United States District Court, E.D. New York
BANK OF AMERICA, N.A., individually and as successor to LaSalle Bank, National Association, a national banking association, Plaintiff,
Mark FISCHER and Wayne M. Wahrsager, Defendants.
[Copyrighted Material Omitted]
Mayer Brown LLP, by: Jean-Marie L. Atamian, Esq., Allison M. Stowell, Esq., New York, NY, for Plaintiff.
Pachulski Stang Ziehl & Jones LLP, by: John A. Morris, Esq., New York, NY, for Defendant Mark Fischer.
Wayne M. Wahrsager, pro se.
MEMORANDUM AND ORDER
HURLEY, Senior District Judge.
Bank of America, N.A. (" plaintiff" or " Bank of America" ) commenced this diversity action against Mark Fischer (" Fischer" ) and Wayne Wahrsager (" Wahrsager" ) (collectively, the " defendants" ) for breaching their guaranties in connection with a $17.5 million loan to New York Merchants Protective Co., Inc. (" NYMP" ), a company owned and controlled by the defendants. Presently before the Court is Bank of America's motion, made pursuant to Federal Rule of Civil Procedure (" Rule" ) 56, seeking summary judgment against the defendants for the full amount of the loan in addition to other amounts owed by NYMP. For the reasons set forth below, plaintiff's motion is GRANTED.
Before the Court can set forth those facts which are material to Bank of America's motion, there are threshold issues that need to be resolved first. These issues include what evidence may be considered in light of the defendants' invocation of their Fifth Amendment privilege against self incrimination, and the weight the evidence may be given based on the defendants' failure to comply with Rule 56.1 of the Local Civil Rules of the U.S. District
Court for the Southern and Eastern Districts of New York (" Local Rule 56.1" ).
First, Wahrsager's affidavit in opposition to the plaintiff's motion for summary judgment will not be considered in light of his invocation of the Fifth Amendment privilege against self incrimination during his deposition.  It is well-settled that a party in a civil proceeding has the right to assert the privilege against self-incrimination. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 316, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976); United States v. 4003-4005 Fifth Ave., 55 F.3d 78, 82 (2d Cir.1995). However, " [b]ecause of the potential for abuse of the privilege by defendants who use it to obstruct discovery only to waive it and subject the plaintiff to surprise testimony at trial, the courts recognize the appropriateness of imposing sanctions for a civil defendant's assertion of the privilege during discovery." United States v. Inc. Vill. of Island Park, 888 F.Supp. 419, 431 (E.D.N.Y.1995); see also City of New York v. Golden Feather Smoke Shop, Inc., 2010 WL 2653369, at *4 (E.D.N.Y. June 25, 2010) (" Where a litigant has sought to use the Fifth Amendment to abuse or obstruct the discovery process, a district court can prevent prejudice to opposing parties and adopt remedial measures or impose sanctions." ). For example, " a decision to assert the privilege during pre-trial depositions may be valid grounds ... for striking affidavits opposing summary judgment motions." Inc. Vill. of Island Park, 888 F.Supp. at 431.
During his January 10, 2012, deposition, Wahrsager invoked his Fifth Amendment privilege in response to every question with the exception of his name. (Atamian Decl., Ex. 39.) These questions involved the same issues and events which Wahrsager now attempts to dispute in his affidavit. Under similar circumstances, courts have not considered affidavits submitted in opposition to a motion for summary judgment. See Bourgal v. Robco Contracting Enters., 969 F.Supp. 854, 862 (E.D.N.Y.1997) (barring defendants, who avoided producing almost any discovery by invoking the Fifth Amendment privilege, " from creating issues of fact by submitting affidavits in support of their opposition to the [plaintiff's] motion for summary judgment" ); Inc. Vill. of Island Park, 888 F.Supp. at 431 (" In view of [defendants'] repeated invocation of their Fifth Amendment privilege at deposition, their ‘ eleventh hour’ attempt to avoid the consequences of asserting that privilege by submitting affidavits in opposition to [plaintiff's] summary judgment motion constitutes an abuse of the discovery procedure which should not be permitted." ). Thus, the Court will not consider Wahrsager's affidavit in ruling on Bank of America's motion for summary judgment.
Second, Bank of America satisfied its obligations under Local Rule 56.1 by submitting " a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried," together with " citation to evidence which would be admissible, set forth as required by Fed.R.Civ.P. 56(c)." See Local R. 56.1(a), (d). In response, defendants were required to provide " a correspondingly numbered paragraph responding to each numbered paragraph in the statement of the moving party" followed by citations to admissible record evidence. See Local R. 56.1(b), (d). Notwithstanding this obligation, neither defendant
complied. Instead of submitting a 56.1 counter-statement, Fischer's attorney submitted a declaration which fails to respond to each numbered paragraph in plaintiff's 56.1 statement of undisputed material facts (" Plaintiff's 56.1 Statement" ). In fact, this declaration does not dispute 233 of the 235 paragraphs of material facts contained in Plaintiff's 56.1 Statement. Counsel's declaration merely emphasizes that, with two exceptions, all of the fraudulent conduct asserted by plaintiff were in connection with conduct by defendant Wahrsager. ( See Morris Decl. ¶¶ 1-16, 21-22.) As for Wahrsager, he filed a document denominated " Counter-Statement of Material Facts and Affidavit in Opposition" which disputes only 59 of the 235 paragraphs of material facts contained in Plaintiff's 56.1 Statement.  ( See Wahrsager Aff. at 4-23.) However, in virtually all of Wahrsager's responses he simply recites his own version of the facts devoid of any citation to record evidence.
Local Rule 56.1 instructs that where a paragraph is not specifically controverted by the opposing party it " will be deemed to be admitted for purposes of the motion." Local R. 56.1(c); see also Giannullo v. City of New York, 322 F.3d 139, 140 (2d Cir.2003) (" If the opposing party then fails to controvert a fact so set forth in the moving party's Rule 56.1 statement, that fact will be deemed admitted." ). However, " [t]he local rule does not absolve the party seeking summary judgment of the burden of showing that it is entitled to judgment as a matter of law, and a Local Rule 56.1 statement is not itself a vehicle for making factual assertions that are otherwise unsupported in the record." Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 74 (2d Cir.2001).
While acknowledging that it has discretion " to overlook a party's failure to comply with local court rules," id. at 73, the Court declines to do so here. Fischer's failure to comply is inexcusable as he was represented by counsel. While Wahrsager is appearing pro se at this juncture, Bank of America provided him with the required notice to pro se litigants opposing motions for summary judgment pursuant to Local Rule 56.2. ( See Docket No. 90.) Attached to the Local Rule 56.2 Notice was the full text of Rule 56 and Local Rule 56.1. ( Id. ) Wahrsager's pro se status is therefore not a basis to overlook this District's Local Rules. See, e.g., Wali v. One Source Co., 678 F.Supp.2d 170, 178 (S.D.N.Y.2009) (finding that if proper notice is sent under Local Rule 56.2, " [p]ro se litigants are then not excused from meeting the requirements of Local Rule 56.1" ) Accordingly, all material facts set forth in Plaintiff's 56.1 Statement are deemed admitted to the extent that they
are adequately supported with record evidence.
Having now addressed the above threshold evidentiary issues, attention will now be directed to the material facts which serve as the basis for plaintiff's motion for summary judgment.
At all times relevant to this action, Fischer and Wahrsager owned and controlled NYMP, an electronic security and monitoring company which sells, installs, leases, maintains and monitors electronic security systems primarily for commercial customers and municipal entities in the Tri-state area and provides wholesale monitoring of alarm systems across various national markets. Fisher was a fifty-percent shareholder who served as NYMP's Chief Technology Officer. Wahrsager, who was also at one point a fifty-percent shareholder, served as NYMP's President and Chief Executive Officer.
On January 31, 2006, LaSalle Bank National Association (" LaSalle" or " Bank" ) entered into a Loan and Security Agreement (" Loan Agreement" ) with NYMP and certain of its subsidiaries (the " Borrowers" ), as well as the defendants (also referred to as the " Guarantors" ). (Atamian Decl., Ex. 3 (" Loan Agreement" ).) Pursuant to the Loan Agreement, LaSalle agreed to provide NYMP, inter alia, a revolving line of credit with a maximum principal amount of $15 million (" Revolving Loan" ) to (i) refinance existing indebtedness with General Electric Capital Corporation; (ii) to settle in full all outstanding obligation to the Internal Revenue Service and the New York State Department of Revenue; (iii) support internal growth of subscriber contracts; (iv) to finance acquisitions permitted hereby; and (v) fund working capital. (Loan Agreement §§ 1.1, 2.1(a).) The Loan Agreement contained a " borrowing base formula" to calculate NYMP's available credit at any given time (hereafter, " Borrowing Base Amount" ). (Loan Agreement § 1.1.) To determine the maximum principal amount that could be borrowed, NYMP was required to deliver to LaSalle a monthly " Borrowing Base Certificate" whereby the treasurer or chief financial officer of NYMP certified to the accuracy of the Borrowing Base Amount. (Loan Agreement § 7.9.)
Pursuant to the Section 3.1(a)(vii) of the Loan Agreement, Fischer and Wahrsager each executed a Limited Continuing Unconditional Guaranty simultaneous with the execution of the Loan Agreement (collectively, the " Guaranties" ). (Loan Agreement § 3.1; Atamian Decl., Exs. 1-2.) The Guaranties provide that:
the Guarantor hereby unconditionally and absolutely guaranties to the Bank
... the payment in full, promptly on demand of the Bank ... of (a) up to the principal amount of Five Million and 00/100 Dollars ($5,000,000.00) of the Indebtedness ... plus (b) all costs, legal expenses and attorneys' and paralegals' fees of every kind (including those costs, expenses and fees of attorneys and paralegals who may be employees of the Bank, its parent or affiliates), paid or incurred by the Bank in endeavoring to collect all or any part of the foregoing, in enforcing this Guaranty ... plus (c) interest on the foregoing from and after demand from the Bank to the ...