taking up the instruments, then its good faith was sufficiently shown.
Chemical Bank v. Haskell, 51 N.Y.2d 85, 432 N.Y.S.2d 478, 480, 411 N.E.2d 1339 (1980). Under this standard, the existence of bad faith turns on whether the holder knew the transaction was suspect. Bhogaonker, 684 F. Supp. at 797; Sundsvallsbanken v. Fondmetal, Inc., 624 F. Supp. 811, 817 (S.D.N.Y. 1985).
The Defendants argue that First City lacked good faith by virtue of its relationships with Interdiscount and National Capital and its own involvement in the transactions at issue. In particular, the Defendants contend that First City and National Capital were alter egos or agents. If so, First City may have at least been aware of the irregularities alleged, if not an active participant.
In support of their contention that National Capital was First City's agent, the Defendants rely on several matters. First, National Capital and First City shared office space. Second, First City generally referred its prospective borrowers to National Capital. National Capital would then review loan applications for First City, using criteria established by First City and acting as its intermediary.
In the present situation, the Defendants point to the several additional factors to strengthen their agency argument. Cole was allegedly referred to National Capital through Greenberg after they had entered into their referral agreement. Greenberg, though, allegedly gave Cole the impression that the Greenbergs owned National Capital. The Greenbergs apparently told her that National Capital would do all of the processing of the loan applications at issue and review the offering memoranda and the syndicators. Moreover, they point to a passage in Cole's deposition testimony from which it can be inferred that First City approved the change from the original Engagement Letter to the Second Engagement Letter. See Cole Transcript 493.
The Plaintiff counters that the relationship between First City and National Capital was only that of a tenant/sub-tenant and a lender/loan broker. They apparently did not share any common officers, directors or shareholders. See also Bhogaonker, 715 F. Supp. at 1217. Even so, the Defendants have raised triable issue of fact concerning the relationship between First City and National Capital. While the two may not have been alter egos, the inference can be raised, primarily through Cole's testimony, that First City employed National Capital as an agent.
From this agency relationship and the other aspects of the transactions at issue, questions concerning First City's good faith arise. First, there is the matter of the Borrower's Letter. It has a clause in it which states that "the Bank has made no attempt to analyze or evaluate my intended investment in the Partnership." First City, however, had National Capital review the entire investment, including the offering materials, before placing its name on the documents. From this it can be inferred that First City knew that this, and other like disclaimers and waivers, were false at the time the documents were executed, thus raising a question concerning First City's good faith.
Second, National capital was brought into the picture at First City's behest. It seems that National Capital charged the Defendants 5% of their loan proceeds for its services. Two percent, or 40% of the National Capital's fee, was paid to First City as an origination fee. This fee arrangement allegedly increased the price of the transaction by being, in effect, an undisclosed interest rate increase. As in the previous First City cases, this also raises the issue of First City's good faith. See Tazzia, slip. op. at 11; Dennis, slip. op. at 12; Bhogaonker, 684 F. Supp. at 799.
Third, First City and Interdiscount, through Greenberg and Cole, agreed in March of 1986 that the Defendants would be charged a 14% interest rate on their loans and that First City would receive 13 1/2% and Interdiscount 1/2%. This arrangement also was not disclosed to the Defendants, even though it was put in place before the loan papers were signed. This too raises the issue of First City's good faith.
Fourth is the matter of the Second Engagement Letter. The series of events surrounding Cole's apparent attempt to withdraw the Defendant's documents from National Capital are capable of multiple interpretations.
Some, such as that National Capital was trying to push Interdiscount out of the deal, favor the Plaintiff. Others, such as that some culpable party was trying to use Interdiscount in furtherance of a fraud, favor the Defendants. Moreover, the entire manner in which the Second Engagement was sent to Interdiscount with the disputed signatures and in which First City approved the Second Engagement Letters can be viewed as being fraught with irregularities indicative of bad faith. See Scarsdale National Bank & Trust Co. v. Toronto-Dominion Bank, 533 F. Supp. 378, 386-87 (S.D.N.Y. 1982).
Genuine issues of fact thus remain unresolved as to the extent, if any, of First City's "actual knowledge of some fact which would prevent a commercially honest individual from" accepting the Notes. Summary judgment in its favor is precluded.
Plaintiff also argues in its Reply Memorandum that the counterclaims should be dismissed pursuant to Rule 54(c) of the Federal Rules of Civil Procedure. Rule 54(c) is, by its terms, applicable to judgments and their accordance with pleadings. The Plaintiff has not properly sought relief from the counter-claims, nor has it argued why such relief should be awarded. This argument therefore will not be addressed.
For the reasons set forth above, Plaintiff's motion for summary judgment is denied. Discovery is to be completed by March 18, 1992, and Pre-Trial Orders submitted on or before April 1, 1992.
It is so ordered.
New York, N. Y.
January 14, 1992
ROBERT W. SWEET