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FORTUNOFF v. TRIAD LAND ASSOCS.

October 30, 1995

ALAN FORTUNOFF and HELENE FORTUNOFF, Plaintiffs, against TRIAD LAND ASSOCIATES, individually and as general partner of TRIAD IV ASSOCIATES, a limited partnership, FIRST NEW YORK BANK FOR BUSINESS, and NATIONAL WESTMINSTER BANK USA, Defendants.


The opinion of the court was delivered by: SEYBERT

 SEYBERT, District Judge:

 On September 24, 1992, plaintiffs, Alan and Helene Fortunoff, commenced this action seeking a judgment (1) enjoining and restraining defendant First New York Bank for Business ("FNYB"), and/or defendant Triad Land Associates ("TLA") from collecting on investor notes, dated September 30, 1991, or drawing down upon the Letters of Credit issued by then defendant National Westminster Bank (since released from this action), and (2) declaring the investor notes "null and void." Pending before the Court is a motion for summary judgment by defendant Federal Deposit Insurance Corporation ("FDIC"), as Receiver for FNYB. *fn1" Defendant FDIC asserts that plaintiffs' claims are barred under the doctrines of waiver, estoppel and law of the case, by the FDIC's "superpower" defenses pursuant to federal common law and the Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), and because the FDIC is a holder in due course. Plaintiffs argue that defendant FDIC's defenses are baseless and do not insulate defendant FDIC from liability. Plaintiffs also claim that there are genuine issues of material fact that preclude a motion for summary judgment.

 For the reasons set forth below, the defendant's motion for summary judgment is granted.

 FACTUAL BACKGROUND

 As required on a motion for summary judgment, the following facts are construed in the light most favorable to the plaintiffs, the non-moving parties. Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568, 572 (2d Cir. 1993); Indemnity Ins. Co. v. Baker, 1995 U.S. Dist. LEXIS 8570, *2; 1995 WL 373337, *1 (S.D.N.Y.). On or about June 11, 1984, plaintiffs each acquired one limited partnership interest in Triad IV Associates ("Triad IV"), a limited partnership, each paying $ 30,000.00 in cash and each separately executing a promissory note, dated June 11, 1984 ("June 1984 Notes"), in the amount of $ 270,000.00. The June 1984 Notes were secured by Letters of Credit and were to mature on July 15, 1987. On several occasions between 1987 and 1991, the June 1984 Notes were renewed and the Letters of Credit were extended.

 On October 10, 1991, FNYB acquired from Barclays' Bank by assignment for face value a $ 2,767,500.00 note made by Triad IV to Barclays' Bank (the "Barclays' Note") together with the security therefor which consisted of promissory notes made by nine investors, including plaintiffs, to Triad IV (the "Investor Notes"). Simultaneously with the assignment, the Barclays' Note was amended and restated by a new note, in favor of FNYB (the "FNYB Note"), payable on September 30, 1992. The Investor Notes were exchanged for new investor notes of similar tenor, and the Letters of Credit were amended in favor of FNYB. Plaintiffs' new investor notes, in favor of FNYB and dated September 30, 1991 (the "September 1991 Notes"), each provide:

 
The Maker hereby acknowledges that this Note will be assigned by the Partnership to First New York Bank for Business ("FNYBB") as collateral for the payment of a certain loan being made by FNYBB to the Partnership of even date in the principal amount of $ 2,767,500.00 (the "FNYBB Loan"). The Maker agrees that as holder of this Note, FNYBB shall have all the rights and remedies afforded to a holder herein, as well as the right to demand payment in full of this Note in the event of a default by the Partnership under the FNYBB loan.
 
It is expressly agreed that the entire principal sum of this Note, together with all accrued interest thereon, shall immediately become due payable (without demand for payment, notice of non-payment, presentment, protest, notice of protest, or any other notice, all of which are hereby expressly waived by Maker: (i) upon the default in the payment continued uncured for a period of five (5) days; or (ii) upon a default by the Partnership under the terms and conditions of the loan documents evidencing the FNYBB loan.
 
. . .
 
. . .
 
The Maker waives the right to interpose any defense, set-off or counterclaim of any nature or description in connection or with the payment of the principal hereof or interest hereon, in which the Payee or any other holder of this Note shall be an adverse party to the Maker.

 In addition to the new investor notes and Letters of Credit, FNYB received estoppel letters from the investors to Triad IV, including plaintiffs. The estoppel letters, addressed to FNYB, provide:

 
This will confirm that the undersigned is duly indebted to Triad IV Associates pursuant to a promissory note of even date hereof in the principal sum of $ 270,000.00. . . (the "Note"). As of the date hereof, the outstanding principal balance of the Note is $ 270,000.00;. . . and the undersigned has no defenses, offsets or counter claims which would affect the undersigned's obligation to make payment of principal or interest on the Note as and when due.
 
The Note is given by the undersigned in replacement of a like note of similar tenor dated April 15, 1991. It is our understanding that Triad IV Associates is simultaneously assigning our obligation under and pursuant to the terms of the Note to you as collateral security for a loan in the amount of $ 2,767,500.00 being made this day to Triad IV Associates. We agree to raise no defenses or offsets to our obligations under and pursuant to the Note and we make this statement knowing that you will rely upon the truth of its contents in concluding you loan transaction with Triad IV Associates.

 On September 25, 1992, plaintiffs commenced this action in Supreme Court, Nassau County seeking a preliminary injunction to prohibit FNYB from attempting to collect on the September 1991 Notes and from drawing down on the Letters of Credit securing these notes. Pursuant to the direction of the Supreme Court, Nassau County, the letters of credit were extended to January 29, 1993. By Order dated November 18, 1992, Justice Roberto denied plaintiffs' motion for a preliminary injunction. See Fortunoff v. Triad Land Assocs., et. al., No. 92-24810 (N.Y. S. Ct., Nov. 18, 1992) (order denying preliminary injunction).

 In May 1992, plaintiffs sued defendant TLA, the general partner of Triad IV, and the principals of defendant TLA in the Supreme Court of the State of New York, New York County on the ground that they fraudulently transferred Triad IV's assets in breach of their fiduciary duties. This action is currently pending.

 On November 13, 1992, the New York Superintendent of Banking took possession of FNYB pursuant to N.Y. Banking Law § 606 and appointed the FDIC as receiver. In January 1993, pursuant to 12 U.S.C. § 1441(a)(1)(3), the case was removed from Supreme Court, Nassau County to this Court.

 Defendant FDIC claims that Triad IV defaulted in the repayment of the FNYB Note. On January 12, 1993, defendant FDIC, as receiver for FNYB, drew down on the Letters of Credit securing the September 1991 Notes.

 Plaintiffs contend that they are not liable on the September 1991 Notes because they have good and valid defenses to the September 1991 Notes. Plaintiffs argue that defendant FDIC is not entitled to collect on the September 1991 Notes and draw down on the Letters of Credit because FNYB knew that defendant TLA and/or its principals were engaging in fraud, inappropriately transferring Triad IV assets. Specifically, plaintiffs contend that defendant TLA and/or its principal, Irving Feldman ("Feldman"), caused $ 15 million or more of Triad IV monies to be diverted to himself, to his brother, Edward Feldman, and to companies owned by either Feldman or Feldman's son Louis. Plaintiffs further argue that between April 1991 and October 1991, FNYB, through its loan officers, came to have actual knowledge that the management of Triad IV was, through the acts of its General Partner, TLA, tainted by fraud, mismanagement and waste of partnership assets. Plaintiffs argue that FNYB had actual knowledge of these alleged wrongdoings because, at the time that they made the loan, FNYB was in possession of certain financial records of Triad IV which allegedly indicated that defendant TLA and/or its principal had been transferring money to related parties. Thus, plaintiffs contend that FNYB is not a holder in due course. Plaintiffs further argue that defendant FDIC is not a holder in due course because defendant FDIC allegedly had knowledge of these wrongdoings at the time that defendant FDIC took over FNYB.

 Plaintiffs also contend that the September 1991 Notes and estoppel letters do not waive their defenses because the promissory notes and estoppel letters were prepared by FNYB, its attorneys or TLA, were presented to plaintiffs "as is" for signature and contained "boilerplate" clauses.

 Plaintiffs additionally argue that because defendant FDIC has not offered proof that Triad IV defaulted in repayment of the FNYB loan, such fact is controverted.

 Defendant argues that the Court should grant summary judgment because plaintiffs' claims against the FDIC are barred under the doctrines of waiver, estoppel and law of the case, by the FDIC's "superpower" defenses pursuant to federal common law and the Financial Institution Reform, Recovery and ...


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