Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

PLAZA REALTY INVESTORS v. BAILEY

December 14, 1979

PLAZA REALTY INVESTORS, Plaintiff,
v.
GUY B. BAILEY, JR. and VIP CENTER, Defendants



The opinion of the court was delivered by: CONNER

OPINION AND ORDER

This action on a promissory note (the "Note") in the amount of $ 1,932,000 plus interest by plaintiff Plaza Realty Investors ("Plaza"), successor to Pease & Elliman Realty Trust, against the maker of the Note, VIP Center, and against Guy B. Bailey, Jr. ("Bailey, Jr."), managing general partner of VIP Center, was originally commenced in the Supreme Court of the State of New York, County of New York, by service of a summons and motion for summary judgment pursuant to Section 3213 of New York's C.P.L.R. *fn1" It was removed to this Court under 28 U.S.C. §§ 1441(a) and 1446, with federal jurisdiction being founded upon diversity of citizenship. Personal jurisdiction is premised upon Section 302 of the C.P.L.R.

On March 9, 1977, this Court granted plaintiff's unopposed motion for summary judgment on the Note against defendant VIP Center. Plaintiff's motion for summary judgment against Bailey, Jr. was denied since defendant Bailey, Jr. alleged that he was not personally liable on the Note and that he was not subject to the jurisdiction of this Court under Section 302 of the C.P.L.R., allegations that raised issues of fact requiring a trial on the merits of plaintiff's claim. A bench trial on plaintiff's claim against Bailey, Jr. was held on July 13 and 15, 1977 and extensive post-trial briefing followed. This opinion and order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a), F.R.Civ.P.

 The Interested Parties

 Plaintiff Plaza is a Massachusetts business trust doing business as a real estate investment trust with offices at 919 Third Avenue in New York City.

 Ira J. Hertan ("Hertan") is a trustee of plaintiff, its secretary during the time of the transaction, and a member of the law firm of Zimmer, Fishbach & Hertan which represented plaintiff in this action. Steven B. Haberman ("Haberman") is a trustee of plaintiff and was its president during the time of this transaction.

 Defendant VIP Center is a limited partnership organized under the laws of the State of Indiana. VIP Center (the "project") is also the name applied to a multipurpose real estate complex situated in Indianapolis, Indiana which was owned by the limited partnership.

 Defendant Bailey, Jr. is a resident of the State of Florida. At the time of the transaction in dispute, he was a member of the Florida law firm of Pettigrew & Bailey. Bailey, Jr. is currently the managing general partner of VIP Center.

 The two limited partners of VIP Center are Guy B. Bailey, Sr. ("Bailey, Sr."), the father of defendant Bailey, Jr., and Areca Stone Bailey, Bailey, Sr."s wife. Mr. and Mrs. Bailey, Sr. are residents of the State of Florida.

 George V. Ginger ("Ginger") was the general partner of VIP Center prior to the admission of Mr. and Mrs. Bailey, Sr. as limited partners and Bailey, Jr. as managing general partner. Ginger continued as a general partner of VIP Center subsequent to their admission, but after the Baileys were admitted Ginger lacked authority to act for the partnership.

 The Facts

 A. The Initial Arrangement

 In 1972, plaintiff purchased from G. V. Ginger & Associates ("Ginger & Associates") a parcel of land located in Indianapolis subject to a first mortgage in the approximate amount of $ 7,000,000 held by Bankers Trust Company ("Bankers Trust"), a banking corporation organized under the laws of the State of New York. *fn2" As part of the sales transaction, plaintiff simultaneously leased this parcel of land, on a long-term basis, back to Ginger & Associates, which was building on the land a multipurpose center that would include commercial, residential and office space. *fn3"

 In 1973, Ginger organized VIP Center as an Indiana limited partnership with Ginger as the general partner and Ginger & Associates as the limited partner. VIP Center became the owner of the improvements being constructed on the land and lessee under the land lease with plaintiff.

 In mid-1974, the limited partnership ran out of money to complete the project, and VIP Center's land lease with plaintiff, as well as the first mortgage held by Bankers Trust, went into default. As a result of VIP Center's default its interest in the leasehold was assigned to plaintiff, which became the effective owner of the buildings as well as of the land that comprised the project. During this period and thereafter, Ginger unsuccessfully attempted to secure new partners who would advance the necessary funds to complete the project in exchange for the substantial tax losses available to the limited partnership's members.

 B. The Search for New Investors

 In November of 1974, Envicon Group ("Envicon"), acting as a broker/syndicator in obtaining investors for the project approached Bailey, Sr. to interest him in purchasing the limited partnership which owned the project. Envicon proposed that it become the general partner and Mr. and Mrs. Bailey, Sr. the limited partners of the limited partnership. On Christmas Day 1974, Bailey, Sr. asked his son Bailey, Jr. whether any of the lawyers in the law firm of Pettigrew & Bailey were available to go to New York the next day to discuss the Envicon deal. Bailey, Jr. asked one of his law partners, Owen Freed ("Freed"), whether he was available to go to New York the next day. Freed said that he was available and Bailey, Jr. asked him to go immediately to Bailey, Sr."s home to discuss the transaction. Bailey, Sr. and Freed met that night and reviewed the terms of the proposed agreement with Envicon. The next morning, Freed left for New York.

 At trial, both Bailey, Sr. and Freed testified that when Freed went to New York he was representing Bailey, Sr. and his wife. Bailey, Jr. testified that he did not authorize Freed to go to New York on his behalf but that he was interested in and knew what was happening in New York because his law firm was representing his parents and "I was interested as a lawyer, but I was not directly handling that representation or that transaction . . .." Trial Transcript (hereafter "Tr.") at 190.

 In New York, Freed met with representatives of Envicon, but they were unable to reach an agreement and the negotiations between Freed and Envicon's representatives were terminated.

 When Haberman and Hertan, trustees and officers of plaintiff, learned that the negotiations between Envicon and its client had been unsuccessful, Haberman requested that Envicon give its consent to having plaintiff negotiate directly with Envicon's client with the proviso that Envicon's position as broker would be protected. Envicon consented and Haberman was given a Florida telephone number where Envicon's client could be reached. Haberman telephoned Florida and indicated that plaintiff was prepared to consummate the transaction directly with Envicon's former client.

 At trial, there was conflicting testimony as to whom Haberman spoke with when he called Florida. Haberman testified that he was told by Envicon to "call the law offices of Pettigrew and Bailey . . . and try to contact the principals there", Tr. at 71, and that when he called he was on a speakerphone and "there were a number of other men in the room, and I believe I spoke with Guy Bailey, Jr." Tr. at 72, but Bailey, Sr. testified that it was he who spoke with Haberman.

 During this telephone conversation, the parties discussed the terms of the proposed real estate transaction, to be discussed infra, and Haberman was informed that Freed was still in New York and that Freed would be contacted and told to negotiate directly with plaintiff.

 C. The December 27, 1974 Meeting in New York

 1. The Terms of the New Arrangement

 At a meeting in New York on December 27, 1974, Hertan, Haberman and Freed agreed to all of the monetary terms of the proposed transaction: Mr. and Mrs. Bailey, Sr. would transfer to the limited partnership $ 500,000 in cash and $ 600,000 in the form of two promissory notes in the amounts of $ 350,000 and $ 250,000, respectively. VIP Center would then pay the cash to Bankers Trust to cure the default on the first mortgage held by that bank. Haberman, Hertan and Freed hoped that in return Bankers Trust would agree to renegotiate the terms of the first mortgage so as to reduce the principal and interest payments provided therein. As between plaintiff and Mr. and Mrs. Bailey, Sr. it was agreed that plaintiff would convey its fee interest in the real estate to the limited partnership in which the Baileys would be partners and would receive in return an installment promissory note in the principal sum of $ 1,932,000 secured by a second mortgage on the real estate. This Note *fn4" is the instrument on which plaintiff's claim against Bailey, Jr. is based.

 2. Security for the Promissory Note

 The parties dispute the nature of the security which was agreed upon for VIP Center's Note. At trial, defendant sought to establish that one of the terms agreed to at the New York meeting was that none of VIP Center's partners, general or limited, would be personally liable on the Note. Freed and Bailey, Sr. testified that the parties did not intend that there would be any personal liability on the Note.

 Haberman, plaintiff's president, testified on redirect examination that the terms of the deal that the parties agreed to on December 27 in New York were: (1) that Bankers Trust agree to restructure its first mortgage to cure the default and change the payments; (2) "that Plaza take( ) its (existing) long-term lease (arrangement with VIP Center) and, in effect, change( ) that for a mortgage and a note taking as security the land only "; and (3) that Plaza give its assistance to Bailey to refinance the deal eventually. Tr. at 91 (emphasis supplied).

 Hertan, plaintiff's secretary, testified that he didn't know whether plaintiff intended to hold any of the partners personally liable on the Note; that he could not testify that there was no intent at the time of the closing to hold them liable. Tr. at 64-67. The Court inquired of Hertan who plaintiff presumed would be liable on the Note when it considered the proposed transaction. Hertan stated that the question never came up of "whether a specific individual was or was not to be held, other than Mr. Ginger, *fn5" other than that, everyone follows his own legal liability." Tr. at 64.

 With respect to plaintiff's security for the Note, the Court asked Hertan whether plaintiff was looking to the mortgage, thinking that, on foreclosure, "(w)e have the property." Hertan replied: "Not solely, because in that connection we were well aware there was a very sizeable first mortgage on in front of us. We were not looking to a default in the transaction." Tr. at 65-66.

 3. Bailey, Jr."s Involvement as of December 27

 Also in dispute was Bailey, Jr.'s involvement in the transaction as of December 27. At trial, Bailey, Jr. sought to establish that he could not be personally liable on the Note, since neither plaintiff nor the proposed new investors the Baileys Sr. or their agent Freed contemplated that Bailey, Jr. would be a principal in the transaction when the terms were agreed to on December 27 in New York.

 The testimony was conflicting as to whether any participation by Bailey, Jr. was contemplated by the parties on December 27. Hertan testified on direct examination that at that meeting

 
"(T)he question was raised by me as to who would take Envicon's place in the partnership because Envicon was originally to be the general partner in the limited partnership together with Mr. Ginger.
 
"Mr. Freed indicated to me that Guy B. Bailey, Jr. would be the general partner with Ginger and his parents, Mr. & Mrs. Bailey, Sr. ( ) would be the limited partners." Tr. at 17-18, 249.

 The testimony of Haberman and Freed, however, establishes that on December 27 Freed did not represent to Hertan and Haberman that Bailey, Jr. would be a general partner of VIP Center. Haberman testified on cross-examination that he did not even find out that Bailey, Jr. was a general partner of VIP Center until after the closing on December 31, Tr. at 86, although Haberman did testify that he assumed that the Baileys would name a new general partner to replace Ginger and that he, Haberman, assumed that anyone the Baileys chose would be financially solid. Tr. at 88-89.

 Freed testified that there was no discussion whatsoever of Bailey, Jr."s becoming a partner of the limited partnership at the December 27, 1974 meeting. Tr. at 208, 218, 221. He testified that the only time that Bailey, Jr."s name came up at that meeting was when Freed stated to Haberman and Hertan that he would not have come up to New York from Florida for a client other than his law partner's father. Tr. at 221. Freed testified on cross-examination that the subject of who would replace Envicon as general partner of VIP Center never came up at the meeting in New York. Tr. at 224.

 All three men agreed that at the December 27 meeting no inquiries were made with respect to Bailey, Jr."s credit standing. Hertan testified that Haberman had conducted the credit investigation. Haberman testified that he never made any inquiry as to the creditworthiness of Bailey, Jr. However, he had inquired as to the financial standing of the Bailey family. When he first found out who Envicon's client was, in early December 1974, he called Bankers Trust and said: "The gentleman is Guy Bailey, it is the Bailey family, and can you find out as to their credit worthiness of the investing group in Florida?". Tr. at 76. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.