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FIRST CITY NATL. BANK & TRUST CO. v. ZELLNER

January 14, 1992

FIRST CITY NATIONAL BANK AND TRUST COMPANY, Plaintiff, against MICHAEL ZELLNER, JOSEPH KRADER, ZELLNER PLASTERING CO., INC., et al., JAMES R. WILCOX, Defendants and Plaintiffs on Counterclaim, - against - INTERDISCOUNT SERVICES, LTD., TARA COLE, FIRST CALIFORNIA LESSORS CORP., and GENE LOBATO, Defendants on Counterclaim.

SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D. J.

 Plaintiff Joint Venture Asset Acquisition Group ("JVAA") has moved pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment against each of the defendants and for an award of all amounts of unpaid principal, accrued interest, collection costs, attorneys' fees, and punitive damages. For the reasons set forth below, the motion is denied.

 The Parties

 JVAA is the assignee of the rights of the First City National Bank and Trust Company, formerly known as the First City Federal Savings Bank ("First City") to the promissory notes at issue. This interest was transferred to JVAA on December 14, 1990. First City was declared insolvent by the Federal Deposit Insurance Corporation ("FDIC") on December 20, 1989.

 Michael J. Zellner ("Zellner"), Joseph Krader ("Krader"), and James R. Wilcox ("Wilcox") are citizens and residents of the State of California. Zellner Plastering Co. ("Zellner Plastering"; collectively, the "Defendants") is a California corporation with its principal place of business in Los Angeles, California. The Defendants are all investors in a California limited partnership and the purported signers of the documents at issue.

 Interdiscount Services, Ltd. ("Interdiscount"), is a New York corporation with its principal place of business in New York City. Tara Cole ("Cole") is a New York resident and was Interdiscount's President and owner of one-half of its stock.

 First California Lessors Corp. ("First California") is a California corporation with its principal place of business in California. Gene Lobato ("Lobato") is a citizen and resident of California.

 Prior Proceedings

 These cases were filed in August and September 1987. The Defendants answered and counterclaim in February 1988. An amended complaint was then served, to be followed by an amended counterclaim. The cases were consolidated on February 10, 1989.

 The present motion was filed on September 1, 1989. Defendants' filed opposition papers in November 1990. On December 20, 1989, the Office of the Comptroller of the Currency declared First City insolvent and appointed the Federal Deposit Insurance Corporation ("FDIC") as its receiver. The FDIC requested the Honorable Vincent L. Broderick to stay all actions and proceedings in the Southern District of New York in which First City was a party, including these cases. Judge Broderick signed such an order on December 22, 1989.

 The stay expired on April 25, 1990. Prior to that date, the FDIC and JVAA had entered into an agreement acknowledging that JVAA had assumed First City's rights in a number of defaulted notes, including those at issue here, and that JVAA would intervene in all pending actions to seek enforcement. JVAA intervened in the present action by stipulation on August 14, 1990. In the stipulation, JVAA recognized that it was not a holder in due course because the notes were in default, but claimed whatever status First City had enjoyed previously.

 The present motion was reinstated and the filing of papers continued. Oral argument was heard on September 26, 1991, and the motion considered submitted as of that date.

 Facts

 The facts at issue are in dispute. The following therefore does not constitute a finding of fact. The current allegations and defenses here, though, are quite similar to those previously before this Court in several related matters. See, e.g., First Federal Savings Bank v. Tazzia, 87 Civ. 7431 (S.D.N.Y. Sept. 19, 1988); First City Federal Savings Bank v. Dennis, 87 Civ. 2959 (S.D.N.Y. June 24, 1988); First City Federal Savings Bank v. Bhogaonker, 684 F. Supp. 793 (S.D.N.Y. 1988).

 Defendants are all investors in a failed limited partnership. Each purchased units in the Beam Systems Income Fund I ("Beam") with the hope of reaping profits and enjoying tax benefits. Such was not the case, however, and through the less than straightforward way in which Beam was financed, they find themselves defendants and third-party plaintiffs in the present action.

 The price for each limited partnership unit in Beam was $ 13,000. This was broken down into two components: a $ 1,391 cash down payment and the execution of an Agreement of Assumption of Partnership Recourse Liability for $ 11,609. But the Defendants say they were told that obligations beyond the down payment would be paid by income from Beam or by MPA Associates, Inc. ("MPA"), the major promotor of Beam. In December of 1985, Zellner and Krader signed up for five units each; Zellner Plastering and Wilcox each opted for ten.

 Soon thereafter, the financing of the limited partnership commenced, and began to go amok. According to the Defendants, the following players operated within the First City-Interdiscount-National Capital framework they have alleged: At its core is Richard Greenberg ("Greenberg") and his brother Fred. Greenberg was a founder, 50% shareholder, and president of First City, the predecessor to the Plaintiff. Greenberg allegedly was chummy with Michael Cash, the President of National Capital. National Capital shared/subleased space in the Greenbergs' offices.

 Cole of Interdiscount was introduced to Greenberg and First City through an intermediary in early 1986. They apparently worked out a deal by which First City would fund $ 4.8 million in loans to limited partnership investors referred to it by Interdiscount. A ...


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