Of A Feather, LLC v. Allegro Credit Services, LLC

Background

These consolidated cases arose from a loan commitment agreement involving Of a Feather, LLC (“Feather”) and Allegro Credit Services, LLC (“Allegro”). Feather claimed that Allegro breached an agreement to lend Feather $6,925,000 to refinance a mortgage. Feather’s amended complaint sought $58,500, and its counterclaim in the related action sought $417,960. Allegro claimed that Feather breached the same agreement by failing to pay required fees. Allegro’s complaint initially sought $555,000.

An earlier order dismissed some claims and left only the competing breach-of-contract claims. The parties agreed that the Loan Commitment was enforceable and unambiguous. They also waived a jury trial, so the court conducted a bench trial on March 16, 2021.

Loan Commitment and Payment Requirements

The Loan Commitment required Feather to pay a $575,000 commitment fee. Feather had already paid $20,000, which was credited toward that fee. Under a payment modification, Feather could pay another $20,000 when it signed the agreement and defer payment of the remaining $535,000 until closing. The agreement also required Feather to pay $10,000 to Allegro’s attorney when it signed the Loan Commitment.

Jared Stamell signed for Feather and signed individually as a guarantor. Jared Stamell and Susan Stamell also signed as guarantors. Feather paid Allegro $15,000 by wire transfer on March 25, 2019, bringing its total payments to Allegro to $35,000. It did not pay the additional $5,000 needed to complete the second $20,000 payment, and it did not pay the required $10,000 to Allegro’s attorney.

The loan never closed. The court found that Allegro was not required to fund the loan after Feather failed to make the required payments. The court rejected Feather’s argument that the $15,000 wire transfer satisfied the legal-fee obligation or that only one $20,000 payment was required. The court relied on the agreement’s plain language and on an email from Feather’s attorney acknowledging that the $10,000 legal fee had not been paid.

Feather’s Claim

Under New York law, a breach-of-contract claim requires proof of a contract, the plaintiff’s performance, the defendant’s failure to perform, and damages. Because Feather did not perform its own payment obligations, the court held that Feather’s breach-of-contract claim failed.

Feather also argued that Allegro breached the implied obligation of good faith and fair dealing by failing to prepare closing documents, retain counsel, and close the loan. The court denied that claim. It found the claim duplicative of Feather’s contract claim and concluded that the implied obligation could not require Allegro to perform after Feather failed to satisfy express contractual conditions.

Allegro’s Damages

Allegro sought the unpaid balance of the commitment fee, the unpaid $10,000 legal fee, and prejudgment interest. The court held that the agreement’s provisions requiring payment of the full unpaid commitment fee after Feather’s default were unenforceable liquidated-damages clauses. A liquidated-damages clause is a contract provision setting damages in advance; it is unenforceable when it operates as a penalty rather than a reasonable estimate of anticipated loss. Allegro did not show that the full commitment fee reflected its actual damages.

The court permitted Allegro to retain the $35,000 Feather had already paid. It denied Allegro’s request for the additional $10,000 legal fee because Allegro provided no evidence that it had incurred legal expenses for the transaction. The court also denied prejudgment interest because Allegro was not awarded damages beyond money it had already received and had the use of that money since 2019.

Guarantors and Disposition

The court held that Jared Stamell and Susan Stamell were liable under the agreement’s absolute and unconditional guaranty. The guaranty made them jointly and separately responsible for Feather’s obligations under the Loan Commitment.

Judge Denise Cote directed the Clerk of Court to enter judgment for Allegro, jointly and severally against Feather, Jared Stamell, and Susan Stamell, in the amount of $35,000, and to close the consolidated cases. Allegro could retain the $35,000 already paid by Feather but could not recover any additional money.