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JOINT VENTURE ASSET ACQ. v. BHOGAONKER

July 19, 1991

JOINT VENTURE ASSET ACQUISITION, AS ASSIGNEE OF DEFENDANTS' PROMISSORY NOTES PAYABLE TO FIRST CITY FEDERAL SAVINGS BANK, PLAINTIFF,
v.
ANANT BHOGAONKER, ASHA BHOGAONKER, SHAHAB MOGHUL, GHULAM MOGHUL, AHMED KNAN, MIRZA AHMAD, YASMIN AHMAD, HARE K. PATNAIK, GHAIYUR ALAM, TAHZIBUL RIZVI, GAUTAM PANDHI, CHANDRIKA PANDHI, KHURSHED KASAD, ZINOBIA KASAD, BHARAT SHAH, BINA SHAH, GUNVANT SHAH, SULOCHANA SHAH, SURYA MISRA AND BISHNUPRIYA MISRA, ROBERT ROSS, SHRABONNIE GHOSH, LINVAL FLEETWOOD, HENRY TAZZIA, DEFENDANTS.



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

OPINION

The plaintiff Joint Venture Asset Acquisition ("JVAA"), assignee of the promissory notes at issue (the "Notes"), executed by the individual defendants (the "Defendants") in favor of First City Federal Savings Bank (the "Bank"), seeks judgment for the full amount of the Notes, all accrued interest, and legal fees and disbursements. Upon the following findings and conclusions reached after a non-jury trial, judgment will be entered granting the relief sought.

The Parties

First City National Bank and Trust Company, formerly known as First City Federal Savings Bank, was a National Banking Association with offices in New York City. On or about December 20, 1989, the Comptroller of the Currency declared the Bank insolvent, and appointed the Federal Deposit Insurance Corporation (the "FDIC") as receiver.

JVAA is a joint venture formed by the founder, former president and a major shareholder in the Bank, Richard Greenberg, along with his brother Frederick Greenberg. The interests in JVAA are held in proportion to the owners' shares in the Bank. In 1988 JVAA acquired the rights to monies due or to become due on the Defendants' Notes, although the Bank continued to hold the Notes. Immediately prior to the declaration of insolvency of the Bank, the Bank assigned the Notes to JVAA.

The Defendants are individuals residing in Michigan, New Jersey, Florida and Illinois who obtained loans from the Bank in 1986 in order to invest in various tax-advantaged limited partnerships sponsored by Forum Companies, Inc. ("Forum"). Twelve of the Defendants invested in Boston Place Associates, Ltd. ("Boston Place"), a real estate syndication of an office building in Tulsa, Oklahoma. Defendants Linval Fleetwood ("Fleetwood"), Robert Ross ("Ross"), Henry Tazzia ("Tazzia"), and Shrabonnie Ghosh ("Ghosh") invested in other limited partnerships sponsored by Forum.

Prior Proceedings

In July 1987, the Bank commenced individual actions against the twelve Defendants who had been investors in Boston Place (the "Boston Place litigation"), all of whom had defaulted on their loans, and in the latter part of 1987 and early 1988 instituted suits against Ross, Ghosh, Fleetwood and Tazzia, who also had defaulted on their loans. In all of the actions, the Bank sought to recover unpaid principal and accrued interest on the Notes, as well as the costs of collection.

In November 1987 the Bank moved for summary judgment in the Boston Place litigation. This motion was denied by an opinion of March 31, 1988, on the grounds that while the Bank had established a prima facie claim on the Notes, a genuine issue of fact existed as to whether payments to National Capital Corporation ("NCC"), a loan broker, of 10% of the loan proceeds constituted an undisclosed increase in the interest rate charged by the Bank to Defendants, because of an alleged relationship between the Bank and NCC. First City Federal Savings Bank v. Bhogaonker, 684 F. Supp. 793 (S.D.N.Y. 1988) ("the 1988 Opinion").

In November 1988 the Boston Place defendants and defendant Ross moved for partial summary judgment, alleging that because the Notes provided for interest at the Bank's reference rate, the Notes were non-negotiable and the Bank could not be a holder in due course. The Bank cross-moved for summary judgment. By opinion and order dated May 26, 1989, the Defendants' motion for partial summary judgment was denied on the grounds that the Notes were negotiable under the Uniform Commercial Code, and the Bank's cross-motion was denied, on the grounds that while the Defendants had failed to establish a material issue of fact as to whether the fee received by NCC constituted additional and undisclosed interest, they had raised an issue of fact as to whether the Bank was aware of Forum's financial difficulties and cash flow problems in the fall of 1986. First City Federal Savings Bank v. Bhogaonker, 715 F. Supp. 1216 (S.D.N.Y. 1989) ("the 1989 Opinion").

The Boston Place litigation was consolidated with the Ross, Tazzia, Fleetwood and Ghosh actions for trial. The non-jury trial commenced on October 17, 1989 and was adjourned from time to time to permit additional defense testimony.

On December 20, 1989, prior to the Bank's rebuttal case, the Bank was declared insolvent, and the FDIC was appointed as Receiver. Immediately prior to the declaration of insolvency, Defendants' Notes were assigned to JVAA.

Thereafter, the FDIC obtained an order from the Honorable Vincent L. Broderick dated December 22, 1989 staying all actions in this district involving the Bank. The stay subsequently expired, and in May 1990 JVAA moved to intervene in these actions as a co-plaintiff. By order dated August 27, 1990, the FDIC was substituted as plaintiff and the Defendants' counterclaims were dismissed with prejudice, and JVAA was permitted to intervene, whereupon FDIC was dismissed from the action.

The trial resumed on December 5, 1990 and again was adjourned to permit an application to be made to open the record for the testimony of certain of the Defendants. Final briefs were submitted by JVAA on February 6, 1991, and ...


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