1045-00004 · Client 1045 · Motions

memo-of-law-dismiss-punitive-damages.docx DOCUMENT Litigation

28 / 35 ← → ✕

Contract analysis Extract to table

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION

BELMONT RIDGE BANK NA,

Plaintiff/Counterclaim Defendant,

— against —

TRITON HARBOR INDUSTRIES, LLC, MARCUS J. KAPPEL, and ELAINE D. KAPPEL,

Defendants/Counterclaim Plaintiffs.

Index No. 654871/2024

Assigned Justice: Hon. Althea Marchetti

MEMORANDUM OF LAW IN SUPPORT OF COUNTERCLAIM DEFENDANT BELMONT RIDGE BANK NA'S MOTION TO DISMISS COUNTERCLAIM PLAINTIFFS' DEMAND FOR PUNITIVE DAMAGES PURSUANT TO CPLR 3211(a)(7)

CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, New York 10022 Telephone: (212) 506-7400 Facsimile: (212) 506-7401

Linda Osei, Responsible Partner Priya Anand, Billing Partner Carlos Espinoza, Lead Associate Hannah Brinkley, Working Associate

Attorneys for Plaintiff/Counterclaim Defendant Belmont Ridge Bank NA

Filed: January 28, 2025

TABLE OF AUTHORITIES

Cases.

Statutes & Rules

Other Authorities.

PRELIMINARY STATEMENT

Belmont Ridge Bank NA ("BRB" or the "Bank") is a nationally chartered commercial bank, OCC Charter No. 14-00927, headquartered at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036. BRB maintains approximately $47.3 billion in total assets and is publicly traded on the New York Stock Exchange under the ticker symbol BRMR. BRB respectfully moves this Court, pursuant to CPLR 3211(a)(7), to dismiss the demand for punitive damages asserted in the counterclaims of Triton Harbor Industries, LLC ("Triton Harbor"), Marcus J. Kappel, and Elaine D. Kappel (collectively, "Counterclaim Plaintiffs").

On October 18, 2024, Counterclaim Plaintiffs filed counterclaims in this action asserting causes of action for fraudulent inducement, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, and rescission. The counterclaims seek compensatory damages of "not less than $12,500,000" together with an unspecified demand for "punitive damages." BRB does not, by this motion, seek dismissal of the underlying counterclaims — those will be addressed at the appropriate time on a full record. Rather, this motion addresses solely the legal sufficiency of Counterclaim Plaintiffs' demand for punitive damages, which fails as a matter of law under well-established New York precedent.

The counterclaims arise from a straightforward commercial lending workout between a sophisticated borrower and its lender. Triton Harbor is a mid-market marine industrial services company that, in its most recent full fiscal year prior to the relevant events, reported approximately $68 million in annual revenue and approximately $9.4 million in Adjusted EBITDA. It is a Delaware limited liability company controlled by Marcus J. Kappel, a 30-year industry veteran and the company's founder and chief executive officer, and Elaine D. Kappel, the company's chief financial officer. Throughout the forbearance negotiations at the center of this dispute, Triton Harbor was advised by Mercer Tidwell & Associates LLC, an independent restructuring advisory firm, and had access to its own independent legal counsel.

At their core, the counterclaims allege that during the negotiations leading up to the execution of a Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement"), certain BRB officers made oral representations that the Bank would "seriously consider" extending a new $6.5 million revolving credit facility if Triton Harbor met certain milestones during the forbearance period, and that BRB was "committed to the long-term relationship." Counterclaim Plaintiffs further allege that an internal BRB memorandum authored by the Bank's Chief Credit Officer, Philip Aaronson, in August 2023 — before the Forbearance Agreement was executed — recommended a "structured exit" from the Triton Harbor credit relationship, reflecting what Counterclaim Plaintiffs characterize as BRB's alleged subjective intent not to extend further credit.

On the other side of the ledger stand the unambiguous terms of the Forbearance Agreement itself — a fully integrated, heavily negotiated contract that contains, in Section 9(c), an express disclaimer stating that "[n]othing 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." That same agreement contains a comprehensive integration clause in Section 12(a) providing that the Forbearance Agreement "constitutes the entire agreement among the parties and supersedes all prior negotiations, representations, and agreements." Marcus and Elaine Kappel each signed the Forbearance Agreement and executed unlimited personal guaranties in connection therewith.

The forbearance period expired on April 3, 2024. By that date, Triton Harbor had made all six required monthly debt service payments totaling $750,000 but had failed to cure its covenant defaults — its Fixed Charge Coverage Ratio ("FCCR") as of March 31, 2024 stood at 0.94x, well below the contractually required minimum of 1.20x. BRB thereafter issued a Notice of Default and Acceleration on April 15, 2024, declaring the full outstanding indebtedness of $17,456,212 immediately due and payable — precisely as the Forbearance Agreement entitled it to do upon the expiration of the forbearance period absent satisfaction of the covenant-cure milestones.

Even accepting every factual allegation in the counterclaims as true and drawing all reasonable inferences in Counterclaim Plaintiffs' favor, this is a private bilateral commercial lending dispute between a sophisticated borrower and its bank, governed by an integrated written agreement containing explicit disclaimers and negotiated at arm's length with the assistance of professional advisors. The allegations describe, at most, a disagreement over the significance and enforceability of pre-contractual oral statements made during workout negotiations — not conduct aimed at the public generally, and not conduct evincing the "high degree of moral turpitude and wanton dishonesty" that New York law demands for an award of punitive damages. The demand for punitive damages should be dismissed.

STATEMENT OF FACTS

The following facts are drawn from the counterclaims (Dkt. No. 22) and the documents incorporated therein by reference, and are set forth here solely for purposes of this motion. BRB does not concede the truth or accuracy of any of Counterclaim Plaintiffs' factual allegations and expressly reserves all rights to contest them.

A. The Parties

Belmont Ridge Bank NA. BRB is a national banking association organized and existing under the laws of the United States, OCC Charter No. 14-00927, with its principal office located at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036. As of December 31, 2023, BRB maintained approximately $47.3 billion in total assets, reported $1.82 billion in net interest income, and operated 214 branches across the northeastern United States. BRB is publicly traded on the NYSE under the ticker symbol BRMR and is subject to regulatory oversight by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). BRB's Commercial Lending Division provides financing to middle-market companies across a range of industries, including marine services, manufacturing, logistics, and infrastructure. When borrowers experience financial distress, their credits are transferred to BRB's Special Assets Group ("SAG"), which is responsible for managing workout and restructuring matters.

Triton Harbor Industries, LLC. Triton Harbor is a Delaware limited liability company, DE File No. 5217839, with its principal place of business at 47-15 Austell Street, Suite 200, Long Island City, New York 11101. The company specializes in marine terminal logistics, vessel maintenance, and harbor infrastructure services, primarily serving municipal port authorities, private terminal operators, and commercial shipping companies in the New York metropolitan area and along the East Coast. In fiscal year 2022, Triton Harbor reported approximately $68 million in annual revenue and approximately $9.4 million in Adjusted EBITDA. Triton Harbor's principal facility is a marine terminal and maintenance yard located at 50-22 Borden Avenue, Long Island City, New York 11101, which also serves as collateral for the credit facilities at issue in this action.

Marcus J. Kappel. Marcus J. Kappel is the founder, chief executive officer, and 72% equity member of Triton Harbor. Mr. Kappel has more than 30 years of experience in the marine industrial services industry. Before founding Triton Harbor in 2009, he served as a senior executive at Atlantic Basin Marine Corp., one of the largest marine terminal operators in the New York harbor region. Mr. Kappel is a sophisticated businessman who has participated in numerous commercial lending transactions throughout his career.

Elaine D. Kappel. Elaine D. Kappel is the chief financial officer and 28% equity member of Triton Harbor. Ms. Kappel is the spouse of Marcus Kappel and has served as the company's CFO since its founding. In that capacity, she has been responsible for Triton Harbor's financial reporting, treasury management, and interactions with lenders and financial institutions.

B. The Original Credit Facility

On June 15, 2021, BRB and Triton Harbor entered into a Credit Agreement (the "Original Credit Agreement") pursuant to which BRB extended to Triton Harbor two distinct credit facilities with a combined commitment of $22,000,000. The first facility was a term loan in the original principal amount of $14,000,000 ("Term Loan A"), structured with an 84-month term, quarterly amortization payments, and a final maturity date of June 15, 2028. Interest on Term Loan A accrued at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 275 basis points. The second facility was a revolving credit facility with a maximum commitment of $8,000,000 (the "Revolving Credit Facility"), maturing on June 15, 2026, bearing interest at SOFR plus 250 basis points.

The obligations under the Original Credit Agreement were secured by a first-priority lien on substantially all of Triton Harbor's assets, including marine terminal equipment, accounts receivable, inventory, general intangibles, and a first mortgage on the company's Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, New York 11101. At origination, an independent appraisal of the collateral performed by Ridgeline Appraisal Group, Inc. dated June 2021 valued the collateral at $18,700,000.

In connection with the Original Credit Agreement, Marcus J. Kappel executed a limited personal guaranty in the amount of $4,500,000. Elaine D. Kappel was not a guarantor at the time of origination.

The Original Credit Agreement contained customary financial covenants applicable to Triton Harbor, including: (i) a minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x, tested quarterly; (ii) a maximum Total Leverage Ratio of 3.50x, tested quarterly; and (iii) a minimum liquidity requirement of $2,000,000, tested monthly. These covenants were designed to ensure that Triton Harbor maintained adequate cash flow and balance sheet capacity to service its obligations to BRB throughout the term of the facilities.

C. Deterioration and Credit Downgrade

Beginning in early 2023, Triton Harbor's financial performance deteriorated significantly. By the first quarter of 2023, the company's trailing twelve-month ("TTM") EBITDA had fallen to approximately $5.1 million — a decline of approximately 46% from the $9.4 million reported for fiscal year 2022. As a direct consequence, Triton Harbor's FCCR dropped to 0.87x, well below the minimum covenant threshold of 1.20x, and its Total Leverage Ratio rose to 4.92x, substantially in excess of the maximum covenant threshold of 3.50x. The company was in material breach of both financial covenants.

On March 8, 2023, BRB's internal Credit Review Committee convened and determined that the Triton Harbor credits warranted a downgrade from "Pass" to "Substandard" (Risk Rating 7) on BRB's internal 10-point credit risk rating scale. In accordance with BRB's standard workout procedures, the account was transferred from the Commercial Lending Division to the Special Assets Group, where it was assigned to Senior Vice President Derek Whitmore, the SAG's team leader for maritime and industrial credits. As of the date of the credit downgrade, the outstanding balances under the facilities were as follows: Term Loan A — $11,375,000; Revolving Credit Facility — $6,200,000; for a combined outstanding balance of $17,575,000.

The deterioration in Triton Harbor's financial performance was driven, in substantial part, by the loss of two of its largest revenue-producing contracts during the period from March through September 2023. First, Triton Harbor lost the Port of Bridgehaven municipal services contract, which had generated approximately $12 million in annual revenue. Second, the company lost the Newark Bay maintenance contract, which had contributed approximately $7.5 million in annual revenue. The combined loss of these two contracts — representing approximately $19.5 million in annual revenue — reduced Triton Harbor's annualized revenue run-rate from approximately $68 million to approximately $48 million, a decline of approximately 29%.

These developments further eroded the credit quality of the BRB facilities. The substantial contraction in Triton Harbor's revenue base and cash flow generation capacity raised serious concerns about the company's ability to service its existing debt obligations, let alone achieve the financial covenant levels required under the Original Credit Agreement.

D. The Forbearance and Modification Agreement

Following several months of negotiations among BRB, Triton Harbor, the Kappels, and Triton Harbor's independent restructuring advisor, Mercer Tidwell & Associates LLC, the parties executed the Forbearance and Modification Agreement on October 6, 2023 (the "Forbearance Agreement"). The Forbearance Agreement was entered into among BRB, as Lender, Triton Harbor, as Borrower, and Marcus J. Kappel and Elaine D. Kappel, individually and as Guarantors.

Under the terms of the Forbearance Agreement, BRB agreed to forbear from exercising its default remedies under the Original Credit Agreement, as amended, for a period of 180 days, commencing on October 6, 2023 and expiring on April 3, 2024 (the "Forbearance Period"). During the Forbearance Period, Triton Harbor was required to make minimum monthly debt service payments of $125,000, for a total of $750,000 over the six-month period, in addition to maintaining compliance with certain operational milestones and financial reporting requirements.

As a condition to the forbearance, the parties agreed to significant enhancements to BRB's collateral position and the scope of the personal guaranties. Specifically: (i) Triton Harbor executed an assignment of two equipment leases with an aggregate appraised value of $2,300,000; (ii) Marcus and Elaine Kappel pledged their personal residence located at 14 Birchmont Lane, Westport, Connecticut 06880, which had an appraised value of $3,100,000, as additional collateral; (iii) Marcus Kappel's previously limited personal guaranty of $4,500,000 was amended and restated as an unlimited personal guaranty of all obligations owing to BRB; and (iv) Elaine D. Kappel executed a new unlimited personal guaranty of all such obligations. In addition, Triton Harbor paid a forbearance fee of $87,500, representing 0.50% of the approximately $17,500,000 in total outstanding indebtedness at the time of execution.

Critically, the Forbearance Agreement contained several provisions that directly bear on the present motion:

Section 9(c) — "No Commitment to Extend Credit." This provision states, in unambiguous terms:

"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. Any decision regarding the extension of additional credit, if any, shall be made by Lender in its sole and absolute discretion, and no course of dealing, oral representation, or prior practice shall be deemed to create any such commitment or obligation."

Section 12(a) — Integration Clause. This provision states:

"This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and agreements, whether oral or written, relating to such subject matter."

The Forbearance Agreement was the product of arm's-length negotiations conducted over a period of approximately six weeks, during which Triton Harbor was advised by Mercer Tidwell & Associates LLC, a nationally recognized restructuring advisory firm. Marcus J. Kappel and Elaine D. Kappel, as the company's CEO and CFO respectively, participated directly in the negotiations and executed the Forbearance Agreement and their respective guaranties with the benefit of professional advice.

E. The Alleged Misrepresentations

Counterclaim Plaintiffs allege that during the period preceding the execution of the Forbearance Agreement, certain BRB officers made oral and written representations concerning the Bank's willingness to extend new credit to Triton Harbor in the future. The specific allegations, which BRB disputes, are as follows:

September 12, 2023 Meeting. The counterclaims allege that Derek Whitmore (SVP, SAG) and Joanna Reeves (VP, SAG) met with Marcus and Elaine Kappel at BRB's offices on September 12, 2023. According to the counterclaims, during this meeting Whitmore stated that BRB was "committed to the long-term relationship" with Triton Harbor, that the Bank would "seriously consider" extending a new $6.5 million revolving credit facility if Triton Harbor met certain forbearance milestones, and that the additional collateral and enhanced guaranties being requested were "a formality to satisfy regulators." (Counterclaims ¶¶ 47-52.)

September 18, 2023 Email. The counterclaims reference an email dated September 18, 2023 from Joanna Reeves to Marcus Kappel in which Reeves stated: "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship." (Counterclaims ¶ 55.) The email was sent during the ongoing forbearance negotiations, approximately two and a half weeks before the Forbearance Agreement was executed.

September 29, 2023 Internal Email. The counterclaims also reference an internal BRB email dated September 29, 2023 in which Reeves forwarded to Whitmore a draft term sheet for a potential new $6.5 million revolving credit facility. According to the counterclaims, the draft term sheet was explicitly marked "for discussion purposes only — not approved." (Counterclaims ¶ 58.) There is no allegation that this internal communication was sent to or shared with Triton Harbor or any of the Counterclaim Plaintiffs.

The Aaronson Memorandum. Finally, the counterclaims reference an internal BRB memorandum dated August 22, 2023 from Philip Aaronson, Executive Vice President and Chief Credit Officer of BRB, addressed to Derek Whitmore, with a copy to Margaret Linden, BRB's General Counsel (the "Aaronson Memorandum"). According to the counterclaims, the Aaronson Memorandum recommended 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." (Counterclaims ¶¶ 60-63.) Counterclaim Plaintiffs contend that the Aaronson Memorandum demonstrates that BRB had already decided not to extend further credit to Triton Harbor before the forbearance negotiations commenced, rendering the alleged oral representations fraudulent.

F. Acceleration and This Action

The 180-day Forbearance Period expired on April 3, 2024. During the Forbearance Period, Triton Harbor made all six required monthly debt service payments of $125,000 each, for a total of $750,000. The company thus satisfied its payment obligations under the Forbearance Agreement.

However, the Forbearance Agreement also required, as a condition to the continuing forbearance and any potential discussion of modifications to the credit facilities, that Triton Harbor cure its financial covenant defaults by the end of the Forbearance Period. As of March 31, 2024, Triton Harbor's FCCR stood at 0.94x — an improvement from the 0.87x level measured in Q1 2023, but still materially below the minimum covenant threshold of 1.20x. The covenant-cure milestone was not achieved.

On April 15, 2024, BRB issued a formal Notice of Default and Acceleration to Triton Harbor, Marcus J. Kappel, and Elaine D. Kappel, declaring the total outstanding indebtedness of $17,456,212 immediately due and payable. The accelerated amount comprised the following: Term Loan A — $10,625,000; Revolving Credit Facility — $6,200,000; accrued and unpaid interest — $487,322; and late fees and default interest — $143,890.

On May 20, 2024, BRB commenced foreclosure proceedings on the Long Island City terminal facility, the primary collateral securing the credit facilities. An updated collateral appraisal performed by Ridgeline Appraisal Group, Inc. in September 2023 valued the Long Island City terminal facility at $11,200,000, reflecting a decline of $7,500,000 or approximately 40.1% from the original $18,700,000 appraisal at the time of loan origination. Including the additional collateral pledged under the Forbearance Agreement — the equipment leases valued at $2,300,000 and the Kappel residence valued at $3,100,000 — the estimated total collateral value was approximately $16,600,000. Against total outstanding indebtedness of $17,456,212, this implied an estimated deficiency of approximately $856,212, exclusive of costs of sale, legal fees, and other expenses of realization.

On August 12, 2024, BRB commenced this action by filing its original complaint (Index No. 654871/2024), asserting claims against Triton Harbor for breach of the Credit Agreement as amended by the Forbearance Agreement, and against Marcus J. Kappel and Elaine D. Kappel under their respective personal guaranties.

On October 18, 2024, Counterclaim Plaintiffs filed their counterclaims asserting causes of action for fraudulent inducement, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, and rescission. The counterclaims seek compensatory damages in an amount of "not less than $12,500,000," together with an unspecified demand for "punitive damages."

G. Procedural Posture

On November 22, 2024, BRB filed its Answer to the Counterclaims, denying all material allegations and asserting affirmative defenses including, among others: (i) the integration clause and parol evidence rule; (ii) disclaimer of representations under Section 9(c) of the Forbearance Agreement; (iii) the sophistication of the borrower and guarantors; (iv) the statute of frauds; (v) ratification and waiver; and (vi) failure to state a claim for punitive damages.

On December 6, 2024, the parties appeared before the Hon. Althea Marchetti for a Preliminary Conference. A discovery schedule was set, and the Court authorized BRB to file the present pre-answer motion addressed solely to the punitive damages demand.

The present motion does not seek dismissal of the underlying counterclaim causes of action. It is directed solely at Counterclaim Plaintiffs' demand for punitive damages, which should be stricken as legally insufficient under CPLR 3211(a)(7).

ARGUMENT

POINT I.

LEGAL STANDARD ON A MOTION TO DISMISS UNDER CPLR 3211(a)(7)

On a motion to dismiss pursuant to CPLR 3211(a)(7), the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory." Leon v. Martinez, 84 N.Y.2d 83, 87-88 (1994); see also Landon v. Sundial Advisors Lab. Specialists, Inc., 22 N.Y.3d 1, 6 (2013). This standard applies equally to counterclaims, which are treated as a complaint for purposes of a CPLR 3211(a)(7) analysis. See Dune Deck Owners Corp. v. Palazzolo, 174 A.D.3d 541, 542 (2d Dep't 2019).

While this liberal standard affords the non-moving party every favorable inference, it is not without limits. The court "need not accept as true . . . legal conclusions or factual claims that are either inherently incredible or flatly contradicted by documentary evidence." Marinaccio v. Town of Clarence, 20 N.Y.3d 506, 511 (2013); see also People ex rel. Cuomo v. Coventry First LLC, 13 N.Y.3d 108, 115 (2009). Nor is the court required to "accord [the non-moving party] the benefit of unreasonable inferences" or accept allegations that amount to nothing more than bare legal conclusions. Gibbs v. Breed, Abbottott & Morgan, 271 A.D.2d 180, 182 (1st Dep't 2000).

Critically, a demand for punitive damages may be dismissed on a CPLR 3211(a)(7) motion where the factual allegations, even if fully credited, fail as a matter of law to state a basis for such damages. See Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 47 (1990) (affirming dismissal of punitive damages demand where complaint failed to allege requisite elements). This is so because the availability of punitive damages is a question of law in the first instance, requiring the court to determine whether the conduct alleged meets the demanding threshold established by the New York Court of Appeals. See id. Where, as here, the factual allegations on their face demonstrate that the dispute is a private, bilateral commercial matter between sophisticated parties governed by an integrated written agreement, the punitive damages demand may — and should — be dismissed at the pleading stage.

As demonstrated in the Points that follow, even accepting every factual allegation in the counterclaims as true and affording Counterclaim Plaintiffs every favorable inference, the demand for punitive damages fails as a matter of law under each of the independent standards articulated by the New York Court of Appeals.

POINT II.

PUNITIVE DAMAGES ARE NOT AVAILABLE IN A PRIVATE COMMERCIAL LENDING DISPUTE

A. The Governing Standard for Punitive Damages Under New York Law. It has long been the law of this State that punitive damages are not ordinarily available in a private action for fraud. As the Court of Appeals held in its seminal decision in Walker v. Sheldon, 10 N.Y.2d 401 (1961), punitive damages may be awarded in a fraud action only where the fraud is:

(i) "aimed at the public generally," as opposed to directed solely at the individual plaintiff; or

(ii) of "such a high degree of moral turpitude and . . . wanton dishonesty as to imply a criminal indifference to civil obligations."

Walker, 10 N.Y.2d at 405; accord Rocanova v. Equitable Life Assurance Soc'y of the United States, 83 N.Y.2d 603, 613 (1994); Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 489 (2007).

These two prongs are stated in the disjunctive, but each imposes an exacting burden on the party seeking punitive damages. See Rocanova, 83 N.Y.2d at 613 (emphasizing that punitive damages claims require "a particularly egregious or wilful fraud" and that "something more than the mere commission of a tort is always required"). The Court of Appeals has repeatedly cautioned that punitive damages in private fraud actions are the exception, not the rule, and that "the remedy of punitive damages is an extraordinary one and should be applied sparingly." Prozeralik v. Capital Cities Commc'ns, Inc., 82 N.Y.2d 466, 479 (1993).

Under the first prong — conduct "aimed at the public generally" — the plaintiff must allege facts showing that the defendant's fraudulent conduct was not merely directed at the individual plaintiff but was instead "part of a pattern directed at the public generally." New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 316 (1995) (citing Walker, 10 N.Y.2d at 405). This requirement is not satisfied by merely alleging that the defendant is a large entity or that the defendant engages in business with the public. See Don Buchwald & Assocs., Inc. v. Rich, 281 A.D.2d 329, 330 (1st Dep't 2001) (dismissing punitive damages claim where alleged fraud was directed at specific plaintiffs, not the public). Rather, the plaintiff must allege that "the conduct at issue was part of a pattern of similar conduct directed at the public generally." Acquista v. New York Life Ins. Co., 285 A.D.2d 73, 82 (1st Dep't 2001) (emphasis added).

Under the second prong — a "high degree of moral turpitude" — the plaintiff must allege conduct that is qualitatively different from, and substantially more egregious than, ordinary commercial fraud. Rocanova, 83 N.Y.2d at 613. The Court of Appeals has described this standard as requiring "wanton dishonesty" that implies "a criminal indifference to civil obligations." Walker, 10 N.Y.2d at 405. Something more than a misrepresentation — even a deliberate one — is necessary; the conduct must "shock the conscience" and reflect a degree of moral culpability that goes beyond mere deception in the course of a commercial transaction. See Ullmann-Schneider v. Lacher & Lovell-Taylor, P.C., 110 A.D.3d 469, 470 (1st Dep't 2013).

Moreover, CPLR 3016(b) imposes a heightened pleading standard for claims sounding in fraud, requiring that "the circumstances constituting the wrong shall be stated in detail." This heightened standard applies with full force to allegations supporting a demand for punitive damages. Where the pleading fails to allege, with the requisite specificity, facts demonstrating that the defendant's conduct was aimed at the public generally or evinced the extraordinary degree of moral turpitude required for punitive damages, the demand for such damages should be dismissed at the threshold. See Prozeralik, 82 N.Y.2d at 479.

As demonstrated below, the counterclaims satisfy neither prong of the Walker test.

B. The Counterclaims Allege, at Most, a Private Bilateral Lending Dispute — Not Conduct Aimed at the Public Generally. The counterclaims allege that during the forbearance negotiations in September and October 2023, certain BRB officers made statements to the Kappels about BRB's willingness to consider extending a new revolving credit facility to Triton Harbor. These allegations, even if accepted as true, describe communications between designated BRB workout officers and the principals of a single borrower in the context of a bilateral commercial lending relationship. They do not describe conduct aimed at the public generally.

This is a paradigmatic private commercial lending dispute. The allegations involve one bank and one borrower, negotiating the terms of a workout and forbearance arrangement for a single credit relationship with a total outstanding balance of approximately $17.5 million. The alleged misrepresentations were made during individualized, face-to-face meetings and email exchanges between BRB's Special Assets Group officers — specifically, Derek Whitmore and Joanna Reeves — and the principals of Triton Harbor — specifically, Marcus and Elaine Kappel. There is no allegation that BRB made any of the alleged statements to any person or entity other than the Kappels or their advisors.

The private, bilateral nature of this dispute is underscored by the context in which the alleged misrepresentations were made. The parties were engaged in arm's-length workout negotiations concerning a single distressed credit facility. Triton Harbor was not a consumer borrower or an unsophisticated individual; it was a mid-market marine industrial services company with approximately $68 million in annual revenue (FY2022), led by a 30-year industry veteran (Marcus Kappel) and staffed by a dedicated CFO (Elaine Kappel). Critically, Triton Harbor retained Mercer Tidwell & Associates LLC, a restructuring advisory firm, to advise it throughout the forbearance negotiations. The company also had access to its own independent legal counsel.

Under these circumstances, the alleged misrepresentations — even if made and even if false — were directed at a specific, identifiable, sophisticated commercial counterparty in the course of a specific, identifiable commercial transaction. They were not "part of a pattern directed at the public generally." New York Univ., 87 N.Y.2d at 316.

The First Department's decision in Home Holdings, Inc. v. Manufacturers Hanover Trust Co., 167 A.D.2d 193 (1st Dep't 1990), is directly on point. In Home Holdings, the plaintiff alleged that the defendant bank had made fraudulent misrepresentations during negotiations for a lending transaction, inducing the plaintiff to enter into an unfavorable agreement. The First Department dismissed the claim for punitive damages, holding that the alleged fraud was directed at the specific plaintiff in the context of a bilateral financial transaction and was not part of any pattern directed at the public. Id. at 195. The court emphasized that "the fraud alleged here was directed at a single entity in a single transaction, and there is no allegation of a pattern of similar conduct." Id.

Similarly, in Rand Realty Corp. v. Raisler Corp., 173 A.D.2d 363 (1st Dep't 1991), the First Department dismissed a punitive damages claim in a commercial dispute where the alleged fraud consisted of misrepresentations made during bilateral negotiations between sophisticated business entities. The court held that the "allegations do not satisfy the exacting standard . . . since the alleged fraud was part of a private dispute between these parties, not part of a pattern of fraud aimed at the public generally." Id. at 364.

Likewise, in United W. Bancshares, Inc. v. Smith, 271 A.D.2d 349 (1st Dep't 2000), the First Department dismissed punitive damages claims in a fraud action arising from a banking transaction, holding that the allegations described a private dispute between the parties and did not implicate the public interest. Id. at 350.

The present case is indistinguishable from these authorities. The counterclaims describe a bilateral workout negotiation between a bank and a single sophisticated borrower. The alleged misrepresentations were made by individual BRB officers to the specific principals of a specific borrower in connection with a specific forbearance arrangement. There is nothing in the counterclaims suggesting that the alleged conduct was part of a broader scheme or pattern, or that it was directed at any person or entity other than Triton Harbor and the Kappels. This is precisely the type of private commercial dispute that New York law holds cannot support an award of punitive damages.

C. Triton Harbor's Allegations Do Not Satisfy the "Public Harm" Requirement. Anticipating Counterclaim Plaintiffs' likely arguments, the Bank addresses three specific theories by which Triton Harbor might attempt to satisfy the public-harm requirement, and explains why each fails as a matter of law.

First, Triton Harbor cannot manufacture a public-harm allegation by pointing to BRB's status as a large, publicly traded, nationally chartered bank with $47.3 billion in assets and 214 branches across the northeastern United States. While BRB is indisputably a substantial institution that serves a large number of customers, the relevant inquiry under Walker and Rocanova is not the size or reach of the defendant — it is whether the specific conduct at issue was directed at the public generally. See Rocanova, 83 N.Y.2d at 613-14; New York Univ., 87 N.Y.2d at 316. The fact that BRB serves many borrowers does not transform allegations of fraud directed at a single borrower into allegations of fraud directed at the public. If the rule were otherwise, any fraud claim against a large institution would automatically qualify for punitive damages — a result that is plainly inconsistent with the New York Court of Appeals' insistence that punitive damages in private fraud actions are "extraordinary" and must be "applied sparingly." Prozeralik, 82 N.Y.2d at 479.

Second, Triton Harbor cannot satisfy the public-harm requirement by alleging — as it does not, in any event — that BRB engaged in similar conduct with respect to any other borrower, customer, or member of the public. The counterclaims are devoid of any allegation that BRB maintained a bank-wide policy, practice, or scheme to defraud borrowers during workout negotiations. There is no allegation that any other BRB borrower was subjected to similar alleged misrepresentations. There is no allegation that the Aaronson Memorandum — even if it reflected a recommendation for a "structured exit" — was part of a generalized practice applied to multiple borrowers. The memorandum, on its face, addressed the Triton Harbor relationship specifically. The absence of any pattern-or-practice allegations is dispositive of the public-harm inquiry. See Acquista, 285 A.D.2d at 82 (public-harm prong requires allegation that "the conduct at issue was part of a pattern of similar conduct directed at the public generally"); Selinger Enters., Inc. v. Cassuto, 50 A.D.3d 766, 769 (2d Dep't 2008) (same).

Third, the fact that BRB is a regulated national bank subject to oversight by the OCC and FDIC does not, without more, transform a bilateral contractual dispute into one implicating the public interest for punitive damages purposes. New York courts have consistently held that the mere fact that a defendant is a regulated entity in a regulated industry does not satisfy the Walker public-harm standard. See Home Holdings, 167 A.D.2d at 195 (dismissing punitive damages claim against bank notwithstanding regulatory status); Rand Realty, 173 A.D.2d at 364 (same); Sterling Nat'l Bank v. Quill Thackeray CPAs LLP, 9 A.D.3d 314, 316 (1st Dep't 2004) (holding that the alleged misconduct of a bank in an individual transaction did not implicate the public generally); see also Cross & Cross Props., Ltd. v. Everett Allied Co., 886 F.2d 497, 506 (2d Cir. 1989) (applying New York law and dismissing punitive damages claim in bilateral commercial fraud case, holding that "the fraud alleged here was directed at particular individuals in a particular transaction, and punitive damages are therefore not available").

In sum, the counterclaims fail to allege any facts satisfying the first prong of the Walker test. The alleged misconduct, even if fully credited, was directed at a single sophisticated borrower in a single bilateral commercial transaction. It was not aimed at the public generally. On this basis alone, the demand for punitive damages should be dismissed.

POINT III.

BRB EXERCISED ITS EXPRESS CONTRACTUAL RIGHTS UNDER THE FORBEARANCE AGREEMENT, WHICH CANNOT SUPPORT PUNITIVE DAMAGES

A. The Forbearance Agreement Expressly Disclaimed Any Commitment to Extend Additional Credit. Independent of the public-harm analysis set forth above, the demand for punitive damages must be dismissed because the gravamen of Counterclaim Plaintiffs' complaint — that BRB promised to consider extending new credit but instead accelerated the existing indebtedness — is squarely contradicted by the express terms of the Forbearance Agreement that the parties negotiated and executed.

Section 9(c) of the Forbearance Agreement states, in terms that could not be more explicit:

This provision did not merely disclaim a commitment to lend — it disclaimed any obligation arising from "oral representation[s]" or "prior practice." The language was negotiated, reviewed, and agreed to by Triton Harbor and the Kappels, all of whom were represented by Mercer Tidwell & Associates LLC and had access to independent legal counsel.

Section 12(a) of the Forbearance Agreement reinforced this disclaimer with a comprehensive integration clause:

Taken together, these provisions represent an unambiguous contractual understanding among the parties that: (i) BRB was not committing to extend any new or additional credit; (ii) any such decision would be in BRB's sole and absolute discretion; (iii) no prior oral representations or negotiations could give rise to such a commitment; and (iv) the Forbearance Agreement was the exclusive statement of the parties' agreement. These provisions were not boilerplate buried in fine print; they were material, negotiated terms of a forbearance agreement that provided the Kappels with a six-month reprieve from the exercise of BRB's default remedies.

The sophistication of the Counterclaim Plaintiffs underscores the enforceability of these provisions. Triton Harbor was a company with approximately $68 million in annual revenue (FY2022), led by Marcus Kappel — a 30-year industry veteran who founded Triton Harbor in 2009 after a career as a senior executive at Atlantic Basin Marine Corp. — and Elaine Kappel, a seasoned CFO who managed the company's financial reporting and banking relationships. They were advised by Mercer Tidwell & Associates LLC, a firm that specializes in restructuring advisory services and that participated in the drafting and negotiation of the Forbearance Agreement. These are not unsophisticated individuals who were overmatched in negotiations with their lender. They are experienced business professionals who made informed decisions about the terms on which they were willing to enter into a forbearance arrangement.

Under these circumstances, the exercise of contractual remedies expressly reserved under a negotiated agreement between sophisticated parties cannot give rise to a claim for punitive damages under any applicable standard. The Court of Appeals has recognized that "a party to a contract cannot be held liable for doing what the contract permits." Welch v. Mr. Christmas, Inc., 57 N.Y.2d 143, 150 (1982). Where a party exercises rights that are expressly set forth in an agreement that both sides negotiated and executed, the resulting harm — even if significant — is not the product of tortious conduct, let alone the type of morally reprehensible conduct that punitive damages are designed to address.

B. Acceleration Following Covenant-Cure Failure Was a Contractual Right, Not Tortious Conduct. The specific act that Counterclaim Plaintiffs characterize as the culmination of BRB's alleged scheme — the issuance of the Notice of Default and Acceleration on April 15, 2024 — was the exercise of an express contractual right under the Forbearance Agreement following a clearly defined triggering event.

The Forbearance Agreement provided for a 180-day Forbearance Period expiring on April 3, 2024. The forbearance was conditioned, among other things, upon Triton Harbor's cure of its financial covenant defaults — specifically, restoration of its FCCR to the minimum covenant level of 1.20x — by the end of the Forbearance Period. This was not a hidden or ambiguous requirement; it was a central term of the bargain that Triton Harbor struck in exchange for BRB's agreement to refrain from exercising its default remedies for 180 days.

As of March 31, 2024, Triton Harbor's FCCR stood at 0.94x. While this represented an improvement from the 0.87x level measured in Q1 2023, it remained materially below the 1.20x minimum. The covenant-cure milestone was not achieved. The Forbearance Agreement, by its express terms, entitled BRB to exercise all of its default remedies upon the expiration of the Forbearance Period if the covenant defaults had not been cured. That is precisely what BRB did.

New York law is clear that the exercise of legitimate contractual remedies — even where the counterparty suffers substantial economic harm — does not constitute the type of morally reprehensible conduct that supports punitive damages. See Wieder v. Skala, 80 N.Y.2d 628, 636 (1992); see also N.Y. U.C.C. § 1-203 (imposing an obligation of good faith but not overriding express contractual rights). A lender's decision to accelerate indebtedness upon a borrower's failure to meet contractually agreed milestones is the very essence of the bargain struck in a forbearance agreement. The entire purpose of a forbearance agreement is to give the borrower a defined period of time to cure its defaults, with the understanding that if the defaults are not cured, the lender may proceed to exercise its remedies. Counterclaim Plaintiffs cannot accept the benefits of the forbearance — six months of continued operations free from enforcement action — and then claim that BRB's exercise of the very remedies that were suspended during the forbearance period constitutes morally reprehensible conduct warranting punitive damages.

The acceleration of $17,456,212 in outstanding indebtedness following a failed covenant cure is not tortious conduct. It is the contractual consequence of a borrower's inability to meet a negotiated milestone. BRB's conduct in this regard was entirely consistent with the express terms of the Forbearance Agreement, and it cannot, as a matter of law, form the basis for a punitive damages award.

POINT IV.

THE ALLEGED MISREPRESENTATIONS, EVEN IF CREDITED, DO NOT RISE TO THE LEVEL OF MORAL TURPITUDE REQUIRED FOR PUNITIVE DAMAGES

A. New York Law Requires Conduct Evidencing a High Degree of Moral Turpitude. Even assuming, arguendo, that the counterclaims adequately plead a claim for common-law fraud — which BRB does not concede and expressly reserves the right to challenge — a viable fraud claim does not automatically entitle the plaintiff to punitive damages. As the Court of Appeals has made clear, punitive damages require an additional showing, above and beyond the elements of a fraud cause of action, of conduct that is "morally reprehensible" and reflects "wanton dishonesty" or "criminal indifference to civil obligations." Walker, 10 N.Y.2d at 405; Rocanova, 83 N.Y.2d at 613.

The purpose of punitive damages is not to compensate the plaintiff — that function is served by compensatory damages. Rather, punitive damages serve to punish the defendant for egregious misconduct and to deter similar conduct in the future. See Prozeralik, 82 N.Y.2d at 479; see also Restatement (Second) of Torts § 908 cmt. b (Am. L. Inst. 1979). Because of their quasi-penal character, punitive damages are subject to a "strict" standard and are available only in cases of extraordinary wrongdoing. See Borkowski v. Borkowski, 39 N.Y.2d 982, 983 (1976); Dupree v. Giugliano, 20 N.Y.3d 921, 924 (2012).

The standard is qualitative and demanding. It requires more than a mere misrepresentation, more than an intentional misrepresentation, and more than a misrepresentation that causes significant economic harm. What is required is conduct that "shocks the conscience" — conduct so outrageous, so morally culpable, and so wanton in its disregard for the rights of others that the ordinary remedies of compensatory damages and equitable relief are deemed insufficient to address the wrong. Dan B. Dobbs, Law of Remedies § 3.11(2), at 468-69 (2d ed. 1993).

New York appellate courts have consistently applied this high bar to dismiss punitive damages claims in commercial fraud cases between sophisticated parties, even where the underlying fraud claims survived a motion to dismiss. The rationale is straightforward: in the commercial arena, sophisticated parties have ample remedies available to them — compensatory damages, rescission, restitution, and equitable relief — without the need for the extraordinary remedy of punitive damages. Punitive damages are reserved for cases involving a degree of moral culpability that transcends ordinary commercial overreaching.

As demonstrated below, the alleged misrepresentations in this case, even if fully credited, do not approach the threshold of moral turpitude required for punitive damages.

B. The Alleged Statements Are Aspirational and Non-Actionable Expressions of Future Intent. The counterclaims rest on three categories of alleged misrepresentations, none of which, individually or collectively, rises to the level of moral turpitude warranting punitive damages.

The September 12, 2023 Oral Statements. The statements attributed to Derek Whitmore during the September 12, 2023 meeting — that BRB was "committed to the long-term relationship" with Triton Harbor and would "seriously consider" a new $6.5 million revolving facility if forbearance milestones were met — are, on their face, aspirational expressions of future intent rather than statements of present fact. A statement that a bank will "seriously consider" a future lending decision is not a commitment to lend; it is an acknowledgment that the possibility exists and will be evaluated. A statement that a bank is "committed to the long-term relationship" is a generalized expression of goodwill, not a binding promise to take (or refrain from taking) any specific action. These types of statements are commonplace in commercial negotiations, particularly in workout contexts where both parties have an incentive to maintain a constructive dialogue. They are precisely the type of forward-looking, aspirational statements that New York courts have consistently held do not support punitive damages — or, in many cases, even a fraud claim. See Callaghan v. Grand Entertainment Grp., Ltd., 173 A.D.2d 395, 396 (1st Dep't 1991) (dismissing fraud claim based on statements of future intent); Garber v. Stein, 63 A.D.3d 597, 597 (1st Dep't 2009) (same); Scott v. Fields, 85 A.D.3d 756, 758 (2d Dep't 2011) (statements of future intent insufficient to support fraud claim absent contemporaneous intent not to perform).

Even if these statements could be characterized as implying a present intent to extend credit in the future, the mere existence of a contemporaneous undisclosed contrary intent does not, in the commercial context between sophisticated parties, constitute the type of moral turpitude that warrants punitive damages. Every failed business negotiation could be recharacterized, in hindsight, as involving a party that harbored reservations about the ultimate consummation of the deal. Permitting punitive damages on this basis would transform routine commercial negotiations into potential punitive damages claims.

Whitmore's alleged statement that the additional collateral was "a formality to satisfy regulators" is similarly insufficient. Even if this statement were misleading, it does not evince "criminal indifference to civil obligations." At most, it reflects a negotiating posture — the type of persuasive characterization that is a normal part of arm's-length commercial discussions. The Kappels, advised by Mercer Tidwell & Associates LLC, were free to assess for themselves the significance of the collateral enhancement requirements and to make their own informed decision about whether to agree to them.

The September 18, 2023 Reeves Email. Joanna Reeves' email to Marcus Kappel stating that "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship" is, on its face, a forward-looking expression of hope and aspiration. The email does not state that BRB has approved a new credit facility, does not promise that a new facility will be extended, and does not commit BRB to any specific course of action. The words "optimistic" and "sets the stage" are inherently conditional and aspirational — they express a subjective outlook about the future, not a representation of present fact. Such statements are entirely consistent with the tenor of workout negotiations, in which a lender may express hope that the workout will succeed while reserving all of its contractual rights in the event that it does not.

The September 29, 2023 Internal Draft Term Sheet. The counterclaims reference an internal BRB email in which Reeves forwarded to Whitmore a draft term sheet for a potential new $6.5 million revolving facility. This document was explicitly marked "for discussion purposes only — not approved," and it was an internal communication that was never sent to Triton Harbor or any of the Kappels. The existence of an internal draft term sheet — especially one expressly labeled as unapproved and for discussion purposes only — does not evidence moral turpitude. If anything, it demonstrates that BRB was engaged in the type of internal deliberation that one would expect from a responsible lender evaluating its options with respect to a distressed credit. The fact that a preliminary, unapproved document was circulated internally and ultimately did not result in a new facility reflects nothing more than the ordinary course of credit decision-making.

Even if all three categories of alleged misrepresentations are considered collectively, they do not, as a matter of law, rise to the level of moral turpitude required for punitive damages. At most, they suggest that certain BRB officers made forward-looking, aspirational statements about the potential for a future credit relationship, that BRB internally considered the possibility of extending new credit, and that BRB ultimately decided not to do so. This sequence of events — common in commercial lending — does not "shock the conscience." It does not evince "criminal indifference to civil obligations." It is the ordinary stuff of commercial transactions that do not come to fruition. See Cross & Cross Props., 886 F.2d at 506 (holding that fraud allegations in bilateral commercial transaction did not warrant punitive damages where conduct did not evince extraordinary moral turpitude); TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 95 (2d Cir. 2005) (applying New York law and holding that "garden-variety" fraud in commercial transaction did not warrant punitive damages); S & K Sales Co. v. Sterling Reach Partners LLC, 816 F.2d 843, 848 (2d Cir. 1987) (same); Nolan v. Sam Fox Publ'g Co., 499 F.2d 1394, 1399 (2d Cir. 1974) (private fraud in commercial transaction insufficient for punitive damages absent extraordinary circumstances).

C. The Existence of the Aaronson Memorandum Does Not Transform a Private Dispute Into Punitive-Damages-Worthy Conduct. The Bank anticipates that Counterclaim Plaintiffs will point to the August 22, 2023 memorandum from BRB Chief Credit Officer Philip Aaronson to Derek Whitmore, with a copy to General Counsel Margaret Linden (the "Aaronson Memorandum"), as the centerpiece of their punitive damages argument. The memorandum, which predates the execution of the Forbearance Agreement by approximately six weeks, allegedly recommended 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." Counterclaim Plaintiffs contend that this memorandum demonstrates that BRB had already decided not to extend new credit before making the alleged oral representations about a potential new revolving facility, and that BRB's subsequent statements to the Kappels were therefore knowingly false.

Even accepting the Aaronson Memorandum at face value and according it every inference favorable to Counterclaim Plaintiffs, it does not establish the type of egregious, morally reprehensible conduct directed at the public that warrants punitive damages. There are several reasons for this conclusion.

First, the Aaronson Memorandum reflects an internal credit judgment made by BRB's Chief Credit Officer — the very type of prudential decision-making that banks are expected, and indeed required by their regulators, to undertake in managing distressed credits. When a borrower's financial performance deteriorates, a bank's credit officers and risk managers are obligated to evaluate the bank's exposure and develop a strategy for managing that exposure. The development of an internal recommendation for a "structured exit" is part of this ordinary credit risk management process. It is not evidence of a scheme to defraud; it is evidence of a bank discharging its fiduciary and regulatory obligations to its shareholders, depositors, and regulators. To hold that internal credit memoranda of this nature can serve as the basis for punitive damages would chill the very type of candid internal deliberation that prudent risk management demands.

Second, the Aaronson Memorandum was directed to the management of a single borrower relationship — the Triton Harbor credit. There is no allegation that the memorandum was part of a broader BRB policy or practice of recommending "structured exits" while simultaneously making false representations to borrowers. It was a credit-specific recommendation addressing the specific circumstances of the Triton Harbor credit — the loss of $19.5 million in annual revenue from the Bridgehaven and Newark Bay contracts, the 40.1% decline in collateral value, and the borrower's inability to achieve compliance with its financial covenants. The memorandum thus does not satisfy the "public harm" requirement of Walker and Rocanova, because it was not part of any pattern directed at the public generally.

Third, the Aaronson Memorandum, viewed in context, does not evidence "criminal indifference" to Triton Harbor's interests. The memorandum was dated August 22, 2023 — before the Forbearance Agreement was executed on October 6, 2023. Despite the memorandum's recommendation for a "structured exit," BRB did not immediately accelerate the loan or commence enforcement proceedings. Instead, BRB entered into the Forbearance Agreement, giving Triton Harbor an additional 180 days — six full months — during which to attempt to rehabilitate its financial performance and cure its covenant defaults. During that period, BRB collected only $750,000 in monthly debt service payments against $17.5 million in outstanding debt — payments that were substantially below the contractual debt service that would have been due absent the forbearance. BRB also refrained from exercising its right to foreclose on $16.6 million in collateral for the entire duration of the Forbearance Period.

This sequence of events — an internal recommendation for exit, followed by the granting of a six-month forbearance with reduced payment requirements — is the opposite of "criminal indifference" to Triton Harbor's interests. It reflects a bank that, notwithstanding internal concerns about credit quality, was willing to give its borrower additional time and flexibility. The fact that BRB ultimately exercised its contractual remedies after the forbearance expired and the covenant defaults remained uncured does not retroactively transform the forbearance itself into a vehicle for fraud.

Fourth, even if the Aaronson Memorandum could be read as evidence of BRB's subjective intent not to extend new credit, that intent was fully disclosed in the Forbearance Agreement itself. Section 9(c) of the Forbearance Agreement unambiguously stated that nothing in the agreement constituted a commitment to extend additional credit and that any such decision would be in BRB's "sole and absolute discretion." This provision put Triton Harbor and the Kappels on notice — in clear, contractual terms — that BRB was not committing to extend new credit. The Aaronson Memorandum, at

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK — COMMERCIAL DIVISION
BELMONT RIDGE BANK NA,
Plaintiff/Counterclaim Defendant,
— against —
TRITON HARBOR INDUSTRIES, LLC, MARCUS J. KAPPEL, and ELAINE D. KAPPEL,
Defendants/Counterclaim Plaintiffs.
Index No. 654871/2024
Assigned Justice: Hon. Althea Marchetti
MEMORANDUM OF LAW IN SUPPORT OF COUNTERCLAIM DEFENDANT BELMONT RIDGE BANK NA'S MOTION TO DISMISS COUNTERCLAIM PLAINTIFFS' DEMAND FOR PUNITIVE DAMAGES PURSUANT TO CPLR 3211(a)(7)
CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, New York 10022 Telephone: (212) 506-7400 Facsimile: (212) 506-7401
Linda Osei, Responsible Partner Priya Anand, Billing Partner Carlos Espinoza, Lead Associate Hannah Brinkley, Working Associate
Attorneys for Plaintiff/Counterclaim Defendant Belmont Ridge Bank NA
Filed: January 28, 2025
TABLE OF AUTHORITIES
Cases.
Statutes & Rules
Other Authorities.
PRELIMINARY STATEMENT
Belmont Ridge Bank NA ("BRB" or the "Bank") is a nationally chartered commercial bank, OCC Charter No. 14-00927, headquartered at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036. BRB maintains approximately $47.3 billion in total assets and is publicly traded on the New York Stock Exchange under the ticker symbol BRMR. BRB respectfully moves this Court, pursuant to CPLR 3211(a)(7), to dismiss the demand for punitive damages asserted in the counterclaims of Triton Harbor Industries, LLC ("Triton Harbor"), Marcus J. Kappel, and Elaine D. Kappel (collectively, "Counterclaim Plaintiffs").
On October 18, 2024, Counterclaim Plaintiffs filed counterclaims in this action asserting causes of action for fraudulent inducement, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, and rescission. The counterclaims seek compensatory damages of "not less than $12,500,000" together with an unspecified demand for "punitive damages." BRB does not, by this motion, seek dismissal of the underlying counterclaims — those will be addressed at the appropriate time on a full record. Rather, this motion addresses solely the legal sufficiency of Counterclaim Plaintiffs' demand for punitive damages, which fails as a matter of law under well-established New York precedent.
The counterclaims arise from a straightforward commercial lending workout between a sophisticated borrower and its lender. Triton Harbor is a mid-market marine industrial services company that, in its most recent full fiscal year prior to the relevant events, reported approximately $68 million in annual revenue and approximately $9.4 million in Adjusted EBITDA. It is a Delaware limited liability company controlled by Marcus J. Kappel, a 30-year industry veteran and the company's founder and chief executive officer, and Elaine D. Kappel, the company's chief financial officer. Throughout the forbearance negotiations at the center of this dispute, Triton Harbor was advised by Mercer Tidwell & Associates LLC, an independent restructuring advisory firm, and had access to its own independent legal counsel.
At their core, the counterclaims allege that during the negotiations leading up to the execution of a Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement"), certain BRB officers made oral representations that the Bank would "seriously consider" extending a new $6.5 million revolving credit facility if Triton Harbor met certain milestones during the forbearance period, and that BRB was "committed to the long-term relationship." Counterclaim Plaintiffs further allege that an internal BRB memorandum authored by the Bank's Chief Credit Officer, Philip Aaronson, in August 2023 — before the Forbearance Agreement was executed — recommended a "structured exit" from the Triton Harbor credit relationship, reflecting what Counterclaim Plaintiffs characterize as BRB's alleged subjective intent not to extend further credit.
On the other side of the ledger stand the unambiguous terms of the Forbearance Agreement itself — a fully integrated, heavily negotiated contract that contains, in Section 9(c), an express disclaimer stating that "[n]othing 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." That same agreement contains a comprehensive integration clause in Section 12(a) providing that the Forbearance Agreement "constitutes the entire agreement among the parties and supersedes all prior negotiations, representations, and agreements." Marcus and Elaine Kappel each signed the Forbearance Agreement and executed unlimited personal guaranties in connection therewith.
The forbearance period expired on April 3, 2024. By that date, Triton Harbor had made all six required monthly debt service payments totaling $750,000 but had failed to cure its covenant defaults — its Fixed Charge Coverage Ratio ("FCCR") as of March 31, 2024 stood at 0.94x, well below the contractually required minimum of 1.20x. BRB thereafter issued a Notice of Default and Acceleration on April 15, 2024, declaring the full outstanding indebtedness of $17,456,212 immediately due and payable — precisely as the Forbearance Agreement entitled it to do upon the expiration of the forbearance period absent satisfaction of the covenant-cure milestones.
Even accepting every factual allegation in the counterclaims as true and drawing all reasonable inferences in Counterclaim Plaintiffs' favor, this is a private bilateral commercial lending dispute between a sophisticated borrower and its bank, governed by an integrated written agreement containing explicit disclaimers and negotiated at arm's length with the assistance of professional advisors. The allegations describe, at most, a disagreement over the significance and enforceability of pre-contractual oral statements made during workout negotiations — not conduct aimed at the public generally, and not conduct evincing the "high degree of moral turpitude and wanton dishonesty" that New York law demands for an award of punitive damages. The demand for punitive damages should be dismissed.
STATEMENT OF FACTS
The following facts are drawn from the counterclaims (Dkt. No. 22) and the documents incorporated therein by reference, and are set forth here solely for purposes of this motion. BRB does not concede the truth or accuracy of any of Counterclaim Plaintiffs' factual allegations and expressly reserves all rights to contest them.
A. The Parties
Belmont Ridge Bank NA. BRB is a national banking association organized and existing under the laws of the United States, OCC Charter No. 14-00927, with its principal office located at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036. As of December 31, 2023, BRB maintained approximately $47.3 billion in total assets, reported $1.82 billion in net interest income, and operated 214 branches across the northeastern United States. BRB is publicly traded on the NYSE under the ticker symbol BRMR and is subject to regulatory oversight by the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). BRB's Commercial Lending Division provides financing to middle-market companies across a range of industries, including marine services, manufacturing, logistics, and infrastructure. When borrowers experience financial distress, their credits are transferred to BRB's Special Assets Group ("SAG"), which is responsible for managing workout and restructuring matters.
Triton Harbor Industries, LLC. Triton Harbor is a Delaware limited liability company, DE File No. 5217839, with its principal place of business at 47-15 Austell Street, Suite 200, Long Island City, New York 11101. The company specializes in marine terminal logistics, vessel maintenance, and harbor infrastructure services, primarily serving municipal port authorities, private terminal operators, and commercial shipping companies in the New York metropolitan area and along the East Coast. In fiscal year 2022, Triton Harbor reported approximately $68 million in annual revenue and approximately $9.4 million in Adjusted EBITDA. Triton Harbor's principal facility is a marine terminal and maintenance yard located at 50-22 Borden Avenue, Long Island City, New York 11101, which also serves as collateral for the credit facilities at issue in this action.
Marcus J. Kappel. Marcus J. Kappel is the founder, chief executive officer, and 72% equity member of Triton Harbor. Mr. Kappel has more than 30 years of experience in the marine industrial services industry. Before founding Triton Harbor in 2009, he served as a senior executive at Atlantic Basin Marine Corp., one of the largest marine terminal operators in the New York harbor region. Mr. Kappel is a sophisticated businessman who has participated in numerous commercial lending transactions throughout his career.
Elaine D. Kappel. Elaine D. Kappel is the chief financial officer and 28% equity member of Triton Harbor. Ms. Kappel is the spouse of Marcus Kappel and has served as the company's CFO since its founding. In that capacity, she has been responsible for Triton Harbor's financial reporting, treasury management, and interactions with lenders and financial institutions.
B. The Original Credit Facility
On June 15, 2021, BRB and Triton Harbor entered into a Credit Agreement (the "Original Credit Agreement") pursuant to which BRB extended to Triton Harbor two distinct credit facilities with a combined commitment of $22,000,000. The first facility was a term loan in the original principal amount of $14,000,000 ("Term Loan A"), structured with an 84-month term, quarterly amortization payments, and a final maturity date of June 15, 2028. Interest on Term Loan A accrued at a floating rate equal to the Secured Overnight Financing Rate ("SOFR") plus 275 basis points. The second facility was a revolving credit facility with a maximum commitment of $8,000,000 (the "Revolving Credit Facility"), maturing on June 15, 2026, bearing interest at SOFR plus 250 basis points.
The obligations under the Original Credit Agreement were secured by a first-priority lien on substantially all of Triton Harbor's assets, including marine terminal equipment, accounts receivable, inventory, general intangibles, and a first mortgage on the company's Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, New York 11101. At origination, an independent appraisal of the collateral performed by Ridgeline Appraisal Group, Inc. dated June 2021 valued the collateral at $18,700,000.
In connection with the Original Credit Agreement, Marcus J. Kappel executed a limited personal guaranty in the amount of $4,500,000. Elaine D. Kappel was not a guarantor at the time of origination.
The Original Credit Agreement contained customary financial covenants applicable to Triton Harbor, including: (i) a minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x, tested quarterly; (ii) a maximum Total Leverage Ratio of 3.50x, tested quarterly; and (iii) a minimum liquidity requirement of $2,000,000, tested monthly. These covenants were designed to ensure that Triton Harbor maintained adequate cash flow and balance sheet capacity to service its obligations to BRB throughout the term of the facilities.
C. Deterioration and Credit Downgrade
Beginning in early 2023, Triton Harbor's financial performance deteriorated significantly. By the first quarter of 2023, the company's trailing twelve-month ("TTM") EBITDA had fallen to approximately $5.1 million — a decline of approximately 46% from the $9.4 million reported for fiscal year 2022. As a direct consequence, Triton Harbor's FCCR dropped to 0.87x, well below the minimum covenant threshold of 1.20x, and its Total Leverage Ratio rose to 4.92x, substantially in excess of the maximum covenant threshold of 3.50x. The company was in material breach of both financial covenants.
On March 8, 2023, BRB's internal Credit Review Committee convened and determined that the Triton Harbor credits warranted a downgrade from "Pass" to "Substandard" (Risk Rating 7) on BRB's internal 10-point credit risk rating scale. In accordance with BRB's standard workout procedures, the account was transferred from the Commercial Lending Division to the Special Assets Group, where it was assigned to Senior Vice President Derek Whitmore, the SAG's team leader for maritime and industrial credits. As of the date of the credit downgrade, the outstanding balances under the facilities were as follows: Term Loan A — $11,375,000; Revolving Credit Facility — $6,200,000; for a combined outstanding balance of $17,575,000.
The deterioration in Triton Harbor's financial performance was driven, in substantial part, by the loss of two of its largest revenue-producing contracts during the period from March through September 2023. First, Triton Harbor lost the Port of Bridgehaven municipal services contract, which had generated approximately $12 million in annual revenue. Second, the company lost the Newark Bay maintenance contract, which had contributed approximately $7.5 million in annual revenue. The combined loss of these two contracts — representing approximately $19.5 million in annual revenue — reduced Triton Harbor's annualized revenue run-rate from approximately $68 million to approximately $48 million, a decline of approximately 29%.
These developments further eroded the credit quality of the BRB facilities. The substantial contraction in Triton Harbor's revenue base and cash flow generation capacity raised serious concerns about the company's ability to service its existing debt obligations, let alone achieve the financial covenant levels required under the Original Credit Agreement.
D. The Forbearance and Modification Agreement
Following several months of negotiations among BRB, Triton Harbor, the Kappels, and Triton Harbor's independent restructuring advisor, Mercer Tidwell & Associates LLC, the parties executed the Forbearance and Modification Agreement on October 6, 2023 (the "Forbearance Agreement"). The Forbearance Agreement was entered into among BRB, as Lender, Triton Harbor, as Borrower, and Marcus J. Kappel and Elaine D. Kappel, individually and as Guarantors.
Under the terms of the Forbearance Agreement, BRB agreed to forbear from exercising its default remedies under the Original Credit Agreement, as amended, for a period of 180 days, commencing on October 6, 2023 and expiring on April 3, 2024 (the "Forbearance Period"). During the Forbearance Period, Triton Harbor was required to make minimum monthly debt service payments of $125,000, for a total of $750,000 over the six-month period, in addition to maintaining compliance with certain operational milestones and financial reporting requirements.
As a condition to the forbearance, the parties agreed to significant enhancements to BRB's collateral position and the scope of the personal guaranties. Specifically: (i) Triton Harbor executed an assignment of two equipment leases with an aggregate appraised value of $2,300,000; (ii) Marcus and Elaine Kappel pledged their personal residence located at 14 Birchmont Lane, Westport, Connecticut 06880, which had an appraised value of $3,100,000, as additional collateral; (iii) Marcus Kappel's previously limited personal guaranty of $4,500,000 was amended and restated as an unlimited personal guaranty of all obligations owing to BRB; and (iv) Elaine D. Kappel executed a new unlimited personal guaranty of all such obligations. In addition, Triton Harbor paid a forbearance fee of $87,500, representing 0.50% of the approximately $17,500,000 in total outstanding indebtedness at the time of execution.
Critically, the Forbearance Agreement contained several provisions that directly bear on the present motion:
Section 9(c) — "No Commitment to Extend Credit." This provision states, in unambiguous terms:
"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. Any decision regarding the extension of additional credit, if any, shall be made by Lender in its sole and absolute discretion, and no course of dealing, oral representation, or prior practice shall be deemed to create any such commitment or obligation."
Section 12(a) — Integration Clause. This provision states:
"This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and agreements, whether oral or written, relating to such subject matter."
The Forbearance Agreement was the product of arm's-length negotiations conducted over a period of approximately six weeks, during which Triton Harbor was advised by Mercer Tidwell & Associates LLC, a nationally recognized restructuring advisory firm. Marcus J. Kappel and Elaine D. Kappel, as the company's CEO and CFO respectively, participated directly in the negotiations and executed the Forbearance Agreement and their respective guaranties with the benefit of professional advice.
E. The Alleged Misrepresentations
Counterclaim Plaintiffs allege that during the period preceding the execution of the Forbearance Agreement, certain BRB officers made oral and written representations concerning the Bank's willingness to extend new credit to Triton Harbor in the future. The specific allegations, which BRB disputes, are as follows:
September 12, 2023 Meeting. The counterclaims allege that Derek Whitmore (SVP, SAG) and Joanna Reeves (VP, SAG) met with Marcus and Elaine Kappel at BRB's offices on September 12, 2023. According to the counterclaims, during this meeting Whitmore stated that BRB was "committed to the long-term relationship" with Triton Harbor, that the Bank would "seriously consider" extending a new $6.5 million revolving credit facility if Triton Harbor met certain forbearance milestones, and that the additional collateral and enhanced guaranties being requested were "a formality to satisfy regulators." (Counterclaims ¶¶ 47-52.)
September 18, 2023 Email. The counterclaims reference an email dated September 18, 2023 from Joanna Reeves to Marcus Kappel in which Reeves stated: "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship." (Counterclaims ¶ 55.) The email was sent during the ongoing forbearance negotiations, approximately two and a half weeks before the Forbearance Agreement was executed.
September 29, 2023 Internal Email. The counterclaims also reference an internal BRB email dated September 29, 2023 in which Reeves forwarded to Whitmore a draft term sheet for a potential new $6.5 million revolving credit facility. According to the counterclaims, the draft term sheet was explicitly marked "for discussion purposes only — not approved." (Counterclaims ¶ 58.) There is no allegation that this internal communication was sent to or shared with Triton Harbor or any of the Counterclaim Plaintiffs.
The Aaronson Memorandum. Finally, the counterclaims reference an internal BRB memorandum dated August 22, 2023 from Philip Aaronson, Executive Vice President and Chief Credit Officer of BRB, addressed to Derek Whitmore, with a copy to Margaret Linden, BRB's General Counsel (the "Aaronson Memorandum"). According to the counterclaims, the Aaronson Memorandum recommended 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." (Counterclaims ¶¶ 60-63.) Counterclaim Plaintiffs contend that the Aaronson Memorandum demonstrates that BRB had already decided not to extend further credit to Triton Harbor before the forbearance negotiations commenced, rendering the alleged oral representations fraudulent.
F. Acceleration and This Action
The 180-day Forbearance Period expired on April 3, 2024. During the Forbearance Period, Triton Harbor made all six required monthly debt service payments of $125,000 each, for a total of $750,000. The company thus satisfied its payment obligations under the Forbearance Agreement.
However, the Forbearance Agreement also required, as a condition to the continuing forbearance and any potential discussion of modifications to the credit facilities, that Triton Harbor cure its financial covenant defaults by the end of the Forbearance Period. As of March 31, 2024, Triton Harbor's FCCR stood at 0.94x — an improvement from the 0.87x level measured in Q1 2023, but still materially below the minimum covenant threshold of 1.20x. The covenant-cure milestone was not achieved.
On April 15, 2024, BRB issued a formal Notice of Default and Acceleration to Triton Harbor, Marcus J. Kappel, and Elaine D. Kappel, declaring the total outstanding indebtedness of $17,456,212 immediately due and payable. The accelerated amount comprised the following: Term Loan A — $10,625,000; Revolving Credit Facility — $6,200,000; accrued and unpaid interest — $487,322; and late fees and default interest — $143,890.
On May 20, 2024, BRB commenced foreclosure proceedings on the Long Island City terminal facility, the primary collateral securing the credit facilities. An updated collateral appraisal performed by Ridgeline Appraisal Group, Inc. in September 2023 valued the Long Island City terminal facility at $11,200,000, reflecting a decline of $7,500,000 or approximately 40.1% from the original $18,700,000 appraisal at the time of loan origination. Including the additional collateral pledged under the Forbearance Agreement — the equipment leases valued at $2,300,000 and the Kappel residence valued at $3,100,000 — the estimated total collateral value was approximately $16,600,000. Against total outstanding indebtedness of $17,456,212, this implied an estimated deficiency of approximately $856,212, exclusive of costs of sale, legal fees, and other expenses of realization.
On August 12, 2024, BRB commenced this action by filing its original complaint (Index No. 654871/2024), asserting claims against Triton Harbor for breach of the Credit Agreement as amended by the Forbearance Agreement, and against Marcus J. Kappel and Elaine D. Kappel under their respective personal guaranties.
On October 18, 2024, Counterclaim Plaintiffs filed their counterclaims asserting causes of action for fraudulent inducement, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, and rescission. The counterclaims seek compensatory damages in an amount of "not less than $12,500,000," together with an unspecified demand for "punitive damages."
G. Procedural Posture
On November 22, 2024, BRB filed its Answer to the Counterclaims, denying all material allegations and asserting affirmative defenses including, among others: (i) the integration clause and parol evidence rule; (ii) disclaimer of representations under Section 9(c) of the Forbearance Agreement; (iii) the sophistication of the borrower and guarantors; (iv) the statute of frauds; (v) ratification and waiver; and (vi) failure to state a claim for punitive damages.
On December 6, 2024, the parties appeared before the Hon. Althea Marchetti for a Preliminary Conference. A discovery schedule was set, and the Court authorized BRB to file the present pre-answer motion addressed solely to the punitive damages demand.
The present motion does not seek dismissal of the underlying counterclaim causes of action. It is directed solely at Counterclaim Plaintiffs' demand for punitive damages, which should be stricken as legally insufficient under CPLR 3211(a)(7).
ARGUMENT
POINT I.
LEGAL STANDARD ON A MOTION TO DISMISS UNDER CPLR 3211(a)(7)
On a motion to dismiss pursuant to CPLR 3211(a)(7), the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory." Leon v. Martinez, 84 N.Y.2d 83, 87-88 (1994); see also Landon v. Sundial Advisors Lab. Specialists, Inc., 22 N.Y.3d 1, 6 (2013). This standard applies equally to counterclaims, which are treated as a complaint for purposes of a CPLR 3211(a)(7) analysis. See Dune Deck Owners Corp. v. Palazzolo, 174 A.D.3d 541, 542 (2d Dep't 2019).
While this liberal standard affords the non-moving party every favorable inference, it is not without limits. The court "need not accept as true . . . legal conclusions or factual claims that are either inherently incredible or flatly contradicted by documentary evidence." Marinaccio v. Town of Clarence, 20 N.Y.3d 506, 511 (2013); see also People ex rel. Cuomo v. Coventry First LLC, 13 N.Y.3d 108, 115 (2009). Nor is the court required to "accord [the non-moving party] the benefit of unreasonable inferences" or accept allegations that amount to nothing more than bare legal conclusions. Gibbs v. Breed, Abbottott & Morgan, 271 A.D.2d 180, 182 (1st Dep't 2000).
Critically, a demand for punitive damages may be dismissed on a CPLR 3211(a)(7) motion where the factual allegations, even if fully credited, fail as a matter of law to state a basis for such damages. See Campagnola v. Mulholland, Minion & Roe, 76 N.Y.2d 38, 47 (1990) (affirming dismissal of punitive damages demand where complaint failed to allege requisite elements). This is so because the availability of punitive damages is a question of law in the first instance, requiring the court to determine whether the conduct alleged meets the demanding threshold established by the New York Court of Appeals. See id. Where, as here, the factual allegations on their face demonstrate that the dispute is a private, bilateral commercial matter between sophisticated parties governed by an integrated written agreement, the punitive damages demand may — and should — be dismissed at the pleading stage.
As demonstrated in the Points that follow, even accepting every factual allegation in the counterclaims as true and affording Counterclaim Plaintiffs every favorable inference, the demand for punitive damages fails as a matter of law under each of the independent standards articulated by the New York Court of Appeals.
POINT II.
PUNITIVE DAMAGES ARE NOT AVAILABLE IN A PRIVATE COMMERCIAL LENDING DISPUTE
A. The Governing Standard for Punitive Damages Under New York Law. It has long been the law of this State that punitive damages are not ordinarily available in a private action for fraud. As the Court of Appeals held in its seminal decision in Walker v. Sheldon, 10 N.Y.2d 401 (1961), punitive damages may be awarded in a fraud action only where the fraud is:
(i) "aimed at the public generally," as opposed to directed solely at the individual plaintiff; or
(ii) of "such a high degree of moral turpitude and . . . wanton dishonesty as to imply a criminal indifference to civil obligations."
Walker, 10 N.Y.2d at 405; accord Rocanova v. Equitable Life Assurance Soc'y of the United States, 83 N.Y.2d 603, 613 (1994); Ross v. Louise Wise Servs., Inc., 8 N.Y.3d 478, 489 (2007).
These two prongs are stated in the disjunctive, but each imposes an exacting burden on the party seeking punitive damages. See Rocanova, 83 N.Y.2d at 613 (emphasizing that punitive damages claims require "a particularly egregious or wilful fraud" and that "something more than the mere commission of a tort is always required"). The Court of Appeals has repeatedly cautioned that punitive damages in private fraud actions are the exception, not the rule, and that "the remedy of punitive damages is an extraordinary one and should be applied sparingly." Prozeralik v. Capital Cities Commc'ns, Inc., 82 N.Y.2d 466, 479 (1993).
Under the first prong — conduct "aimed at the public generally" — the plaintiff must allege facts showing that the defendant's fraudulent conduct was not merely directed at the individual plaintiff but was instead "part of a pattern directed at the public generally." New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 316 (1995) (citing Walker, 10 N.Y.2d at 405). This requirement is not satisfied by merely alleging that the defendant is a large entity or that the defendant engages in business with the public. See Don Buchwald & Assocs., Inc. v. Rich, 281 A.D.2d 329, 330 (1st Dep't 2001) (dismissing punitive damages claim where alleged fraud was directed at specific plaintiffs, not the public). Rather, the plaintiff must allege that "the conduct at issue was part of a pattern of similar conduct directed at the public generally." Acquista v. New York Life Ins. Co., 285 A.D.2d 73, 82 (1st Dep't 2001) (emphasis added).
Under the second prong — a "high degree of moral turpitude" — the plaintiff must allege conduct that is qualitatively different from, and substantially more egregious than, ordinary commercial fraud. Rocanova, 83 N.Y.2d at 613. The Court of Appeals has described this standard as requiring "wanton dishonesty" that implies "a criminal indifference to civil obligations." Walker, 10 N.Y.2d at 405. Something more than a misrepresentation — even a deliberate one — is necessary; the conduct must "shock the conscience" and reflect a degree of moral culpability that goes beyond mere deception in the course of a commercial transaction. See Ullmann-Schneider v. Lacher & Lovell-Taylor, P.C., 110 A.D.3d 469, 470 (1st Dep't 2013).
Moreover, CPLR 3016(b) imposes a heightened pleading standard for claims sounding in fraud, requiring that "the circumstances constituting the wrong shall be stated in detail." This heightened standard applies with full force to allegations supporting a demand for punitive damages. Where the pleading fails to allege, with the requisite specificity, facts demonstrating that the defendant's conduct was aimed at the public generally or evinced the extraordinary degree of moral turpitude required for punitive damages, the demand for such damages should be dismissed at the threshold. See Prozeralik, 82 N.Y.2d at 479.
As demonstrated below, the counterclaims satisfy neither prong of the Walker test.
B. The Counterclaims Allege, at Most, a Private Bilateral Lending Dispute — Not Conduct Aimed at the Public Generally. The counterclaims allege that during the forbearance negotiations in September and October 2023, certain BRB officers made statements to the Kappels about BRB's willingness to consider extending a new revolving credit facility to Triton Harbor. These allegations, even if accepted as true, describe communications between designated BRB workout officers and the principals of a single borrower in the context of a bilateral commercial lending relationship. They do not describe conduct aimed at the public generally.
This is a paradigmatic private commercial lending dispute. The allegations involve one bank and one borrower, negotiating the terms of a workout and forbearance arrangement for a single credit relationship with a total outstanding balance of approximately $17.5 million. The alleged misrepresentations were made during individualized, face-to-face meetings and email exchanges between BRB's Special Assets Group officers — specifically, Derek Whitmore and Joanna Reeves — and the principals of Triton Harbor — specifically, Marcus and Elaine Kappel. There is no allegation that BRB made any of the alleged statements to any person or entity other than the Kappels or their advisors.
The private, bilateral nature of this dispute is underscored by the context in which the alleged misrepresentations were made. The parties were engaged in arm's-length workout negotiations concerning a single distressed credit facility. Triton Harbor was not a consumer borrower or an unsophisticated individual; it was a mid-market marine industrial services company with approximately $68 million in annual revenue (FY2022), led by a 30-year industry veteran (Marcus Kappel) and staffed by a dedicated CFO (Elaine Kappel). Critically, Triton Harbor retained Mercer Tidwell & Associates LLC, a restructuring advisory firm, to advise it throughout the forbearance negotiations. The company also had access to its own independent legal counsel.
Under these circumstances, the alleged misrepresentations — even if made and even if false — were directed at a specific, identifiable, sophisticated commercial counterparty in the course of a specific, identifiable commercial transaction. They were not "part of a pattern directed at the public generally." New York Univ., 87 N.Y.2d at 316.
The First Department's decision in Home Holdings, Inc. v. Manufacturers Hanover Trust Co., 167 A.D.2d 193 (1st Dep't 1990), is directly on point. In Home Holdings, the plaintiff alleged that the defendant bank had made fraudulent misrepresentations during negotiations for a lending transaction, inducing the plaintiff to enter into an unfavorable agreement. The First Department dismissed the claim for punitive damages, holding that the alleged fraud was directed at the specific plaintiff in the context of a bilateral financial transaction and was not part of any pattern directed at the public. Id. at 195. The court emphasized that "the fraud alleged here was directed at a single entity in a single transaction, and there is no allegation of a pattern of similar conduct." Id.
Similarly, in Rand Realty Corp. v. Raisler Corp., 173 A.D.2d 363 (1st Dep't 1991), the First Department dismissed a punitive damages claim in a commercial dispute where the alleged fraud consisted of misrepresentations made during bilateral negotiations between sophisticated business entities. The court held that the "allegations do not satisfy the exacting standard . . . since the alleged fraud was part of a private dispute between these parties, not part of a pattern of fraud aimed at the public generally." Id. at 364.
Likewise, in United W. Bancshares, Inc. v. Smith, 271 A.D.2d 349 (1st Dep't 2000), the First Department dismissed punitive damages claims in a fraud action arising from a banking transaction, holding that the allegations described a private dispute between the parties and did not implicate the public interest. Id. at 350.
The present case is indistinguishable from these authorities. The counterclaims describe a bilateral workout negotiation between a bank and a single sophisticated borrower. The alleged misrepresentations were made by individual BRB officers to the specific principals of a specific borrower in connection with a specific forbearance arrangement. There is nothing in the counterclaims suggesting that the alleged conduct was part of a broader scheme or pattern, or that it was directed at any person or entity other than Triton Harbor and the Kappels. This is precisely the type of private commercial dispute that New York law holds cannot support an award of punitive damages.
C. Triton Harbor's Allegations Do Not Satisfy the "Public Harm" Requirement. Anticipating Counterclaim Plaintiffs' likely arguments, the Bank addresses three specific theories by which Triton Harbor might attempt to satisfy the public-harm requirement, and explains why each fails as a matter of law.
First, Triton Harbor cannot manufacture a public-harm allegation by pointing to BRB's status as a large, publicly traded, nationally chartered bank with $47.3 billion in assets and 214 branches across the northeastern United States. While BRB is indisputably a substantial institution that serves a large number of customers, the relevant inquiry under Walker and Rocanova is not the size or reach of the defendant — it is whether the specific conduct at issue was directed at the public generally. See Rocanova, 83 N.Y.2d at 613-14; New York Univ., 87 N.Y.2d at 316. The fact that BRB serves many borrowers does not transform allegations of fraud directed at a single borrower into allegations of fraud directed at the public. If the rule were otherwise, any fraud claim against a large institution would automatically qualify for punitive damages — a result that is plainly inconsistent with the New York Court of Appeals' insistence that punitive damages in private fraud actions are "extraordinary" and must be "applied sparingly." Prozeralik, 82 N.Y.2d at 479.
Second, Triton Harbor cannot satisfy the public-harm requirement by alleging — as it does not, in any event — that BRB engaged in similar conduct with respect to any other borrower, customer, or member of the public. The counterclaims are devoid of any allegation that BRB maintained a bank-wide policy, practice, or scheme to defraud borrowers during workout negotiations. There is no allegation that any other BRB borrower was subjected to similar alleged misrepresentations. There is no allegation that the Aaronson Memorandum — even if it reflected a recommendation for a "structured exit" — was part of a generalized practice applied to multiple borrowers. The memorandum, on its face, addressed the Triton Harbor relationship specifically. The absence of any pattern-or-practice allegations is dispositive of the public-harm inquiry. See Acquista, 285 A.D.2d at 82 (public-harm prong requires allegation that "the conduct at issue was part of a pattern of similar conduct directed at the public generally"); Selinger Enters., Inc. v. Cassuto, 50 A.D.3d 766, 769 (2d Dep't 2008) (same).
Third, the fact that BRB is a regulated national bank subject to oversight by the OCC and FDIC does not, without more, transform a bilateral contractual dispute into one implicating the public interest for punitive damages purposes. New York courts have consistently held that the mere fact that a defendant is a regulated entity in a regulated industry does not satisfy the Walker public-harm standard. See Home Holdings, 167 A.D.2d at 195 (dismissing punitive damages claim against bank notwithstanding regulatory status); Rand Realty, 173 A.D.2d at 364 (same); Sterling Nat'l Bank v. Quill Thackeray CPAs LLP, 9 A.D.3d 314, 316 (1st Dep't 2004) (holding that the alleged misconduct of a bank in an individual transaction did not implicate the public generally); see also Cross & Cross Props., Ltd. v. Everett Allied Co., 886 F.2d 497, 506 (2d Cir. 1989) (applying New York law and dismissing punitive damages claim in bilateral commercial fraud case, holding that "the fraud alleged here was directed at particular individuals in a particular transaction, and punitive damages are therefore not available").
In sum, the counterclaims fail to allege any facts satisfying the first prong of the Walker test. The alleged misconduct, even if fully credited, was directed at a single sophisticated borrower in a single bilateral commercial transaction. It was not aimed at the public generally. On this basis alone, the demand for punitive damages should be dismissed.
POINT III.
BRB EXERCISED ITS EXPRESS CONTRACTUAL RIGHTS UNDER THE FORBEARANCE AGREEMENT, WHICH CANNOT SUPPORT PUNITIVE DAMAGES
A. The Forbearance Agreement Expressly Disclaimed Any Commitment to Extend Additional Credit. Independent of the public-harm analysis set forth above, the demand for punitive damages must be dismissed because the gravamen of Counterclaim Plaintiffs' complaint — that BRB promised to consider extending new credit but instead accelerated the existing indebtedness — is squarely contradicted by the express terms of the Forbearance Agreement that the parties negotiated and executed.
Section 9(c) of the Forbearance Agreement states, in terms that could not be more explicit:
"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. Any decision regarding the extension of additional credit, if any, shall be made by Lender in its sole and absolute discretion, and no course of dealing, oral representation, or prior practice shall be deemed to create any such commitment or obligation."
This provision did not merely disclaim a commitment to lend — it disclaimed any obligation arising from "oral representation[s]" or "prior practice." The language was negotiated, reviewed, and agreed to by Triton Harbor and the Kappels, all of whom were represented by Mercer Tidwell & Associates LLC and had access to independent legal counsel.
Section 12(a) of the Forbearance Agreement reinforced this disclaimer with a comprehensive integration clause:
"This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and agreements, whether oral or written, relating to such subject matter."
Taken together, these provisions represent an unambiguous contractual understanding among the parties that: (i) BRB was not committing to extend any new or additional credit; (ii) any such decision would be in BRB's sole and absolute discretion; (iii) no prior oral representations or negotiations could give rise to such a commitment; and (iv) the Forbearance Agreement was the exclusive statement of the parties' agreement. These provisions were not boilerplate buried in fine print; they were material, negotiated terms of a forbearance agreement that provided the Kappels with a six-month reprieve from the exercise of BRB's default remedies.
The sophistication of the Counterclaim Plaintiffs underscores the enforceability of these provisions. Triton Harbor was a company with approximately $68 million in annual revenue (FY2022), led by Marcus Kappel — a 30-year industry veteran who founded Triton Harbor in 2009 after a career as a senior executive at Atlantic Basin Marine Corp. — and Elaine Kappel, a seasoned CFO who managed the company's financial reporting and banking relationships. They were advised by Mercer Tidwell & Associates LLC, a firm that specializes in restructuring advisory services and that participated in the drafting and negotiation of the Forbearance Agreement. These are not unsophisticated individuals who were overmatched in negotiations with their lender. They are experienced business professionals who made informed decisions about the terms on which they were willing to enter into a forbearance arrangement.
Under these circumstances, the exercise of contractual remedies expressly reserved under a negotiated agreement between sophisticated parties cannot give rise to a claim for punitive damages under any applicable standard. The Court of Appeals has recognized that "a party to a contract cannot be held liable for doing what the contract permits." Welch v. Mr. Christmas, Inc., 57 N.Y.2d 143, 150 (1982). Where a party exercises rights that are expressly set forth in an agreement that both sides negotiated and executed, the resulting harm — even if significant — is not the product of tortious conduct, let alone the type of morally reprehensible conduct that punitive damages are designed to address.
B. Acceleration Following Covenant-Cure Failure Was a Contractual Right, Not Tortious Conduct. The specific act that Counterclaim Plaintiffs characterize as the culmination of BRB's alleged scheme — the issuance of the Notice of Default and Acceleration on April 15, 2024 — was the exercise of an express contractual right under the Forbearance Agreement following a clearly defined triggering event.
The Forbearance Agreement provided for a 180-day Forbearance Period expiring on April 3, 2024. The forbearance was conditioned, among other things, upon Triton Harbor's cure of its financial covenant defaults — specifically, restoration of its FCCR to the minimum covenant level of 1.20x — by the end of the Forbearance Period. This was not a hidden or ambiguous requirement; it was a central term of the bargain that Triton Harbor struck in exchange for BRB's agreement to refrain from exercising its default remedies for 180 days.
As of March 31, 2024, Triton Harbor's FCCR stood at 0.94x. While this represented an improvement from the 0.87x level measured in Q1 2023, it remained materially below the 1.20x minimum. The covenant-cure milestone was not achieved. The Forbearance Agreement, by its express terms, entitled BRB to exercise all of its default remedies upon the expiration of the Forbearance Period if the covenant defaults had not been cured. That is precisely what BRB did.
New York law is clear that the exercise of legitimate contractual remedies — even where the counterparty suffers substantial economic harm — does not constitute the type of morally reprehensible conduct that supports punitive damages. See Wieder v. Skala, 80 N.Y.2d 628, 636 (1992); see also N.Y. U.C.C. § 1-203 (imposing an obligation of good faith but not overriding express contractual rights). A lender's decision to accelerate indebtedness upon a borrower's failure to meet contractually agreed milestones is the very essence of the bargain struck in a forbearance agreement. The entire purpose of a forbearance agreement is to give the borrower a defined period of time to cure its defaults, with the understanding that if the defaults are not cured, the lender may proceed to exercise its remedies. Counterclaim Plaintiffs cannot accept the benefits of the forbearance — six months of continued operations free from enforcement action — and then claim that BRB's exercise of the very remedies that were suspended during the forbearance period constitutes morally reprehensible conduct warranting punitive damages.
The acceleration of $17,456,212 in outstanding indebtedness following a failed covenant cure is not tortious conduct. It is the contractual consequence of a borrower's inability to meet a negotiated milestone. BRB's conduct in this regard was entirely consistent with the express terms of the Forbearance Agreement, and it cannot, as a matter of law, form the basis for a punitive damages award.
POINT IV.
THE ALLEGED MISREPRESENTATIONS, EVEN IF CREDITED, DO NOT RISE TO THE LEVEL OF MORAL TURPITUDE REQUIRED FOR PUNITIVE DAMAGES
A. New York Law Requires Conduct Evidencing a High Degree of Moral Turpitude. Even assuming, arguendo, that the counterclaims adequately plead a claim for common-law fraud — which BRB does not concede and expressly reserves the right to challenge — a viable fraud claim does not automatically entitle the plaintiff to punitive damages. As the Court of Appeals has made clear, punitive damages require an additional showing, above and beyond the elements of a fraud cause of action, of conduct that is "morally reprehensible" and reflects "wanton dishonesty" or "criminal indifference to civil obligations." Walker, 10 N.Y.2d at 405; Rocanova, 83 N.Y.2d at 613.
The purpose of punitive damages is not to compensate the plaintiff — that function is served by compensatory damages. Rather, punitive damages serve to punish the defendant for egregious misconduct and to deter similar conduct in the future. See Prozeralik, 82 N.Y.2d at 479; see also Restatement (Second) of Torts § 908 cmt. b (Am. L. Inst. 1979). Because of their quasi-penal character, punitive damages are subject to a "strict" standard and are available only in cases of extraordinary wrongdoing. See Borkowski v. Borkowski, 39 N.Y.2d 982, 983 (1976); Dupree v. Giugliano, 20 N.Y.3d 921, 924 (2012).
The standard is qualitative and demanding. It requires more than a mere misrepresentation, more than an intentional misrepresentation, and more than a misrepresentation that causes significant economic harm. What is required is conduct that "shocks the conscience" — conduct so outrageous, so morally culpable, and so wanton in its disregard for the rights of others that the ordinary remedies of compensatory damages and equitable relief are deemed insufficient to address the wrong. Dan B. Dobbs, Law of Remedies § 3.11(2), at 468-69 (2d ed. 1993).
New York appellate courts have consistently applied this high bar to dismiss punitive damages claims in commercial fraud cases between sophisticated parties, even where the underlying fraud claims survived a motion to dismiss. The rationale is straightforward: in the commercial arena, sophisticated parties have ample remedies available to them — compensatory damages, rescission, restitution, and equitable relief — without the need for the extraordinary remedy of punitive damages. Punitive damages are reserved for cases involving a degree of moral culpability that transcends ordinary commercial overreaching.
As demonstrated below, the alleged misrepresentations in this case, even if fully credited, do not approach the threshold of moral turpitude required for punitive damages.
B. The Alleged Statements Are Aspirational and Non-Actionable Expressions of Future Intent. The counterclaims rest on three categories of alleged misrepresentations, none of which, individually or collectively, rises to the level of moral turpitude warranting punitive damages.
The September 12, 2023 Oral Statements. The statements attributed to Derek Whitmore during the September 12, 2023 meeting — that BRB was "committed to the long-term relationship" with Triton Harbor and would "seriously consider" a new $6.5 million revolving facility if forbearance milestones were met — are, on their face, aspirational expressions of future intent rather than statements of present fact. A statement that a bank will "seriously consider" a future lending decision is not a commitment to lend; it is an acknowledgment that the possibility exists and will be evaluated. A statement that a bank is "committed to the long-term relationship" is a generalized expression of goodwill, not a binding promise to take (or refrain from taking) any specific action. These types of statements are commonplace in commercial negotiations, particularly in workout contexts where both parties have an incentive to maintain a constructive dialogue. They are precisely the type of forward-looking, aspirational statements that New York courts have consistently held do not support punitive damages — or, in many cases, even a fraud claim. See Callaghan v. Grand Entertainment Grp., Ltd., 173 A.D.2d 395, 396 (1st Dep't 1991) (dismissing fraud claim based on statements of future intent); Garber v. Stein, 63 A.D.3d 597, 597 (1st Dep't 2009) (same); Scott v. Fields, 85 A.D.3d 756, 758 (2d Dep't 2011) (statements of future intent insufficient to support fraud claim absent contemporaneous intent not to perform).
Even if these statements could be characterized as implying a present intent to extend credit in the future, the mere existence of a contemporaneous undisclosed contrary intent does not, in the commercial context between sophisticated parties, constitute the type of moral turpitude that warrants punitive damages. Every failed business negotiation could be recharacterized, in hindsight, as involving a party that harbored reservations about the ultimate consummation of the deal. Permitting punitive damages on this basis would transform routine commercial negotiations into potential punitive damages claims.
Whitmore's alleged statement that the additional collateral was "a formality to satisfy regulators" is similarly insufficient. Even if this statement were misleading, it does not evince "criminal indifference to civil obligations." At most, it reflects a negotiating posture — the type of persuasive characterization that is a normal part of arm's-length commercial discussions. The Kappels, advised by Mercer Tidwell & Associates LLC, were free to assess for themselves the significance of the collateral enhancement requirements and to make their own informed decision about whether to agree to them.
The September 18, 2023 Reeves Email. Joanna Reeves' email to Marcus Kappel stating that "We are optimistic about a path forward and believe this forbearance sets the stage for a renewed credit relationship" is, on its face, a forward-looking expression of hope and aspiration. The email does not state that BRB has approved a new credit facility, does not promise that a new facility will be extended, and does not commit BRB to any specific course of action. The words "optimistic" and "sets the stage" are inherently conditional and aspirational — they express a subjective outlook about the future, not a representation of present fact. Such statements are entirely consistent with the tenor of workout negotiations, in which a lender may express hope that the workout will succeed while reserving all of its contractual rights in the event that it does not.
The September 29, 2023 Internal Draft Term Sheet. The counterclaims reference an internal BRB email in which Reeves forwarded to Whitmore a draft term sheet for a potential new $6.5 million revolving facility. This document was explicitly marked "for discussion purposes only — not approved," and it was an internal communication that was never sent to Triton Harbor or any of the Kappels. The existence of an internal draft term sheet — especially one expressly labeled as unapproved and for discussion purposes only — does not evidence moral turpitude. If anything, it demonstrates that BRB was engaged in the type of internal deliberation that one would expect from a responsible lender evaluating its options with respect to a distressed credit. The fact that a preliminary, unapproved document was circulated internally and ultimately did not result in a new facility reflects nothing more than the ordinary course of credit decision-making.
Even if all three categories of alleged misrepresentations are considered collectively, they do not, as a matter of law, rise to the level of moral turpitude required for punitive damages. At most, they suggest that certain BRB officers made forward-looking, aspirational statements about the potential for a future credit relationship, that BRB internally considered the possibility of extending new credit, and that BRB ultimately decided not to do so. This sequence of events — common in commercial lending — does not "shock the conscience." It does not evince "criminal indifference to civil obligations." It is the ordinary stuff of commercial transactions that do not come to fruition. See Cross & Cross Props., 886 F.2d at 506 (holding that fraud allegations in bilateral commercial transaction did not warrant punitive damages where conduct did not evince extraordinary moral turpitude); TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 95 (2d Cir. 2005) (applying New York law and holding that "garden-variety" fraud in commercial transaction did not warrant punitive damages); S & K Sales Co. v. Sterling Reach Partners LLC, 816 F.2d 843, 848 (2d Cir. 1987) (same); Nolan v. Sam Fox Publ'g Co., 499 F.2d 1394, 1399 (2d Cir. 1974) (private fraud in commercial transaction insufficient for punitive damages absent extraordinary circumstances).
C. The Existence of the Aaronson Memorandum Does Not Transform a Private Dispute Into Punitive-Damages-Worthy Conduct. The Bank anticipates that Counterclaim Plaintiffs will point to the August 22, 2023 memorandum from BRB Chief Credit Officer Philip Aaronson to Derek Whitmore, with a copy to General Counsel Margaret Linden (the "Aaronson Memorandum"), as the centerpiece of their punitive damages argument. The memorandum, which predates the execution of the Forbearance Agreement by approximately six weeks, allegedly recommended 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." Counterclaim Plaintiffs contend that this memorandum demonstrates that BRB had already decided not to extend new credit before making the alleged oral representations about a potential new revolving facility, and that BRB's subsequent statements to the Kappels were therefore knowingly false.
Even accepting the Aaronson Memorandum at face value and according it every inference favorable to Counterclaim Plaintiffs, it does not establish the type of egregious, morally reprehensible conduct directed at the public that warrants punitive damages. There are several reasons for this conclusion.
First, the Aaronson Memorandum reflects an internal credit judgment made by BRB's Chief Credit Officer — the very type of prudential decision-making that banks are expected, and indeed required by their regulators, to undertake in managing distressed credits. When a borrower's financial performance deteriorates, a bank's credit officers and risk managers are obligated to evaluate the bank's exposure and develop a strategy for managing that exposure. The development of an internal recommendation for a "structured exit" is part of this ordinary credit risk management process. It is not evidence of a scheme to defraud; it is evidence of a bank discharging its fiduciary and regulatory obligations to its shareholders, depositors, and regulators. To hold that internal credit memoranda of this nature can serve as the basis for punitive damages would chill the very type of candid internal deliberation that prudent risk management demands.
Second, the Aaronson Memorandum was directed to the management of a single borrower relationship — the Triton Harbor credit. There is no allegation that the memorandum was part of a broader BRB policy or practice of recommending "structured exits" while simultaneously making false representations to borrowers. It was a credit-specific recommendation addressing the specific circumstances of the Triton Harbor credit — the loss of $19.5 million in annual revenue from the Bridgehaven and Newark Bay contracts, the 40.1% decline in collateral value, and the borrower's inability to achieve compliance with its financial covenants. The memorandum thus does not satisfy the "public harm" requirement of Walker and Rocanova, because it was not part of any pattern directed at the public generally.
Third, the Aaronson Memorandum, viewed in context, does not evidence "criminal indifference" to Triton Harbor's interests. The memorandum was dated August 22, 2023 — before the Forbearance Agreement was executed on October 6, 2023. Despite the memorandum's recommendation for a "structured exit," BRB did not immediately accelerate the loan or commence enforcement proceedings. Instead, BRB entered into the Forbearance Agreement, giving Triton Harbor an additional 180 days — six full months — during which to attempt to rehabilitate its financial performance and cure its covenant defaults. During that period, BRB collected only $750,000 in monthly debt service payments against $17.5 million in outstanding debt — payments that were substantially below the contractual debt service that would have been due absent the forbearance. BRB also refrained from exercising its right to foreclose on $16.6 million in collateral for the entire duration of the Forbearance Period.
This sequence of events — an internal recommendation for exit, followed by the granting of a six-month forbearance with reduced payment requirements — is the opposite of "criminal indifference" to Triton Harbor's interests. It reflects a bank that, notwithstanding internal concerns about credit quality, was willing to give its borrower additional time and flexibility. The fact that BRB ultimately exercised its contractual remedies after the forbearance expired and the covenant defaults remained uncured does not retroactively transform the forbearance itself into a vehicle for fraud.
Fourth, even if the Aaronson Memorandum could be read as evidence of BRB's subjective intent not to extend new credit, that intent was fully disclosed in the Forbearance Agreement itself. Section 9(c) of the Forbearance Agreement unambiguously stated that nothing in the agreement constituted a commitment to extend additional credit and that any such decision would be in BRB's "sole and absolute discretion." This provision put Triton Harbor and the Kappels on notice — in clear, contractual terms — that BRB was not committing to extend new credit. The Aaronson Memorandum, at