The opinion of the court was delivered by: LEISURE
This action for injunctive and declaratory relief was instituted by plaintiff in Supreme Court, New York County and removed to federal court by defendants pursuant to 28 U.S.C. § 1441. Subject matter jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332.
The nature of the relief sought by plaintiff is described herein. For the reasons set forth below, plaintiff's application for injunctive and declaratory relief is denied.
1. Plaintiff James C. Thomas ("Thomas") is the Trustee of the SLT Trust #1 (Rev.): 9/29/83 ("SLT Trust"), a trust created under the laws of the State of Missouri.
2. Defendant E. Lawrence Price ("E.L. Price") is the Trustee of the Elaine Price Trust, 1983 ("Price Trust I"), a trust created under the laws of the State of Wyoming. In the Declaration of Trust of the Price Trust I, defendant Elaine Price, the wife of E.L. Price, was named both grantor and beneficiary. Defendant Earl Raymond Price is E.L. Price's father and the trustee of the "Price Trust II" (see infra, Finding of Fact para. 8).
3. On or about November 4, 1983, the SLT Trust and the Price Trust I entered into a partnership agreement ("Partnership Agreement") for the acquisition and operation of the Church & Thomas Bank (Unincorporated) (the "Bank"), a private bank located in Galveston, Texas, of which Thomas was at that time part owner. The general partnership thus created ("Partnership") is governed by the Uniform Partnership Act of the State of Texas, as amended. Partnership Agreement § 1. Both the SLT Trust and the Elaine Price Trust I entered the Partnership Agreement as equal partners, each holding a 50% interest. Id. § 5.
4. Also on November 4, 1983, the SLT Trust and the Price Trust I each borrowed $750,000 from Newcomb Securities ("Newcomb"), a business owned by the family of E.L. Price, and of which E.L. Price is the managing and general partner. These loans were designed, in part, to fund each Trust's capital contribution to the Partnership.
5. In consideration for the loans, each Trust separately executed a non-recourse promissory note to Newcomb, under the terms of which each Trust agreed to pay Newcomb $750,000 with interest on or before November 7, 1985 (the "Non-Recourse Notes"). Each Trust also executed separate security agreements with Newcomb in order to secure their respective loans. Under the security agreement entered into between plaintiff and Newcomb ("SLT-Newcomb Security Agreement"), Newcomb was granted a security interest in the SLT Trust's "right, title and interest in its interest in the Partnership, as such interest is defined by Section 26 of the Uniform Partnership Act of the State of Texas." SLT-Newcomb Security Agreement § 1. Newcomb was also given a security interest in whatever "proceeds" the SLT Trust received from its interest in the Partnership. Id. The Agreement further provided that Newcomb would have "no right to interfere in the management, administration, affairs, or control of the Partnership," in the absence of an "Event of Default." Id. Elsewhere in the Agreement, an "Event of Default" was defined to include the failure of the SLT Trust to pay the Non-Recourse Note to Newcomb "when due," provided that such failure continued for ten days after written notice of default. See id. § 4.1(a). (N.B. The relevant provisions of the SLT-Newcomb Security Agreement are set forth more completely, infra, in Part II.B of this opinion).
6. Subsequently, the Partnership formally acquired the Bank. Pursuant to the terms of the Partnership Agreement, a four-person Management Committee was appointed to manage the Bank. The Committee thus appointed consisted of Thomas, Bernard Gram, E.L. Price, and Peter Jacoby. The latter two were designated by the Price Trust I; the former two by the SLT Trust.
7. On or about November 16, 1983, the Management Committee, acting on the Bank's behalf, entered into separate contracts for management assistance with Thomas and E.L. Price. Under those contracts, Thomas was appointed the Bank's General Manager and E.L. Price its Chairman. In September 1984, Thomas and E.L. Price, by mutual agreement, stopped receiving management fees under the management assistance contracts. E.L. Price Affidavit para. 11.
8. From the time of the Partnership's inception in November 1983, Thomas and E.L. Price had numerous disagreements over business. See id. P 12. On or about November 5, 1985, Newcomb, in anticipation of SLT's possible default on its Non-Recourse Note, assigned said Note, along with the SLT-Newcomb Security Agreement, to the Elaine Price Trust, 1984 ("Price Trust II"). Id. In consideration for the assignment, Newcomb received a full recourse promissory note for $750,000, due November 7, 1985, from the Price Trust II. The trustee of the Price Trust II is Earl Raymond Price, E.L. Price's father and also a defendant in this lawsuit. Elaine Price is the Trust's grantor.
9. On November 7, 1985, the SLT Non-Recourse Note came due. By that date, neither Thomas nor the SLT Trust had made payment on the Note to either Newcomb or its assignee. See Affidavit of James C. Thomas para. 10 ("Thomas Affidavit").
By letter dated November 8, 1985, Earl Raymond Price, in his capacity as trustee of the Price Trust II ("Price Trustee"), advised Thomas, as trustee of the SLT Trust ("Thomas Trustee"), of Newcomb's assignment of the Non-Recourse Note and the SLT-Newcomb Security Agreement. Id. P 9. In the same letter, Thomas Trustee was given formal notice of the SLT Trust's default on the Non-Recourse Note. E.L. Price Affidavit para. 15. Pursuant to the terms of the SLT-Newcomb Security Agreement, Price Trustee demanded payment within ten days of notice of default. Id. To date, payment has not been made on the Note. See Thomas Affidavit para. 10.
10. By letter dated November 26, 1985, Price Trustee notified Thomas Trustee of the Price Trust II's intention to retain the SLT Trust's "interest in the Partnership" in accord with § 4.2 of the SLT-Newcomb Security Agreement in satisfaction of the SLT Trust's obligations under the Non-Recourse Note, unless Price Trust II received a written notice of objection within 21 days of November 26. Thomas Trustee was also put on notice that the Price Trust II defined such Partnership interest as "all rights, interests and powers of [the SLT Trust] in or with respect to the Partnership, including the right to cast any vote or otherwise exercise any power in connection with the management of the Partnership." Finally, Thomas Trustee was notified that in the event that Price Trustee did receive written objection from Thomas Trustee, that the "Collateral," i.e., the Partnership, would be disposed by private or public sale as authorized by § 9-505(2) of the Uniform Commercial Code ("UCC").
11. By letter dated December 11, 1985, Thomas' Houston counsel notified Price Trustee that it objected to any disposal of the SLT Trust's Partnership pursuant to § 9-505 of the (Texas legislature's enactment of) the UCC. Instead, Thomas' counsel insisted that "any disposition of the subject collateral must be pursuant to Section 9-504 of the Code" and further requested that Thomas Trustee receive notice of any public or private sale. Thomas' counsel further advised Price Trustee that whatever rights the Price Trust II intended to exercise under the Note and Security Agreement were limited by the terms of the Partnership Agreement. In the aforesaid letter, Thomas' counsel stated that in light of Section 17 of the Partnership Agreement, as well as Section 26 of the Texas Uniform Partnership Act,
"exercise of the Price Trustee's security interest does not permit Price Trustee to exercise any powers or rights of control or management, including the right to cast any vote or otherwise exercise any power in connection with the management of the partnership, which partnership rights and powers will remain vested in Thomas Trustee."
12. By letter dated December 20, 1985, Price Trustee notified Thomas Trustee that since the SLT Trust was still in default on the Non-Recourse Note, a private sale of the collateral would be held "on or after January 8, 1985" [ sic ]. Thomas Trustee was also notified that in order to preserve the collateral, as permitted by sections 1 and 4.2 of the Security Agreement, Price Trustee (acting with the consent of the Bank's other partner, E.L. Price), had appointed Earl Raymond Price and Elaine Price to replace Thomas and Bernard Gram on the Bank's Management Committee. Thomas was further notified that the newly constituted Management Committee had appointed E.L. Price Managing Partner and General Partner of the Bank.
13. By letter dated December 30, 1985, Thomas' counsel formally objected to the replacement of Thomas and Bernard Gram on the Management Committee.
14. By letter dated January 2, 1986, counsel for the Price interests ("Prices' counsel") notified Thomas Trustee that the reference in the December 20 letter to "January 8, 1985" as the date for the sale of collateral had been a typographical error, and that the date should have been "January 8, 1986." Price's counsel further indicated that in order "to insure the legal sufficiency of the notice," a private sale of the collateral would in fact be delayed until or after January 14, 1986.
15. In a separate letter also dated January 2, 1986, the Prices' counsel informed Thomas' counsel that the proposed sale of the SLT Trust's Partnership interest would be "abandoned" if, by the close of business on January 7, 1986, Thomas made the Price Trust II a written offer to purchase, for a specified cash price, the SLT Trust's interest in the Partnership. Following receipt of such offer, the letter stated, the Price Trust II would elect (within 48 hours) either to sell the Partnership interest to Thomas at the terms stated or buy the interest on those same terms (after deducting principal and interest owed by the SLT Trust on the Non-Recourse Note).
16. In a meeting held between attorneys for the parties on January 6, 1986, Thomas' counsel declared that: i) Thomas Trustee would not buy the SLT Trust's Non-Recourse Note; and ii) that unless E.L. Price met Thomas' demands with regard to an unrelated transaction known as "the Stanhope Matter" (see supra, note 2), Thomas was prepared to take steps to prevent the Bank from continuing to do business, particularly by means of bringing various matters to the attention of the Texas Banking Commission. E.L. Price Affidavit para. 23.
17. In a letter sent from Thomas' counsel to the Prices' counsel dated January 7, 1986, objections were made with regard to a certain transaction known as the "Enterprise Transaction" that the Bank had engaged in without Thomas' approval.
In the same letter, objection was also made as to the commercial ...