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SKLAROFF v. ROSENBERG

December 18, 2000

JEFFREY B. SKLAROFF, AS RECEIVER, PLAINTIFF,
V.
ABRAHAM ROSENBERG, ISAAC ROSENBERG, ROSE CASTLE CORP. AND FRANKLIN REALTY CORP., DEFENDANTS.



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.

FACTS

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.

Guarantee at 2.

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 mortgages.

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

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, ยง 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 ...


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