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KRAUSS v. FEDERAL DEPOSIT INS. CORP.

July 15, 1991

MELVYN KRAUSS, PLAINTIFF,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER OF FIRST CITY NATIONAL BANK AND TRUST COMPANY, FORMERLY KNOWN AS FIRST CITY FEDERAL SAVINGS BANK, DEFENDANT, AND JOINT VENTURE ASSET ACQUISITION, INTERVENOR COMPLAINANT.



The opinion of the court was delivered by: Sweet, District Judge.

OPINION

Defendant Federal Deposit Insurance Corporation ("FDIC") and intervenor Joint Venture Asset Acquisition ("JVAA") have each moved for summary judgment dismissing the claims of plaintiff Melvyn Krauss ("Krauss") and upholding their claims against Krauss. JVAA has also moved in the alternative for permission to amend its claims against Krauss and to assert a cross-claim for indemnity against FDIC. For the reasons set forth below, both summary judgment motions are granted.

The Parties

Krauss, a New York resident who holds a Ph.D. in economics, is a Senior Economics Fellow at New York University and Stanford University. In March 1987, Krauss borrowed $63,000 from First City National Bank and Trust Company ("FCNB") in exchange for a promissory note ("the Note"). The loan has never been repaid.

FDIC is a United States Government corporation which is the receiver of FCNB. JVAA is a New York joint venture which acquired Krauss's Note from FCNB prior to the FDIC's takeover of the bank.

Prior Proceedings

Krauss initial filed a complaint against FCNB, asserting federal securities violations and common law fraud claims in connection with the loan and his concurrent investment of the proceeds, on August 4, 1987, and the case was assigned to the Honorable Shirley Wohl Kram. FCNB answered and asserted a counterclaim for recovery under the Note. In December, 1987, Krauss sought to amend his complaint to request a trial by jury. This motion was summarily denied by Judge Kram because Krauss had not followed the proper pre-motion procedure.

In July 1988, FCNB moved for summary judgment on its counterclaim. By memorandum opinion of October 18, 1989, the motion was denied, Judge Kram having concluded that while FCNB had made out a prima facie case for recovery on the Note there was a genuine factual dispute regarding the relationship between FCNB and Ronald Williams ("Williams"), the sponsor of the program in which Krauss had invested the loan proceeds.

  While it is indisputable that Krauss signed a
  promissory note and that [FCNB] has established a
  prima facie case, summary judgment is inappropriate
  because Krauss has alleged a sufficiently close
  relationship between [FCNB] and [Williams] for a
  jury reasonably to infer that Krauss was knowingly
  defrauded by [FCNB.]

Krauss v. First City National Bank and Trust Co., 87 Civ. 5585 (SWK) slip op. at 11, 1989 WL 125783 (S.D.N.Y. Oct. 18, 1989) ("the 1989 Opinion").

In December 1989, FCNB endorsed the Note and transferred it to JVAA. Shortly thereafter, FDIC became the receiver of FCNB and was substituted as the defendant in this action. JVAA moved to intervene in the case, and Judge Kram granted the motion in August 1990. JVAA then filed a complaint for recovery on the Note against Krauss, and Krauss answered and asserted as counterclaims substantially the claims which he had made originally against FCNB.

On October 29, 1990, the case was transferred to the Honorable John S. Martin, and when he recused himself it was transferred to this Court. The present motions were filed in February 1991, and were argued and fully submitted on March 8.

The Facts

The facts relating to FCNB's loan to Krauss and the making of the Note are set forth in detail in the 1989 Opinion, familiarity with which is assumed. To summarize, Krauss became interested in investing in oil drilling in late 1986, and after receiving advise from his accountant and reviewing various promotional materials he decided to invest in an oil drilling partnership promoted by Williams and identified as the Forum Consolidated Drilling — Taylor Program ("Forum"). The investment was made by means of a loan from FCNB with the proceeds of the loan to be paid to Forum. On March 20, 1987 Krauss executed the Note in exchange for the $63,000 loan. In connection with loan, Krauss also signed a Borrower's Letter ...


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