The opinion of the court was delivered by: Parker, District Judge.
MEMORANDUM DECISION AND ORDER
Plaintift Jeffrey B. Sklaroff, acting as Receiver in Donna Lee H.
Williams, Insurance Commissioner of the State of Delaware v. LPDA
Acquisition Corp, et al., 96 Civ. 3079 (BDP), seeks to recover from
defendants monies due pursuant to a written guarantee of payment executed
by them as partial collateral security for the repayment of a loan.
Plaintiff moves for summary judgment. For the reasons stated herein, the
motion is granted.
In March 1991, National Heritage Life Insurance Company ("NHL") lent
$4.3 million to Franklin Realty Corp ("Franklin Realty"). The loan was
secured by a mortgage on property owned by Franklin Realty. The
defendants, Abraham and Isaac Rosenberg, were the sole shareholders and
officers of Franklin Realty. The Rosenbergs, along with another one of
their companies, Rose Castle Corp., executed a broad personal guarantee
in which they, among other things, "absolutely and unconditionally"
guaranteed the repayment of the loan to NHL. Specifically, in entering
the guarantee, the defendants further agreed that even if NHL released
the collateral securing Franklin Realty's debt, they would remain liable
under the guarantee to repay the money lent them by NHL. The guarantee
provides in part as follows:
[the guarantors] hereby consent that from time to
time, before or after any default by the borrower
. . . with or without further notice to or assent from
[the guarantors], any security at any time held by or
available to [NHL] for any obligation of the Borrower
. . . may be exchanged, surrendered or released and
any obligation of the Borrower . . . may be changed,
altered, renewed, extended, continued, surrendered,
compromised, waived or released in whole or in part
. . . and the [guarantors] shall remain bound under
this guaranty notwithstanding any such exchange,
surrender, release, change, alteration, renewal,
extension, continuance, compromise, waiver, inaction,
extension of further credit or other dealing.
In April 1992, NHL entered into a Participation Agreement with LPDA
Acquisition Corp., a New York corporation that was owned and controlled
by Lyle Pfeffer and Michael Blutrich. Under the Participation Agreement
NHL assigned to LPDA a 65% interest in seven mortgages including the
Franklin Realty mortgage and also authorized LPDA to administer the
Beginning in the spring of 1994 it started to become apparent that the
transaction involving Pfeffer and Blutrich, of which the Participation
Agreement was the centerpiece, was a massive fraud on NHL resulting in
tens of millions of dollars in losses. In April 1994, the Insurance
Commissioner entered an Order of Supervision over NHL under Delaware
law. Under the Order of Supervision, NHL was barred from transferring any
of its property and undertaking any action which could result in reducing
the net worth of NHL without the prior consent of the Commissioner.
The next month, on May 24, 1994, a Rehabilitation and Injunction Order
was entered by the Delaware Court of Chancery on the application of the
Insurance Commissioner. Under that order, the Commissioner was directed
to take possession and control of NHL's assets. In addition, that order
vested the Commissioner with title to all NHL property. In November
1995, the Delaware Chancery Court entered a Liquidation and Injunction
Order. Under the Liquidation Order, the Commissioner was directed to
maintain, and control the property and assets of NHL and succeed to its
title to and interest in all NHL's property. These various orders
furthered the broad remedial purpose of protecting and preserving the
assets of NHL for the benefit of its policy holders.
On May 30, 1996, the LPDA action was filed in this Court. See Donna Lee
H. Williams, et al. v. LPDA Acquisition Corp., et al., 96 Civ. 3079
(BDP). In that action, the Insurance Commissioner sought rescission, the
setting aside of fraudulent conveyances, money damages, as well as
equitable relief, including an order setting aside the Participation
Agreement as fraudulent.*fn1
Many months after the Insurance Commissioner took control of NHL, the
defendants, Abraham and Isaac Rosenberg, paid
$855,000 in July 1996 to an entity owned and controlled by Pfeffer and
Blutrich called NuLenda Inc. In return, the Rosenbergs received from LPDA
a Satisfaction of Mortgage, a transaction defendants claim extinguished
the $4,300,000 mortgage since the $885,000 was, they claim, fair
consideration. The Satisfaction was dated July 26, 1996.
Once it became apparent that the Participation Agreement was the
principal vehicle by which NHL was being looted, the Insurance
Commissioner moved on June 21, 1996, on notice to LPDA, Pfeffer and
Blutrich, for the appointment of a Temporary Receiver. In November 1996,
Sklaroff was appointed Temporary Receiver by order of this Court. The
order directs the Receiver to take possession of numerous mortgages,
including the Franklin Realty Mortgage at issue in this action, and
institute and carry on all legal proceedings for the protection of the
mortgages, including legal proceedings, such legal proceedings as might
be necessary to recover possession of the mortgages or property.
At the same time, the activities of Pfeffer, Blutrich, Isaac and
Abraham Rosenberg, Franklin Realty, NuLenda Corporation and other
individuals and entities were the subject of a large scale criminal
investigation by the Federal Bureau of Investigation and the United
States Attorney's Office for the Middle District of Florida. Blutrich,
Pfeffer, Isaac Rosenberg and others were indicted. See United States v.
Lyle Pfeffer, Case No. 97-71-Cr.-Ov, (22 C S2); See United States v.
Michael Blutrich, Case No. 97-71-Cr.-Ov-22 (S2).
In April 1998, Pfeffer and Blutrich executed plea agreements with the
United States Attorney's Office for the Middle District of Florida. They
plead guilty to approximately 18 felony counts, including RICO, and RICO
conspiracy charges arising from the massive fraud they perpetuated on
NHL, including criminal charges relating to the negotiation and
performance of the Participation Agreement and involving their dealings
with Abraham and Isaac Rosenberg. Two months later in June 1998,
Pfeffer, Blutrich and LPDA executed a Consent Order and Judgment in which
they consented to the entry of judgment in the LPDA's actions in amounts
ranging from $660,000 to $100,000,000. Under the terms of the consent
judgment, the Participation Agreement was rescinded and rendered void, ab
initio, and Pfeffer, Blutrich and LPDA consented to and accepted as
findings of fact the allegations made by the Insurance Commissioner in
the LPDA action. Pfeffer and Blutrich became cooperating government
witnesses in United States v. John Gotti, Jr., 99 Cr. 42 (BDP).
Isaac Rosenberg was also indicted in the Middle District of Florida for
bankruptcy fraud arising from his dealings with NHL. There, in return for
the government's agreement to dismiss more serious charges against him,
including a pending RICO conspiracy charge, Isaac Rosenberg plead guilty
to committing bankruptcy fraud in violation of Title 18, United States
Code, § 152 by filing false proofs of claim in a bankruptcy
proceeding pending in the United States Bankruptcy Court for the Eastern
District of New York. In the criminal proceeding against him, Rosenberg
allocuted that he had falsely sworn in court filings that NHL was a
creditor in the bankruptcy case ...