SANTANDER BANK, N.A.
SANTILLI ENTERPRISES, INC. dba Village Subaru, R. Santilli Automotive Group, Inc., et al.
File Date: February 14, 2018
MEMORANDUM OF DECISION AND ORDER ON PLAINTIFFâS
MOTION TO DISMISS COUNTERCLAIM AND FOR JUDGMENT ON THE
PLEADINGS AS TO COUNT I OF THE COMPLAINT
B. Gordon, Justice
Santander Bank, N.A. (" Santander" or "
Plaintiff") brings this action seeking to recover in
excess of $5 million allegedly due to it under a demand
promissory note. The note, which provided financing to obtain
vehicles for a car dealership, was executed by Santilli
Enterprises, Inc. (" Santilli Enterprises"), and
guaranteed by R. Santilli Automotive Group (" Santilli
Automotive") and Ronald S. Santilli ("
Santilli") (collectively, " Defendants").
Defendants, in turn, allege that, during its attempt to
collect under the note, Plaintiff breached the contract,
breached the implied covenant of good faith and fair dealing,
and violated G.L.c. 93A, Â§ Â§ 2 and 11. Presented for decision
is Plaintiffâs Motion to Dismiss the Counterclaims and for
Judgment on the Pleadings as to Count I of its Complaint,
wherein Plaintiff seeks to recover under the note and the
guaranty. Following a hearing and for the reasons which
follow, Plaintiffâs Motion to Dismiss the Counterclaims and
for Judgment on the Pleadings as to Count I of its Complaint
Court accepts as true all factual allegations in Defendantsâ
Partiesâ Financing Agreements
and his family operate Santilli Enterprises d/b/a Village
Subaru, a new and used car dealership in Acton (the "
dealership"). The dealership has obtained business
financing through Santander for approximately five years. As
part of its financing relationship, Santilli executed three
documents on behalf of some or all Defendants on or about
July 28, 2015.
Santilli Enterprises, through Santilli as its President,
executed a Floor Plan Demand Note (the " Demand
Note") in favor of Santander in the principal amount of
$10, 000, 000. The Demand Note provides: " SANTILLI
ENTERPRISES ... promises to pay to the order of
SANTANDER BANK ..., ON DEMAND, at the Bank,
the sum of [$10 million or a lesser amount advanced and
remaining outstanding under the Note], with interest
..." Verified Compl., Ex. A at 1 (emphasis in original).
Santander and Santilli, individually and as President of
Santilli Enterprises and Santilli Automotive, executed a
Dealer Demand Loan and Security Agreement, which agreement
was later amended on February 9, 2017 (collectively, the
" Loan Agreement"). The Loan Agreement granted
Santander a security interest in all assets of Santilli
Enterprises. See Verified Compl., Ex. B Â§ 6.
the terms of the Loan Agreement, Santander advanced money to
Santilli Enterprises for the purpose of acquiring new and
used motor vehicles. The Loan Agreement provided that, upon
any sale or disposition of a Santander-financed vehicle,
" [Santilli Enterprises] shall on the date of such sale
or disposition account to [Santander] for the proceeds of
such sale and shall deliver to and pay to the Bank the then
unpaid principal balance of the Loan applicable to such motor
Santilli and Santilli Automotive executed a Guaranty (the
" Guaranty"), through which they guaranteed all
obligations of Santilli Enterprises to Santander.
Santilli Enterprisesâ Late Payments Under the Loan Agreement
the week of July 3, 2017, Dan Coyne, Santilli Enterprisesâ
long-time Controller, was out of work due to an unknown
illness that was subsequently diagnosed as Acute Leukemia. As
a result, Coyne has been unable to work since that time.
Coyneâs responsibilities as the Controller included
overseeing the accounting functions for the dealership and
handling all of its financial transactions, including the
repayment of loans to Santander under the Loan Agreement.
During the week of Coyneâs diagnosis, no one was covering the
back office of the dealership; for one member of Coyneâs
staff had left the organization in June of 2017, and the only
other back office employee was on vacation.
midst of these events, in July of 2017, Santander conducted a
floor check inspection of all Santilli vehicles financed by
Santander. Through that inspection, Santander learned that
Santilli Enterprises had not accounted to or paid Santander
following the sale of some of those vehicles, as provided for
in the Loan Agreement. Defendants admit that, for a brief
period of time due to Coyneâs illness and absence from work,
" the dealership took more time to deliver to
[Santander] the sale proceeds far certain vehicles than
required under the Loan Agreement." Santilli and other
members of his family thereupon met with Santander Vice
President John Bowen to discuss the situation at the
dealership, and to reassure the lender that the dealership
would promptly pay all of its obligations.
Santanderâs Demands After Santini Enterprisesâ Late Payments
19, 2017, Santander sent Santilli Enterprises formal notice
of the sales that it deemed " out of trust, "
meaning those sales that were in default of Santilli
Enterprisesâ obligations under the Loan Agreement (the "
July 19 Default Letter"). In that notice, Santander
asserted that the dealership had sold 17 vehicles and then
failed to repay Santander in a timely manner for the loans
used to purchase those vehicles. Santander made a demand for
the immediate repayment of the outstanding loans on the
subject vehicles. Santander also identified 15 additional
vehicle loans that would become due by the end of July 2017.
Santander indicated that it would not demand immediate
repayment of those loans, and would permit payment in
accordance with the loansâ existing due dates, if Santilli
Enterprises agreed to: (1) make a deposit of $400, 000 of
additional working capital into the dealershipâs operating
account by September 17, 2017; (2) execute a Subordination
Agreement that would subordinate the debt of the dealershipâs
used car lender to the debt of Santander; (3) pay for and
submit to audits and inspections of the dealership at an
increased frequency; and (4) accept a 1% increase in the
interest rate on the Demand Note. Santilli Enterprises would
not agree to these additional terms and, instead, worked
quickly to pay all of the overdue amounts to Santander.
26, 2017, Santander gave Defendants formal notice of default
based on the out of trust sales (the " July 26 Default
Letter"). In that letter, Santander advised Defendants
that it was unilaterally increasing the interest rate on its
Demand Note by 8%, to approximately 11%. This increased rate
cost the dealership ...