1045-00004 · Client 1045 · Pleadings & Court Filings

memo-of-law-answer-counterclaims.docx DOCUMENT Litigation

32 / 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 OF COUNTERCLAIM DEFENDANT BELMONT RIDGE BANK NA IN SUPPORT OF ITS ANSWER TO COUNTERCLAIMS

Filed: November 22, 2024

CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, New York 10022 Telephone: (212) 554-7000 Facsimile: (212) 554-7001

Linda Osei, Esq. (Responsible Partner) Priya Anand, Esq. (Billing Partner) Carlos Espinoza, Esq. (Lead Associate) Hannah Brinkley, Esq. (Working Associate)

Attorneys for Counterclaim Defendant Belmont Ridge Bank NA

Right-click to update Table of Contents

TABLE OF AUTHORITIES

Cases

Statutes and Rules

PRELIMINARY STATEMENT

Counterclaim Defendant Belmont Ridge Bank NA ("BRB" or the "Bank") respectfully submits this Memorandum of Law in support of its Answer to the counterclaims filed by Triton Harbor Industries, LLC ("Triton Harbor"), Marcus J. Kappel, and Elaine D. Kappel (collectively, "Counterclaim Plaintiffs") on October 18, 2024. This memorandum sets forth the legal bases for BRB's affirmative defenses and demonstrates that each of the four counterclaims is fatally deficient as a matter of law.

BRB is a nationally chartered commercial bank (OCC Charter No. 14-00927) headquartered in New York, New York, with approximately $47.3 billion in total assets as of its most recent regulatory filing. The Bank provides a full range of commercial banking services to mid-market corporate borrowers across the northeastern United States, including commercial and industrial lending, asset-based lending, and real estate finance.

On August 12, 2024, BRB filed the original complaint in this action to enforce a Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement"), and to recover a deficiency balance totaling $17,456,212, which includes principal, accrued interest, late fees, and default interest, following Triton Harbor's failure to cure covenant defaults and the expiration of the contractually agreed forbearance period. The complaint further seeks judgment on the unlimited personal guaranties executed by Marcus J. Kappel and Elaine D. Kappel in connection with the Forbearance Agreement.

Counterclaim Plaintiffs' responsive pleading asserts four counterclaims against BRB: (1) fraudulent inducement of the Forbearance Agreement and amended guaranties; (2) negligent misrepresentation; (3) breach of the implied covenant of good faith and fair dealing; and (4) rescission of the Forbearance Agreement and amended personal guaranties. Counterclaim Plaintiffs seek compensatory damages of not less than $12,500,000 and unspecified punitive damages. Each of these counterclaims is without merit.

The Counterclaim Plaintiffs' theory is, in essence, that BRB induced the Kappels to execute the Forbearance Agreement — thereby expanding their personal guaranty exposure from a limited $4,500,000 guaranty by Marcus Kappel alone to unlimited guaranties by both Marcus and Elaine Kappel, and pledging their personal residence as additional collateral — by making informal oral and email statements suggesting that BRB would extend a new $6.5 million revolving credit facility following the successful completion of the forbearance milestones. According to the Counterclaim Plaintiffs, the Bank never intended to extend such credit and used the forbearance period merely to improve its collateral position before accelerating the loans and commencing foreclosure.

This theory founders on the express, unambiguous terms of the very agreement that the Counterclaim Plaintiffs signed. The Forbearance Agreement contains two provisions that are independently dispositive:

First, Section 12(a) is a comprehensive integration and merger clause, providing that the Forbearance Agreement "constitutes the entire agreement between the parties concerning the subject matter" therein and "supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and writings of any nature." Under well-settled New York law, a specific merger clause in a contract negotiated at arm's length between sophisticated parties is entitled to full enforcement and precludes a party from claiming reliance on prior oral or written representations that contradict or supplement the integrated agreement.

Second, and even more directly on point, Section 9(c) contains an explicit disclaimer of any commitment to extend additional credit, providing in pertinent part: "Nothing herein shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility." This specific disclaimer directly addresses — and repudiates — the very subject matter of the alleged misrepresentations. Under governing precedent, a specific anti-reliance clause that tracks the subject matter of the alleged misrepresentation is conclusive evidence that the plaintiff did not justifiably rely on the alleged oral or informal statements.

The Counterclaim Plaintiffs are not unsophisticated consumers. Marcus J. Kappel is a 30-year veteran of the marine industrial services industry who founded Triton Harbor in 2009 and serves as its CEO. Elaine D. Kappel has served as CFO since the company's inception. Both were represented during the forbearance negotiations by Mercer Tidwell & Associates LLC, a restructuring advisory firm, and by their own legal counsel. These sophisticated commercial parties, advised by experienced professionals, negotiated and executed a written agreement containing specific disclaimers and a merger clause. They cannot now disavow the terms they agreed to.

BRB respectfully submits that the counterclaims should be evaluated against these contractual provisions and the governing legal standards set forth herein, and that BRB's affirmative defenses as asserted in its Answer to Counterclaims filed this date should be sustained in their entirety.

STATEMENT OF FACTS

A. The Original Credit Facility

On June 15, 2021, BRB and Triton Harbor entered into a Credit Agreement (the "Original Credit Agreement") providing for two credit facilities with an aggregate committed amount of $22,000,000. The facilities consisted of the following:

(i) Term Loan A in the original principal amount of $14,000,000, with an 84-month term and quarterly amortization, maturing on June 15, 2028. Term Loan A bore interest at the Secured Overnight Financing Rate ("SOFR") plus 275 basis points.

(ii) Revolving Credit Facility with a maximum commitment of $8,000,000, maturing on June 15, 2026. The Revolving Credit Facility bore interest at SOFR plus 250 basis points.

The Original Credit Agreement was secured by a first-priority lien on substantially all assets of Triton Harbor, including, without limitation, all marine terminal equipment, accounts receivable, inventory, general intangibles, and a first mortgage on the Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, New York 11101. At origination, the collateral was appraised by Ridgeline Appraisal Group, Inc. at a total value of $18,700,000, reflecting the assessed value of the Long Island City terminal facility and related personal property assets.

The Original Credit Agreement contained standard financial maintenance covenants, including:

(a) a minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x, tested quarterly on a trailing-twelve-month basis;

(b) a maximum Total Leverage Ratio of 3.50x, tested quarterly; and

In connection with the closing of the Original Credit Agreement, Marcus J. Kappel executed a limited personal guaranty in the amount of $4,500,000 (the "Original Guaranty"), guaranteeing certain of Triton Harbor's obligations to BRB. Elaine D. Kappel did not execute a guaranty at origination.

Triton Harbor Industries, LLC is a Delaware limited liability company (Delaware Division of Corporations File No. 5217839) with its principal place of business at 47-15 Austell Street, Suite 200, Long Island City, New York 11101. Triton Harbor specializes in marine terminal logistics, vessel maintenance, and harbor infrastructure services, serving commercial, municipal, and governmental clients throughout the northeastern United States. At the time of origination, Triton Harbor employed approximately 320 full-time employees and reported annual revenues in excess of $75 million.

The Original Credit Agreement was underwritten based on Triton Harbor's then-existing financial performance, which reflected Fiscal Year 2020 Adjusted EBITDA of approximately $8.6 million and projected Fiscal Year 2021 Adjusted EBITDA of approximately $10.2 million. The initial loan-to-value ratio at origination was approximately 117.6%, reflecting the secured position across all asset classes.

B. Loan Deterioration and Transfer to Special Assets

Beginning in the first quarter of 2023, Triton Harbor's financial condition deteriorated significantly. As of March 31, 2023, the company's trailing-twelve-month EBITDA had declined to approximately $5.1 million, a precipitous decrease from the Fiscal Year 2022 Adjusted EBITDA of $9.4 million. This decline was attributable to multiple factors, including the loss of key contracts and increased operating expenses.

As a result of this financial deterioration, Triton Harbor fell out of compliance with several of its financial maintenance covenants under the Original Credit Agreement. Specifically:

(a) The FCCR declined to 0.87x, well below the covenant minimum of 1.20x, indicating that Triton Harbor's cash flow was insufficient to cover its fixed charges by a margin of more than 27%.

(b) The Total Leverage Ratio rose to 4.92x, exceeding the covenant maximum of 3.50x by approximately 141 basis points, reflecting the combination of declining EBITDA and the outstanding debt burden.

On March 8, 2023, BRB's internal credit review committee downgraded the Triton Harbor credits from a "Pass" rating to a "Substandard" rating (Risk Rating 7 on BRB's internal 10-point scale), reflecting the determination that the credits exhibited well-defined weaknesses that jeopardized the orderly liquidation of the debt. Consistent with BRB's internal policies and procedures for the management of classified credits, the Triton Harbor account was transferred from the Relationship Management division to BRB's Special Assets Group ("SAG") for workout management.

As of the date of transfer, March 8, 2023, the outstanding balances on the Triton Harbor facilities were as follows:

(a) Term Loan A: $11,375,000 (reflecting scheduled amortization payments since origination);

(b) Revolving Credit Facility: $6,200,000 (drawn against the $8,000,000 commitment); and

During the period from March through September 2023, Triton Harbor's financial condition continued to worsen. Most significantly, Triton Harbor lost two major contracts that had been central to its revenue base:

(a) The Port of Bridgehaven municipal contract, which had generated approximately $12 million in annual revenue, was not renewed following a competitive bidding process in which Triton Harbor was outbid by a competitor. Triton Harbor was notified of the loss of this contract in approximately May 2023.

(b) The Newark Bay maintenance contract, which had generated approximately $7.5 million in annual revenue, was terminated by the counterparty in approximately July 2023 following a dispute regarding performance standards.

As a result of the loss of these two contracts, Triton Harbor's annualized revenue declined to approximately $48 million, representing a significant contraction from the company's historical revenue base.

Following the transfer of the account to SAG, Derek Whitmore, Senior Vice President and Head of SAG, assumed management oversight of the BRB-Triton Harbor relationship. Joanna Reeves, Vice President within SAG, served as the day-to-day relationship manager responsible for the account. Mr. Whitmore and Ms. Reeves conducted regular communications with Triton Harbor and the Kappels during the March through September 2023 period regarding the status of the account, the deterioration in financial performance, and the potential for a workout arrangement.

C. The Forbearance and Modification Agreement

Following several months of negotiation between BRB's SAG team and Triton Harbor's management and advisors, the parties executed the Forbearance and Modification Agreement on October 6, 2023. The Forbearance Agreement was executed by BRB as Lender, Triton Harbor as Borrower, and Marcus J. Kappel and Elaine D. Kappel as Guarantors. The principal terms of the Forbearance Agreement were as follows:

(i) Forbearance Period. BRB agreed to forbear from exercising its default remedies under the Original Credit Agreement and applicable law for a period of 180 days, commencing on October 6, 2023 and expiring on April 3, 2024. The forbearance was expressly conditioned on Triton Harbor's compliance with the terms and conditions set forth in the Forbearance Agreement.

(ii) Minimum Debt Service Payments. During the forbearance period, Triton Harbor agreed to make minimum monthly debt service payments of $125,000, for a total of $750,000 over the six-month forbearance period. These payments were to be applied first to accrued interest and then to principal on Term Loan A.

(iii) Forbearance Fee. Triton Harbor agreed to pay BRB a forbearance fee of $87,500, representing 0.50% of the approximately $17,500,000 in outstanding obligations as of the date of execution. This fee was fully earned and non-refundable upon execution of the Forbearance Agreement.

(iv) Additional Collateral. To enhance BRB's secured position, the following additional collateral was pledged:

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

(b) A mortgage on the personal residence of Marcus J. Kappel and Elaine D. Kappel located at 14 Birchmont Lane, Westport, Connecticut 06880, with an appraised value of $3,100,000.

(v) Amended Guaranties. Marcus J. Kappel's existing limited personal guaranty in the amount of $4,500,000 was amended to become an unlimited personal guaranty of all of Triton Harbor's obligations to BRB. Additionally, Elaine D. Kappel executed a new unlimited personal guaranty of all of Triton Harbor's obligations to BRB. Both amended and new guaranties were unlimited in amount and irrevocable.

(vi) Financial Advisor. Triton Harbor agreed to engage a financial advisor acceptable to BRB to assist in the development and implementation of a restructuring plan. Triton Harbor engaged Mercer Tidwell & Associates LLC, a restructuring advisory firm led by Managing Director Raymond Mercer.

(vii) Monthly Financial Reporting. Triton Harbor agreed to provide BRB with monthly financial statements, cash flow projections, and progress reports on the restructuring efforts, in each case within 15 days following the end of each calendar month during the forbearance period.

Two provisions of the Forbearance Agreement are of central importance to the disposition of the counterclaims:

Section 9(c) — "No Commitment to Extend Credit." Section 9(c) of the Forbearance Agreement provides, in its entirety:

"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. Borrower acknowledges and agrees that Lender has made no representation, warranty, or promise, whether express or implied, written or oral, regarding (i) the extension of any additional credit, (ii) the modification of the terms of any existing facility, or (iii) the renewal, extension, or replacement of any credit facility upon the expiration of the Forbearance Period or at any time thereafter."

Section 12(a) — Integration Clause. Section 12(a) of the Forbearance Agreement provides:

"This Agreement, together with the Original Credit Agreement (as modified hereby), the Notes, the Security Documents, the Guaranties (as amended hereby), and the other Loan Documents, constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and writings of any nature, whether written or oral, relating to the subject matter hereof. No party has relied on any statement, representation, warranty, or agreement of any other party except for those expressly set forth in this Agreement and the other Loan Documents."

Both of these provisions were included in the executed version of the Forbearance Agreement that bears the signatures of Marcus J. Kappel and Elaine D. Kappel. There is no dispute that both Kappels signed the Forbearance Agreement in their individual capacities as Guarantors and that Marcus Kappel also signed in his capacity as CEO and Manager of Triton Harbor.

D. The Kappels' Sophistication and Independent Advisors

The Counterclaim Plaintiffs are sophisticated commercial actors with extensive experience in complex business transactions and financial arrangements. Marcus J. Kappel has had a career spanning more than 30 years in the marine industrial services industry. Prior to founding Triton Harbor in 2009, Mr. Kappel served as a senior executive at Atlantic Basin Marine Corp., where he held positions of increasing responsibility in operations and corporate management. Mr. Kappel, age 58, is the founder, Chief Executive Officer, and 72% equity member of Triton Harbor. He has been involved in negotiating and managing credit facilities, lease arrangements, and other complex financial transactions throughout his career.

Elaine D. Kappel, age 55, serves as the Chief Financial Officer and 28% equity member of Triton Harbor. In her capacity as CFO, Ms. Kappel is directly responsible for the company's financial management, reporting, and oversight. She has been intimately involved in Triton Harbor's banking relationships and financial planning since the company's inception.

In mid-2023, in connection with the deterioration of Triton Harbor's financial condition and the commencement of workout discussions with BRB, the Kappels engaged Mercer Tidwell & Associates LLC, a well-known restructuring advisory firm, to assist in the negotiations. Raymond Mercer, the Managing Director of Mercer Tidwell, personally led the advisory engagement and participated in the negotiations leading to the execution of the Forbearance Agreement. Mr. Mercer's firm has substantial experience in advising distressed borrowers in connection with lender workout negotiations, and his involvement ensured that the Kappels had the benefit of sophisticated, independent financial advice throughout the process.

In addition to their engagement of Mercer Tidwell, the Kappels were represented by their own legal counsel during the negotiation, drafting, and execution of the Forbearance Agreement. The Kappels' counsel reviewed the terms of the Forbearance Agreement, including Section 9(c) and Section 12(a), prior to the Kappels' execution of the agreement. The Counterclaim Plaintiffs' pleading does not allege that their legal counsel was ineffective or that they were denied the opportunity to review the Forbearance Agreement before signing it.

E. Expiration of the Forbearance Period and Acceleration

The 180-day forbearance period expired on April 3, 2024. During the forbearance period, Triton Harbor made all six monthly debt service payments of $125,000 each, for total payments of $750,000, in accordance with the schedule set forth in the Forbearance Agreement. Additionally, Triton Harbor pledged the additional collateral required under the Forbearance Agreement, engaged Mercer Tidwell as financial advisor, and provided the required monthly financial reporting.

Notwithstanding Triton Harbor's compliance with these procedural requirements, the company failed to achieve the covenant-cure milestone that was a condition to BRB's continued forbearance. Specifically, Triton Harbor's FCCR as of March 31, 2024 was 0.94x, which, while representing an improvement from the 0.87x level at the time of the covenant default in early 2023, remained materially below the covenant minimum of 1.20x. The Total Leverage Ratio similarly remained in excess of the covenant maximum. As a result, upon the expiration of the forbearance period, all previously existing events of default under the Original Credit Agreement remained uncured.

On April 15, 2024, BRB issued a Notice of Default and Acceleration, declaring the entire outstanding balance under the credit facilities immediately due and payable. The total accelerated amount was calculated as follows:

On May 20, 2024, BRB commenced foreclosure proceedings on the Long Island City terminal facility. In connection with the workout process, BRB had obtained an updated collateral appraisal from Ridgeline Appraisal Group, Inc. dated September 2023, which valued the Long Island City terminal facility at $11,200,000. This represented a decline of $7,500,000, or approximately 40.1%, from the origination appraisal value of $18,700,000 in June 2021. The decline in value was attributable to, among other things, deterioration in the marine industrial real estate market, deferred maintenance at the facility, and the loss of key operating contracts that had supported the facility's going-concern value.

The estimated total collateral value as of the time of acceleration was as follows:

Based on these figures, the estimated deficiency (before costs of sale, additional interest accrual, and enforcement expenses) was approximately $856,212.

F. Procedural History

On August 12, 2024, BRB filed the original complaint in this action (Index No. 654871/2024), styled Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, in the Supreme Court of the State of New York, County of New York, Commercial Division. The complaint asserts causes of action for enforcement of the Forbearance Agreement, judgment on the amended and new personal guaranties, and recovery of the outstanding deficiency balance of $17,456,212.

On October 18, 2024, Triton Harbor and the Kappels filed their Answer with Counterclaims. The counterclaims assert four causes of action against BRB: (1) fraudulent inducement; (2) negligent misrepresentation; (3) breach of the implied covenant of good faith and fair dealing; and (4) rescission of the Forbearance Agreement and amended personal guaranties. Counterclaim Plaintiffs seek compensatory damages of not less than $12,500,000 and unspecified punitive damages.

On November 4, 2024, BRB retained Calderwood & Harkness LLP (Matter No. 1022-00005) as lead litigation counsel in this action, replacing prior counsel Blakemore & Stern LLP. Calderwood & Harkness filed a notice of appearance on behalf of BRB on November 5, 2024.

On November 22, 2024, BRB filed its Answer to Counterclaims, denying all material allegations asserted by the Counterclaim Plaintiffs and asserting affirmative defenses. This Memorandum of Law is submitted contemporaneously in support of BRB's Answer to Counterclaims.

ARGUMENT

I. THE FRAUDULENT INDUCEMENT COUNTERCLAIM FAILS AS A MATTER OF LAW

A. Elements of Fraudulent Inducement Under New York Law. Under New York law, a claim for fraudulent inducement requires proof of five essential elements: (1) a material misrepresentation of a presently existing fact, as distinct from a mere statement of future intent, expectation, or opinion; (2) knowledge of the falsity of that representation (scienter); (3) an intent to deceive the plaintiff and induce reliance; (4) justifiable reliance by the plaintiff on the misrepresentation; and (5) damages proximately caused by such reliance. Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009); Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178 (2011); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). The failure to establish any one of these elements is fatal to the claim.

Additionally, New York's Civil Practice Law and Rules impose a heightened pleading standard on fraud claims. CPLR 3016(b) requires that "[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, willful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail." This requirement demands that a plaintiff identify the specific statements alleged to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent. See Westmark Capital Markets'l Trust Co. v. Drelvon Capital Markets Corp., 32 N.Y.3d 139, 155 (2018). The heightened pleading requirement serves the important purpose of "inform[ing] a defendant with respect to the incidents complained of" and discouraging the assertion of fraud claims as a litigation tactic. Eurycleia Partners, 12 N.Y.3d at 559.

Furthermore, it is firmly established under New York law that a mere statement of present intention to perform some act in the future is not a misrepresentation of fact. See Kimmell v. Schaefer, 89 N.Y.2d 257, 264 (1996). As the Court of Appeals has explained, "a representation of opinion or a prediction of something which is hoped or expected to occur in the future" is not actionable as fraud. Mandarin Trading, 16 N.Y.3d at 178-79. The distinction between an actionable misrepresentation of present fact and a non-actionable expression of future intent or expectation is of critical importance here, because the alleged oral and email statements at the heart of the Counterclaim Plaintiffs' fraud claim are, on their face, expressions of future intent or aspiration, not representations of presently existing facts.

Counterclaim Plaintiffs' fraudulent inducement claim is premised on two categories of alleged statements. First, the Counterclaim Plaintiffs allege that Derek Whitmore, SVP and Head of BRB's Special Assets Group, made oral statements during a meeting on September 12, 2023, at BRB's offices at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036, to the effect that BRB would "seriously consider" extending a new $6.5 million revolving credit facility to Triton Harbor upon the successful completion of the forbearance milestones. Second, the Counterclaim Plaintiffs rely on an email sent by Joanna Reeves, VP within SAG, on September 18, 2023, in which Ms. Reeves allegedly stated that BRB was "optimistic about a path forward" and believed the forbearance "sets the stage for a renewed credit relationship." The Counterclaim Plaintiffs also point to certain characterizations allegedly made by Mr. Whitmore of the additional collateral requirements as "a formality to satisfy regulators."

Even accepting these allegations at face value, and giving them the most favorable construction, they constitute, at most, expressions of future intent, aspiration, or opinion — not actionable misrepresentations of presently existing fact. A statement that a lender will "seriously consider" extending additional credit is an expression of willingness to evaluate a future transaction, not a commitment to consummate it. A statement that a forbearance "sets the stage for a renewed credit relationship" is forward-looking and aspirational. And a characterization of collateral requirements as a "formality" is, at best, a statement of opinion about internal process. None of these alleged statements meets the foundational requirement that a fraudulent inducement claim be grounded in a material misrepresentation of presently existing fact. See Mandarin Trading, 16 N.Y.3d at 178-79; Kimmell, 89 N.Y.2d at 264.

Moreover, even if these alleged statements could be construed as representations of present fact — which they cannot — the fraudulent inducement claim would still fail because of the integration clause, the specific anti-reliance disclaimer, and the absence of justifiable reliance, as set forth below.

B. The Integration Clause (Section 12(a)) Bars the Fraudulent Inducement Claim. It is black-letter New York law that the parol evidence rule bars the introduction of extrinsic evidence of prior or contemporaneous oral statements to vary, contradict, or supplement the terms of a fully integrated written agreement. When a written agreement contains a comprehensive integration or merger clause, the agreement is deemed fully integrated, and the parties are conclusively bound by its terms. See Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21 (1959); MBIA Ins. Corp. v. Sterling Reach Industries, 87 A.D.3d 287, 296 (1st Dep't 2011).

Section 12(a) of the Forbearance Agreement is an unambiguous, comprehensive integration clause. It provides that the Forbearance Agreement, together with the related Loan Documents, "constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and writings of any nature, whether written or oral, relating to the subject matter hereof." Section 12(a) further provides that "[n]o party has relied on any statement, representation, warranty, or agreement of any other party except for those expressly set forth in this Agreement and the other Loan Documents."

The breadth and specificity of this integration clause place it squarely within the category of merger provisions that New York courts have consistently enforced to bar fraud and misrepresentation claims predicated on pre-contractual statements. As the Court of Appeals recognized in Danann Realty, a specific merger clause in an arm's-length commercial agreement represents "the most authoritative disclaimer" that a party could make, and a party who executes an agreement containing such a provision cannot thereafter claim that it relied on oral representations that are outside the four corners of the agreement. 5 N.Y.2d at 320-21.

The Appellate Division, First Department, has applied this principle with particular force in the commercial context. In Basis Yield Alpha Fund (Master) v. Dunmore Group, 115 A.D.3d 128 (1st Dep't 2014), the First Department held that sophisticated institutional investors could not maintain a fraud claim based on alleged pre-contractual misrepresentations where the governing agreements contained specific merger and anti-reliance provisions. The court emphasized that "[w]hen a party specifically disclaims reliance on representations outside the agreement, a fraud claim based on such representations is barred." Id. at 137. Similarly, in Wyle Inc. v. Penrose Partners LLC, 130 A.D.3d 438 (1st Dep't 2015), the First Department dismissed a fraudulent inducement claim where the contract at issue contained a comprehensive integration clause, holding that the plaintiff could not "have it both ways" by entering into a written agreement containing a merger clause and then asserting reliance on prior oral statements that were expressly superseded by that agreement.

The Counterclaim Plaintiffs' alleged oral and email representations — the September 12, 2023 meeting statements and the September 18, 2023 email — all pre-date the execution of the Forbearance Agreement on October 6, 2023. They are precisely the type of "prior negotiations, representations, warranties, commitments, offers, contracts, and writings" that Section 12(a) was designed to supersede. The Counterclaim Plaintiffs cannot execute a written agreement containing a comprehensive integration clause that expressly supersedes all prior representations and then assert a fraud claim predicated on the very prior representations that the integration clause disclaims.

This principle is not merely a technical rule of evidence. It reflects the fundamental policy of New York law favoring the stability and enforceability of written contracts, particularly in sophisticated commercial transactions. As the First Department has observed, the enforcement of integration clauses in arm's-length commercial agreements "promotes certainty and predictability in commercial dealings" and "prevents parties from creating obligations and expectations outside the four corners of their negotiated agreements." See MBIA Ins. Corp., 87 A.D.3d at 296-97.

The Counterclaim Plaintiffs may attempt to invoke the "separate fraud" exception recognized by some courts, which permits a fraud claim to survive a merger clause where the alleged misrepresentation is "collateral or extraneous" to the written agreement. This exception, however, is narrowly construed and does not apply here. The alleged misrepresentations — concerning BRB's willingness to extend a new revolving credit facility — go to the very heart of the parties' credit relationship, which is the subject matter of the Forbearance Agreement. They are not "collateral or extraneous" matters but rather directly concern the subject matter addressed in the agreement. Indeed, the Forbearance Agreement includes a specific provision — Section 9(c) — addressing the precise subject matter of the alleged misrepresentations, further confirming that the topic of future credit extension was within the scope of the parties' negotiations and within the four corners of their written agreement.

Accordingly, the integration clause in Section 12(a) independently bars the Counterclaim Plaintiffs' fraudulent inducement claim as a matter of law.

C. The Section 9(c) Disclaimer Specifically Negates Reliance on the Alleged Representations. Even if the general integration clause in Section 12(a) were not sufficient to dispose of the fraud claim — and BRB submits that it is — the specific anti-reliance and no-commitment disclaimer in Section 9(c) provides an independent and even more targeted basis for dismissal.

Section 9(c) of the Forbearance Agreement provides, in its entirety:

This provision is not merely a general merger clause. It is a specific disclaimer that directly addresses and repudiates the precise subject matter of the alleged misrepresentations. The Counterclaim Plaintiffs' fraud claim is founded on the allegation that BRB represented — orally and by email — that it would extend a new $6.5 million revolving credit facility upon completion of the forbearance milestones. Section 9(c) specifically disclaims any "commitment, agreement, or obligation" to "extend additional credit, modify existing facilities, or renew any credit facility." It further recites the Borrower's express acknowledgment that BRB "has made no representation, warranty, or promise, whether express or implied, written or oral" regarding the extension of additional credit or the renewal of any credit facility. The congruence between the subject matter of the disclaimer and the subject matter of the alleged fraud is complete.

Under New York law, a specific disclaimer that tracks the subject matter of the alleged misrepresentation is conclusive evidence that the plaintiff did not justifiably rely on the alleged oral or informal statements. As the Court of Appeals held in Danann Realty, where a contract contains a provision in which the plaintiff "specifically disclaims" reliance on representations of the type at issue, the plaintiff's fraud claim must be dismissed because the disclaimer establishes as a matter of law that the plaintiff did not rely on the alleged representations. 5 N.Y.2d at 322.

The First Department has repeatedly applied this principle to hold that specific anti-reliance provisions in commercial agreements bar fraud claims, even in circumstances where a general merger clause alone might not be dispositive. In MBIA Ins. Corp. v. Sterling Reach Industries, 87 A.D.3d 287 (1st Dep't 2011), the court held that a specific anti-reliance clause in a sophisticated commercial transaction was "an acknowledgment" by the plaintiff that it was "not relying on the defendant's representations" and thus precluded the plaintiff from asserting fraud based on the defendant's pre-contractual statements. Id. at 297. And in Wyle Inc. v. Penrose Partners LLC, 130 A.D.3d at 439, the First Department emphasized that the presence of a "specific disclaimer" tracking the subject matter of the alleged fraud was "conclusive evidence" negating justifiable reliance.

The Second Circuit, applying New York law, has reached the same conclusion. In Harsco Corp. v. Segui, 91 F.3d 337, 345 (2d Cir. 1996), the court held that a specific disclaimer provision in a written agreement barred a fraud claim predicated on alleged pre-contractual representations regarding the very matters disclaimed in the agreement. The court reasoned that where a party "has agreed in writing that no representations regarding a particular subject matter have been made," that party "cannot turn around and assert fraud based on such representations."

Section 9(c) was not boilerplate language buried in fine print. It was a negotiated provision in a Forbearance Agreement that was executed by sophisticated commercial parties who were represented by experienced restructuring advisors and legal counsel. The Kappels — both of whom signed the Forbearance Agreement — agreed that BRB "has made no representation, warranty, or promise" regarding the extension of additional credit. They cannot now assert, in direct contradiction to their own written acknowledgment, that they relied on oral promises by BRB to extend a new revolving facility.

The Counterclaim Plaintiffs' position is inherently self-contradictory. On the one hand, they allege that they were induced to enter into the Forbearance Agreement by BRB's oral promises to extend new credit. On the other hand, they signed an agreement containing an express provision in which they acknowledged that no such promises had been made. Both of these positions cannot be true. Under New York law, it is the written acknowledgment — not the subsequent allegation — that controls.

Accordingly, Section 9(c) independently bars the Counterclaim Plaintiffs' fraudulent inducement claim by establishing, as a matter of law, that the Counterclaim Plaintiffs did not and could not have justifiably relied on the alleged oral representations.

D. Counterclaim Plaintiffs Cannot Establish Justifiable Reliance. Even if the integration clause and specific disclaimer were not present — and they are — the Counterclaim Plaintiffs cannot establish the justifiable reliance element of their fraud claim because, as a matter of law, sophisticated commercial parties who negotiated at arm's length with the assistance of experienced professional advisors cannot claim that they justifiably relied on informal, non-binding oral statements and emails that were subsequently superseded by a written agreement containing contrary terms.

Under the "sophisticated-party doctrine," New York courts decline to find justifiable reliance where the plaintiff is a sophisticated commercial entity, was represented by experienced counsel and financial advisors, and had the means and opportunity to verify the alleged representations through independent investigation. See Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421-22 (1996); Kimmell v. Schaefer, 89 N.Y.2d 257, 264 (1996).

The sophistication of the Counterclaim Plaintiffs in this case is undeniable. Marcus J. Kappel is a 30-year veteran of the marine industrial services industry, the founder and CEO of Triton Harbor, and a 72% equity member with extensive experience in negotiating complex financial transactions. Elaine D. Kappel is the CFO and 28% equity member of Triton Harbor and has been directly responsible for the company's financial management and banking relationships since its inception in 2009. Together, the Kappels have decades of experience in the commercial world and cannot be characterized as naive or unsophisticated parties who were taken advantage of by a more knowledgeable counterpart.

Moreover, the Kappels did not negotiate the Forbearance Agreement without professional assistance. They retained Mercer Tidwell & Associates LLC, a restructuring advisory firm led by Managing Director Raymond Mercer, specifically to assist in the workout negotiations with BRB. Mr. Mercer and his firm brought to the negotiation the specialized expertise of restructuring professionals who regularly advise distressed borrowers in lender workout situations. The Kappels also retained their own legal counsel to review the terms of the Forbearance Agreement prior to its execution.

Under these circumstances, the Counterclaim Plaintiffs cannot credibly claim that they justifiably relied on informal oral statements by BRB's SAG officers regarding the possibility of future credit extensions, particularly when the written agreement that they executed — after having been advised by both a restructuring firm and legal counsel — expressly disclaimed any such commitment.

The alleged statements themselves reinforce this conclusion. The September 18, 2023 email from Joanna Reeves stated that BRB was "optimistic about a path forward" and believed the forbearance "sets the stage for a renewed credit relationship." This language is transparently aspirational and forward-looking. A reasonable businessperson — let alone one with Marcus Kappel's 30 years of industry experience, or one advised by a restructuring firm — would understand that such language does not constitute a binding commitment to extend credit. The statement that BRB would "seriously consider" a new revolving facility is, by its express terms, a statement about future consideration, not a present commitment. No reasonable person could read the word "consider" as equivalent to "commit" or "agree."

The Counterclaim Plaintiffs also point to a draft term sheet forwarded internally within BRB on September 29, 2023, as alleged evidence of the Bank's commitment to extend new credit. But this document — marked "for discussion purposes only — not approved" — is, by its own express terms, not a commitment. More fundamentally, it was an internal BRB communication, not a representation made to Triton Harbor or the Kappels. The Counterclaim Plaintiffs' reliance on an internal draft document that was never presented to them as a final or binding commitment is, by definition, not justifiable.

Finally, the characterization of additional collateral as "a formality to satisfy regulators" — even if Mr. Whitmore made such a statement — is a statement of opinion about internal bank process, not a misrepresentation of fact. It does not constitute a commitment to extend credit, and it is wholly consistent with the reality that banks subject to federal regulatory oversight do, in fact, require additional collateral in workout situations in order to satisfy regulatory expectations regarding classified credits. A sophisticated borrower and its restructuring advisor would understand this.

For all of these reasons, the Counterclaim Plaintiffs cannot establish justifiable reliance, and their fraudulent inducement claim fails as a matter of law.

II. THE NEGLIGENT MISREPRESENTATION COUNTERCLAIM FAILS AS A MATTER OF LAW

A. Elements of Negligent Misrepresentation Under New York Law. Under New York law, a claim for negligent misrepresentation requires proof of four elements: (1) a special or privity-like relationship between the parties imposing a duty on the defendant to impart correct information to the plaintiff; (2) a false statement or misleading omission; (3) reasonable reliance by the plaintiff on the defendant's statement or omission; and (4) damages proximately caused by such reliance. See Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 180 (2011); Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009).

The threshold element — the existence of a "special relationship" — is the critical barrier to the Counterclaim Plaintiffs' negligent misrepresentation claim. Unlike a claim for intentional fraud, which does not require a special relationship, a negligent misrepresentation claim arises only where the defendant owes a duty of care to the plaintiff by virtue of a relationship of trust, confidence, or privity that goes beyond an ordinary arm's-length commercial transaction. The existence of such a relationship is determined on a case-by-case basis, but New York courts have consistently held that a standard commercial lending relationship does not give rise to the requisite duty.

B. No Special Relationship Exists Between BRB and the Counterclaim Plaintiffs. The relationship between BRB and Triton Harbor — and between BRB and the Kappels — is a standard commercial lending relationship. It is a debtor-creditor relationship, formed at arm's length, documented by written agreements, and characterized by the ordinary adversity of commercial interests between a lender and a borrower. Under well-established New York law, such a relationship does not give rise to the "special" or "privity-like" duty required to support a negligent misrepresentation claim.

New York courts have consistently held that a lender owes no fiduciary duty to a borrower in an arm's-length commercial transaction. See Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir. 1993) (applying New York law and holding that "the debtor-creditor relationship between a bank and its customer does not create a fiduciary relationship between them"); Paribas Props., Inc. v. Benson, 146 A.D.2d 506, 508 (1st Dep't 1989) (holding that the lender-borrower relationship is not a fiduciary one and does not give rise to a duty to disclose information beyond what is required by the loan documents). The First Department has recently reaffirmed this principle in GHVG Assocs., LLC v. Elias, 214 A.D.3d 431, 432 (1st Dep't 2023), holding that an arm's-length commercial lending relationship does not satisfy the special-relationship requirement for a negligent misrepresentation claim.

The Counterclaim Plaintiffs may argue that the workout context — involving BRB's Special Assets Group — somehow transformed the ordinary debtor-creditor relationship into one of trust and confidence. This argument is unavailing. The transfer of an account to a bank's special assets or workout group is, if anything, a signal that the relationship has become more adversarial, not less. When a borrower is in default and the lender is evaluating its options — including the exercise of default remedies — the parties' interests are inherently divergent. The workout context does not create a relationship of trust and confidence; it creates a negotiating environment in which each party is expected to look out for its own interests with the assistance of its own advisors.

Here, the parties' conduct during the workout period confirms the arm's-length character of their relationship. Each side was represented by experienced professionals: BRB by its SAG officers (Derek Whitmore and Joanna Reeves) and its internal and external counsel; the Kappels by Mercer Tidwell & Associates LLC, a restructuring advisory firm, and their own legal counsel. The parties engaged in extensive negotiations before reaching the terms of the Forbearance Agreement. The Forbearance Agreement itself reflects a negotiated bargain in which each side gave consideration and received benefits. There is nothing in the record to suggest that BRB assumed a duty of care to the Kappels that went beyond its obligations under the written agreements between the parties.

Moreover, as a nationally chartered commercial bank regulated by the Office of the Comptroller of the Currency, BRB is subject to regulatory requirements that may require it to take certain actions with respect to classified credits — such as requiring additional collateral, downgrading risk ratings, and establishing reserves — that are designed to protect the safety and soundness of the banking institution, not to serve the interests of the borrower. The existence of these regulatory obligations further underscores that BRB was acting in its own institutional interest, not in a capacity that gave rise to a special duty to the Kappels. See Metropolitan Transp. Auth. v. Westmark Group, 2012 WL 1109458, at *7 (Sup. Ct. N.Y. Cnty. 2012) (noting that regulatory requirements applicable to banks do not create special duties to borrowers).

Because no special or privity-like relationship exists between BRB and the Counterclaim Plaintiffs, the negligent misrepresentation claim fails at the threshold and should be dismissed.

C. The Integration and Disclaimer Clauses Bar the Negligent Misrepresentation Claim for the Same Reasons They Bar the Fraud Claim. Even if the Counterclaim Plaintiffs could establish the existence of a special relationship — which they cannot — their negligent misrepresentation claim would still fail because Section 12(a) (integration) and Section 9(c) (no-commitment disclaimer) of the Forbearance Agreement operate with equal force to defeat a negligent misrepresentation claim as they do to defeat a fraudulent inducement claim.

New York courts have consistently held that specific disclaimer and anti-reliance provisions in written agreements bar negligent misrepresentation claims arising from the same alleged representations that are precluded by those provisions. See HSH Nordbank AG v. Greaves Commerce Bank, 95 A.D.3d 185, 195 (1st Dep't 2012) (holding that "specific disclaimers" in a written agreement "barr[ed] [the] negligent misrepresentation claim" because the disclaimers "negate[d] reasonable reliance on any alleged oral representations"); Sterling Nat'l Bank v. Penrose Firth CPAs LLP, 9 A.D.3d 253, 254 (1st Dep't 2004) (dismissing negligent misrepresentation claim where the parties' agreement contained a specific disclaimer regarding the subject matter of the alleged misrepresentation).

The reasoning is straightforward. A negligent misrepresentation claim, like a fraud claim, requires proof of reasonable reliance. Where the plaintiff has signed a written agreement containing a specific disclaimer that it is not relying on any representation regarding the subject matter of the alleged misrepresentation, the plaintiff has, as a matter of law, negated the element of reasonable reliance. Section 9(c) of the Forbearance Agreement specifically provides that BRB "has made no representation, warranty, or promise, whether express or implied, written or oral" regarding the extension of additional credit. The Counterclaim Plaintiffs signed this provision. They cannot now claim that they reasonably relied on informal oral or email statements that the agreement itself expressly disclaims.

Accordingly, for the same reasons that the integration clause and specific disclaimer bar the fraudulent inducement claim, they bar the negligent misrepresentation claim. The second counterclaim should be dismissed.

III. THE BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING COUNTERCLAIM FAILS AS A MATTER OF LAW

A. The Implied Covenant Cannot Override Express Contractual Terms. Under New York law, every contract contains an implied covenant of good faith and fair dealing, which pledges that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 (1995). This covenant, however, is not an independent source of rights separate from the express terms of the contract. Rather, it is an interpretive tool that gives effect to the parties' reasonable expectations under the agreement. Critically, the implied covenant cannot be used to create obligations that are inconsistent with, or that negate, the express terms of the contract. Id. at 318-19.

The Counterclaim Plaintiffs' implied covenant claim is based on the theory that BRB acted in bad faith by declining to extend a new revolving credit facility following the expiration of the forbearance period and by exercising its right to accelerate the loans and commence foreclosure. But the Forbearance Agreement expressly addresses each of the matters that form the basis of this claim, and BRB's conduct was fully consistent with — indeed, authorized by — the express terms of the agreement.

First, Section 9(c) expressly provides that BRB has no obligation to extend additional credit, modify existing facilities, or renew any credit facility. The Counterclaim Plaintiffs' claim that BRB acted in bad faith by declining to extend new credit is, in substance, a claim that BRB had an obligation to do so. But Section 9(c) expressly disclaims any such obligation. The implied covenant cannot be used to create an obligation that the parties expressly agreed did not exist. See Ridgeway Capital Markets v. Itochu Int'l, Inc., 2003 WL 1797847, at 6 (S.D.N.Y. 2003) (holding that the implied covenant cannot "add a term to a contract that the parties clearly intended to omit"); Sudul v. Computer Outsourcing Servs.*, 868 F. Supp. 59, 62 (S.D.N.Y. 1994) (same).

Second, the Forbearance Agreement contains no obligation on BRB's part to forbear beyond the 180-day period. The forbearance period was defined — by its express terms — as commencing on October 6, 2023 and expiring on April 3, 2024. There was no obligation to extend, renew, or continue the forbearance beyond that date. The Forbearance Agreement explicitly preserved BRB's right to exercise all of its remedies under the Original Credit Agreement and applicable law upon the expiration of the forbearance period if the borrower had not cured the outstanding defaults.

Third, BRB's acceleration of the loans on April 15, 2024, followed directly from: (a) the expiration of the forbearance period on April 3, 2024; and (b) Triton Harbor's failure to cure the FCCR default, with the FCCR at March 31, 2024 standing at 0.94x, still materially below the covenant minimum of 1.20x. BRB's issuance of the Notice of Default and Acceleration was the exercise of an express contractual right — not a unilateral, discretionary act taken in bad faith. Under New York law, a party does not breach the implied covenant of good faith and fair dealing by exercising a right that is expressly conferred by the contract. To hold otherwise would be to convert every exercise of a contractual right into a potential breach of the implied covenant, effectively nullifying the express terms of the agreement.

The Counterclaim Plaintiffs' implied covenant claim is, at bottom, a complaint that BRB did not do more than the Forbearance Agreement required it to do — that BRB should have extended new credit, should have continued to forbear, and should not have exercised its acceleration rights. But the implied covenant does not require a party to do more than what its contract obligates it to do. It requires only that a party not undermine the other party's rights under the contract. Here, BRB performed its obligations under the Forbearance Agreement, honored the 180-day forbearance period, and then exercised the rights that it expressly reserved upon the borrower's failure to cure the defaults. This conduct is the antithesis of a breach of the implied covenant.

B. The Implied Covenant Claim Is Duplicative of the Fraud Claim. Even setting aside the foregoing analysis, the Counterclaim Plaintiffs' implied covenant claim fails for the additional reason that it is duplicative of their fraud claim. Under New York law, an implied covenant claim that is "based on the same facts as the fraud claim" and does not identify any contractual obligation independent of the alleged misrepresentations fails to state a cause of action. See Greentech Research LLC v. Wiseman Capital Group, Inc., 207 A.D.3d 477, 478 (1st Dep't 2022) (dismissing implied covenant claim as duplicative of fraud claim where both were based on the same alleged misrepresentations); Ithaca Cap. Invs. I, LLC v. Trump Panama Hotel Mgmt. LLC, 215 A.D.3d 506, 508 (1st Dep't 2023) (same).

A review of the Counterclaim Plaintiffs' pleading confirms that their implied covenant claim is based on precisely the same alleged facts as their fraud claim. Both claims rest on the allegation that BRB represented, through its SAG officers, that it would extend new credit following the forbearance period, and then failed to do so. The Counterclaim Plaintiffs do not identify any provision of the Forbearance Agreement that BRB breached, any obligation under the agreement that BRB failed to perform, or any contractual right of the Counterclaim Plaintiffs that BRB undermined through its exercise of discretion. Instead, the implied covenant claim is merely a repackaging of the fraud claim under a different legal label.

Because the implied covenant claim does not identify an independent contractual basis for liability and is based on the same facts as the fraud claim, it is duplicative and should be dismissed.

IV. THE RESCISSION COUNTERCLAIM FAILS AS A MATTER OF LAW

A. Rescission Requires a Viable Underlying Fraud or Misrepresentation Claim. The Counterclaim Plaintiffs' fourth counterclaim seeks rescission of the Forbearance Agreement and the amended personal guaranties on the ground that these instruments were procured through fraud. Rescission, however, is a remedy, not an independent cause of action. It depends entirely on the viability of the underlying substantive claim — here, the fraudulent inducement claim — that provides the legal basis for the remedy. See Held v. Kaufman, 91 N.Y.2d 425, 432 (1998) (describing rescission as an equitable remedy available for fraud, mutual mistake, or other recognized grounds); Northeast Gen. Corp. v. Wellington Advert., Inc., 82 N.Y.2d 158, 166 (1993) (noting that rescission is available only where a "valid ground" for rescission has been established).

As demonstrated in Section I above, the Counterclaim Plaintiffs' fraudulent inducement claim fails as a matter of law because: (a) the alleged oral and email statements are not actionable misrepresentations of presently existing fact; (b) the integration clause in Section 12(a) bars the claim; (c) the specific anti-reliance disclaimer in Section 9(c) negates justifiable reliance; and (d) the Counterclaim Plaintiffs, as sophisticated commercial parties represented by experienced advisors, cannot establish justifiable reliance under any standard. Because the underlying fraudulent inducement claim is fatally deficient, the rescission remedy that depends upon it necessarily fails as well.

The same analysis applies to the extent the rescission claim is premised on the negligent misrepresentation counterclaim or the implied covenant counterclaim, both of which fail for the reasons set forth in Sections II and III above. There is no viable underlying claim on which the rescission remedy can rest.

B. Counterclaim Plaintiffs Ratified the Forbearance Agreement Through Performance. Even if the Counterclaim Plaintiffs' fraud allegations had merit — which BRB submits they do not — the rescission claim would nonetheless be barred by the doctrine of ratification. Under New York law, a party who continues to perform under a contract after dis

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 OF COUNTERCLAIM DEFENDANT BELMONT RIDGE BANK NA IN SUPPORT OF ITS ANSWER TO COUNTERCLAIMS
Filed: November 22, 2024
CALDERWOOD & HARKNESS LLP 600 Lexington Avenue, 30th Floor New York, New York 10022 Telephone: (212) 554-7000 Facsimile: (212) 554-7001
Linda Osei, Esq. (Responsible Partner) Priya Anand, Esq. (Billing Partner) Carlos Espinoza, Esq. (Lead Associate) Hannah Brinkley, Esq. (Working Associate)
Attorneys for Counterclaim Defendant Belmont Ridge Bank NA
TABLE OF CONTENTS
Right-click to update Table of Contents
TABLE OF AUTHORITIES
Cases
Statutes and Rules
PRELIMINARY STATEMENT
Counterclaim Defendant Belmont Ridge Bank NA ("BRB" or the "Bank") respectfully submits this Memorandum of Law in support of its Answer to the counterclaims filed by Triton Harbor Industries, LLC ("Triton Harbor"), Marcus J. Kappel, and Elaine D. Kappel (collectively, "Counterclaim Plaintiffs") on October 18, 2024. This memorandum sets forth the legal bases for BRB's affirmative defenses and demonstrates that each of the four counterclaims is fatally deficient as a matter of law.
BRB is a nationally chartered commercial bank (OCC Charter No. 14-00927) headquartered in New York, New York, with approximately $47.3 billion in total assets as of its most recent regulatory filing. The Bank provides a full range of commercial banking services to mid-market corporate borrowers across the northeastern United States, including commercial and industrial lending, asset-based lending, and real estate finance.
On August 12, 2024, BRB filed the original complaint in this action to enforce a Forbearance and Modification Agreement dated October 6, 2023 (the "Forbearance Agreement"), and to recover a deficiency balance totaling $17,456,212, which includes principal, accrued interest, late fees, and default interest, following Triton Harbor's failure to cure covenant defaults and the expiration of the contractually agreed forbearance period. The complaint further seeks judgment on the unlimited personal guaranties executed by Marcus J. Kappel and Elaine D. Kappel in connection with the Forbearance Agreement.
Counterclaim Plaintiffs' responsive pleading asserts four counterclaims against BRB: (1) fraudulent inducement of the Forbearance Agreement and amended guaranties; (2) negligent misrepresentation; (3) breach of the implied covenant of good faith and fair dealing; and (4) rescission of the Forbearance Agreement and amended personal guaranties. Counterclaim Plaintiffs seek compensatory damages of not less than $12,500,000 and unspecified punitive damages. Each of these counterclaims is without merit.
The Counterclaim Plaintiffs' theory is, in essence, that BRB induced the Kappels to execute the Forbearance Agreement — thereby expanding their personal guaranty exposure from a limited $4,500,000 guaranty by Marcus Kappel alone to unlimited guaranties by both Marcus and Elaine Kappel, and pledging their personal residence as additional collateral — by making informal oral and email statements suggesting that BRB would extend a new $6.5 million revolving credit facility following the successful completion of the forbearance milestones. According to the Counterclaim Plaintiffs, the Bank never intended to extend such credit and used the forbearance period merely to improve its collateral position before accelerating the loans and commencing foreclosure.
This theory founders on the express, unambiguous terms of the very agreement that the Counterclaim Plaintiffs signed. The Forbearance Agreement contains two provisions that are independently dispositive:
First, Section 12(a) is a comprehensive integration and merger clause, providing that the Forbearance Agreement "constitutes the entire agreement between the parties concerning the subject matter" therein and "supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and writings of any nature." Under well-settled New York law, a specific merger clause in a contract negotiated at arm's length between sophisticated parties is entitled to full enforcement and precludes a party from claiming reliance on prior oral or written representations that contradict or supplement the integrated agreement.
Second, and even more directly on point, Section 9(c) contains an explicit disclaimer of any commitment to extend additional credit, providing in pertinent part: "Nothing herein shall constitute or be deemed to constitute a commitment, agreement, or obligation on the part of Lender to extend additional credit, modify existing facilities, or renew any credit facility." This specific disclaimer directly addresses — and repudiates — the very subject matter of the alleged misrepresentations. Under governing precedent, a specific anti-reliance clause that tracks the subject matter of the alleged misrepresentation is conclusive evidence that the plaintiff did not justifiably rely on the alleged oral or informal statements.
The Counterclaim Plaintiffs are not unsophisticated consumers. Marcus J. Kappel is a 30-year veteran of the marine industrial services industry who founded Triton Harbor in 2009 and serves as its CEO. Elaine D. Kappel has served as CFO since the company's inception. Both were represented during the forbearance negotiations by Mercer Tidwell & Associates LLC, a restructuring advisory firm, and by their own legal counsel. These sophisticated commercial parties, advised by experienced professionals, negotiated and executed a written agreement containing specific disclaimers and a merger clause. They cannot now disavow the terms they agreed to.
BRB respectfully submits that the counterclaims should be evaluated against these contractual provisions and the governing legal standards set forth herein, and that BRB's affirmative defenses as asserted in its Answer to Counterclaims filed this date should be sustained in their entirety.
STATEMENT OF FACTS
A. The Original Credit Facility
On June 15, 2021, BRB and Triton Harbor entered into a Credit Agreement (the "Original Credit Agreement") providing for two credit facilities with an aggregate committed amount of $22,000,000. The facilities consisted of the following:
(i) Term Loan A in the original principal amount of $14,000,000, with an 84-month term and quarterly amortization, maturing on June 15, 2028. Term Loan A bore interest at the Secured Overnight Financing Rate ("SOFR") plus 275 basis points.
(ii) Revolving Credit Facility with a maximum commitment of $8,000,000, maturing on June 15, 2026. The Revolving Credit Facility bore interest at SOFR plus 250 basis points.
The Original Credit Agreement was secured by a first-priority lien on substantially all assets of Triton Harbor, including, without limitation, all marine terminal equipment, accounts receivable, inventory, general intangibles, and a first mortgage on the Long Island City terminal facility located at 50-22 Borden Avenue, Long Island City, New York 11101. At origination, the collateral was appraised by Ridgeline Appraisal Group, Inc. at a total value of $18,700,000, reflecting the assessed value of the Long Island City terminal facility and related personal property assets.
The Original Credit Agreement contained standard financial maintenance covenants, including:
(a) a minimum Fixed Charge Coverage Ratio ("FCCR") of 1.20x, tested quarterly on a trailing-twelve-month basis;
(b) a maximum Total Leverage Ratio of 3.50x, tested quarterly; and
(c) a minimum liquidity requirement of $2,000,000, tested monthly.
In connection with the closing of the Original Credit Agreement, Marcus J. Kappel executed a limited personal guaranty in the amount of $4,500,000 (the "Original Guaranty"), guaranteeing certain of Triton Harbor's obligations to BRB. Elaine D. Kappel did not execute a guaranty at origination.
Triton Harbor Industries, LLC is a Delaware limited liability company (Delaware Division of Corporations File No. 5217839) with its principal place of business at 47-15 Austell Street, Suite 200, Long Island City, New York 11101. Triton Harbor specializes in marine terminal logistics, vessel maintenance, and harbor infrastructure services, serving commercial, municipal, and governmental clients throughout the northeastern United States. At the time of origination, Triton Harbor employed approximately 320 full-time employees and reported annual revenues in excess of $75 million.
The Original Credit Agreement was underwritten based on Triton Harbor's then-existing financial performance, which reflected Fiscal Year 2020 Adjusted EBITDA of approximately $8.6 million and projected Fiscal Year 2021 Adjusted EBITDA of approximately $10.2 million. The initial loan-to-value ratio at origination was approximately 117.6%, reflecting the secured position across all asset classes.
B. Loan Deterioration and Transfer to Special Assets
Beginning in the first quarter of 2023, Triton Harbor's financial condition deteriorated significantly. As of March 31, 2023, the company's trailing-twelve-month EBITDA had declined to approximately $5.1 million, a precipitous decrease from the Fiscal Year 2022 Adjusted EBITDA of $9.4 million. This decline was attributable to multiple factors, including the loss of key contracts and increased operating expenses.
As a result of this financial deterioration, Triton Harbor fell out of compliance with several of its financial maintenance covenants under the Original Credit Agreement. Specifically:
(a) The FCCR declined to 0.87x, well below the covenant minimum of 1.20x, indicating that Triton Harbor's cash flow was insufficient to cover its fixed charges by a margin of more than 27%.
(b) The Total Leverage Ratio rose to 4.92x, exceeding the covenant maximum of 3.50x by approximately 141 basis points, reflecting the combination of declining EBITDA and the outstanding debt burden.
On March 8, 2023, BRB's internal credit review committee downgraded the Triton Harbor credits from a "Pass" rating to a "Substandard" rating (Risk Rating 7 on BRB's internal 10-point scale), reflecting the determination that the credits exhibited well-defined weaknesses that jeopardized the orderly liquidation of the debt. Consistent with BRB's internal policies and procedures for the management of classified credits, the Triton Harbor account was transferred from the Relationship Management division to BRB's Special Assets Group ("SAG") for workout management.
As of the date of transfer, March 8, 2023, the outstanding balances on the Triton Harbor facilities were as follows:
(a) Term Loan A: $11,375,000 (reflecting scheduled amortization payments since origination);
(b) Revolving Credit Facility: $6,200,000 (drawn against the $8,000,000 commitment); and
(c) Total outstanding: $17,575,000.
During the period from March through September 2023, Triton Harbor's financial condition continued to worsen. Most significantly, Triton Harbor lost two major contracts that had been central to its revenue base:
(a) The Port of Bridgehaven municipal contract, which had generated approximately $12 million in annual revenue, was not renewed following a competitive bidding process in which Triton Harbor was outbid by a competitor. Triton Harbor was notified of the loss of this contract in approximately May 2023.
(b) The Newark Bay maintenance contract, which had generated approximately $7.5 million in annual revenue, was terminated by the counterparty in approximately July 2023 following a dispute regarding performance standards.
As a result of the loss of these two contracts, Triton Harbor's annualized revenue declined to approximately $48 million, representing a significant contraction from the company's historical revenue base.
Following the transfer of the account to SAG, Derek Whitmore, Senior Vice President and Head of SAG, assumed management oversight of the BRB-Triton Harbor relationship. Joanna Reeves, Vice President within SAG, served as the day-to-day relationship manager responsible for the account. Mr. Whitmore and Ms. Reeves conducted regular communications with Triton Harbor and the Kappels during the March through September 2023 period regarding the status of the account, the deterioration in financial performance, and the potential for a workout arrangement.
C. The Forbearance and Modification Agreement
Following several months of negotiation between BRB's SAG team and Triton Harbor's management and advisors, the parties executed the Forbearance and Modification Agreement on October 6, 2023. The Forbearance Agreement was executed by BRB as Lender, Triton Harbor as Borrower, and Marcus J. Kappel and Elaine D. Kappel as Guarantors. The principal terms of the Forbearance Agreement were as follows:
(i) Forbearance Period. BRB agreed to forbear from exercising its default remedies under the Original Credit Agreement and applicable law for a period of 180 days, commencing on October 6, 2023 and expiring on April 3, 2024. The forbearance was expressly conditioned on Triton Harbor's compliance with the terms and conditions set forth in the Forbearance Agreement.
(ii) Minimum Debt Service Payments. During the forbearance period, Triton Harbor agreed to make minimum monthly debt service payments of $125,000, for a total of $750,000 over the six-month forbearance period. These payments were to be applied first to accrued interest and then to principal on Term Loan A.
(iii) Forbearance Fee. Triton Harbor agreed to pay BRB a forbearance fee of $87,500, representing 0.50% of the approximately $17,500,000 in outstanding obligations as of the date of execution. This fee was fully earned and non-refundable upon execution of the Forbearance Agreement.
(iv) Additional Collateral. To enhance BRB's secured position, the following additional collateral was pledged:
(a) Assignment of two equipment leases with an appraised value of $2,300,000; and
(b) A mortgage on the personal residence of Marcus J. Kappel and Elaine D. Kappel located at 14 Birchmont Lane, Westport, Connecticut 06880, with an appraised value of $3,100,000.
(v) Amended Guaranties. Marcus J. Kappel's existing limited personal guaranty in the amount of $4,500,000 was amended to become an unlimited personal guaranty of all of Triton Harbor's obligations to BRB. Additionally, Elaine D. Kappel executed a new unlimited personal guaranty of all of Triton Harbor's obligations to BRB. Both amended and new guaranties were unlimited in amount and irrevocable.
(vi) Financial Advisor. Triton Harbor agreed to engage a financial advisor acceptable to BRB to assist in the development and implementation of a restructuring plan. Triton Harbor engaged Mercer Tidwell & Associates LLC, a restructuring advisory firm led by Managing Director Raymond Mercer.
(vii) Monthly Financial Reporting. Triton Harbor agreed to provide BRB with monthly financial statements, cash flow projections, and progress reports on the restructuring efforts, in each case within 15 days following the end of each calendar month during the forbearance period.
Two provisions of the Forbearance Agreement are of central importance to the disposition of the counterclaims:
Section 9(c) — "No Commitment to Extend Credit." Section 9(c) of the Forbearance Agreement provides, in its entirety:
"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. Borrower acknowledges and agrees that Lender has made no representation, warranty, or promise, whether express or implied, written or oral, regarding (i) the extension of any additional credit, (ii) the modification of the terms of any existing facility, or (iii) the renewal, extension, or replacement of any credit facility upon the expiration of the Forbearance Period or at any time thereafter."
Section 12(a) — Integration Clause. Section 12(a) of the Forbearance Agreement provides:
"This Agreement, together with the Original Credit Agreement (as modified hereby), the Notes, the Security Documents, the Guaranties (as amended hereby), and the other Loan Documents, constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and writings of any nature, whether written or oral, relating to the subject matter hereof. No party has relied on any statement, representation, warranty, or agreement of any other party except for those expressly set forth in this Agreement and the other Loan Documents."
Both of these provisions were included in the executed version of the Forbearance Agreement that bears the signatures of Marcus J. Kappel and Elaine D. Kappel. There is no dispute that both Kappels signed the Forbearance Agreement in their individual capacities as Guarantors and that Marcus Kappel also signed in his capacity as CEO and Manager of Triton Harbor.
D. The Kappels' Sophistication and Independent Advisors
The Counterclaim Plaintiffs are sophisticated commercial actors with extensive experience in complex business transactions and financial arrangements. Marcus J. Kappel has had a career spanning more than 30 years in the marine industrial services industry. Prior to founding Triton Harbor in 2009, Mr. Kappel served as a senior executive at Atlantic Basin Marine Corp., where he held positions of increasing responsibility in operations and corporate management. Mr. Kappel, age 58, is the founder, Chief Executive Officer, and 72% equity member of Triton Harbor. He has been involved in negotiating and managing credit facilities, lease arrangements, and other complex financial transactions throughout his career.
Elaine D. Kappel, age 55, serves as the Chief Financial Officer and 28% equity member of Triton Harbor. In her capacity as CFO, Ms. Kappel is directly responsible for the company's financial management, reporting, and oversight. She has been intimately involved in Triton Harbor's banking relationships and financial planning since the company's inception.
In mid-2023, in connection with the deterioration of Triton Harbor's financial condition and the commencement of workout discussions with BRB, the Kappels engaged Mercer Tidwell & Associates LLC, a well-known restructuring advisory firm, to assist in the negotiations. Raymond Mercer, the Managing Director of Mercer Tidwell, personally led the advisory engagement and participated in the negotiations leading to the execution of the Forbearance Agreement. Mr. Mercer's firm has substantial experience in advising distressed borrowers in connection with lender workout negotiations, and his involvement ensured that the Kappels had the benefit of sophisticated, independent financial advice throughout the process.
In addition to their engagement of Mercer Tidwell, the Kappels were represented by their own legal counsel during the negotiation, drafting, and execution of the Forbearance Agreement. The Kappels' counsel reviewed the terms of the Forbearance Agreement, including Section 9(c) and Section 12(a), prior to the Kappels' execution of the agreement. The Counterclaim Plaintiffs' pleading does not allege that their legal counsel was ineffective or that they were denied the opportunity to review the Forbearance Agreement before signing it.
E. Expiration of the Forbearance Period and Acceleration
The 180-day forbearance period expired on April 3, 2024. During the forbearance period, Triton Harbor made all six monthly debt service payments of $125,000 each, for total payments of $750,000, in accordance with the schedule set forth in the Forbearance Agreement. Additionally, Triton Harbor pledged the additional collateral required under the Forbearance Agreement, engaged Mercer Tidwell as financial advisor, and provided the required monthly financial reporting.
Notwithstanding Triton Harbor's compliance with these procedural requirements, the company failed to achieve the covenant-cure milestone that was a condition to BRB's continued forbearance. Specifically, Triton Harbor's FCCR as of March 31, 2024 was 0.94x, which, while representing an improvement from the 0.87x level at the time of the covenant default in early 2023, remained materially below the covenant minimum of 1.20x. The Total Leverage Ratio similarly remained in excess of the covenant maximum. As a result, upon the expiration of the forbearance period, all previously existing events of default under the Original Credit Agreement remained uncured.
On April 15, 2024, BRB issued a Notice of Default and Acceleration, declaring the entire outstanding balance under the credit facilities immediately due and payable. The total accelerated amount was calculated as follows:
On May 20, 2024, BRB commenced foreclosure proceedings on the Long Island City terminal facility. In connection with the workout process, BRB had obtained an updated collateral appraisal from Ridgeline Appraisal Group, Inc. dated September 2023, which valued the Long Island City terminal facility at $11,200,000. This represented a decline of $7,500,000, or approximately 40.1%, from the origination appraisal value of $18,700,000 in June 2021. The decline in value was attributable to, among other things, deterioration in the marine industrial real estate market, deferred maintenance at the facility, and the loss of key operating contracts that had supported the facility's going-concern value.
The estimated total collateral value as of the time of acceleration was as follows:
Based on these figures, the estimated deficiency (before costs of sale, additional interest accrual, and enforcement expenses) was approximately $856,212.
F. Procedural History
On August 12, 2024, BRB filed the original complaint in this action (Index No. 654871/2024), styled Belmont Ridge Bank NA v. Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, in the Supreme Court of the State of New York, County of New York, Commercial Division. The complaint asserts causes of action for enforcement of the Forbearance Agreement, judgment on the amended and new personal guaranties, and recovery of the outstanding deficiency balance of $17,456,212.
On October 18, 2024, Triton Harbor and the Kappels filed their Answer with Counterclaims. The counterclaims assert four causes of action against BRB: (1) fraudulent inducement; (2) negligent misrepresentation; (3) breach of the implied covenant of good faith and fair dealing; and (4) rescission of the Forbearance Agreement and amended personal guaranties. Counterclaim Plaintiffs seek compensatory damages of not less than $12,500,000 and unspecified punitive damages.
On November 4, 2024, BRB retained Calderwood & Harkness LLP (Matter No. 1022-00005) as lead litigation counsel in this action, replacing prior counsel Blakemore & Stern LLP. Calderwood & Harkness filed a notice of appearance on behalf of BRB on November 5, 2024.
On November 22, 2024, BRB filed its Answer to Counterclaims, denying all material allegations asserted by the Counterclaim Plaintiffs and asserting affirmative defenses. This Memorandum of Law is submitted contemporaneously in support of BRB's Answer to Counterclaims.
ARGUMENT
I. THE FRAUDULENT INDUCEMENT COUNTERCLAIM FAILS AS A MATTER OF LAW
A. Elements of Fraudulent Inducement Under New York Law. Under New York law, a claim for fraudulent inducement requires proof of five essential elements: (1) a material misrepresentation of a presently existing fact, as distinct from a mere statement of future intent, expectation, or opinion; (2) knowledge of the falsity of that representation (scienter); (3) an intent to deceive the plaintiff and induce reliance; (4) justifiable reliance by the plaintiff on the misrepresentation; and (5) damages proximately caused by such reliance. Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009); Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178 (2011); Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). The failure to establish any one of these elements is fatal to the claim.
Additionally, New York's Civil Practice Law and Rules impose a heightened pleading standard on fraud claims. CPLR 3016(b) requires that "[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, willful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail." This requirement demands that a plaintiff identify the specific statements alleged to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent. See Westmark Capital Markets'l Trust Co. v. Drelvon Capital Markets Corp., 32 N.Y.3d 139, 155 (2018). The heightened pleading requirement serves the important purpose of "inform[ing] a defendant with respect to the incidents complained of" and discouraging the assertion of fraud claims as a litigation tactic. Eurycleia Partners, 12 N.Y.3d at 559.
Furthermore, it is firmly established under New York law that a mere statement of present intention to perform some act in the future is not a misrepresentation of fact. See Kimmell v. Schaefer, 89 N.Y.2d 257, 264 (1996). As the Court of Appeals has explained, "a representation of opinion or a prediction of something which is hoped or expected to occur in the future" is not actionable as fraud. Mandarin Trading, 16 N.Y.3d at 178-79. The distinction between an actionable misrepresentation of present fact and a non-actionable expression of future intent or expectation is of critical importance here, because the alleged oral and email statements at the heart of the Counterclaim Plaintiffs' fraud claim are, on their face, expressions of future intent or aspiration, not representations of presently existing facts.
Counterclaim Plaintiffs' fraudulent inducement claim is premised on two categories of alleged statements. First, the Counterclaim Plaintiffs allege that Derek Whitmore, SVP and Head of BRB's Special Assets Group, made oral statements during a meeting on September 12, 2023, at BRB's offices at 1200 Avenue of the Americas, 38th Floor, New York, New York 10036, to the effect that BRB would "seriously consider" extending a new $6.5 million revolving credit facility to Triton Harbor upon the successful completion of the forbearance milestones. Second, the Counterclaim Plaintiffs rely on an email sent by Joanna Reeves, VP within SAG, on September 18, 2023, in which Ms. Reeves allegedly stated that BRB was "optimistic about a path forward" and believed the forbearance "sets the stage for a renewed credit relationship." The Counterclaim Plaintiffs also point to certain characterizations allegedly made by Mr. Whitmore of the additional collateral requirements as "a formality to satisfy regulators."
Even accepting these allegations at face value, and giving them the most favorable construction, they constitute, at most, expressions of future intent, aspiration, or opinion — not actionable misrepresentations of presently existing fact. A statement that a lender will "seriously consider" extending additional credit is an expression of willingness to evaluate a future transaction, not a commitment to consummate it. A statement that a forbearance "sets the stage for a renewed credit relationship" is forward-looking and aspirational. And a characterization of collateral requirements as a "formality" is, at best, a statement of opinion about internal process. None of these alleged statements meets the foundational requirement that a fraudulent inducement claim be grounded in a material misrepresentation of presently existing fact. See Mandarin Trading, 16 N.Y.3d at 178-79; Kimmell, 89 N.Y.2d at 264.
Moreover, even if these alleged statements could be construed as representations of present fact — which they cannot — the fraudulent inducement claim would still fail because of the integration clause, the specific anti-reliance disclaimer, and the absence of justifiable reliance, as set forth below.
B. The Integration Clause (Section 12(a)) Bars the Fraudulent Inducement Claim. It is black-letter New York law that the parol evidence rule bars the introduction of extrinsic evidence of prior or contemporaneous oral statements to vary, contradict, or supplement the terms of a fully integrated written agreement. When a written agreement contains a comprehensive integration or merger clause, the agreement is deemed fully integrated, and the parties are conclusively bound by its terms. See Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 320-21 (1959); MBIA Ins. Corp. v. Sterling Reach Industries, 87 A.D.3d 287, 296 (1st Dep't 2011).
Section 12(a) of the Forbearance Agreement is an unambiguous, comprehensive integration clause. It provides that the Forbearance Agreement, together with the related Loan Documents, "constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior negotiations, representations, warranties, commitments, offers, contracts, and writings of any nature, whether written or oral, relating to the subject matter hereof." Section 12(a) further provides that "[n]o party has relied on any statement, representation, warranty, or agreement of any other party except for those expressly set forth in this Agreement and the other Loan Documents."
The breadth and specificity of this integration clause place it squarely within the category of merger provisions that New York courts have consistently enforced to bar fraud and misrepresentation claims predicated on pre-contractual statements. As the Court of Appeals recognized in Danann Realty, a specific merger clause in an arm's-length commercial agreement represents "the most authoritative disclaimer" that a party could make, and a party who executes an agreement containing such a provision cannot thereafter claim that it relied on oral representations that are outside the four corners of the agreement. 5 N.Y.2d at 320-21.
The Appellate Division, First Department, has applied this principle with particular force in the commercial context. In Basis Yield Alpha Fund (Master) v. Dunmore Group, 115 A.D.3d 128 (1st Dep't 2014), the First Department held that sophisticated institutional investors could not maintain a fraud claim based on alleged pre-contractual misrepresentations where the governing agreements contained specific merger and anti-reliance provisions. The court emphasized that "[w]hen a party specifically disclaims reliance on representations outside the agreement, a fraud claim based on such representations is barred." Id. at 137. Similarly, in Wyle Inc. v. Penrose Partners LLC, 130 A.D.3d 438 (1st Dep't 2015), the First Department dismissed a fraudulent inducement claim where the contract at issue contained a comprehensive integration clause, holding that the plaintiff could not "have it both ways" by entering into a written agreement containing a merger clause and then asserting reliance on prior oral statements that were expressly superseded by that agreement.
The Counterclaim Plaintiffs' alleged oral and email representations — the September 12, 2023 meeting statements and the September 18, 2023 email — all pre-date the execution of the Forbearance Agreement on October 6, 2023. They are precisely the type of "prior negotiations, representations, warranties, commitments, offers, contracts, and writings" that Section 12(a) was designed to supersede. The Counterclaim Plaintiffs cannot execute a written agreement containing a comprehensive integration clause that expressly supersedes all prior representations and then assert a fraud claim predicated on the very prior representations that the integration clause disclaims.
This principle is not merely a technical rule of evidence. It reflects the fundamental policy of New York law favoring the stability and enforceability of written contracts, particularly in sophisticated commercial transactions. As the First Department has observed, the enforcement of integration clauses in arm's-length commercial agreements "promotes certainty and predictability in commercial dealings" and "prevents parties from creating obligations and expectations outside the four corners of their negotiated agreements." See MBIA Ins. Corp., 87 A.D.3d at 296-97.
The Counterclaim Plaintiffs may attempt to invoke the "separate fraud" exception recognized by some courts, which permits a fraud claim to survive a merger clause where the alleged misrepresentation is "collateral or extraneous" to the written agreement. This exception, however, is narrowly construed and does not apply here. The alleged misrepresentations — concerning BRB's willingness to extend a new revolving credit facility — go to the very heart of the parties' credit relationship, which is the subject matter of the Forbearance Agreement. They are not "collateral or extraneous" matters but rather directly concern the subject matter addressed in the agreement. Indeed, the Forbearance Agreement includes a specific provision — Section 9(c) — addressing the precise subject matter of the alleged misrepresentations, further confirming that the topic of future credit extension was within the scope of the parties' negotiations and within the four corners of their written agreement.
Accordingly, the integration clause in Section 12(a) independently bars the Counterclaim Plaintiffs' fraudulent inducement claim as a matter of law.
C. The Section 9(c) Disclaimer Specifically Negates Reliance on the Alleged Representations. Even if the general integration clause in Section 12(a) were not sufficient to dispose of the fraud claim — and BRB submits that it is — the specific anti-reliance and no-commitment disclaimer in Section 9(c) provides an independent and even more targeted basis for dismissal.
Section 9(c) of the Forbearance Agreement provides, in its entirety:
"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. Borrower acknowledges and agrees that Lender has made no representation, warranty, or promise, whether express or implied, written or oral, regarding (i) the extension of any additional credit, (ii) the modification of the terms of any existing facility, or (iii) the renewal, extension, or replacement of any credit facility upon the expiration of the Forbearance Period or at any time thereafter."
This provision is not merely a general merger clause. It is a specific disclaimer that directly addresses and repudiates the precise subject matter of the alleged misrepresentations. The Counterclaim Plaintiffs' fraud claim is founded on the allegation that BRB represented — orally and by email — that it would extend a new $6.5 million revolving credit facility upon completion of the forbearance milestones. Section 9(c) specifically disclaims any "commitment, agreement, or obligation" to "extend additional credit, modify existing facilities, or renew any credit facility." It further recites the Borrower's express acknowledgment that BRB "has made no representation, warranty, or promise, whether express or implied, written or oral" regarding the extension of additional credit or the renewal of any credit facility. The congruence between the subject matter of the disclaimer and the subject matter of the alleged fraud is complete.
Under New York law, a specific disclaimer that tracks the subject matter of the alleged misrepresentation is conclusive evidence that the plaintiff did not justifiably rely on the alleged oral or informal statements. As the Court of Appeals held in Danann Realty, where a contract contains a provision in which the plaintiff "specifically disclaims" reliance on representations of the type at issue, the plaintiff's fraud claim must be dismissed because the disclaimer establishes as a matter of law that the plaintiff did not rely on the alleged representations. 5 N.Y.2d at 322.
The First Department has repeatedly applied this principle to hold that specific anti-reliance provisions in commercial agreements bar fraud claims, even in circumstances where a general merger clause alone might not be dispositive. In MBIA Ins. Corp. v. Sterling Reach Industries, 87 A.D.3d 287 (1st Dep't 2011), the court held that a specific anti-reliance clause in a sophisticated commercial transaction was "an acknowledgment" by the plaintiff that it was "not relying on the defendant's representations" and thus precluded the plaintiff from asserting fraud based on the defendant's pre-contractual statements. Id. at 297. And in Wyle Inc. v. Penrose Partners LLC, 130 A.D.3d at 439, the First Department emphasized that the presence of a "specific disclaimer" tracking the subject matter of the alleged fraud was "conclusive evidence" negating justifiable reliance.
The Second Circuit, applying New York law, has reached the same conclusion. In Harsco Corp. v. Segui, 91 F.3d 337, 345 (2d Cir. 1996), the court held that a specific disclaimer provision in a written agreement barred a fraud claim predicated on alleged pre-contractual representations regarding the very matters disclaimed in the agreement. The court reasoned that where a party "has agreed in writing that no representations regarding a particular subject matter have been made," that party "cannot turn around and assert fraud based on such representations."
Section 9(c) was not boilerplate language buried in fine print. It was a negotiated provision in a Forbearance Agreement that was executed by sophisticated commercial parties who were represented by experienced restructuring advisors and legal counsel. The Kappels — both of whom signed the Forbearance Agreement — agreed that BRB "has made no representation, warranty, or promise" regarding the extension of additional credit. They cannot now assert, in direct contradiction to their own written acknowledgment, that they relied on oral promises by BRB to extend a new revolving facility.
The Counterclaim Plaintiffs' position is inherently self-contradictory. On the one hand, they allege that they were induced to enter into the Forbearance Agreement by BRB's oral promises to extend new credit. On the other hand, they signed an agreement containing an express provision in which they acknowledged that no such promises had been made. Both of these positions cannot be true. Under New York law, it is the written acknowledgment — not the subsequent allegation — that controls.
Accordingly, Section 9(c) independently bars the Counterclaim Plaintiffs' fraudulent inducement claim by establishing, as a matter of law, that the Counterclaim Plaintiffs did not and could not have justifiably relied on the alleged oral representations.
D. Counterclaim Plaintiffs Cannot Establish Justifiable Reliance. Even if the integration clause and specific disclaimer were not present — and they are — the Counterclaim Plaintiffs cannot establish the justifiable reliance element of their fraud claim because, as a matter of law, sophisticated commercial parties who negotiated at arm's length with the assistance of experienced professional advisors cannot claim that they justifiably relied on informal, non-binding oral statements and emails that were subsequently superseded by a written agreement containing contrary terms.
Under the "sophisticated-party doctrine," New York courts decline to find justifiable reliance where the plaintiff is a sophisticated commercial entity, was represented by experienced counsel and financial advisors, and had the means and opportunity to verify the alleged representations through independent investigation. See Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421-22 (1996); Kimmell v. Schaefer, 89 N.Y.2d 257, 264 (1996).
The sophistication of the Counterclaim Plaintiffs in this case is undeniable. Marcus J. Kappel is a 30-year veteran of the marine industrial services industry, the founder and CEO of Triton Harbor, and a 72% equity member with extensive experience in negotiating complex financial transactions. Elaine D. Kappel is the CFO and 28% equity member of Triton Harbor and has been directly responsible for the company's financial management and banking relationships since its inception in 2009. Together, the Kappels have decades of experience in the commercial world and cannot be characterized as naive or unsophisticated parties who were taken advantage of by a more knowledgeable counterpart.
Moreover, the Kappels did not negotiate the Forbearance Agreement without professional assistance. They retained Mercer Tidwell & Associates LLC, a restructuring advisory firm led by Managing Director Raymond Mercer, specifically to assist in the workout negotiations with BRB. Mr. Mercer and his firm brought to the negotiation the specialized expertise of restructuring professionals who regularly advise distressed borrowers in lender workout situations. The Kappels also retained their own legal counsel to review the terms of the Forbearance Agreement prior to its execution.
Under these circumstances, the Counterclaim Plaintiffs cannot credibly claim that they justifiably relied on informal oral statements by BRB's SAG officers regarding the possibility of future credit extensions, particularly when the written agreement that they executed — after having been advised by both a restructuring firm and legal counsel — expressly disclaimed any such commitment.
The alleged statements themselves reinforce this conclusion. The September 18, 2023 email from Joanna Reeves stated that BRB was "optimistic about a path forward" and believed the forbearance "sets the stage for a renewed credit relationship." This language is transparently aspirational and forward-looking. A reasonable businessperson — let alone one with Marcus Kappel's 30 years of industry experience, or one advised by a restructuring firm — would understand that such language does not constitute a binding commitment to extend credit. The statement that BRB would "seriously consider" a new revolving facility is, by its express terms, a statement about future consideration, not a present commitment. No reasonable person could read the word "consider" as equivalent to "commit" or "agree."
The Counterclaim Plaintiffs also point to a draft term sheet forwarded internally within BRB on September 29, 2023, as alleged evidence of the Bank's commitment to extend new credit. But this document — marked "for discussion purposes only — not approved" — is, by its own express terms, not a commitment. More fundamentally, it was an internal BRB communication, not a representation made to Triton Harbor or the Kappels. The Counterclaim Plaintiffs' reliance on an internal draft document that was never presented to them as a final or binding commitment is, by definition, not justifiable.
Finally, the characterization of additional collateral as "a formality to satisfy regulators" — even if Mr. Whitmore made such a statement — is a statement of opinion about internal bank process, not a misrepresentation of fact. It does not constitute a commitment to extend credit, and it is wholly consistent with the reality that banks subject to federal regulatory oversight do, in fact, require additional collateral in workout situations in order to satisfy regulatory expectations regarding classified credits. A sophisticated borrower and its restructuring advisor would understand this.
For all of these reasons, the Counterclaim Plaintiffs cannot establish justifiable reliance, and their fraudulent inducement claim fails as a matter of law.
II. THE NEGLIGENT MISREPRESENTATION COUNTERCLAIM FAILS AS A MATTER OF LAW
A. Elements of Negligent Misrepresentation Under New York Law. Under New York law, a claim for negligent misrepresentation requires proof of four elements: (1) a special or privity-like relationship between the parties imposing a duty on the defendant to impart correct information to the plaintiff; (2) a false statement or misleading omission; (3) reasonable reliance by the plaintiff on the defendant's statement or omission; and (4) damages proximately caused by such reliance. See Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 180 (2011); Eurycleia Partners, LP v. Padilla & Severin LLP, 12 N.Y.3d 553, 559 (2009).
The threshold element — the existence of a "special relationship" — is the critical barrier to the Counterclaim Plaintiffs' negligent misrepresentation claim. Unlike a claim for intentional fraud, which does not require a special relationship, a negligent misrepresentation claim arises only where the defendant owes a duty of care to the plaintiff by virtue of a relationship of trust, confidence, or privity that goes beyond an ordinary arm's-length commercial transaction. The existence of such a relationship is determined on a case-by-case basis, but New York courts have consistently held that a standard commercial lending relationship does not give rise to the requisite duty.
B. No Special Relationship Exists Between BRB and the Counterclaim Plaintiffs. The relationship between BRB and Triton Harbor — and between BRB and the Kappels — is a standard commercial lending relationship. It is a debtor-creditor relationship, formed at arm's length, documented by written agreements, and characterized by the ordinary adversity of commercial interests between a lender and a borrower. Under well-established New York law, such a relationship does not give rise to the "special" or "privity-like" duty required to support a negligent misrepresentation claim.
New York courts have consistently held that a lender owes no fiduciary duty to a borrower in an arm's-length commercial transaction. See Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir. 1993) (applying New York law and holding that "the debtor-creditor relationship between a bank and its customer does not create a fiduciary relationship between them"); Paribas Props., Inc. v. Benson, 146 A.D.2d 506, 508 (1st Dep't 1989) (holding that the lender-borrower relationship is not a fiduciary one and does not give rise to a duty to disclose information beyond what is required by the loan documents). The First Department has recently reaffirmed this principle in GHVG Assocs., LLC v. Elias, 214 A.D.3d 431, 432 (1st Dep't 2023), holding that an arm's-length commercial lending relationship does not satisfy the special-relationship requirement for a negligent misrepresentation claim.
The Counterclaim Plaintiffs may argue that the workout context — involving BRB's Special Assets Group — somehow transformed the ordinary debtor-creditor relationship into one of trust and confidence. This argument is unavailing. The transfer of an account to a bank's special assets or workout group is, if anything, a signal that the relationship has become more adversarial, not less. When a borrower is in default and the lender is evaluating its options — including the exercise of default remedies — the parties' interests are inherently divergent. The workout context does not create a relationship of trust and confidence; it creates a negotiating environment in which each party is expected to look out for its own interests with the assistance of its own advisors.
Here, the parties' conduct during the workout period confirms the arm's-length character of their relationship. Each side was represented by experienced professionals: BRB by its SAG officers (Derek Whitmore and Joanna Reeves) and its internal and external counsel; the Kappels by Mercer Tidwell & Associates LLC, a restructuring advisory firm, and their own legal counsel. The parties engaged in extensive negotiations before reaching the terms of the Forbearance Agreement. The Forbearance Agreement itself reflects a negotiated bargain in which each side gave consideration and received benefits. There is nothing in the record to suggest that BRB assumed a duty of care to the Kappels that went beyond its obligations under the written agreements between the parties.
Moreover, as a nationally chartered commercial bank regulated by the Office of the Comptroller of the Currency, BRB is subject to regulatory requirements that may require it to take certain actions with respect to classified credits — such as requiring additional collateral, downgrading risk ratings, and establishing reserves — that are designed to protect the safety and soundness of the banking institution, not to serve the interests of the borrower. The existence of these regulatory obligations further underscores that BRB was acting in its own institutional interest, not in a capacity that gave rise to a special duty to the Kappels. See Metropolitan Transp. Auth. v. Westmark Group, 2012 WL 1109458, at *7 (Sup. Ct. N.Y. Cnty. 2012) (noting that regulatory requirements applicable to banks do not create special duties to borrowers).
Because no special or privity-like relationship exists between BRB and the Counterclaim Plaintiffs, the negligent misrepresentation claim fails at the threshold and should be dismissed.
C. The Integration and Disclaimer Clauses Bar the Negligent Misrepresentation Claim for the Same Reasons They Bar the Fraud Claim. Even if the Counterclaim Plaintiffs could establish the existence of a special relationship — which they cannot — their negligent misrepresentation claim would still fail because Section 12(a) (integration) and Section 9(c) (no-commitment disclaimer) of the Forbearance Agreement operate with equal force to defeat a negligent misrepresentation claim as they do to defeat a fraudulent inducement claim.
New York courts have consistently held that specific disclaimer and anti-reliance provisions in written agreements bar negligent misrepresentation claims arising from the same alleged representations that are precluded by those provisions. See HSH Nordbank AG v. Greaves Commerce Bank, 95 A.D.3d 185, 195 (1st Dep't 2012) (holding that "specific disclaimers" in a written agreement "barr[ed] [the] negligent misrepresentation claim" because the disclaimers "negate[d] reasonable reliance on any alleged oral representations"); Sterling Nat'l Bank v. Penrose Firth CPAs LLP, 9 A.D.3d 253, 254 (1st Dep't 2004) (dismissing negligent misrepresentation claim where the parties' agreement contained a specific disclaimer regarding the subject matter of the alleged misrepresentation).
The reasoning is straightforward. A negligent misrepresentation claim, like a fraud claim, requires proof of reasonable reliance. Where the plaintiff has signed a written agreement containing a specific disclaimer that it is not relying on any representation regarding the subject matter of the alleged misrepresentation, the plaintiff has, as a matter of law, negated the element of reasonable reliance. Section 9(c) of the Forbearance Agreement specifically provides that BRB "has made no representation, warranty, or promise, whether express or implied, written or oral" regarding the extension of additional credit. The Counterclaim Plaintiffs signed this provision. They cannot now claim that they reasonably relied on informal oral or email statements that the agreement itself expressly disclaims.
Accordingly, for the same reasons that the integration clause and specific disclaimer bar the fraudulent inducement claim, they bar the negligent misrepresentation claim. The second counterclaim should be dismissed.
III. THE BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING COUNTERCLAIM FAILS AS A MATTER OF LAW
A. The Implied Covenant Cannot Override Express Contractual Terms. Under New York law, every contract contains an implied covenant of good faith and fair dealing, which pledges that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 (1995). This covenant, however, is not an independent source of rights separate from the express terms of the contract. Rather, it is an interpretive tool that gives effect to the parties' reasonable expectations under the agreement. Critically, the implied covenant cannot be used to create obligations that are inconsistent with, or that negate, the express terms of the contract. Id. at 318-19.
The Counterclaim Plaintiffs' implied covenant claim is based on the theory that BRB acted in bad faith by declining to extend a new revolving credit facility following the expiration of the forbearance period and by exercising its right to accelerate the loans and commence foreclosure. But the Forbearance Agreement expressly addresses each of the matters that form the basis of this claim, and BRB's conduct was fully consistent with — indeed, authorized by — the express terms of the agreement.
First, Section 9(c) expressly provides that BRB has no obligation to extend additional credit, modify existing facilities, or renew any credit facility. The Counterclaim Plaintiffs' claim that BRB acted in bad faith by declining to extend new credit is, in substance, a claim that BRB had an obligation to do so. But Section 9(c) expressly disclaims any such obligation. The implied covenant cannot be used to create an obligation that the parties expressly agreed did not exist. See Ridgeway Capital Markets v. Itochu Int'l, Inc., 2003 WL 1797847, at 6 (S.D.N.Y. 2003) (holding that the implied covenant cannot "add a term to a contract that the parties clearly intended to omit"); Sudul v. Computer Outsourcing Servs.*, 868 F. Supp. 59, 62 (S.D.N.Y. 1994) (same).
Second, the Forbearance Agreement contains no obligation on BRB's part to forbear beyond the 180-day period. The forbearance period was defined — by its express terms — as commencing on October 6, 2023 and expiring on April 3, 2024. There was no obligation to extend, renew, or continue the forbearance beyond that date. The Forbearance Agreement explicitly preserved BRB's right to exercise all of its remedies under the Original Credit Agreement and applicable law upon the expiration of the forbearance period if the borrower had not cured the outstanding defaults.
Third, BRB's acceleration of the loans on April 15, 2024, followed directly from: (a) the expiration of the forbearance period on April 3, 2024; and (b) Triton Harbor's failure to cure the FCCR default, with the FCCR at March 31, 2024 standing at 0.94x, still materially below the covenant minimum of 1.20x. BRB's issuance of the Notice of Default and Acceleration was the exercise of an express contractual right — not a unilateral, discretionary act taken in bad faith. Under New York law, a party does not breach the implied covenant of good faith and fair dealing by exercising a right that is expressly conferred by the contract. To hold otherwise would be to convert every exercise of a contractual right into a potential breach of the implied covenant, effectively nullifying the express terms of the agreement.
The Counterclaim Plaintiffs' implied covenant claim is, at bottom, a complaint that BRB did not do more than the Forbearance Agreement required it to do — that BRB should have extended new credit, should have continued to forbear, and should not have exercised its acceleration rights. But the implied covenant does not require a party to do more than what its contract obligates it to do. It requires only that a party not undermine the other party's rights under the contract. Here, BRB performed its obligations under the Forbearance Agreement, honored the 180-day forbearance period, and then exercised the rights that it expressly reserved upon the borrower's failure to cure the defaults. This conduct is the antithesis of a breach of the implied covenant.
B. The Implied Covenant Claim Is Duplicative of the Fraud Claim. Even setting aside the foregoing analysis, the Counterclaim Plaintiffs' implied covenant claim fails for the additional reason that it is duplicative of their fraud claim. Under New York law, an implied covenant claim that is "based on the same facts as the fraud claim" and does not identify any contractual obligation independent of the alleged misrepresentations fails to state a cause of action. See Greentech Research LLC v. Wiseman Capital Group, Inc., 207 A.D.3d 477, 478 (1st Dep't 2022) (dismissing implied covenant claim as duplicative of fraud claim where both were based on the same alleged misrepresentations); Ithaca Cap. Invs. I, LLC v. Trump Panama Hotel Mgmt. LLC, 215 A.D.3d 506, 508 (1st Dep't 2023) (same).
A review of the Counterclaim Plaintiffs' pleading confirms that their implied covenant claim is based on precisely the same alleged facts as their fraud claim. Both claims rest on the allegation that BRB represented, through its SAG officers, that it would extend new credit following the forbearance period, and then failed to do so. The Counterclaim Plaintiffs do not identify any provision of the Forbearance Agreement that BRB breached, any obligation under the agreement that BRB failed to perform, or any contractual right of the Counterclaim Plaintiffs that BRB undermined through its exercise of discretion. Instead, the implied covenant claim is merely a repackaging of the fraud claim under a different legal label.
Because the implied covenant claim does not identify an independent contractual basis for liability and is based on the same facts as the fraud claim, it is duplicative and should be dismissed.
IV. THE RESCISSION COUNTERCLAIM FAILS AS A MATTER OF LAW
A. Rescission Requires a Viable Underlying Fraud or Misrepresentation Claim. The Counterclaim Plaintiffs' fourth counterclaim seeks rescission of the Forbearance Agreement and the amended personal guaranties on the ground that these instruments were procured through fraud. Rescission, however, is a remedy, not an independent cause of action. It depends entirely on the viability of the underlying substantive claim — here, the fraudulent inducement claim — that provides the legal basis for the remedy. See Held v. Kaufman, 91 N.Y.2d 425, 432 (1998) (describing rescission as an equitable remedy available for fraud, mutual mistake, or other recognized grounds); Northeast Gen. Corp. v. Wellington Advert., Inc., 82 N.Y.2d 158, 166 (1993) (noting that rescission is available only where a "valid ground" for rescission has been established).
As demonstrated in Section I above, the Counterclaim Plaintiffs' fraudulent inducement claim fails as a matter of law because: (a) the alleged oral and email statements are not actionable misrepresentations of presently existing fact; (b) the integration clause in Section 12(a) bars the claim; (c) the specific anti-reliance disclaimer in Section 9(c) negates justifiable reliance; and (d) the Counterclaim Plaintiffs, as sophisticated commercial parties represented by experienced advisors, cannot establish justifiable reliance under any standard. Because the underlying fraudulent inducement claim is fatally deficient, the rescission remedy that depends upon it necessarily fails as well.
The same analysis applies to the extent the rescission claim is premised on the negligent misrepresentation counterclaim or the implied covenant counterclaim, both of which fail for the reasons set forth in Sections II and III above. There is no viable underlying claim on which the rescission remedy can rest.
B. Counterclaim Plaintiffs Ratified the Forbearance Agreement Through Performance. Even if the Counterclaim Plaintiffs' fraud allegations had merit — which BRB submits they do not — the rescission claim would nonetheless be barred by the doctrine of ratification. Under New York law, a party who continues to perform under a contract after dis

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

BELMONT RIDGE BANK NA,

TABLE OF CONTENTS

TABLE OF AUTHORITIES

PRELIMINARY STATEMENT

STATEMENT OF FACTS

ARGUMENT

I. THE FRAUDULENT INDUCEMENT COUNTERCLAIM FAILS AS A MATTER OF LAW

II. THE NEGLIGENT MISREPRESENTATION COUNTERCLAIM FAILS AS A MATTER OF LAW

IV. THE RESCISSION COUNTERCLAIM FAILS AS A MATTER OF LAW

Record

Parties

Dates

Amounts