and strategic notes that we believe will be of assistance during the transition:

1. Focus of the Counterclaims — September 2023 Communications. The Counterclaims center on alleged oral and written representations made by BRB's Special Assets Group officers — specifically Derek Whitmore and Joanna Reeves — during September 2023, in the period immediately preceding the execution of the Forbearance Agreement on October 6, 2023. The Defendants allege that Whitmore and Reeves represented to Marcus Kappel that BRB intended to continue the banking relationship on a long-term basis and that the Forbearance Agreement was merely a procedural step toward a broader restructuring of the credit facilities, thereby inducing the Kappels to execute the amended and new personal guaranties. Calderwood & Harkness should prioritize obtaining and reviewing all communications from that period, including emails, call logs, meeting notes, and any internal SAG memoranda reflecting the Bank's strategy with respect to the Triton Harbor account.

2. Contractual Defenses — Section 9(c) and Section 12(a) of the Forbearance Agreement. As noted above, the Forbearance Agreement contains two provisions that we expect will be central to the defense:

(a) Section 9(c) — the express disclaimer stating that nothing in the Forbearance Agreement or in any prior or contemporaneous communications constitutes a commitment by BRB to extend additional credit or to modify the terms of any existing facility; and

(b) Section 12(a) — the integration clause, which supersedes all prior oral and written representations and agreements.

These provisions should provide strong grounds for a motion to dismiss or for summary judgment with respect to the fraudulent inducement and negligent misrepresentation counterclaims, particularly to the extent that the Defendants' claims rest on alleged oral representations that are contradicted by the express terms of the executed agreements. We note, however, that New York law recognizes certain exceptions to the parol evidence rule in cases involving fraud, and the Defendants can be expected to argue that the integration clause is itself a product of the alleged fraud. Successor counsel should be prepared to address this issue.

3. Alleged "Structured Exit" Memorandum. Blakemore & Stern is aware that the Counterclaims reference the purported existence of an internal BRB memorandum that allegedly directed a "structured exit" from the Triton Harbor banking relationship. This document is referenced in the Counterclaims as evidence that BRB's true intention at the time of the Forbearance Agreement was to liquidate the relationship rather than to support a restructuring. Blakemore & Stern did not review this document and does not possess it. We were not able to confirm or deny its existence based on the materials provided to us by the client. Calderwood & Harkness should make immediate inquiry with BRB — specifically with Margaret Linden, Derek Whitmore, and Philip Aaronson — to determine whether this document exists, and if so, to ensure its preservation and to assess its implications for the defense.

4. D&O Insurance Coverage. A notice of potential claims has been submitted to Pinnacle Omnivrel Insurance Co. under the Bank's directors and officers liability insurance policy, Policy No. PF-DO-2023-08811. Coverage counsel for BRB in connection with this matter is Robert Alcott at Crane, Alcott & Shire LLP, located at 400 Park Avenue, 18th Floor, New York, NY 10022. Calderwood & Harkness should coordinate with Mr. Alcott regarding coverage matters, including any reservation of rights or defense obligations under the policy.

5. Current discovery and Scheduling Status. No discovery has yet been served or responded to by either party. No depositions have been noticed, and no document demands or interrogatories are outstanding. The Preliminary Conference before Justice Marchetti is currently scheduled for December 6, 2024, at which time it is anticipated that the Court will issue a Preliminary Conference Order establishing a discovery schedule, including deadlines for document production, depositions, expert disclosures, and dispositive motions. Calderwood & Harkness should be prepared to address these matters at the Preliminary Conference and to propose a schedule that accommodates the scope of discovery that is likely to be required in light of the Counterclaims.

IV. Method and Timing of File Delivery

The complete physical and electronic file maintained by Blakemore & Stern in connection with this matter will be delivered to Calderwood & Harkness via secure courier and encrypted electronic transfer to your offices at 600 Lexington Avenue, 30th Floor, New York, NY 10022, no later than November 12, 2024. The file comprises approximately the following:

• Physical documents: Approximately fourteen (14) banker's boxes of original and copied documents, including original executed agreements, correspondence, court filings, and work papers.

• Electronic files: Approximately eight (8) gigabytes of electronic files, including emails, document drafts, scanned correspondence, memoranda, and research materials, to be transmitted via encrypted file transfer.

We will coordinate with your office regarding the logistics of the physical delivery and will provide access credentials for the encrypted electronic transfer separately. Blakemore & Stern will retain copies of the file for its own records, consistent with the Firm's professional obligations and document retention policies.

V. Substitution of Counsel

Blakemore & Stern hereby consents to the filing of a Notice of Substitution of Counsel substituting Calderwood & Harkness LLP as counsel of record for Belmont Ridge Bank NA in Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, Index No. 654871/2024. The Firm will execute any stipulation, consent form, or other document required by the Court in connection with the substitution and will cooperate with service of the Notice of Substitution on opposing counsel, Kestrel Voss & Huang LLP.

We confirm that no outstanding court deadlines fall before the anticipated filing date of the substitution, which we understand will be approximately November 12, 2024. The next court appearance in this matter is the Preliminary Conference scheduled for December 6, 2024, before Justice Marchetti. An executed Consent to Substitution of Counsel on behalf of Blakemore & Stern is enclosed with this letter.

VI. Outstanding Billing and Administrative Matters

Blakemore & Stern's final invoice for professional services rendered through November 8, 2024 will be submitted separately to Margaret Linden, Senior Vice President and General Counsel, at Belmont Ridge Bank NA. This letter does not address billing matters, which remain between the Firm and its client.

We confirm that no trust account funds, escrow funds, or other client funds are held by Blakemore & Stern in connection with this matter.

VII. Availability for Consultation

I and the Blakemore & Stern team remain available to consult with you and your colleagues at Calderwood & Harkness during the transition period regarding any questions about the file, the history of the matter, the pre-litigation communications and negotiations, or any other aspect of our representation. We are committed to ensuring a seamless transition and to providing whatever assistance may be helpful as you assume responsibility for this matter.

Please do not hesitate to contact me directly at the address below or by telephone at (212) 554-7210:

David Blakemore Blakemore & Stern LLP 120 Broadway, Suite 3500 New York, NY 10271 Telephone: (212) 554-7210

Email: dblakemore@blakemorestern.com

In closing, I wish to express our confidence in Calderwood & Harkness's capabilities in handling both the defense of the Counterclaims and the continued prosecution of BRB's enforcement action. The lender-liability claims asserted by the Defendants are serious in nature and scope, and we believe that BRB will be well served by your firm's expertise in this area.

We respectfully request that you provide us with written acknowledgment of your receipt of the file materials upon their delivery, confirming that Calderwood & Harkness has received the complete file as described in this letter and the attached inventory index.

Thank you for your attention to this matter. We wish you and your team every success.

Very truly yours,

BLAKEMORE & STERN LLP

By: ________

David Blakemore Partner 120 Broadway, Suite 3500 New York, NY 10271 Telephone: (212) 554-7210 Facsimile: (212) 554-7201

cc:

Margaret Linden, SVP & General Counsel Belmont Ridge Bank NA 1200 Avenue of the Americas, 38th Floor New York, NY 10036

Thomas Hargreaves, VP & Associate General Counsel Belmont Ridge Bank NA

Priya Anand, Esq. Calderwood & Harkness LLP

Carlos Espinoza, Esq. Calderwood & Harkness LLP

Enclosures:

1. File inventory index (attached separately)

2. Consent to Substitution of Counsel (executed by Blakemore & Stern LLP)

Component	Amount
Term Loan A — Outstanding Principal	$10,625,000
Revolving Credit Facility — Outstanding Principal	$6,200,000
Accrued and Unpaid Interest	$487,322
Late Fees and Default Interest	$143,890
Total Accelerated Amount	$17,456,212

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
BLAKEMORE & STERN LLP Attorneys at Law 120 Broadway, Suite 3500 New York, NY 10271 Telephone: (212) 554-7200 Facsimile: (212) 554-7201
November 8, 2024
Linda Osei, Esq. Responsible Partner, Litigation Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, NY 10022
Re: Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel New York Supreme Court, New York County, Commercial Division Index No. 654871/2024 Assigned Justice: Hon. Althea Marchetti Calderwood & Harkness Matter No. 1022-00005
Dear Ms. Osei:
We write to confirm that Blakemore & Stern LLP ("Blakemore & Stern" or "the Firm") has been informed by our mutual client, Belmont Ridge Bank NA ("BRB" or the "Bank"), through Margaret Linden, Senior Vice President and General Counsel of BRB, that Calderwood & Harkness LLP ("Calderwood & Harkness") has been retained effective November 4, 2024 to assume defense of the counterclaims asserted against BRB and to continue prosecution of the original enforcement action in the above-captioned matter. Blakemore & Stern hereby consents to the substitution of counsel and is cooperating fully with the transition of this matter to your firm. The purpose of this letter is to provide you with a comprehensive summary of the engagement, the current posture of the litigation, the materials being transferred to your firm, and certain key issues and observations that we believe will be of importance to successor counsel. We reference Calderwood & Harkness Matter No. 1022-00005 for your internal tracking purposes.
I. Background of Blakemore & Stern's Engagement
Blakemore & Stern was originally retained by BRB in connection with the pre-litigation workout and enforcement of a Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement") between BRB and Triton Harbor Industries, LLC ("Triton Harbor" or the "Borrower"). Our engagement encompassed advising the Bank on the enforcement of its remedies following Triton Harbor's default under the Forbearance Agreement, as well as pursuing the Bank's claims against the individual guarantors.
Following the failure of the workout process and the expiration of the forbearance period, Blakemore & Stern prepared and filed the original Summons and Verified Complaint on behalf of BRB on August 12, 2024, in the New York Supreme Court, New York County, Commercial Division. The Complaint seeks: (i) enforcement of the Forbearance Agreement; (ii) judgment on the personal guaranties of Marcus J. Kappel and Elaine D. Kappel (the "Kappels"); and (iii) recovery of the deficiency balance owed to the Bank following the acceleration of the credit facilities.
The total accelerated amount claimed in the Complaint is $17,456,212, comprising the following components:
On October 18, 2024, the Defendants — Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel — through their counsel, Kestrel Voss & Huang LLP ("Kestrel Voss"), filed an Answer with Counterclaims. Kestrel Voss's litigation team is led by Theodore ("Ted") Huang as lead trial counsel, with Natasha Orlov serving as senior associate. Kestrel Voss's offices are located at 780 Third Avenue, 24th Floor, New York, NY 10017. The Counterclaims assert the following four causes of action against BRB:
1. Fraudulent Inducement — alleging that BRB officers made material misrepresentations to the Borrower and the Kappels to induce their execution of the Forbearance Agreement and the amended and new personal guaranties;
2. Negligent Misrepresentation — alleging that BRB owed and breached a duty of care in providing information and assurances upon which the Borrower and the Kappels relied to their detriment;
3. Breach of the Implied Covenant of Good Faith and Fair Dealing — alleging that BRB acted in bad faith in its administration of the Forbearance Agreement and in the exercise of its remedies; and
4. Rescission of the Forbearance Agreement and Amended Guaranties — seeking to void the Forbearance Agreement dated October 6, 2023, the amended unlimited personal guaranty of Marcus J. Kappel, and the unlimited personal guaranty of Elaine D. Kappel on the grounds of fraud and duress.
The Counterclaims seek compensatory damages of not less than $12,500,000, plus unspecified punitive damages, attorneys' fees, and such other and further relief as the Court deems just and proper.
Following the filing of the Counterclaims, BRB determined that the nature and scope of the lender-liability allegations warranted the retention of litigation defense counsel with specific expertise in defending claims of this type. This determination led to Calderwood & Harkness's engagement, and we understand that Ms. Linden has communicated the same to your firm.
II. Inventory of Materials Being Transferred
The following is a comprehensive inventory of the materials that Blakemore & Stern is transferring to Calderwood & Harkness in connection with the transition of this matter. A detailed file inventory index is attached separately as an enclosure to this letter.
A. Court Filings and Pleadings
The following court filings and related documents are being transferred:
1. Summons and Verified Complaint, filed August 12, 2024, together with all exhibits annexed thereto, including:
(a) the original Credit Agreement dated June 15, 2021;
(b) the Forbearance and Modification Agreement dated October 6, 2023;
(c) the original limited personal guaranty of Marcus J. Kappel in the amount of $4,500,000, dated June 15, 2021;
(d) the amended unlimited personal guaranty of Marcus J. Kappel, dated October 6, 2023; and
(e) the unlimited personal guaranty of Elaine D. Kappel, dated October 6, 2023.
2. Affidavit of Service evidencing proper service of the Summons and Complaint upon all Defendants.
3. Answer with Counterclaims, filed October 18, 2024, by Kestrel Voss & Huang LLP on behalf of all Defendants.
4. Request for Judicial Intervention filed in connection with the assignment of this matter to the Commercial Division.
5. All correspondence with the Clerk of the Court and the Commercial Division of the New York Supreme Court, New York County, including any communications relating to the assignment of the case to Justice Marchetti.
B. Pre-Litigation Workout File
The following materials relating to Blakemore & Stern's pre-litigation workout efforts on behalf of BRB are being transferred:
1. Complete correspondence file between Blakemore & Stern (on behalf of BRB) and Triton Harbor Industries, LLC, as well as Kestrel Voss & Huang LLP (on behalf of the Defendants), dating from approximately July 2024 through October 2024. This file encompasses demand letters, responses, and settlement-related communications exchanged during the period leading up to the filing of the Complaint and continuing through the filing of the Counterclaims.
2. Notice of Default and Acceleration, dated April 15, 2024, issued by BRB to Triton Harbor Industries, LLC and the individual guarantors. This notice constitutes the formal acceleration of the credit facilities and is a predicate document for the enforcement action.
3. Foreclosure commencement documents related to the Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, NY 11101, filed on May 20, 2024. These documents relate to BRB's exercise of its remedial rights under the first mortgage encumbering the LIC terminal property.
4. Title insurance policy issued by Harborview Title & Escrow Co., Policy No. HT-NYC-2021-04553, covering the LIC terminal facility.
5. Correspondence with BRB's in-house legal team, specifically Margaret Linden, Senior Vice President and General Counsel, and Thomas Hargreaves, Vice President and Associate General Counsel, relating to strategy, enforcement decisions, and the preparation of the Complaint. This correspondence is privileged and should be treated accordingly.
C. Credit and Loan Documentation
The following credit and loan documentation is being transferred. This documentation forms the contractual foundation for BRB's claims and will be central to both the prosecution of the enforcement action and the defense of the Counterclaims:
1. Original Credit Agreement, dated June 15, 2021, between Belmont Ridge Bank NA, as Lender, and Triton Harbor Industries, LLC, as Borrower, including all schedules and exhibits. The facility structure under the Credit Agreement is as follows:
(a) Term Loan A: $14,000,000 principal amount, with an 84-month term maturing on June 15, 2028; and
(b) Revolving Credit Facility: $8,000,000 committed amount, maturing on June 15, 2026.
Total committed facilities under the Credit Agreement are $22,000,000.
2. Interest rate documentation, reflecting the applicable pricing under the Credit Agreement: Term Loan A bears interest at SOFR plus 275 basis points, and the Revolving Credit Facility bears interest at SOFR plus 250 basis points. Rate adjustment and floor provisions are set forth in the Credit Agreement.
3. Financial covenant documentation, reflecting the following maintenance covenants applicable to the Borrower under the Credit Agreement:
(a) Minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x;
(b) Maximum Total Leverage Ratio of 3.50x; and
(c) Minimum Liquidity of $2,000,000.
4. Security documents, including:
(a) UCC-1 financing statements filed with respect to the Borrower's personal property and equipment;
(b) First mortgage on the LIC terminal facility at 50-22 Borden Avenue, Long Island City, NY 11101; and
(c) Collateral assignments of receivables and other intangible assets.
5. Original limited personal guaranty of Marcus J. Kappel, dated June 15, 2021, in the amount of $4,500,000.
6. Forbearance and Modification Agreement, dated October 6, 2023, including all exhibits thereto. We draw your particular attention to the following provisions, which we expect will be of central importance to the defense of the Counterclaims:
(a) Section 9(c) — "No Commitment to Extend Credit" disclaimer, which states expressly that nothing in the Forbearance Agreement or in any communications between the parties shall be construed as a commitment, promise, or agreement by BRB to extend additional credit, modify the terms of any existing credit facility, or forbear from exercising its remedies beyond the express terms of the Forbearance Agreement; and
(b) Section 12(a) — Integration clause, which provides that the Forbearance Agreement constitutes the entire agreement between the parties with respect to the subject matter thereof and supersedes all prior oral and written representations, communications, and agreements.
7. Amended unlimited personal guaranty of Marcus J. Kappel, dated October 6, 2023, replacing and superseding the original limited guaranty and expanding the scope of the guaranty obligation to an unlimited amount.
8. New unlimited personal guaranty of Elaine D. Kappel, dated October 6, 2023, providing an unlimited personal guaranty by the spouse of Marcus J. Kappel in connection with the Forbearance Agreement.
9. Assignment of additional collateral, executed in connection with the Forbearance Agreement, including:
(a) Two equipment leases, with an aggregate appraised value of $2,300,000; and
(b) A mortgage on the Kappel residence located at 14 Birchmont Lane, Westport, CT 06880, with an appraised value of $3,100,000.
10. Forbearance fee documentation, reflecting the payment by the Borrower of a forbearance fee in the amount of $87,500, paid at the signing of the Forbearance Agreement on October 6, 2023.
D. Internal BRB Documents Received from Client
The following internal BRB documents were provided to Blakemore & Stern by the client in connection with the preparation and prosecution of the Complaint:
1. Credit review committee materials relating to the March 8, 2023 downgrade of the Triton Harbor credit facilities from a "Pass" rating to "Substandard" (Risk Rating 7) and the concurrent transfer of the Triton Harbor account from BRB's Relationship Management division to the Special Assets Group ("SAG").
2. Borrower financial reporting, including:
(a) Triton Harbor FY2022 audited financial statements, reflecting revenue of approximately $68 million and adjusted EBITDA of approximately $9.4 million; and
(b) Triton Harbor Q1 2023 unaudited financial statements, reflecting trailing-twelve-month EBITDA of approximately $5.1 million, an FCCR of 0.87x (versus the minimum covenant of 1.20x), and a Total Leverage Ratio of 4.92x (versus the maximum covenant of 3.50x).
3. Outstanding balance records as of March 8, 2023, reflecting:
(a) Term Loan A outstanding principal of $11,375,000; and
(b) Revolving Credit Facility drawn balance of $6,200,000 (fully drawn);
(c) Total outstanding indebtedness of $17,575,000.
4. Ridgeline Appraisal Group, Inc. appraisal reports, consisting of:
(a) Original collateral appraisal, dated June 2021, reflecting a total appraised value of $18,700,000; and
(b) Updated collateral appraisal, dated September 2023, reflecting a total appraised value of $11,200,000 — representing a decline of $7,500,000, or approximately 40.1%, from the original appraisal.
5. Monthly forbearance payment records, reflecting six monthly payments of $125,000 each ($750,000 in total) made by Triton Harbor during the forbearance period.
6. Covenant compliance reporting through March 31, 2024, reflecting an FCCR of 0.94x. The Borrower's attempt to cure the FCCR covenant failed, as the minimum required ratio was 1.20x.
Important Note Regarding Scope of Internal BRB Documents: Blakemore & Stern received certain internal BRB documents from the client for the limited purpose of preparing the Complaint and assessing the Bank's enforcement position. However, the Firm did not conduct a comprehensive review of BRB's internal files, and the materials transferred to Calderwood & Harkness should not be understood to constitute the entirety of relevant internal BRB documentation. Specifically, Blakemore & Stern did not review — and does not possess — the following categories of documents, which Calderwood & Harkness should obtain directly from the client in connection with discovery preparation and defense of the Counterclaims:
• Special Assets Group internal memoranda and strategy documents;
• Credit committee minutes and related deliberation materials;
• Internal communications among BRB officers, including but not limited to communications involving Derek Whitmore, Senior Vice President and Head of SAG; Joanna Reeves, Vice President, SAG; and Philip Aaronson, Executive Vice President and Chief Credit Officer.
Given the nature of the allegations in the Counterclaims — particularly the fraudulent inducement and negligent misrepresentation claims — we regard the collection, review, and preservation of these internal materials as a matter of high priority for successor counsel.
E. Third-Party Correspondence
The following third-party correspondence is being transferred:
1. Correspondence with Mercer Tidwell & Associates LLC (Raymond Mercer, Managing Director; 245 Park Avenue, 28th Floor, New York, NY 10167), which served as Triton Harbor's restructuring advisor during the pre-litigation period. This correspondence was received by Blakemore & Stern in connection with the workout negotiations and includes restructuring proposals and financial projections submitted on behalf of the Borrower.
2. Correspondence with Ridgeline Appraisal Group, Inc. (312 Elm Street, Stamford, CT 06902) regarding the September 2023 updated collateral appraisal and related valuation matters.
3. Correspondence with Tavrenis & Hatch CPAs LLP (1301 Avenue of the Americas, 42nd Floor, New York, NY 10019) regarding auditor inquiries relating to the classification of the Triton Harbor loan on BRB's books and related financial reporting considerations.
III. Key Issues and Observations for Successor Counsel
While we are confident that Calderwood & Harkness will conduct its own independent assessment of the matter, we offer the following observations and strategic notes that we believe will be of assistance during the transition:
1. Focus of the Counterclaims — September 2023 Communications. The Counterclaims center on alleged oral and written representations made by BRB's Special Assets Group officers — specifically Derek Whitmore and Joanna Reeves — during September 2023, in the period immediately preceding the execution of the Forbearance Agreement on October 6, 2023. The Defendants allege that Whitmore and Reeves represented to Marcus Kappel that BRB intended to continue the banking relationship on a long-term basis and that the Forbearance Agreement was merely a procedural step toward a broader restructuring of the credit facilities, thereby inducing the Kappels to execute the amended and new personal guaranties. Calderwood & Harkness should prioritize obtaining and reviewing all communications from that period, including emails, call logs, meeting notes, and any internal SAG memoranda reflecting the Bank's strategy with respect to the Triton Harbor account.
2. Contractual Defenses — Section 9(c) and Section 12(a) of the Forbearance Agreement. As noted above, the Forbearance Agreement contains two provisions that we expect will be central to the defense:
(a) Section 9(c) — the express disclaimer stating that nothing in the Forbearance Agreement or in any prior or contemporaneous communications constitutes a commitment by BRB to extend additional credit or to modify the terms of any existing facility; and
(b) Section 12(a) — the integration clause, which supersedes all prior oral and written representations and agreements.
These provisions should provide strong grounds for a motion to dismiss or for summary judgment with respect to the fraudulent inducement and negligent misrepresentation counterclaims, particularly to the extent that the Defendants' claims rest on alleged oral representations that are contradicted by the express terms of the executed agreements. We note, however, that New York law recognizes certain exceptions to the parol evidence rule in cases involving fraud, and the Defendants can be expected to argue that the integration clause is itself a product of the alleged fraud. Successor counsel should be prepared to address this issue.
3. Alleged "Structured Exit" Memorandum. Blakemore & Stern is aware that the Counterclaims reference the purported existence of an internal BRB memorandum that allegedly directed a "structured exit" from the Triton Harbor banking relationship. This document is referenced in the Counterclaims as evidence that BRB's true intention at the time of the Forbearance Agreement was to liquidate the relationship rather than to support a restructuring. Blakemore & Stern did not review this document and does not possess it. We were not able to confirm or deny its existence based on the materials provided to us by the client. Calderwood & Harkness should make immediate inquiry with BRB — specifically with Margaret Linden, Derek Whitmore, and Philip Aaronson — to determine whether this document exists, and if so, to ensure its preservation and to assess its implications for the defense.
4. D&O Insurance Coverage. A notice of potential claims has been submitted to Pinnacle Omnivrel Insurance Co. under the Bank's directors and officers liability insurance policy, Policy No. PF-DO-2023-08811. Coverage counsel for BRB in connection with this matter is Robert Alcott at Crane, Alcott & Shire LLP, located at 400 Park Avenue, 18th Floor, New York, NY 10022. Calderwood & Harkness should coordinate with Mr. Alcott regarding coverage matters, including any reservation of rights or defense obligations under the policy.
5. Current discovery and Scheduling Status. No discovery has yet been served or responded to by either party. No depositions have been noticed, and no document demands or interrogatories are outstanding. The Preliminary Conference before Justice Marchetti is currently scheduled for December 6, 2024, at which time it is anticipated that the Court will issue a Preliminary Conference Order establishing a discovery schedule, including deadlines for document production, depositions, expert disclosures, and dispositive motions. Calderwood & Harkness should be prepared to address these matters at the Preliminary Conference and to propose a schedule that accommodates the scope of discovery that is likely to be required in light of the Counterclaims.
IV. Method and Timing of File Delivery
The complete physical and electronic file maintained by Blakemore & Stern in connection with this matter will be delivered to Calderwood & Harkness via secure courier and encrypted electronic transfer to your offices at 600 Lexington Avenue, 30th Floor, New York, NY 10022, no later than November 12, 2024. The file comprises approximately the following:
• Physical documents: Approximately fourteen (14) banker's boxes of original and copied documents, including original executed agreements, correspondence, court filings, and work papers.
• Electronic files: Approximately eight (8) gigabytes of electronic files, including emails, document drafts, scanned correspondence, memoranda, and research materials, to be transmitted via encrypted file transfer.
We will coordinate with your office regarding the logistics of the physical delivery and will provide access credentials for the encrypted electronic transfer separately. Blakemore & Stern will retain copies of the file for its own records, consistent with the Firm's professional obligations and document retention policies.
V. Substitution of Counsel
Blakemore & Stern hereby consents to the filing of a Notice of Substitution of Counsel substituting Calderwood & Harkness LLP as counsel of record for Belmont Ridge Bank NA in Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, Index No. 654871/2024. The Firm will execute any stipulation, consent form, or other document required by the Court in connection with the substitution and will cooperate with service of the Notice of Substitution on opposing counsel, Kestrel Voss & Huang LLP.
We confirm that no outstanding court deadlines fall before the anticipated filing date of the substitution, which we understand will be approximately November 12, 2024. The next court appearance in this matter is the Preliminary Conference scheduled for December 6, 2024, before Justice Marchetti. An executed Consent to Substitution of Counsel on behalf of Blakemore & Stern is enclosed with this letter.
VI. Outstanding Billing and Administrative Matters
Blakemore & Stern's final invoice for professional services rendered through November 8, 2024 will be submitted separately to Margaret Linden, Senior Vice President and General Counsel, at Belmont Ridge Bank NA. This letter does not address billing matters, which remain between the Firm and its client.
We confirm that no trust account funds, escrow funds, or other client funds are held by Blakemore & Stern in connection with this matter.
VII. Availability for Consultation
I and the Blakemore & Stern team remain available to consult with you and your colleagues at Calderwood & Harkness during the transition period regarding any questions about the file, the history of the matter, the pre-litigation communications and negotiations, or any other aspect of our representation. We are committed to ensuring a seamless transition and to providing whatever assistance may be helpful as you assume responsibility for this matter.
Please do not hesitate to contact me directly at the address below or by telephone at (212) 554-7210:
David Blakemore Blakemore & Stern LLP 120 Broadway, Suite 3500 New York, NY 10271 Telephone: (212) 554-7210
Email: dblakemore@blakemorestern.com
In closing, I wish to express our confidence in Calderwood & Harkness's capabilities in handling both the defense of the Counterclaims and the continued prosecution of BRB's enforcement action. The lender-liability claims asserted by the Defendants are serious in nature and scope, and we believe that BRB will be well served by your firm's expertise in this area.
We respectfully request that you provide us with written acknowledgment of your receipt of the file materials upon their delivery, confirming that Calderwood & Harkness has received the complete file as described in this letter and the attached inventory index.
Thank you for your attention to this matter. We wish you and your team every success.
Very truly yours,
BLAKEMORE & STERN LLP
By: ________
David Blakemore Partner 120 Broadway, Suite 3500 New York, NY 10271 Telephone: (212) 554-7210 Facsimile: (212) 554-7201
cc:
Margaret Linden, SVP & General Counsel Belmont Ridge Bank NA 1200 Avenue of the Americas, 38th Floor New York, NY 10036
Thomas Hargreaves, VP & Associate General Counsel Belmont Ridge Bank NA
Priya Anand, Esq. Calderwood & Harkness LLP
Carlos Espinoza, Esq. Calderwood & Harkness LLP
Enclosures:
1. File inventory index (attached separately)
2. Consent to Substitution of Counsel (executed by Blakemore & Stern LLP)
Component | Amount
Term Loan A — Outstanding Principal | $10,625,000
Revolving Credit Facility — Outstanding Principal | $6,200,000
Accrued and Unpaid Interest | $487,322
Late Fees and Default Interest | $143,890
Total Accelerated Amount | $17,456,212

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