Capital Funding, LLC v. Lipschutz

CAPITAL FUNDING, LLC, v. AVI "ZISHA" LIPSCHUTZ, et al.

Civil Action No. CCB-18-0215

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

November 14, 2019

MEMORANDUM

Plaintiff Capital Funding, LLC (Capital Funding) filed this action against defendants Avi "Zisha" Lipschutz and Larry Lipschutz¹ alleging breach of a loan guaranty. On October 10, 2019, Capital Funding dismissed with prejudice the action against Z. Lipschutz. (ECF 53 and 54). Now pending before the court are Capital Funding's motion to compel and for sanctions (ECF 25), Capital Funding's motion for summary judgment (ECF 34), and Larry Lipschutz's motion for leave to file an amended answer (ECF 45).

FACTS AND PROCEDURAL HISTORY

On March 4, 2014, Capital Funding loaned $36,856,627 to four Delaware limited liability companies (the "borrowers"). (Loan Agreement, Sec. 2.1, ECF 34-3). To guarantee the loan, Capital Funding entered into a guaranty of payment and performance, also dated March 4, 2014, with guarantors Z. and L. Lipschutz and Dov Newmark. (Guaranty of Payment and Performance, Sec. 1.1, ECF 34-7). Under the terms of the guaranty, each guarantor:

irrevocably and unconditionally guarantees to Lenders and Agent . . . the payment of the Debt and the performance of the other Loan Obligations as and when the same shall be due and payable . . . Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Loan Obligations as a primary obligor . . . Guarantor has agreed to act as a surety to Lender.

(Id.). The guaranty limited Larry Lipschutz's obligations to $10,000,000. (Id.).

After the borrowers defaulted, Capital Funding, the borrowers, and the guarantors entered into a forbearance agreement, which extended the loan repayment date until June 30, 2016.(First Forbearance Agreement, Sec. 4.4, ECF 46-2). The borrowers failed to repay the loan by the new repayment date, and Capital Funding filed suit against the guarantors on July 5, 2016. (Civil Case No. ELH-16-2485, ECF 1, Complaint). The parties were able, however, to resolve the dispute and on December 30, 2016, entered into a second forbearance agreement, wherein the parties agreed to reduce Z. and L. Lipschutz's guarantor liability to $6,250,000 each, and release Newmark from his obligations. (Second Forbearance Agreement, Sec. 5.2, ECF 34-6). The second forbearance agreement stated that:

Section 1.1(b) of the Guaranty Agreement shall be deleted and replaced with: 'Notwithstanding anything contained herein to the contrary, (i) the guaranty by Larry under paragraph (a) of this Section, and any payments required to be made by Larry under Section 1.4, shall be limited to and shall not exceed $6,250,000 in the aggregate, and (ii) the guaranty by Zisha under paragraph (a) of this Section, and any payments required to be made by Zisha under Section 1.4, shall be limited to and shall not exceed $6,250,000 in the aggregate.

(Id. Sec. 5.2.1). The second forbearance agreement also extended the loan repayment date to December 30, 2017. (Id. Sec. 1.1.3; Affidavit of Glen Dwyer, Managing Director of Capital Funding ¶ 5, ECF 34-2). In light of the second forbearance agreement, on January 5, 2017, Capital Funding dismissed its pending action against Z. and L. Lipschutz and Newmark with prejudice. (Civil Case No. ELH-16-2485, ECF 13, Notice of Dismissal with Prejudice).

L. Lipschutz contends that he never agreed to the guaranty, the first forbearance agreement, or the second forbearance agreement. In his affirmation attached to his opposition to Capital Funding's motion for summary judgment, he states that he signed only the signature pages, and was not provided copies of the underlying documents. (Affirmation of Larry Lipschutz in Opp'n to Pl.'s Mot. for Summary Judgment ¶ 7, ECF 44-1). He states he "was never sent, did not negotiate, and did not see any forbearance agreement" and "all [he] was sent were signature pages for [him] to sign and have [his] signature notarized." (Id. ¶¶ 9, 10). L.Lipschutz also states that he "never authorized anyone to attach [his] signature pages to the Guaranty or the Forbearance Agreement" and "it was [his] understanding that the documents to which [his] signature pages would be attached were meant for [him] to secure repayment of the loan with [his] investments in the various Massachusetts nursing homes involved in this litigation." (Id. ¶¶ 11, 12).

The borrowers defaulted and failed to repay the loan by December 30, 2017. (Affidavit of Glen Dwyer ¶ 5). Capital Funding then filed the complaint in this case on January 23, 2018, alleging that Z. and L. Lipschutz breached their guaranty obligations.

STANDARD OF REVIEW

Motion to Amend:

Leave to amend should be freely granted under Fed. R. Civ. P. 15(a), and amendments are generally accepted absent futility, undue prejudice, or bad faith. See Foman v. Davis, 371 U.S. 178, 182 (1962); Matrix Capital Mgmt. Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 193 (4th Cir. 2009). When a party wishes to amend after the deadline set in the scheduling order, the party must, under Fed. R. Civ. P. 16, show good cause to modify the scheduling order deadlines before also satisfying the Rule 15(a) standard for amendment. Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298 (4th Cir. 2008); Prowess, Inc. v. RaySearch Laboratories, AB, 953 F. Supp. 2d 638, 647-48 (D. Md. 2013).

Motion for Summary Judgment:

Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) (emphases added). "A dispute is genuine if 'a reasonable jury could return a verdict for the nonmoving party.'" Libertarian Partyof Va. v. Judd, 718 F.3d 308, 313 (4th Cir. 2013) (quoting Dulaney v. Packaging Corp. of Am., 673 F.3d 323, 330 (4th Cir. 2012)). "A fact is material if it 'might affect the outcome of the suit under the governing law.'" Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Accordingly, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment[.]" Anderson, 477 U.S. at 247-48. The court must view the evidence in the light most favorable to the nonmoving party, Tolan v. Cotton, 134 S. Ct. 1861, 1866 (2014) (per curiam) (citation and quotation omitted), and draw all reasonable inferences in that party's favor, Scott v. Harris, 550 U.S. 372, 378 (2007) (citations omitted); see also Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 568-69 (4th Cir. 2015). At the same time, the court must "prevent factually unsupported claims and defenses from proceeding to trial." Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 526 (4th Cir. 2003) (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993)).

ANALYSIS

Motion to Amend

L. Lipschutz seeks to amend his answer to deny that he saw or agreed to the guaranty of payment, and has provided a sworn affirmation in support. (Affirmation of Larry Lipschutz in Supp. of his Mot. for Leave to File an Am. Answer, ECF 45-1).² The answer, filed on behalf of the defendants including L. Lipschutz on February 23, 2018, admitted that the defendants executed the guaranty agreement. (Compl. ¶ 14; Answer ¶ 14). L. Lipschutz states in hisaffirmation that he never discussed with his then-lawyer that he did not see or sign the guaranty, that he was never shown a draft of the answer before it was filed, and that he first learned that Paragraph 14 (regarding executing the guaranty) had been admitted on November 18, 2018. (Affirmation of L. Lipschutz in Supp. of his Mot. for Leave ¶¶ 6, 10).

L. Lipschutz seeks leave to amend his answer after the deadline for amendment of pleadings.³ Therefore, he must show good cause. "Rule 16(b)'s good cause standard emphasizes the diligence of the party seeking amendment." RFT Mgmt. Co., LLC v. Powell, 607 F. App'x 238, 242 (4th Cir. 2015).⁴ For example, a delay because "counsel reviewed his defenses to the guaranty letter at issue in this case and noted that there was a defense available to Mr. Parvizian that he had not raised in his answer" is "far short of what is required to satisfy the good cause standard." Nourison, 535 F.3d at 298.

On November 5, 2018, counsel for L. Lipschutz informed the court and Capital Funding for the first time that L. Lipschutz claimed that he did not agree to the guaranty and "that it was his belief that he was only agreeing to secure the loan with his investments in the various homes."⁵ (Letter from A. Garfunkel, ECF 33-1). Counsel represented that L. Lipschutz did not previously respond to discovery requests because "he did not and does not believe that he has any liability under any guarantee that forms the basis of the Maryland Action." (Id.) L. Lipschutz also argues in his motion for leave to amend, filed December 3, 2018, that "he was unaware that an Answer admitting that he signed the Guaranty was filed until just a couple of weeks ago." (L. Lipschutz Mot. for Leave to File Am. Answer at 3, ECF 45).

L. Lipschutz has not demonstrated the diligence necessary to meet the Rule 16 good cause standard. Rather, he has failed to participate in this case, and now seeks, at the last minute and after the close of discovery, to contest a basic fact that Capital Funding thought was undisputed. Further, this is not a situation where the pleading could not have been timely amended despite the diligence of the party. Instead, this alleged fact was within L. Lipschutz's knowledge the entire time. Therefore, L. Lipschutz's motion to amend his answer to deny that he signed the guaranty will be denied.

L. Lipschutz also incorporates in his motion arguments contained in Z. Lipschutz's motion to amend. In his motion, Z. Lipschutz sought to extend the discovery deadline and amend his answer to include affirmative defenses related to Capital Funding's...