Breco Equities, LLC v. Whitehead

Background

Breco Equities, LLC sued Lamor Whitehead and Whitehead Estates, LLC to recover amounts allegedly owed under a December 1, 2021 promissory note. The defendants borrowed $250,000 to complete renovations on a commercial property in Connecticut. The loan was due on December 1, 2023, and defendants were not required to make payments before that date. The note also required defendants to use available money from ownership of the properties to pay down interest and principal, refrain from distributions to equity holders until the loan was fully repaid, and provide Breco with operating statements promptly upon request.

The note stated that defendants would be in default if they failed to repay the loan at maturity or failed to perform any other term. In that event, Breco could accelerate the debt. The note also provided for a 10 percent late fee on overdue interest, a 25 percent default interest rate, and payment of reasonable attorney’s fees incurred in collecting the debt.

Procedural History and Standard

Breco initially filed the matter in New York Supreme Court under a New York procedure that permits summary judgment to be sought instead of filing a complaint when an action is based on an instrument for the payment of money only. Defendants removed the action to federal court. The court treated the filing as a motion for summary judgment under Federal Rule of Civil Procedure 56.

Summary judgment is appropriate when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. Under New York law, a plaintiff seeking recovery on a promissory note generally must show the note and the failure to pay. The burden then shifts to the defendant to present a defense creating a triable factual dispute.

Parties’ Positions

Breco submitted the promissory note and evidence that it requested operating statements on August 10, 2022, that defendants did not provide them, and that Breco later notified defendants of the default and demanded accelerated payment. Defendants did not dispute the existence of the note or their failure to make the accelerated payment.

Defendants argued that they did not receive the request for operating statements. They also argued that the phrase “operating statements” was undefined and ambiguous, and that they needed discovery about its meaning. Defendants additionally argued that Breco’s motion should be denied because Breco did not provide a Microsoft Word version of its statement of undisputed facts.

Court’s Analysis

The court rejected defendants’ denial of receipt as insufficient to create a genuine factual dispute. Breco showed that it sent the letters by FedEx to the exact addresses listed in the promissory note. The court stated that mailing creates a presumption of receipt and that a mere denial does not create an issue of fact. Breco also submitted tracking confirmations showing delivery to the listed addresses, including photographs of some deliveries. Defendants did not challenge the validity of those addresses.

The court also rejected the argument that “operating statements” was too unclear to support a default. Even assuming the term were unclear, defendants had provided no documents at all in response to the request. The note expressly required them to provide operating statements promptly upon request, so the court concluded that defendants had failed to comply under any definition of the term. The court therefore found that additional discovery could not improve defendants’ position and rejected their request for additional time to conduct discovery.

The court also declined to deny the motion based on the missing Microsoft Word version of Breco’s statement of facts. It explained that denying the motion on that basis would only allow Breco to refile it and would waste the parties’ and the court’s resources.

Disposition

The court held that defendants’ arguments did not create a genuine issue of material fact and that Breco was entitled to summary judgment. Breco’s motion for summary judgment was granted. The Clerk was directed to enter judgment for Breco in the amount of $283,149.28 and close the case.

The judgment consisted of $250,000 in unpaid principal, $15,888.89 in interest accrued through September 16, 2022, a one-time late fee of $1,588.89, and $15,671.50 in attorney’s fees. Interest on only the unpaid principal was ordered to accrue at 8 percent per year between September 16, 2022, and the date of judgment. After judgment, interest was ordered to accrue at the contractual default rate of 25 percent per year.