The opinion of the court was delivered by: Stanton, District Judge.
National Union Fire Insurance Company of Pittsburgh
("National Union"), an issuer of financial guarantee bonds,
sues to enforce an indemnity agreement between itself and
limited partners in a tax shelter limited partnership, and to
enforce its rights as subrogee on the limited partners'
promissory notes which it honored on their behalf. National
Union issued a bond which guaranteed to the partnership, and to
the bank that financed the partnership, that the limited
partners would make all of the capital contributions
represented by the promissory notes they gave to the
partnership. The defendant limited partners stopped making
their required contributions, and National Union made them on
their behalf. Now it sues them for reimbursement under
indemnity agreements they gave National Union at the time it
guaranteed their payments, and as subrogee of the notes on
which they defaulted.
National Union moves for summary judgment against defendant
Simeon Morin. The motion is granted.
In December, 1982 defendant, Simeon Morin purchased a limited
partnership interest in E.A. Associates ("E.A.A."), a New York
Limited Partnership. Defendant paid for this interest partly
with cash and partly with a series of five promissory notes
(the "notes") in the total principal amount of $71,300. Pl.
Statement Pursuant to Rule 3(g) ¶ 2.
Defendant and National Union entered into an indemnity
agreement regarding the notes (the "indemnity agreement"), and
National Union issued a bond guaranteeing the notes (the
"bond"). The indemnity agreement required defendant to
reimburse plaintiff for any payments it made under the bond,
and for interest and expenses incurred in obtaining
reimbursement. The bond guaranteed the payment of defendant's
notes and required National Union, as surety, to make payment
on the notes in the event of defendant's default. Pl. 3(g)
Statement ¶¶ 3-4. The bond further provided that if National
Union made payments on the notes to cure an investor's default,
it would be subrogated to the note holder's rights against the
investor. Exhibit C to Complaint ¶ 7.
Defendant failed to make payment on his final note, which
became due on March 15, 1987. Pursuant to the terms of the
bond, plaintiff made payment for him. Plaintiff sues to recover
this payment and interest, attorneys' fees, and expenses
pursuant to the indemnity agreement. It now moves for summary
Summary judgment shall be granted "if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Fed.R.
Civ.P. 56(c). "Summary judgment is appropriate when, after
drawing all reasonable inferences in favor of the party against
whom summary judgment is sought, no reasonable trier of fact
could find in favor of the nonmoving party." Lund's, Inc. v.
Chemical Bank, 870 F.2d 840, 844 (2d Cir. 1989). If a summary
judgment motion is properly supported, "the adverse party 'must
set forth specific facts showing that there is a genuine issue
for trial.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (quoting
2. National Union's Rights Under the Promissory Note
National Union seeks recovery under the notes pursuant to the
bond, and as the transferee of LaSalle National Bank (the
"bank"). It argues that the bank was a holder in due course of
the note, and that it enjoys all the bank's rights and is
entitled to payment on the note as the bank's transferee.
It is undisputed that the bank was a holder in due course of
defendant's note. A holder of a promissory note establishes a
prima facie case for recovery by proving execution of the note
and a default in payment pursuant to its terms. Hogan & Co. v.
Saturn Management, Inc., 78 A.D.2d 837, 433 N.Y.S.2d 168, 169
(1st Dep't. 1980); Shields v. Stevens, 55 A.D.2d 1017, 391
N YS.2d 766, 767 (4th Dep't. 1977). Once a holder establishes
a prima facie case, the maker has the burden of coming forward
with proof of evidentiary facts — not merely conclusory
allegations — demonstrating the existence of a genuine and
substantial issue rebutting the holder's entitlement to
payment. Shields, 391 N.Y. So.2d at 767.
National Union, as transferee of the promissory note, assumes
the right of the transferor bank unless the "transferee . . .
has himself been a party to any fraud or illegality affecting
the instrument or . . . as a prior holder had notice of ...