Eddie's benefit. But the evidence now before the court is certainly susceptible of the interpretation that any short term benefit to Crazy Eddie was intended to redound to the advantage of only the Antars and their conspirators. In re Investors Funding, 523 F.Supp. at 541.
The fact that some of the embezzled money was put back into the corporation to help inflate sales and facilitate public offerings is not inconsistent with an abandonment by the Antar Management of the corporation's interest.
However unseemly it may be to allow Crazy Eddie to recover from Peat Marwick for damages committed by Crazy Eddie's own officers and directors, the resolution of the issue must await trial. The Miller and Cenco cases, on which Peat Marwick relies for the proposition that the actions of Crazy Eddie's officers and directors should be imputed to the corporation, were appeals after jury verdicts in favor of defendants on the relevant issues. See also In re Wedtech Sec. Litig., 138 Bankr. 5, 9 (S.D.N.Y. 1992) (denying summary judgment on application of imputation defense). In this case as well, a jury will decide what motivated the Crazy Eddie management to commit the fraud and whether those actions should be imputed to the corporation.
C. Peat Marwick's Counterclaims
In its answer Peat Marwick asserted "counterclaims" for fraud and breach of contract.
The Bankruptcy Court's order of December 30, 1991 confirming Crazy Eddie's First Amended Consolidated Plan of Liquidation prohibited Peat Marwick from asserting a claim against Crazy Eddie for affirmative relief, but allowed claims "as a set-off, recoupment, or defense to any claim asserted against it by the Debtors." In compliance with this order Peat Marwick intends to pursue these "counterclaims" as defenses or set-offs. Under Federal Rule of Civil Procedure 8(c), "when a party has mistakenly designated a defense as a counterclaim . . ., the court on terms, if justice so requires, shall treat the pleading as if there had been a proper designation."
Though the court will refer to these claims as counterclaims, their label in the answer, it will treat them as defenses or set-offs. Peat Marwick may assert a set-off as an affirmative defense even though it has not filed a proof of claim. Stratton v. Equitable Bank, N.A., 104 Bankr. 713, 735 (D.Md. 1989), aff'd without opinion, 912 F.2d 464 (4th Cir. 1990).
Peat Marwick bases its motion for summary judgment on its counterclaims for fraud and breach of contract on Crazy Eddie's admission of false statements by its officers to Peat Marwick.
Crazy Eddie urges as it did on its own negligence and fraud claims that the actions of Crazy Eddie agents should not be imputed to the corporation. The rule of imputation addresses the unfairness of a corporation suing a third party for injuries caused by the corporation's own agents on its behalf. But the adverse interest exception does not prevent Peat Marwick from making a claim against Crazy Eddie for any fraud perpetrated upon Peat Marwick or any breach of contractual rights it had.
For those purposes, under general principles of agency law, Crazy Eddie is liable for its agents' fraud "though the agent acts solely-to benefit himself, if the agent acts with apparent authority." American Soc. of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556, 566, 102 S. Ct. 1935, 1942 (1982). Thus Crazy Eddie is liable on the counterclaims for any fraudulent conduct of its agents.
There remain the issues of fact whether Peat Marwick reasonably relied on the representations of Crazy Eddie management and whether it should have engaged in further investigation of the company's financial condition.
The motion of Peat Marwick for summary judgment is denied.
The court decides the pending motions as follows:
i) The Fraud Claims. The court finds that the 1991 amendment to Section 27A of the Securities Exchange Act is constitutional. Defendants' motion for partial summary judgment with respect to the Section 10(b) and Rule 10b-5 claim is denied. Defendants' motion for summary judgment on the common law fraud and negligent misrepresentation claims is granted.
ii) Peat Marwick's Cross-Claim against Sam E. Antar. The motions of Peat Marwick and Antar for summary judgment on Peat Marwick's cross-claims against Antar for fraud or contribution are denied.
iii) The Adversary Proceeding. Crazy Eddie's claim for fraudulent conveyance is dismissed with leave to replead. Peat Marwick's motion for summary judgment on Crazy Eddie's negligence and contract claims is denied. Peat Marwick's motion for summary judgment on its counterclaim against Crazy Eddie is denied.
Dated: Brooklyn, New York
September 4, 1992
Eugene H. Nickerson, U.S.D.J.
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