PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION
OUTLINE OF ANTICIPATED EXPERT REPORT OF DR. GERALD STOKES — BANKING PRACTICES AND INDUSTRY STANDARDS
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 51st Floor New York, New York 10006
April 15, 2025
Prepared by: Carlos Espinoza and Hannah Brinkley, Calderwood & Harkness LLP
Matter: 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 (Hon. Althea Marchetti)
Calderwood & Harkness Matter No.: 1022-00005
Distribution: Linda Osei (Responsible Partner); Priya Anand (Billing Partner)
This memorandum is protected by the attorney-client privilege and the work-product doctrine. It has been prepared in anticipation of litigation and is not intended for disclosure to any third party except as may be required in the course of this proceeding. Unauthorized reproduction or distribution is strictly prohibited.
PURPOSE
This memorandum sets forth the detailed outline of the anticipated expert report to be prepared by Dr. Gerald Stokes of Wentworth Risk Advisors LLC, 55 East 59th Street, Suite 1410, New York, New York 10022, retained by Calderwood & Harkness LLP on behalf of Belmont Ridge Bank NA ("BRB") pursuant to the Expert Retention Letter dated December 9, 2024. The report is anticipated to be finalized and served on or before the close of expert discovery on June 30, 2025, in accordance with the Stipulated discovery Schedule and Preliminary Conference Order entered by Justice Marchetti on December 6, 2024. The purpose of this memorandum is to provide the litigation team with a comprehensive roadmap of the substance, structure, and evidentiary foundation of Dr. Stokes' anticipated testimony so that trial preparation may proceed in parallel with the finalization of the expert report.
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I. INTRODUCTION AND ENGAGEMENT
A. Identity and Retention of Expert
Dr. Gerald Stokes has been retained by Calderwood & Harkness LLP on behalf of Belmont Ridge Bank NA ("BRB") to provide expert opinions on banking practices, industry standards in commercial lending workouts, and the reasonableness of BRB's conduct in connection with the credit relationship between BRB and Triton Harbor Industries, LLC ("Triton Harbor" or "THI"). The retention of Dr. Stokes was formalized pursuant to an Expert Retention Letter executed on December 9, 2024, between Calderwood & Harkness LLP and Wentworth Risk Advisors LLC. Dr. Stokes has been engaged as a testifying expert and it is anticipated that he will provide both a written expert report and live testimony at trial, if required.
Specifically, Dr. Stokes has been asked to render opinions regarding the following subject areas:
(i) Industry-standard forbearance and workout practices among commercial banks, with particular emphasis on the use of disclaimer provisions, additional collateral requirements, and integration clauses in forbearance and modification agreements;
(ii) The reasonableness of BRB's decision to accelerate the Triton Harbor indebtedness following the expiration of the forbearance period and the borrower's failure to achieve the covenant-cure milestone;
(iii) The distinction between exploratory workout discussions and binding commitments to extend credit, as understood and applied in the commercial banking industry;
(iv) The role and mandate of a bank's Special Assets Group ("SAG") in the management of distressed credits, including the relationship between SAG's institutional obligations and its interactions with borrowers during workout negotiations; and
(v) The significance of borrower sophistication, including the engagement of a professional restructuring advisor, in the context of any claim of reliance on alleged oral representations made during workout discussions.
These opinions are central to BRB's defense against the counterclaims asserted by Triton Harbor, Marcus J. Kappel, and Elaine D. Kappel in this action, which allege, inter alia, that BRB engaged in bad faith during the forbearance negotiations, made binding oral commitments to extend additional credit, and extracted valuable collateral under false pretenses.
B. Qualifications of Dr. Gerald Stokes
Dr. Stokes possesses extensive and distinguished qualifications in the fields of banking regulation, commercial lending, and credit risk management. His professional background encompasses regulatory examination, academic scholarship, and private consulting, providing him with a comprehensive perspective on the practices and standards at issue in this matter.
Dr. Stokes served as a bank examiner with the Office of the Comptroller of the Currency ("OCC") for over a decade, during which time he gained extensive hands-on experience examining nationally chartered banks' commercial lending portfolios, problem-loan management practices, and workout and forbearance protocols. In that capacity, he conducted numerous targeted and full-scope examinations of banks ranging in size from community institutions to large regional and national banks, with particular focus on the adequacy of credit administration, loan-loss reserving, and the soundness of workout strategies for distressed commercial credits.
Following his tenure at the OCC, Dr. Stokes transitioned to academia and currently holds the position of Professor of Finance at Hartwell University, where he teaches courses in bank regulation, commercial lending, and credit risk management. His academic work is informed by his regulatory experience and ongoing engagement with industry practitioners. He is a published author in numerous peer-reviewed journals, and his scholarly publications address topics directly relevant to the issues in this case, including workout and forbearance practices in commercial banking, lender liability theory and its intersection with banking industry norms, and regulatory standards for problem-loan management. A representative listing of his publications will be included in the curriculum vitae appended to his final report.
Dr. Stokes currently serves as the managing principal of Wentworth Risk Advisors LLC, a boutique consulting firm that provides expert advisory services in banking disputes, regulatory matters, and credit risk analysis. Through this firm, he has served as an expert witness and consultant in numerous lender-liability and workout disputes in both federal and state courts across multiple jurisdictions, including the Southern and Eastern Districts of New York, the District of New Jersey, the District of Connecticut, and various state courts. His testimony has been accepted and relied upon by courts in cases involving issues substantially similar to those presented here.
In total, Dr. Stokes brings over twenty-five years of combined experience in banking regulation, commercial lending, academic research, and expert testimony. His full curriculum vitae, including a complete list of publications, presentations, and prior testimony within the preceding four years, will be appended as Appendix A to the final expert report.
C. Materials Reviewed
Dr. Stokes has undertaken a comprehensive review of the documentary record in this matter. The materials reviewed include, but are not limited to, the following:
Credit Facility Documentation:
• The Original Credit Agreement dated June 15, 2021, between BRB, as Lender, and Triton Harbor Industries, LLC, as Borrower, together with all schedules, exhibits, and ancillary documents executed in connection therewith. The Credit Agreement provided for two credit facilities:
• Term Loan A: A term loan in the original principal amount of $14,000,000, maturing June 15, 2028 (84-month term), subject to quarterly amortization payments, bearing interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") plus 275 basis points.
• Revolving Credit Facility: A revolving credit facility with a total commitment of $8,000,000, maturing June 15, 2026, bearing interest at a rate equal to SOFR plus 250 basis points.
• The total committed facilities under the Credit Agreement were $22,000,000.
• The Limited Personal Guaranty of Marcus J. Kappel dated June 15, 2021, in the amount of $4,500,000, executed in connection with the original Credit Agreement.
• The financial covenants contained in the Credit Agreement, including: (a) a Minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x; (b) a Maximum Total Leverage Ratio of 3.50x; and (c) a Minimum Liquidity requirement of $2,000,000.
Borrower Financial Performance and Credit Quality Information:
• Triton Harbor's financial statements and periodic financial reporting packages, including:
• Fiscal Year 2022 revenue of approximately $68,000,000.
• Fiscal Year 2022 Adjusted EBITDA of $9,400,000.
• Trailing Twelve Months ("TTM") EBITDA as of the first quarter of 2023 of $5,100,000 — reflecting a significant decline from FY2022 levels.
• FCCR as of the first quarter of 2023 of 0.87x, as compared to the covenant minimum of 1.20x — a breach of the Minimum Fixed Charge Coverage Ratio covenant.
• Total Leverage Ratio as of the first quarter of 2023 of 4.92x, as compared to the covenant maximum of 3.50x — a breach of the Maximum Total Leverage Ratio covenant.
• Outstanding balances as of March 8, 2023 (the date of the credit downgrade and transfer to SAG): Term Loan A — $11,375,000; Revolving Credit Facility — $6,200,000 drawn; total outstanding indebtedness — $17,575,000.
• Information regarding the loss of two significant contracts during the period March through September 2023: (a) the Port of Bridgehaven municipal contract (approximately $12,000,000 per year in revenue); and (b) the Newark Bay maintenance contract (approximately $7,500,000 per year in revenue). The loss of these contracts reduced Triton Harbor's annualized revenue run-rate to approximately $48,000,000.
Internal BRB Credit Review and Strategy Documentation:
• BRB's internal credit review committee downgrade memorandum dated March 8, 2023, documenting the downgrade of the Triton Harbor credits to Risk Rating 7 (Substandard) and directing the transfer of account management responsibility from the Relationship Management division to the Special Assets Group.
• The internal memorandum dated August 22, 2023 from Philip Aaronson (Executive Vice President and Chief Credit Officer) to Derek Whitmore (Senior Vice President and Head of SAG), with a copy to Margaret Linden (Senior Vice President and General Counsel), regarding "Triton Harbor — Recommended Disposition Strategy." This memorandum directed SAG to "pursue a structured exit from the Triton Harbor relationship within 120 days" and stated that "further extensions of credit are not contemplated under any workout scenario."
• Selected BRB internal policies and procedures manuals for the Special Assets Group, credit administration, and workout/forbearance protocols.
Collateral Information:
• The original collateral appraisal by Ridgeline Appraisal Group, Inc., dated June 2021, which valued the collateral securing the Triton Harbor credit facilities at $18,700,000.
• The updated collateral appraisal by Ridgeline Appraisal Group, Inc., dated September 2023, which valued the same collateral at $11,200,000 — a decline of $7,500,000, or approximately 40.1%, from the original appraised value.
• The title insurance policy issued by Harborview Title & Escrow Co. (Policy No. HT-NYC-2021-04553) on the Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, New York 11101.
Workout Negotiations and Communications:
• Minutes of meetings and correspondence between BRB's Special Assets Group (including Derek Whitmore, SVP and Head of SAG, and Joanna Reeves, VP, SAG) and Triton Harbor's principals (Marcus J. Kappel and Elaine D. Kappel) during the September through October 2023 period.
• Documentation and notes relating to the September 12, 2023 in-person meeting held at BRB's offices located at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036.
• Email dated September 18, 2023 from Joanna Reeves (VP, SAG) to Marcus J. Kappel, in which Ms. Reeves stated: "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship."
• Internal email dated September 29, 2023 from Joanna Reeves to Derek Whitmore, forwarding a draft term sheet for a potential new $6,500,000 revolving credit facility, with the notation "for discussion purposes only — not approved."
Forbearance and Modification Agreement:
• The Forbearance and Modification Agreement dated October 6, 2023, including all exhibits and schedules (the "Forbearance Agreement"). The key terms of the Forbearance Agreement included:
• A 180-day forbearance period commencing on October 6, 2023 and expiring on April 3, 2024.
• Minimum monthly debt service payments of $125,000 during the forbearance period, totaling $750,000 over six months.
• A forbearance fee of $87,500, calculated as 0.50% of the approximately $17,500,000 in total outstanding indebtedness.
• The pledge of additional collateral by the borrower and guarantors: (a) two equipment leases with an aggregate estimated value of $2,300,000; and (b) the personal residence of Marcus J. and Elaine D. Kappel located at 14 Birchmont Lane, Westport, Connecticut 06880, with an estimated value of $3,100,000.
• The amendment of the Limited Personal Guaranty of Marcus J. Kappel from a limited guaranty ($4,500,000) to an unlimited personal guaranty.
• The execution of a new unlimited personal guaranty by Elaine D. Kappel.
• The requirement that Triton Harbor engage a financial advisor satisfactory to the Lender and provide monthly financial reporting during the forbearance period.
• Section 9(c) of the Forbearance Agreement, titled "No Commitment to Extend Credit," which provides in relevant part: "Nothing herein shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility."
• Section 12(a) of the Forbearance Agreement, the integration clause, which provides that the agreement constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior negotiations, representations, and understandings.
Restructuring Advisor Engagement:
• Documentation relating to Triton Harbor's engagement of Mercer Tidwell & Associates LLC (Raymond Mercer, Managing Director, 245 Park Avenue, 28th Floor, New York, New York 10167) as a professional restructuring and financial advisory firm during the workout process.
Performance During Forbearance and Acceleration:
• Triton Harbor's financial performance during the forbearance period, including the FCCR as of March 31, 2024, which stood at 0.94x — below the covenant minimum of 1.20x required for the covenant cure.
• BRB's Notice of Default and Acceleration dated April 15, 2024.
• Balances at acceleration: Term Loan A — $10,625,000 (reflecting a $750,000 principal reduction resulting from the monthly debt service payments during the forbearance period); Revolving Credit Facility — $6,200,000; accrued and unpaid interest — $487,322; late fees and default interest — $143,890. Total accelerated amount: $17,456,212.
• Documentation relating to BRB's commencement of foreclosure proceedings on the Long Island City terminal facility (50-22 Borden Avenue, Long Island City, New York 11101) on May 20, 2024.
Litigation Pleadings and discovery Materials:
• BRB's original complaint filed August 12, 2024 (Index No. 654871/2024).
• Triton Harbor's Answer with Counterclaims filed October 18, 2024.
• BRB's Answer to Counterclaims filed November 22, 2024.
• Deposition transcript of Derek Whitmore (February 18, 2025).
• Deposition transcript of Joanna Reeves (February 25, 2025).
• Deposition transcript of Philip Aaronson (March 4, 2025).
• Deposition transcript of Marcus J. Kappel (March 11, 2025).
• Deposition transcript of Elaine D. Kappel (March 18, 2025).
Regulatory and Industry Guidance:
• Regulatory guidance from the OCC, the Federal Deposit Insurance Corporation ("FDIC"), and the Board of Governors of the Federal Reserve System regarding problem-loan workout practices, including the Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts (as updated).
• Relevant sections of the OCC Comptroller's Handbook, including modules addressing problem-loan management, loan-loss reserves, and credit administration.
Institutional Information:
• BRB corporate and institutional information: BRB is a nationally chartered commercial bank supervised by the OCC (Charter No. 14-00927), with approximately $47.3 billion in total assets, 214 branches across the northeastern United States, publicly traded on the New York Stock Exchange under ticker symbol BRMR, with FY2023 net interest income of approximately $1.82 billion.
Dr. Stokes reserves the right to supplement the list of materials reviewed in the event additional documents are produced or become available prior to the finalization of his report. A complete and final list of all materials reviewed will be set forth in Appendix B to the final expert report.
D. Compensation. Dr. Stokes is being compensated for his work in this matter at his standard hourly rate, as set forth in the Expert Retention Letter dated December 9, 2024, between Calderwood & Harkness LLP and Wentworth Risk Advisors LLC. His compensation covers all time expended in connection with the review of materials, analysis, preparation of his expert report, and any deposition or trial testimony. Dr. Stokes' compensation is not contingent upon the outcome of this litigation, the substance of his opinions, or any other factor related to the merits of the claims or defenses in this action. A full disclosure of the compensation terms, total fees, and expenses incurred through the date of the report will be included as Appendix C to the final expert report.
II. SUMMARY OF OPINIONS
Based upon his review of the materials identified in Section I.C above, his knowledge of industry-standard banking practices, his experience as a bank examiner with the OCC, his academic research and publications on commercial lending and workout practices, and his extensive experience as an expert witness in lender-liability and workout disputes, Dr. Stokes is expected to offer the following five principal opinions in his expert report:
Opinion 1 — Industry-Standard Forbearance Practices and the "No Commitment to Extend Credit" Disclaimer. BRB's use of a "No Commitment to Extend Credit" disclaimer in Section 9(c) of the Forbearance and Modification Agreement dated October 6, 2023 is entirely consistent with industry-standard forbearance practices among commercial banks and is, in fact, a universally employed provision in such agreements. The inclusion of this provision was neither unusual, nor deceptive, nor indicative of any intent to mislead the borrower. To the contrary, its inclusion was mandated by sound banking practice, regulatory compliance considerations, and prudential risk management.
Opinion 2 — Reasonableness of BRB's Decision to Accelerate. BRB's decision to accelerate the Triton Harbor indebtedness on April 15, 2024, following the expiration of the 180-day forbearance period and Triton Harbor's failure to achieve the covenant-cure milestone (FCCR of 0.94x versus the required minimum of 1.20x), was reasonable, prudent, and consistent with standard banking practices and regulatory expectations. The decision reflected a commercially justified exercise of the bank's contractual rights in the face of a continuing inability by the borrower to service debt at levels adequate to protect the bank's position, and was consistent with the obligations of a nationally chartered bank to manage problem credits in a timely and responsible manner.
Opinion 3 — Exploratory Workout Discussions vs. Binding Commitments. The communications between BRB's SAG personnel and Triton Harbor's principals during the September through October 2023 workout negotiations — including the alleged oral statements at the September 12, 2023 meeting and the September 18, 2023 email from Joanna Reeves — are characteristic of exploratory workout discussions and do not constitute binding commitments to extend credit under banking industry norms. Such communications are a routine and expected part of the workout process and are understood by industry participants to be preliminary, conditional, and non-binding, particularly in the context of a formal written forbearance agreement that contains express disclaimer and integration provisions.
Opinion 4 — Role and Mandate of BRB's Special Assets Group. The role and mandate of BRB's Special Assets Group, consistent with industry-wide practice, was to manage distressed credits and maximize recovery for the bank. SAG's conduct in the Triton Harbor workout — including the simultaneous development of exit contingency plans and forbearance negotiations — was consistent with this institutional mandate and with the regulatory expectations applicable to nationally chartered banks. The existence of an internal exit strategy did not negate the good faith of the forbearance offer.
Opinion 5 — Borrower Sophistication and Engagement of a Restructuring Advisor. Triton Harbor's sophistication as a commercial borrower, the extensive industry experience of its principals Marcus J. Kappel and Elaine D. Kappel, and its engagement of Mercer Tidwell & Associates LLC as a professional restructuring advisor are significant factors demonstrating that the borrower had access to independent financial expertise and was not in a position of justifiable reliance on informal or exploratory statements by bank workout officers. The totality of these circumstances renders any claim of justifiable reliance on alleged oral representations fundamentally inconsistent with commercial reality and industry norms.
Each of these opinions is discussed in detail in the sections that follow.
III. DETAILED DISCUSSION OF OPINION 1 — INDUSTRY-STANDARD FORBEARANCE PRACTICES AND THE "NO COMMITMENT TO EXTEND CREDIT" DISCLAIMER
A. Overview of Commercial Bank Forbearance Practices
A forbearance agreement in the commercial banking context is a formal arrangement between a lender and a borrower in default pursuant to which the lender agrees to temporarily suspend or refrain from exercising its contractual remedies for a defined period of time. The purpose of such an arrangement is to provide the borrower with a limited window — typically ranging from 90 to 360 days — during which the borrower may attempt to cure the defaults giving rise to the forbearance, improve its financial performance, refinance with another lender, or pursue an orderly disposition of assets. In exchange, the borrower typically agrees to certain conditions, which may include the payment of fees, the provision of additional collateral, the execution of enhanced personal guaranties, and the achievement of specified financial milestones.
Forbearance agreements are, by their nature, interim and temporary arrangements. They do not constitute new credit facilities, extensions of existing credit facilities, or commitments to a continued or renewed lending relationship. Rather, they represent a negotiated pause in the lender's enforcement rights — a breathing spell — designed to allow the borrower an opportunity to demonstrate that it can service its debt obligations and restore its creditworthiness to acceptable levels. This fundamental characteristic of a forbearance agreement is universally understood in the commercial banking industry and is reflected in the structure and language of virtually all such agreements.
The distinction between a forbearance agreement and a commitment to extend credit is of critical importance in this matter. A forbearance agreement preserves the existing debt relationship on modified terms for a limited period. A commitment to extend credit, by contrast, creates a new obligation on the part of the lender to make available additional funds or to renew or extend existing facilities. These are categorically different instruments with fundamentally different legal, economic, and regulatory implications.
Industry-wide recognition of this distinction is reflected in the standard form provisions that are included in virtually all commercial bank forbearance agreements, most notably the "No Commitment to Extend Credit" disclaimer that is at issue in this case. Dr. Stokes will testify that in his extensive experience reviewing forbearance agreements — spanning his career at the OCC, his academic research, and his consulting practice — the inclusion of such a disclaimer is not merely common; it is ubiquitous.
B. Prevalence and Universality of "No Commitment" Disclaimers
Section 9(c) of the BRB Forbearance and Modification Agreement dated October 6, 2023 provides, in pertinent part:
"Nothing herein shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility."
Dr. Stokes will testify that this provision is a standard feature of commercial bank forbearance agreements and that, in his experience as a bank examiner and academic, he has reviewed hundreds of forbearance and modification agreements across a wide range of institutions and credit types, and that such disclaimers are universally included. The language employed in Section 9(c) of the BRB Forbearance Agreement is virtually identical to the standard form language used by major commercial banks, regional banks, and community institutions throughout the United States.
The inclusion of a "No Commitment to Extend Credit" disclaimer in a forbearance agreement serves multiple important purposes:
(i) Regulatory Compliance. Nationally chartered banks such as BRB are subject to regulatory reporting requirements that mandate the disclosure of credit commitments. An inadvertent or implied commitment to extend credit would trigger capital allocation requirements and regulatory reporting obligations under the OCC's examination framework and applicable capital adequacy standards. The disclaimer ensures that the bank does not create a regulatory obligation through the act of forbearance.
(ii) Prudential Risk Management. The disclaimer preserves the bank's discretion to make future credit decisions based on the prevailing circumstances at the time a request for new or renewed credit is made. In a forbearance context, the borrower is, by definition, a distressed credit. Whether the bank will be willing and able to extend additional credit in the future depends on a host of variables — the borrower's financial recovery, market conditions, the bank's own capital position and regulatory standing, collateral values, and the outcome of the credit approval process — that cannot be predetermined at the time of the forbearance.
(iii) Legal Clarity. The disclaimer serves to avoid claims of implied commitment — precisely the type of claim at issue in this case. The provision puts the borrower on unambiguous notice that the forbearance is not a gateway to additional credit and that any future credit extension would require a separate, formal commitment process.
Dr. Stokes' opinion on this point is consistent with and supported by published regulatory guidance. The OCC's Comptroller's Handbook, in its modules addressing problem-loan management and credit administration, emphasizes the importance of clear documentation in workout arrangements and the need for banks to ensure that workout agreements do not create ambiguity regarding the scope of the lender's obligations. Similarly, the Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts recognizes the importance of clarity in forbearance documentation and the need for banks to preserve their contractual and regulatory flexibility during the workout process.
In light of the foregoing, Dr. Stokes will opine that BRB's inclusion of Section 9(c) in the Forbearance Agreement was not only appropriate but was required by sound banking practice. The provision was neither unusual, nor deceptive, nor indicative of bad faith. It was a standard protective measure that any competent bank would include in a forbearance agreement under similar circumstances.
C. The Forbearance Fee and Additional Collateral Requirements as Standard Terms
Beyond the Section 9(c) disclaimer, the other material terms of the Forbearance Agreement are likewise consistent with industry-standard practices.
Forbearance Fee. The Forbearance Agreement required Triton Harbor to pay a forbearance fee of $87,500, calculated as 0.50% of the approximately $17,500,000 in total outstanding indebtedness. Dr. Stokes will testify that forbearance fees are a standard component of commercial bank forbearance agreements and that the fee charged by BRB falls within the customary range observed in the industry, which typically ranges from 0.25% to 1.00% of outstanding indebtedness, depending on the size and complexity of the credit, the duration of the forbearance, and the degree of credit risk presented. The 0.50% fee charged by BRB falls squarely within the middle of this range and reflects a reasonable charge for the economic cost and risk incurred by the bank in suspending its remedies for a 180-day period.
Additional Collateral. The Forbearance Agreement required the pledge of additional collateral, consisting of two equipment leases with an aggregate estimated value of $2,300,000 and the personal residence of Marcus J. and Elaine D. Kappel located at 14 Birchmont Lane, Westport, Connecticut 06880, valued at approximately $3,100,000. These additional collateral requirements were directly responsive to a significant deterioration in the bank's collateral position. The original collateral securing the Triton Harbor credit facilities had been appraised by Ridgeline Appraisal Group, Inc. at $18,700,000 in June 2021. By September 2023, the updated appraisal by the same firm valued the collateral at only $11,200,000 — a decline of $7,500,000, or approximately 40.1%.
This collateral decline created a substantial shortfall relative to the total outstanding indebtedness of approximately $17,500,000. Without the additional collateral (estimated at approximately $5,400,000 in aggregate), the bank's loan-to-value ratio on the existing collateral alone would have been approximately 156% — a level that no prudent lender would find acceptable, and that bank examiners would identify as a significant deficiency in the bank's collateral coverage. The request for additional security was therefore not merely reasonable; it was a necessary and expected condition of any forbearance arrangement in these circumstances.
Enhanced Personal Guaranties. The amendment of Marcus J. Kappel's personal guaranty from a limited guaranty capped at $4,500,000 to an unlimited personal guaranty, and the execution of a new unlimited personal guaranty by Elaine D. Kappel, are likewise consistent with standard industry practice. When a borrower's financial condition has deteriorated significantly and collateral values have declined, it is common for lenders to require enhanced personal guaranties as a condition of forbearance. The expansion of the guaranty obligations serves to align the personal interests of the guarantors with the success of the workout and to provide the lender with an additional source of recovery in the event the workout fails. This requirement was fully disclosed, was a subject of negotiation between the parties and their respective advisors, and was agreed to voluntarily by both guarantors.
Monthly Debt Service Payments. The requirement that Triton Harbor make minimum monthly debt service payments of $125,000 during the forbearance period (totaling $750,000 over six months) is a standard mechanism employed in forbearance agreements to demonstrate the borrower's good faith commitment to the workout process, to prevent further erosion of the lender's principal position, and to provide ongoing evidence of the borrower's ability to generate cash flow sufficient to support at least a reduced level of debt service. The payment level was set at a fraction of the contractual debt service obligations, reflecting the bank's recognition of the borrower's financial constraints while ensuring some degree of principal reduction during the forbearance period.
D. Integration Clauses in Forbearance Agreements
Section 12(a) of the Forbearance Agreement contains a standard integration clause providing that the agreement constitutes the entire agreement of the parties with respect to its subject matter and supersedes all prior negotiations, representations, and understandings. Dr. Stokes will testify that integration clauses of this type are a standard and expected feature of commercial bank forbearance agreements, as they are in virtually all significant commercial contracts.
The combination of the Section 12(a) integration clause and the Section 9(c) "No Commitment to Extend Credit" disclaimer creates a complete contractual framework that clearly and unambiguously delineates the scope of the parties' rights and obligations. Together, these provisions serve to ensure that the forbearance agreement — and the forbearance agreement alone — governs the relationship between the lender and the borrower during the forbearance period, and that no prior oral or written communications, however characterized, can be used to expand or modify the bank's obligations beyond those expressly set forth in the executed agreement.
Dr. Stokes will further opine that a sophisticated borrower, advised by professional restructuring counsel such as Mercer Tidwell & Associates LLC, would have fully understood the legal and practical significance of these provisions at the time of execution. Indeed, the very purpose of engaging a restructuring advisor is to ensure that the borrower receives competent advice regarding the terms of any workout arrangement. It would be contrary to industry norms and commercial reality to suggest that such a borrower could have been unaware of or misled by provisions that are standard features of the type of agreement being negotiated.
IV. DETAILED DISCUSSION OF OPINION 2 — REASONABLENESS OF BRB'S DECISION TO ACCELERATE
A. The Covenant-Cure Failure
The Forbearance Agreement required Triton Harbor to achieve specified financial milestones during the 180-day forbearance period as a condition of the bank's continued forbearance. Among the most critical of these milestones was the restoration of the Minimum Fixed Charge Coverage Ratio to at least 1.20x — the level required by the original Credit Agreement. This requirement was not arbitrary; it represented the minimum level of debt-service coverage that BRB's credit underwriting standards and regulatory obligations required for a credit of this nature.
As of March 31, 2024 — the measurement date immediately preceding the expiration of the forbearance period on April 3, 2024 — Triton Harbor's FCCR stood at 0.94x. This represented a meaningful shortfall from the 1.20x covenant minimum, amounting to a gap of approximately 22%. While the 0.94x level represented a marginal improvement from the 0.87x FCCR at the time of the original credit downgrade in March 2023, the improvement was insufficient to satisfy the covenant-cure requirement. A Fixed Charge Coverage Ratio below 1.00x indicates that a borrower's operating cash flow is insufficient to cover its total fixed charges, including debt service, capital expenditures, and other fixed obligations — a condition that signals continuing financial distress and an inability to service debt at contractual levels.
The failure to achieve the covenant cure after a full 180-day forbearance period — during which Triton Harbor had the benefit of suspended enforcement actions, reduced debt service obligations, and access to professional restructuring advisory services from Mercer Tidwell & Associates LLC — was a significant data point. It indicated that the borrower's operational and financial challenges were not merely transient but were structural in nature, and that the prospects for a successful workout had not materialized within the time frame contemplated by the parties.
B. Regulatory and Prudential Considerations
BRB's decision to accelerate must be understood in the context of the regulatory environment in which a nationally chartered commercial bank operates. BRB, as a national bank chartered by the OCC (Charter No. 14-00927), is subject to ongoing supervisory oversight, including regular and targeted examinations by OCC examination teams. The OCC's examination standards and supervisory guidance impose clear expectations regarding the timely identification, management, and resolution of problem credits.
The Triton Harbor credits had been classified as Substandard (Risk Rating 7) since March 8, 2023 — a period of over thirteen months at the time the acceleration decision was made. Under OCC examination standards and interagency classification guidelines, a credit classified as Substandard is one that is "inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged." A credit in this classification requires heightened monitoring, adequate loan-loss provisioning, and a demonstrated plan for resolution.
Continued forbearance in the absence of demonstrable improvement in the borrower's financial condition would have exposed BRB to a number of regulatory risks. First, OCC examiners could have criticized the bank for maintaining an "extend and pretend" posture — that is, prolonging the forbearance beyond a reasonable period without evidence that the borrower's condition was improving, thereby deferring the recognition of losses and masking the true quality of the bank's loan portfolio. Second, the bank could have been required to increase its loan-loss reserves to reflect the continuing and potentially increasing risk of loss on the Triton Harbor credits, with corresponding negative effects on the bank's earnings and capital ratios. Third, in extreme cases, prolonged and unjustified forbearance on distressed credits can result in adverse examination findings, supervisory actions, and enforcement proceedings.
Against this regulatory backdrop, the internal memorandum dated August 22, 2023 from Philip Aaronson, EVP and Chief Credit Officer, directing SAG to "pursue a structured exit from the Triton Harbor relationship within 120 days" and stating that "further extensions of credit are not contemplated under any workout scenario," must be understood as a reasonable and prudent exercise of credit judgment by BRB's senior credit officer. Dr. Stokes will explain that such internal strategy memoranda are a routine and expected part of bank credit administration. A Chief Credit Officer's recommendation to pursue an exit strategy does not constitute a final, irrevocable decision but rather reflects the bank's assessment of the most likely resolution path at a given point in time, subject to revision based on evolving circumstances.
Critically, the Aaronson Memorandum did not preclude the subsequent authorization of the Forbearance Agreement. The fact that BRB's senior management authorized the Forbearance Agreement approximately six weeks after the Aaronson Memorandum was issued demonstrates that the bank was willing to revise its approach based on developments in the workout discussions. Dr. Stokes will opine that this is entirely consistent with standard banking practice. Banks routinely develop contingency plans while pursuing workout alternatives, and the existence of an exit strategy does not negate the sincerity or good faith of a simultaneously pursued forbearance arrangement. Indeed, the development of parallel tracks — workout and exit — is a hallmark of sound credit management and is expected by bank regulators.
C. Collateral Deterioration and Deficiency Risk
The collateral position at the time of acceleration further supports the reasonableness of BRB's decision. The updated collateral appraisal by Ridgeline Appraisal Group, Inc. (September 2023) valued the primary collateral — the Long Island City marine terminal facility and associated equipment — at $11,200,000. The additional collateral pledged pursuant to the Forbearance Agreement — the two equipment leases ($2,300,000) and the Kappel residence ($3,100,000) — brought the total estimated collateral value to approximately $16,600,000.
Against this estimated collateral value, the total accelerated amount was $17,456,212, composed of the following:
The resulting estimated deficiency was approximately $856,212, before taking into account the costs of sale, additional interest accrual during the foreclosure process, and the inherent uncertainty in realizing appraised collateral values in a liquidation scenario. In practice, realization rates on distressed commercial and industrial collateral are frequently below appraised values, and the actual deficiency upon liquidation could be significantly larger than the estimated amount.
A bank facing a continuing collateral shortfall, a borrower unable to restore covenant compliance, and a risk of enlarging deficiency through further delay has both the contractual right and the prudential obligation to exercise its remedies. Each additional month of forbearance without meaningful financial improvement by the borrower would result in additional interest accrual, potential further deterioration in collateral values, and an increased risk that the eventual deficiency would exceed the capacity of the personal guaranties to absorb the shortfall. Dr. Stokes will testify that under these circumstances, acceleration was not only reasonable but was the course of action that a prudent banker, acting in the interests of the bank and its stakeholders, would be expected to pursue.
D. BRB's Compliance with Forbearance Agreement Terms
It bears emphasis that BRB fully and faithfully performed its obligations under the Forbearance Agreement. BRB forbore from exercising its remedies for the complete 180-day forbearance period, from October 6, 2023 through April 3, 2024. During that period, BRB did not initiate any collection actions, did not commence foreclosure proceedings, and did not demand immediate repayment of the full outstanding balance. BRB allowed Triton Harbor the full benefit of the agreed-upon forbearance and provided the borrower with every opportunity to achieve the covenant-cure milestones.
Moreover, BRB did not accelerate immediately upon the expiration of the forbearance period. The forbearance period expired on April 3, 2024, and BRB's Notice of Default and Acceleration was not issued until April 15, 2024 — twelve days later. This additional period was used by BRB to confirm the covenant-cure failure based on the March 31, 2024 financial data and to complete its internal review and approval of the acceleration decision. The measured pace of BRB's action is inconsistent with any allegation that the bank was acting precipitously, vindictively, or in bad faith. To the contrary, BRB's conduct reflects a careful, deliberate, and fully authorized exercise of its contractual rights following the borrower's failure to satisfy the agreed-upon conditions for continued forbearance.
V. DETAILED DISCUSSION OF OPINION 3 — EXPLORATORY WORKOUT DISCUSSIONS VS. BINDING COMMITMENTS
A. Industry Norms Regarding Workout Communications
In the commercial banking industry, workout and forbearance negotiations are inherently iterative, exploratory, and fluid processes. Unlike the initial underwriting and origination of a credit facility, which follows a relatively structured and linear path from application to commitment letter to closing, workout negotiations are characterized by uncertainty, contingency, and the ongoing evolution of the parties' positions. This is because workout discussions take place against a backdrop of financial distress, incomplete information about the borrower's future prospects, and multiple potential outcomes — any one of which may become the preferred path depending on how circumstances develop.
It is standard practice for SAG officers and other bank workout personnel to engage in discussions with borrowers about a range of potential future credit arrangements as part of the workout process. These discussions may encompass the possibility of new credit facilities, modifications to existing terms, extended maturity dates, reduced interest rates, or other accommodations. Such discussions are understood by participants in the commercial banking industry to be preliminary, non-binding, and subject to the bank's formal credit approval process. They are an essential part of the workout dynamic: the lender must understand the borrower's needs and capabilities in order to evaluate the feasibility of a workout, and the borrower must understand the lender's willingness to consider various alternatives in order to formulate a viable restructuring plan.
It is likewise standard practice for bank workout personnel to express optimism and a desire to maintain the banking relationship during the course of these negotiations. Such expressions serve an important practical purpose: they encourage the borrower to cooperate with the workout process, to provide complete and accurate financial information, to make payments as agreed, and to work constructively toward a resolution. An adversarial posture by the bank at the outset of workout negotiations would be counterproductive, as it would discourage borrower cooperation and could precipitate the very outcome — default, litigation, and forced liquidation — that a successful workout is designed to avoid. Accordingly, expressions of good faith and encouragement by workout officers are understood by experienced participants in the banking industry as part of the negotiating process, not as binding commitments.
Dr. Stokes will testify, based on his extensive experience as a bank examiner reviewing workout files and as an expert in banking practices, that the communications between BRB's SAG personnel and Triton Harbor's principals during the September through October 2023 period are entirely typical of the kind of exploratory, non-binding discussions that occur routinely in the workout context.
B. Analysis of the September 12, 2023 Meeting Statements
The defendants' counterclaims place significant emphasis on alleged oral statements made by Derek Whitmore, SVP and Head of SAG, at the September 12, 2023 in-person meeting held at BRB's offices at 1200 Avenue of the Americas, 38th Floor. According to the defendants' pleadings and testimony, Mr. Whitmore allegedly stated that BRB was "committed to the long-term relationship" with Triton Harbor, that BRB would "seriously consider" a new $6,500,000 revolving credit facility following a successful forbearance period, and that the additional collateral requirements were "a formality to satisfy regulators."
Dr. Stokes will testify that each of these alleged statements, taken individually and collectively, is characteristic of the type of preliminary, conditional, and non-committal language commonly used by bank workout officers during the early stages of forbearance negotiations, and that none of them constitutes or can reasonably be interpreted as constituting a binding commitment to extend credit.
"Committed to the long-term relationship." This is a standard expression of goodwill and a desire to maintain the banking relationship. It is the type of language that any competent workout officer would use to set a constructive tone for negotiations. It does not commit the bank to any specific course of action and does not override the formal terms of any subsequently executed agreement.
"Seriously consider" a new revolving facility. The phrase "seriously consider" is, by its plain meaning, a statement of willingness to evaluate a future proposal — not a present commitment to extend credit. In banking industry parlance, there is a critical and well-understood distinction between "will consider" (or "seriously consider") and "will provide" (or "commits to extend"). The former conveys openness to a future evaluation process; the latter conveys a present obligation. No experienced commercial borrower or restructuring advisor would confuse these two formulations. Moreover, any such future evaluation would necessarily be subject to the bank's formal credit approval process, a fact that would be understood by all parties.
"A formality to satisfy regulators." This characterization of the additional collateral requirements, while perhaps informal, is not inaccurate. Bank examiners do, in fact, expect adequate collateral coverage for distressed credits, and the request for additional security was driven in significant part by the need to satisfy regulatory expectations in the face of the substantial collateral decline. The characterization of the requirement as a "formality" may have been intended to minimize the perceived adversarial nature of the request and to encourage the borrower's cooperation, but it does not negate the substantive importance of the requirement or create any implied commitment to future credit.
C. Analysis of the September 18, 2023 Reeves Email
The email dated September 18, 2023 from Joanna Reeves, VP in SAG, to Marcus J. Kappel, stated: "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship." The defendants have characterized this email as evidence of a commitment by BRB to renew the credit relationship following the forbearance period.
Dr. Stokes will opine that this characterization is incorrect and is inconsistent with industry norms. The language of the email is aspirational and conditional. The phrase "sets the stage for" indicates a future possibility that is dependent on successful performance during the forbearance period — not a present commitment to a specific outcome. The expression of optimism ("we are optimistic about a path forward") is a standard expression of good faith and encouragement. Such language is commonly used by workout officers across the banking industry to maintain a constructive relationship with the borrower and to encourage the borrower's continued cooperation and performance. It is understood by experienced borrowers and their advisors as motivational rather than contractual.
Notably, the Reeves email was sent approximately three weeks before the execution of the Forbearance Agreement on October 6, 2023. Whatever expectations may have been created by the email were explicitly superseded by the terms of the executed agreement, which contains both the Section 9(c) disclaimer and the Section 12(a) integration clause. A sophisticated borrower advised by professional restructuring counsel would understand that an informal email from a workout officer does not override the terms of a subsequently executed formal agreement.
D. Analysis of the September 29, 2023 Internal Draft Term Sheet
The internal email dated September 29, 2023 from Joanna Reeves to Derek Whitmore, forwarding a draft term sheet for a potential new $6,500,000 revolving credit facility with the notation "for discussion purposes only — not approved," has been cited by the defendants as evidence that BRB was actively contemplating the extension of new credit and held out this prospect as an inducement for Triton Harbor to enter into the Forbearance Agreement and provide additional collateral.
Dr. Stokes will testify that the creation and internal circulation of preliminary draft term sheets is a routine analytical exercise in the workout process and does not constitute an offer, commitment, or promise of credit. SAG officers routinely model potential restructuring outcomes, including scenarios involving new or modified credit facilities, as part of their analysis of the feasibility of various workout alternatives. The preparation of such drafts is part of the SAG's analytical toolkit and does not represent a decision, a recommendation, or an authorization to extend credit.
The notation "for discussion purposes only — not approved" is unambiguous and dispositive. It plainly indicates that the draft was not authorized, had not been submitted for credit committee approval, and was not intended to be communicated to the borrower as a commitment or offer. The draft remained internal to BRB and was never transmitted to Triton Harbor or its advisors.
Dr. Stokes will further explain the multi-step credit approval process that would be required in a bank of BRB's size and complexity before any commitment to extend new credit could be made. BRB, with approximately $47.3 billion in total assets and 214 branches, maintains a formal and multi-layered credit approval process that typically involves the following sequential steps:
(i) Origination-level diligence and analysis by the relationship or workout team;
(ii) Preparation of a formal credit memorandum documenting the proposed credit, the borrower's financial condition, the collateral analysis, and the risk assessment;
(iii) Submission of the credit memorandum to the bank's credit committee for review and approval;
(iv) Review and approval by the Chief Credit Officer and/or senior management, depending on the size and risk classification of the proposed credit; and
(v) Preparation and execution of formal commitment documentation.
A draft term sheet at the SAG working level represents the very beginning of this process — an initial and exploratory step that is several layers removed from a binding commitment. No formal credit application was prepared for a new revolving facility for Triton Harbor. No credit memorandum was drafted. No submission was made to BRB's credit committee. No approval was sought or obtained from the Chief Credit Officer. No commitment letter or term sheet was issued to the borrower. The absence of any of these steps — let alone all of them — confirms that no commitment to extend new credit was ever authorized.
E. The Critical Distinction Between Oral/Informal Communications and Formal Credit Commitments
Drawing together the analyses set forth in the preceding subsections, Dr. Stokes will testify to a fundamental principle of commercial banking practice: binding commitments to extend credit are always documented in formal written instruments. In the commercial banking industry, a binding commitment requires formal credit approval through the bank's established credit approval process and is memorialized in a commitment letter, term sheet approved by the credit committee, or credit agreement. Oral discussions, emails expressing optimism, and internal working drafts do not and cannot give rise to binding commitments under the norms and practices of the industry.
This principle is not merely a matter of custom; it is enforced by regulatory requirements and internal bank policies. The OCC's examination standards and supervisory guidance require nationally chartered banks to maintain formal credit approval processes and to document credit commitments in writing. BRB's own internal policies and procedures — copies of which have been reviewed by Dr. Stokes — reflect these regulatory requirements and prohibit the extension of credit without proper authorization through the bank's formal approval process. A SAG officer, regardless of seniority, does not have the authority to commit the bank to extend new credit through oral statements, emails, or internal draft documents.
The Forbearance Agreement's Section 9(c) disclaimer and Section 12(a) integration clause exist precisely to draw this distinction clearly for all parties. By executing the Forbearance Agreement, Triton Harbor — advised by Mercer Tidwell & Associates LLC — expressly acknowledged and agreed that no commitment to extend additional credit had been made and that the Forbearance Agreement constituted the entire agreement between the parties. Any claim that the borrower was misled by prior informal communications is directly contradicted by the provisions of the agreement that the borrower itself executed.
VI. DETAILED DISCUSSION OF OPINION 4 — ROLE AND MANDATE OF BRB'S SPECIAL ASSETS GROUP
A. Structure and Function of Special Assets Groups in Commercial Banking
A Special Assets Group — also commonly known as a "workout group," "special credits group," "problem loan department," or "loan recovery unit" — is a specialized organizational unit within a commercial bank that is responsible for the management of credits that have deteriorated below acceptable quality levels. The establishment and maintenance of a dedicated SAG is a standard feature of the organizational structure of commercial banks of any significant size, and its existence reflects both industry best practices and regulatory expectations.
The SAG is staffed by officers and analysts with specialized expertise in distressed credit management, restructuring, workout negotiations, and asset recovery. The personnel assigned to SAG are typically experienced credit professionals who have been trained in the particular challenges and dynamics of managing impaired and classified credits, including the legal, regulatory, and financial complexities involved in forbearance, restructuring, and liquidation scenarios.
In the typical organizational model — which is the model employed by BRB — credits are transferred from the bank's Relationship Management or Commercial Banking division to the SAG when they are downgraded below "Pass" quality. At BRB, this transfer occurs when a credit is classified as "Substandard" (Risk Rating 7) or worse. The transfer of account management responsibility reflects the recognition that a distressed credit requires a different skill set and a different institutional approach than a performing credit. Relationship managers are oriented toward business development and client service; SAG officers are oriented toward risk mitigation and recovery maximization.
The transfer of the Triton Harbor credits to BRB's SAG on March 8, 2023, following the downgrade to Risk Rating 7 (Substandard), was entirely consistent with this standard banking practice. At the time of the transfer, Triton Harbor had breached multiple financial covenants — the FCCR was at 0.87x (versus a minimum of 1.20x) and the Total Leverage Ratio was at 4.92x (versus a maximum of 3.50x). The borrower's TTM EBITDA had declined from $9,400,000 in FY2022 to $5,100,000 as of Q1 2023. These were clear indicators of credit deterioration requiring specialized management.
B. The SAG's Dual Mandate: Workout and Recovery Maximization
The SAG's primary obligation is to the bank and its stakeholders — including shareholders, depositors, and regulators. Its institutional mandate is to maximize recovery on distressed credits through whatever combination of workout, restructuring, or liquidation strategies is most appropriate in light of the specific circumstances of each credit. This mandate is well understood throughout the commercial banking industry and is consistent with the fiduciary and regulatory obligations of a national bank.
It is important to understand that a SAG officer's obligation to maximize recovery for the bank is not inconsistent with engaging in good-faith forbearance negotiations with a distressed borrower. To the contrary, forbearance is itself a recovery-maximization tool. A well-structured forbearance arrangement provides the borrower with a defined period in which to improve its financial performance, secure refinancing from another lender, or pursue an orderly sale of assets — any of which, if successful, may