provided that standard is not "manifestly unreasonable."
N YU.C.C. § 9-501(3).
The concept of "commercial reasonableness" is not explicitly
defined by the UCC. Courts have construed the term to "`mean that
the qualifying disposition must be made in the good faith attempt
to dispose of the collateral to the parties' mutual best
advantage.'" Federal Deposit Ins. Corp. v. Herald Square Fabrics
Corp., 81 A.D.2d 168, 184-85, 439 N.Y.S.2d 944 (2d Dep't 1981)
(quoting Central Budget Corp. v. Garrett, 48 A.D.2d 825, 826,
368 N.Y.S.2d 268 (2d Dep't 1975)). Section 9-507(2) expressly
provides that "the fact that a better price could have been
obtained by a sale at a different time or in a different method
from that selected by the secured party is not of itself
sufficient to establish that the sale was not made in a
commercially reasonable manner." N.Y.U.C.C. § 9-507(2) (McKinney
1998); see also Sumner v. Extebank, 88 A.D.2d 887, 888,
452 N.Y.S.2d 873 (1st Dep't 1982) (concluding that disposition of
collateral was commercially reasonable despite the difference
between the sale price and market value).
There are generally two approaches taken by courts in
determining whether a sale of collateral was commercially
reasonable. One line of cases holds that commercial
reasonableness turns on the procedures employed to effect the
sale. See In re Zsa Zsa, Ltd., 352 F. Supp. 665, 671 (S.D.N Y
1972). The other line of cases holds that commercial
reasonableness is demonstrated by the price obtained for the
collateral. See Mercantile Fin. Corp. v. Miller, 292 F. Supp. 797
(E.D.Pa. 1968). There is also some precedent indicating that
both the procedures and the price should be considered. The
Appellate Division, Second Department has noted that even in the
face of "procedural propriety," a wide or marked discrepancy
between the sale price and the market value requires strict
scrutiny "especially where . . . the possibilities for self
dealing are substantial." Herald Square Fabrics, 81 A.D.2d at
185, 439 N.Y.S.2d 944.
With or without close scrutiny, the attendant circumstances of
the sale of stock to Nicotra and the note to Colombo, which are
essentially undisputed, demonstrate the reasonableness of the
transaction. EYI was a closely held corporation. Certainly, it
was foreseeable that a "public sale" would not be an option for
the disposition of the pledged shares in the event of a default.
The parties clearly contemplated the need for a private sale at
the time the Pledge Agreement was signed. As evidenced by the
default, EYI was having financial problems and by plaintiff's own
admissions there were internal management conflicts. Plaintiff
admits that he received notice of the default and of the fact
that the FDIC would be accepting bids for the pledged stock.
The pledged stock was sold to Nicotra for $210,000. Plaintiff
claims, without providing any support, that the stock was worth
$3,000,000. Pl.'s Ans. to Interrogs. ¶ 2. Plaintiff claims that
he would have offered more than $210,000 for the shares had he
known that the FDIC was willing to sell the shares alone. Pl.'s
Aff. in Opp'n to Summ.J. ¶ 5. The fact is, however, that
plaintiff never made any such bid. Moreover, even if plaintiff
had made a bid in excess of $210,000, the FDIC may have still
chosen to enter into the transaction with Nicotra and Colombo. A
secured creditor is "`a lender, not an investor or a
co-entrepreneur; it [has] the right to define and limit the risks
it would accept.'" Sumner, 88 A.D.2d at 888, 452 N.Y.S.2d 873
(quoting Bankers Trust Co. v. Dowler & Co., 47 N.Y.2d 128, 134,
417 N.Y.S.2d 47, 390 N.E.2d 766 (1979)). EYI owed the FDIC over
$1,000,000 in interest and principal. EYI was experiencing
financial and managerial troubles. At that point the likelihood
that EYI would have ever repaid the note appeared doubtful. The
FDIC decided to limit its risks by not only disposing of the
collateral but by selling the ultimate risk, the note. The FDIC
entered into a transaction with Nicotra that allowed it to
dispose of the collateral and
the defaulted note for approximately the full amount of the
principal and interest owed.
This action frames an unfortunate but all too common dispute
among business partners no doubt prompted and flamed by financial
failure. Plaintiff's attempt to hold the FDIC responsible for the
unfortunate outcome cannot be sustained in law or fact. The FDIC
had a right under the Pledge Agreement to dispose of the pledged
stock in a private sale. EYI was a closely held corporation in
financial distress. The ultimate purchaser of the collateral was
bound to be an insider. The Pledge Agreement also contemplated
that a private sale may not maximize the sale proceeds.
Beninati's fellow shareholders' actions excluding him from
participating in the affairs of EYI are not attributable to the
FDIC. Moreover, after the default, Beninati no longer had any
voting rights. Beninati's allegations that the FDIC purposefully
structured the transaction to circumvent his rights under the
Shareholders' Agreement is not reasonable. The Court concludes
that the sale of the collateral was done in a commercially
D. Plaintiff's Motion to Amend the Complaint
Plaintiff moves to amend its complaint to add the United States
as a party. Plaintiff contends that if this Court concludes that
its claims are tort claims it should be permitted to pursue the
United States under the FTCA. Alternatively, plaintiff contends
that even if his claims sound in contract, the Court should allow
amendment of the complaint to add the United States as a party
and to plead a claim under the Tucker Act. Recognizing that the
Court of Claims would have exclusive jurisdiction over the Tucker
Act claim, plaintiff requests that the Court transfer that
portion of the action to the Court of Claims.
The Tucker Act provides that "district courts shall have
original jurisdiction, concurrent with the United States Court of
Federal Claims . . . [over] [a]ny . . . civil action or claim
against the United States, not exceeding $10,000 in amount,
founded . . . upon any express or implied contract with the
United States." 28 U.S.C. § 1346(a)(2). The Court expresses no
opinion as to whether plaintiff would be able to maintain an
action against the United States under the Tucker Act.
Rule 15(a) of the Federal Rules of Civil Procedure provides
that leave to amend pleadings should be "freely granted when
justice so requires." However, leave should not be granted where
it would be futile. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct.
227, 9 L.Ed.2d 222 (1962); In re American Express Co.,
39 F.3d 395, 402 (2d Cir. 1994). In light of this Court's conclusion that
defendant FDIC is entitled to judgment as a matter of law,
amendment of the complaint would serve no purpose.
Plaintiff's motion to amend the complaint is denied.
Defendant's motion to dismiss is granted.
The Clerk of the Court is directed to close this case.