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KLEIN v. TABATCHNICK

October 16, 1978

Jerry B. KLEIN, as Trustee for the Liquidation of the Business of JNT Investors, Inc., Debtor, Plaintiff,
v.
Jay N. TABATCHNICK and S. Wolfe Emmer, Defendants



The opinion of the court was delivered by: WARD

Plaintiff Jerry B. Klein ("the Trustee"), the trustee for the liquidation of the business of JNT Investors, Inc. ("JNT"), brought this action to recover the value of certain of JNT's assets allegedly transferred to defendant S. Wolfe Emmer ("Emmer") by JNT through its founder and president, defendant Jay N. Tabatchnick ("Tabatchnick"), in two transactions. The first transaction involved the transfer to Emmer by JNT in December 1971 of corporate warrants from JNT's portfolio, as security for Emmer's having collateralized a personal bank loan of Tabatchnick's in the amount of $ 50,000, the proceeds of which Tabatchnick invested in JNT as a subordinated loan ("the fraudulent transfer"). The second transaction, which occurred immediately before JNT was forced to cease operations in mid-February 1972, involved Tabatchnick's voiding and returning to Emmer a $ 100,000 check payable to JNT and drawn several days previously at Emmer's request by Andresen & Company, a brokerage house at which Emmer had an account ("the preference").

In an opinion dated September 2, 1975, the Court granted plaintiff partial summary judgment against both Tabatchnick and Emmer on plaintiff's claim that the transfer of warrants constituted a fraudulent transfer under § 67d of the Bankruptcy Act, 11 U.S.C. § 107 ("§ 67d"), since it was a transfer made within a year of the commencement of liquidation proceedings without fair consideration by an insolvent debtor. *fn1" The issue of damages was reserved for trial. *fn2" After trial, a jury found that the warrants of Charter Funding Corporation and Vicon Products Corporation had no market value on the date in question, but that the warrants of Commonwealth Silver Industries had a value of $ 73,750. The jury also found that the voiding and return of the $ 100,000 check constituted a voidable preference under § 60 of the Bankruptcy Act, 11 U.S.C. § 96 ("§ 60"). *fn3" In addition, at the close of the evidence, the Court granted plaintiff's motion for a directed verdict in the nature of summary judgment against Tabatchnick with regard to the first transaction under New York Business Corporation Law § 720 ("B.C.L. § 720") on the theory that the Court's previous finding of a fraudulent transfer under § 67d required a finding that Tabatchnick had breached his duty to JNT under B.C.L. § 720. *fn4" Judgment was entered against Tabatchnick and Emmer jointly and severally in the amount of $ 173,750.

Emmer moves pursuant to Rules 50 and 59, Fed.R.Civ.P., for judgment notwithstanding the verdict or, in the alternative, for a new trial with regard to both the valuation of the warrants and his liability for a preference under § 60 of the Bankruptcy Act. Although Tabatchnick moves, pursuant to Rule 60, Fed.R.Civ.P., to correct the judgment with regard to his liability for a preference under § 60, the Court has considered Tabatchnick's motion also to be for judgment notwithstanding the verdict. For the reasons hereinafter stated, judgment notwithstanding the verdict is granted to Tabatchnick on the § 67d claim and to both defendants on the § 60 claim. Emmer's motion is denied insofar as he seeks judgment notwithstanding the verdict on the § 67d claim. Tabatchnick's motion, to the extent it seeks to correct the judgment as to the

 § 60 claim, is denied as moot. I. Emmer's Motion for Judgment Notwithstanding the Verdict or a New Trial

 Emmer asserts numerous grounds to support his contention that he is entitled to judgment notwithstanding the verdict or at least to a new trial both as to the issue of the valuation of the Commonwealth Silver warrants and as to the finding that the second transaction constituted a voidable preference under § 60 of the Bankruptcy Act.

 The standard which the Court must follow in deciding a motion for judgment notwithstanding the verdict is most stringent:

 
Simply stated, it is whether the evidence is such that, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, there can be but one conclusion as to the verdict that reasonable men could have reached. (Furthermore), the evidence must be viewed in the light most favorable to the party against whom the motion is made and he must be given the benefit of all reasonable inferences which may be drawn in his favor from that evidence.

 Simblest v. Maynard, 427 F.2d 1, 4 (2d Cir. 1970).

 In passing on a motion for a new trial, the Court is bound to

 
. . . view the verdict in the overall setting of the trial; consider the character of the evidence and the complexity or simplicity of the legal principles which the jury was bound to apply to the facts; and abstain from interfering with the verdict unless it is quite clear that the jury has reached a seriously erroneous result. The judge's duty is essentially to see that there is no miscarriage of justice. If convinced that there has been then it is his duty to set the verdict aside; otherwise not.

 Bevevino v. Saydjari, 574 F.2d 676, 684 (2d Cir. 1978), Quoting 6A Moore's Federal Practice P 59.08(5), at 59-160 59-181 (1973) (footnotes omitted).

 A. The Fraudulent Transfer

 While the Court determined by summary judgment that the warrant transaction constituted a fraudulent transfer under § 67d of the Bankruptcy Act, plaintiff's remedy, money damages in the amount of the market value of the transferred warrants on the date of the transfer, was reserved for trial. The jury found that two of the three sets of securities had no market value at the time of the transfer, but that the Commonwealth Silver warrants were worth $ 73,750. Emmer attacks the Commonwealth Silver valuation as without foundation. He also contends that a money judgment is not an appropriate remedy in this case. The Court believes that both arguments lack merit.

 1. Foundation For Valuation

 The testimony on the issue of valuation came from four sources. Emmer presented two expert witnesses at trial, Julius Rendinaro and John Crossman, who valued the Commonwealth Silver warrants at $ 1,000 and $ 1,200-$ 1,250, respectively. Plaintiff's expert, Robert Leopold ("Leopold") testified that, in his opinion, the warrants were worth $ 96,560. Plaintiff also introduced the deposition testimony of Tabatchnick, in which he stated that he believed the warrants were worth $ 50,000. Emmer asserts, however, that both Leopold's and Tabatchnick's testimony must be entirely disregarded. The Court does not agree.

 Leopold, a partner in the investment firm of Stuart Brothers, stated that he had extensive experience in the valuation of common stocks and warrants. The witness testified that, employing a "willing buyer and a willing seller" concept, he began his valuation by taking the difference between the exercise price of the warrant and the market price of the stock on the date in question. He stated that the warrants were registered and exercisable. However, he discounted the figure arrived at by 20% Based upon consideration of such factors as the number of shares in float, the restricted nature of the warrant, I. e., the necessity of filing a post-effective amendment with the Securities and Exchange Commission to make either the warrant, or the underlying common stock which could be purchased by exercising the warrant, freely salable. In Leopold's view, a post-effective amendment, at the expense of Commonwealth Silver, could be obtained in three to four weeks due to that company's reasonably current year-end financials.

 Emmer contends that there was no proper foundation for Leopold's opinion because the witness admitted that he had never read the warrants and because he relied in his valuation on a year-old prospectus which, according to Emmer, did not reflect changes in the nature of the business which negatively influenced its financial position. The Court believes, however, that these factors did not undermine the competency of Leopold's testimony, but were merely factors to be considered by the jury in evaluating Leopold's testimony as a whole. As the Court instructed the jury, both when Emmer's attorney objected on this ground during Leopold's testimony and in its charge, the jury was entitled to consider Leopold's opinion testimony and to ascribe to it such weight as it saw fit.

 Plaintiff also introduced the deposition of Tabatchnick on the issue of valuation. Tabatchnick testified in his deposition that, based on his experience on Wall Street, he would place the value of the Commonwealth Silver warrants at the time in question at $ 50,000. Emmer claims that the deposition should not have been admitted into evidence because he had no representative present at the taking of the deposition. However, at the time Emmer's attorney raised this objection at trial, he conceded that notice of the deposition had been duly served upon counsel and that no motion objecting thereto had been made. Thus, Emmer's counsel had full opportunity to attend and cross-examine, but waived that opportunity. Accordingly, his failure to appear did not affect the admissibility of Tabatchnick's deposition testimony. See Rule 32(a), Fed.R.Civ.P.; Wong Ho v. Dulles, 261 F.2d 456 (9th Cir. 1958); Gore v. Maritime Overseas Corp., 256 F. Supp. 104, 119 (E.D.Pa.1966), Rev'd in part on other grounds, 378 F.2d 584 (3d Cir. 1967). Emmer also argues that Tabatchnick's testimony is misleading in that Tabatchnick made the valuation while being questioned on the issue of insolvency. However, the jury heard the deposition testimony in full context. It was its prerogative to give the opinion as much or as little weight as it felt it warranted.

 The Court thus believes that Leopold's and Tabatchnick's testimony valuing the warrants at $ 96,500 and $ 50,000, respectively, was properly placed before the jury and provided an ample basis for its verdict. Accordingly, it rejects Emmer's contention that he is entitled ...


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