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Santander Bank, N.A. v. Santilli Enterprises, Inc.

Superior Court of Massachusetts, Suffolk

February 13, 2018

SANTILLI ENTERPRISES, INC. dba Village Subaru, R. Santilli Automotive Group, Inc., et al.

File Date: February 14, 2018


          Robert B. Gordon, Justice

         Plaintiff 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, § § 2 and 11. Presented for decision is Plaintiff’s 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, Plaintiff’s Motion to Dismiss the Counterclaims and for Judgment on the Pleadings as to Count I of its Complaint is ALLOWED.


         The Court accepts as true all factual allegations in Defendants’ counterclaims.[1]

         I. The Parties’ Financing Agreements

         Santilli 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.[2]

         First, 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).

         Second, 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 § 6.

         Under 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 vehicle ..."

         Third, Santilli and Santilli Automotive executed a Guaranty (the " Guaranty"), through which they guaranteed all obligations of Santilli Enterprises to Santander.

         II. Santilli Enterprises’ Late Payments Under the Loan Agreement

         During the week of July 3, 2017, Dan Coyne, Santilli Enterprises’ 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. Coyne’s 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 Coyne’s diagnosis, no one was covering the back office of the dealership; for one member of Coyne’s staff had left the organization in June of 2017, and the only other back office employee was on vacation.

         In the 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 Coyne’s 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.

         III. Santander’s Demands After Santini Enterprises’ Late Payments

         On July 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 Enterprises’ 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 loans’ existing due dates, if Santilli Enterprises agreed to: (1) make a deposit of $400, 000 of additional working capital into the dealership’s operating account by September 17, 2017; (2) execute a Subordination Agreement that would subordinate the debt of the dealership’s 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.

         On July 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 ...

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