The opinion of the court was delivered by: LEWIS A. KAPLAN
LEWIS A. KAPLAN, District Judge.
The Context of This Dispute
Plaintiff Interpool Limited ("Interpool") commenced the first of these two actions (No. 89-8501) against Cuneo and others in 1989 alleging claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") and for common law fraud and breach of fiduciary duty. Cuneo, who had been Interpool's agent for the sale of used shipping containers, allegedly sold Interpool equipment to himself and his co-conspirators at sweetheart prices without Interpool's knowledge, thus diverting substantial profits and business opportunities from Interpool to himself.
By March 1994, No. 89-8501 was virtually ready for trial. The joint pretrial order was due on March 17, 1994 and was filed, after signature by Judge Kram, on March 31, 1994. No motion for summary judgment had been made. The case awaited only a firm trial date.
RMC Holdings Limited Partnership
On March 24, 1994, Cuneo and his wife, with the assistance of a Florida attorney named Howard Rosen, entered into an agreement of limited partnership of RMC Holdings Limited Partnership ("RMC"). Cuneo and his wife transferred property valued at $ 1,357,600 and $ 47,600, respectively, to RMC as the initial capital contributions.
Each of them is both a general and a limited partner. The property thus transferred was all or substantially all of Cuneo's property that is not exempt from execution under the law of Florida, the State in which he resides.
The partnership engages in no business other than the ownership of the cash, cash equivalents and securities transferred to it by the Cuneos, who are its only partners. Distributions of net cash flow and capital may be made only in amounts and at times deemed appropriate in the sole discretion of "the General Partner." (Clareman Aff. Ex. A, §§ 4.3, 4.5, 6.2(c); see also FLA. STAT. ANN. §§ 620.138, 620.139, 620.145, 620.146 (West 1993))
As there are two general partners, each with equal general partnership interests, the joint action of both Cuneos is required in order for RMC to make any payment of any kind in respect of the partnership interests. See FLA. STAT. ANN. §§ 620.186 (Uniform Partnership Act governs in cases not provided for in limited partnership statute), 620.645 (all partners have equal rights in management) (West 1993); II ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP §§ 6.03(b), 6.03(c) (1991). The Cuneos, however, in their capacities as general partners, retain the power to use all of the partnership assets for their own benefit. (See Clareman Aff. Ex. A, Art. 8)
Even more interesting is a provision of the RMC partnership agreement that purports to prohibit, or at least discourage, execution on the interest of a partner in the partnership. Article 12 provides in substance that the taking or encumbering of a partnership interest by levy, foreclosure, charging order, execution or other similar involuntary proceeding is deemed a Prohibited Transfer. A creditor who brings an action resulting in such a taking or encumbrance is treated as an assignee of the partnership interest and may receive only such distributions of net cash flow attributable to that interest as are properly disbursed. (Id. §§ 12.2(a), 12.3(a)) The creditor, however, is prohibited from taking any role in the management of RMC and from "acting in any manner as a Partner." (Id.) Thus, a judgment creditor who successfully charges or levies upon Cuneo's partnership interests, or the purchaser of those interests at a judicial sale, would be entitled to receive such cash flow, and only such cash flow, if any, as Cuneo and his wife decide to distribute.
A week after creating RMC, Cuneo, as settlor, transferred his 95.613% limited partnership interest in RMC to himself and his wife, as trustees, again with the aid of Attorney Rosen. The transfer expressly was made "for no consideration." (Clareman Aff. Ex. C, next to last page) The RAC Family Trust agreement, which is revocable by Cuneo, provides that the trustee shall pay to or apply for the benefit of Cuneo so much of the net income and/or principal of the trust as the trustee deems advisable. (Id. Art. I) Subject to Cuneo's power of appointment by will, the proceeds of the trust would pass to Mrs. Cuneo and the couple's daughters following Cuneo's death.
The trust instrument also contains a so-called "Protective Provision," the burden of which is that no creditor may reach Cuneo's interest in the trust except to the extent that income or principal is actually paid over to Cuneo by the trustee. (Id. Art. III) In the event that two trustees are serving, which is now the case, any action by the trustees must be unanimous. (Id. Art. VIII(F)) Thus, any creditor levying upon or charging Cuneo's beneficial interest in the trust would be entitled to receive only such amounts as Cuneo and his wife jointly decide to pay.
The civil RICO case went to trial in November 1994 and resulted in a jury verdict against Cuneo in the amount of $ 4,520,000 plus attorneys fees of $ 299,805.18 and prejudgment interest. See Interpool Ltd. v. Patterson, 1994 U.S. Dist. LEXIS 16897, No. 89 Civ. 8501, 1994 WL 665850 (S.D.N.Y. Nov. 28, 1994). Cuneo's motion for a new trial was denied in January 1995. Interpool Ltd. v. Patterson, 874 F. Supp. 616 (S.D.N.Y. 1995). No stay of execution was sought and Cuneo's appeal was dismissed by the Court of Appeals on March 14, 1995.
Plaintiff appears to have commenced enforcement proceedings in early 1995 and to have learned of the challenged transfers during the early part of the year. On February 23, 1995, the Court granted Interpool's motion for a restraining order barring Cuneo from taking certain actions that threatened to frustrate enforcement of the judgment. On March 13, 1995, it extended the restraining order and directed Cuneo and certain of his co-defendants to comply with discovery requests in aid of execution. Interpool Ltd. v. Patterson, 1995 U.S. Dist. LEXIS 2920, No. 89 Civ. 8501, 1995 WL 105284 (S.D.N.Y. Mar. 13, 1995).
Cuneo was deposed in March 1995 in connection with the proceedings to enforce the judgment. His explanation for the challenged transfers was unilluminating. He was unable, or chose not, to explain how he and his wife determined what property to transfer into RMC and RAC or why the transfers were made other than to say that he "picked stuff that [he] thought had a worth to it" and that he did so on the advice of counsel for "estate planning" reasons. He testified that he did what Attorney Rosen suggested and that he "assumed that it had to do with tax purposes if [he] died." But he did not articulate any specific reasons why he believed the transfers to be advantageous.
On March 30, 1995, Interpool moved to void the challenged transfers as fraudulent conveyances, for an order directing Cuneo to turn over all of the assets so transferred to the Marshal in partial satisfaction of the judgment, and for other relief. Cuneo responded, in part, that the transfers could not be set aside because, inter alia, RMC, RAC, and Mrs. Cuneo were not before the Court. Plaintiff thereupon commenced the second of the actions captioned above against RMC, RAC, and Cuneo and his wife in their capacities as partners and trustees of each, respectively, No. 95-2868. The second action seeks substantially the same relief as the motion in No. 89-8501. The defendants in No. 95-2868 have been served or waived service. No answers have been interposed, and the time within which to answer has expired.
The Court heard argument on Interpool's motion on April 24, 1995. Cuneo's counsel then argued that Cuneo was entitled to an evidentiary hearing, albeit only on the issue of whether Cuneo made the transfers with actual intent to defraud. (Tr. 32-34; see id. 28) Believing that the matter might be expedited by determining that issue first, but without determining that a hearing, even on that issue, was necessary, the Court scheduled an evidentiary hearing for May 11, 1995.
Shortly before the May 11 hearing, counsel for Cuneo advised the Court that Cuneo had been hospitalized with chest pains and sought an adjournment pending diagnosis and possible treatment. The Court rescheduled the hearing for May 23. On May 18, Cuneo's counsel requested another adjournment and submitted an affidavit from a doctor whom Cuneo consulted, which stated that Cuneo should refrain from participating in legal proceedings for "at least 3 to 4 weeks."
The Court denied the continuance without prejudice. It further ordered that any further continuance would be for the exclusive purpose of hearing testimony from Cuneo, thus making clear that the hearing would go forward on May 23.
At the May 23 hearing, neither party offered any additional evidence. Cuneo again applied for a continuance and made a purported offer of proof which listed subjects on which Cuneo proposed to testify if the continuance was granted. (DX A for identification) The offer of proof, however, listed subjects on which Cuneo proposed to testify without stating the substance of the proposed testimony. The Court again denied the requested adjournment and advised counsel that the Court would entertain a motion to reopen the record to hear Cuneo's testimony.
Later on May 23, Cuneo applied to reopen the record to hear his testimony at some unspecified date at least three or four weeks hence. The application again was denied on May 30, 1995. The Court made clear in its order that it regarded the matter as sub judice but would entertain a renewed motion if movants were to make one prior to the filing of the decision on this matter. A renewed motion would have to specify "exactly when and under what conditions Cuneo proposes to testify."
On May 31, 1995, counsel for Cuneo advised the Court that it intends to renew its motion to reopen and advised the Court that Cuneo would be physically capable of providing videotaped testimony on June 21, 1995 in Miami, Florida. The application has not been forthcoming and, in any case, ...