Litton Systems, Inc. appeals from a judgment of the District Court for the Southern District of New York (Honorable Whitman Knapp, District Judge) granting partial summary judgment in the amount of $239,867.10 in favor of Bankers Trust Company and Chemical Bank, two of the plaintiffs below. The motion for summary judgment of the third plaintiff Regent Leasing Corporation was denied. We affirm the judgment of the District Court.
Before Moore and Mansfield, Circuit Judges and Wyatt,*fn* District Judge.
This is an appeal by defendant Litton Systems, Inc. from a monetary judgment against it and in favor of plaintiffs Bankers Trust Company (Bankers Trust) and Chemical Bank (Chemical) in the sums of $113,495.55 (Bankers Trust) and $126,371.55 (Chemical). The judgment, denominated "Partial Judgment" and so characterized in the "Notice of Appeal", (the district court having directed entry of the judgment and certified it as appealable, Rule 54(b), F.R.Civ.P.), came into being under the following rather confused circumstances. Because of appellant's position upon appeal that the trial court's error was in ignoring "the settled decisional law of New York and the federal jurisdiction which law, Inter alia, declares void and unenforceable obligations induced through commercial bribery" an attempt will be made to try to limit an exposition of the facts and procedures to that issue. The court's subject matter jurisdiction was based on diversity of citizenship. 28 U.S.C. § 1332 (1976).
The parties defendant may be referred to collectively as "Litton" because they were subsidiaries wholly owned, directly or indirectly, of Litton Industries, Inc. (not a defendant) and "Royal" also a division of a subsidiary of Litton Industries, Inc.
In 1973 and 1974 Litton decided to purchase photocopiers for use in the branch offices of its private telephone business. A Royal salesman, Angelo Buquicchio, recommended that Litton lease the photocopiers from Regent Leasing Corporation, a business entirely independent of Litton or Royal. Unbeknownst to Royal or Litton, Buquicchio was to receive from Regent certain "service fees" which may Arguendo be called bribes. Regent was to purchase the equipment from Royal and then lease it to Litton.
In order to finance its purchases Regent borrowed from Bankers Trust and Chemical, assigning to them the Litton leases as security. A clause in the leases permitted assignment and provided that the assignees' rights would be independent of any claims or offsets of Litton as against Regent.
Litton in early 1976 defaulted in meeting its obligations to the Banks under the leases. To recover the sums due, the amount due the bankers being stated as "First Claim by Bankers Trust" and "Second Claim by Chemical Bank" Bankers Trust, Chemical and Regent brought suit for the amount due them. Third and Fourth claims by Bankers Trust and Chemical respectively were for failure to return the equipment. A Fifth Clause by both banks was for costs and attorneys' fees.
A plethora of pleadings, answers, defenses and counterclaims followed. During the course of ensuing discovery, appellant claims that "Regent's president, Irving Fineman . . . admitted paying what he first referred to euphemistically as "service fees' to several Royal salesmen, particularly Buquicchio, so they would push leases generally and Regent's leases specifically for transactions they handled". (Appellant's Br. at 8).
In June, 1977, plaintiffs moved for summary judgment. Needless to say, these motions brought forth more than a score of supporting and opposing affidavits, excerpts from depositions and memoranda for and against the motion. The burden of the opposition was that Regent's bribery of Royal's employees renders Litton's obligations a nullity and a defense against the banks as holders in due course.
The trial court, after a review of the facts pertaining to the lease transactions, put to one side the factual issue as to whether the alleged kickbacks were illegal and addressed the only relevant question of whether the banks had notice of the payments and were holders in due course. As to these facts he found that the defendants had been given an ample opportunity to conduct discovery and had failed to offer any affirmative proof as required by F.R.Civ.P. 56(e) to contradict the bank officers' flat denial of any knowledge at the time they took the assignments that service fees had been, or were going to be, paid.
The trial court, considered each of four principal defenses to the banks' motions for summary judgment and disposed of them as follows:
1. That the clause in each lease whereby the lessee agreed not to assert against the assignee any defenses or counterclaims against the lessor was contrary to New York public policy and void. The court, citing New York Uniform Commercial Code § 9-206(1)*fn1 (McKinney 1964) (hereinafter cited as N.Y.U.C.C.) and B. V. D. Co. v. Marine Midland Bank, 46 A.D.2d 51, 360 N.Y.S.2d 901 (1st Dept. 1974), concluded otherwise. We agree.
2. That there was a close relationship between Regent and the banks which justified a finding that the banks did not take the assignments in good faith and therefore were not holders in due course. The trial court correctly found that no proof was submitted which would have warranted such an inference.
3. That there was a valid termination agreement properly exercised. The court found that the leases prohibited oral modification and specified the entire agreement of the parties and, in addition, that the banks had no notice of any such agreement prior to taking the assignments. ...