ias term part 18 nassau county justice
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INDEXNO. 19657/2000
SUPREME COURT - STATE OF NEW YORKIAS TERM PART 18 NASSAU COUNTY
PRESENT:HONORABLE LEONARD B. AUSTINJustice Motion RID: 9-
Submission Date: 10-22-Motion Sequence No. : 009/MOT D
GILBERT SPECTOR and MYRASPECTOR,
Plaintiffs,
COUNSEL FOR PLAINTIFFSMark A. Bilhimer, Esq.385 W. John Street - 2 FloorHicksvile, New York 11801-1009
- against -
GOTHAM BANK OF NEW YORK,RICHARD MARCHINI and LAURENCER. MARCHINI, JR.
COUNSEL FOR DEFENDANTSHerzfeld & Rubin, P .40 Wall Street
New York, New York 10005
Defendants.
ORDER
The following papers were read on Defendants ' unopposed motion for summaryjudgment dismissing the amended complaint herein:
Notice of Motion dated June 18, 2004;Affdavit of Laurence R. Marchino sworn to on June 17, 2004;Affidavit of Richard Marchini sworn to on June 17, 2004;Affirmation of Peter J. Kurshan, Esq. dated June 16, 2004;Defendants ' Statement Pursuant to Rule 19-a;Defendants ' Memorandum of Law.
Defendants move for summary judgment dismissing Plaintiffs ' first amended
complaint. Plaintiff's have not opposed this motion.
SPECTOR, et ano. , v. GOTHAM BANK OF NEW YORK, et aI.Index No. 19657-
BACKGROUND
During the course of this litigation , a prior motion was made by Defendant
seeking dismissal of the original complaint. The factual circumstances surrounding this
matter have essentially not changed.
This action arises out of a written guarantee of payment, dated January 28 , 1999
executed by the Plaintiffs and non-parties Howard Wendy ("Wendy ) and Joseph
Krivulka ("Krivulka ). The subject guarantee was given in connection with a
$980,000.00 loan by Defendant Gotham Bank of New York ("Gotham ) to Innomed
Labs, LLC ("Innomed"
It is undisputed that on September 30, 1999 , Diana Wendy (the wife of Plaintiff
Gilbert Spector s business partner, Howard Wendy) purchased the loan in question from
Gotham. Plaintiffs ' complaint alleges that on October 26 , 1999, Gotham , by letter to
Plaintiffs , Innomed and other guarantors of the 1999 loan , gave notice that the loan had
been sold to Diana Wendy, effective October 26 , 1999.
By letter dated October 26 , 1999 to Innomed , Plaintiffs and Krivulka, the other
guarantor, Diana Wendy demanded immediate payment of the entire loan amount to
her. Just two weeks later, on or about November 11 , 1999, Diana Wendy commenced
an action in Westchester County solely against Plaintiffs herein for an alleged failure to
make the payment of the remaining balance of the 1999 Gotham loan to Innomed. She
subsequently obtained a judgment against Plaintiff in the approximate sum of
$847,000.00.
SPECTOR , et ano. , v. GOTHAM BANK OF NEW YORK, et aI.,Index No. 19657-
Plaintiffs now seek to hold Defendants liable for damages assessed against them
in Diana Wendy s Westchester County action. Initially, they did so via a complaint
which alleged sixteen separate causes of action. By order granted on March 14 2002,
this Court dismissed all of Plaintiffs ' causes of action other than those sounding in fraud,
attorneys fees and declaratory judgment. In addition , this Court granted Plaintiff leave
to replead five of the dismissed causes of action based upon UCC 9-504 , UCC 9-507
negligence and breach of contract.
The subsequently served amended complaint included the reconstituted UCC
and contract claims. However, the remaining theories of recovery were abandoned. In
addition , Plaintiffs interposed a tortious interference contract theory even though it had
not been pleaded in the original complaint. Upon motion , the tortious interference
cause of action was dismissed, by order granted on March 28 , 2003. In addition , this
Court found that Plaintiffs were collaterally estopped from pursuing various aspects of
their claim with regard to the breach of contract on the part of Gotham with regard to the
January 1999 guarantee inasmuch as those issues were fully litigated in the
Westchester County action.
This Court directed that the parties conclude discovery before further motion
practice would be appropriate. With discovery now complete, Defendants again press
their claim that this action should be dismissed.
SPECTOR, et ano. , v. GOTHAM BANK OF NEW YORK, et aI.,Index No. 19657-
Summary Judgment Standard
Summary judgment has found to be a "highly useful device for expediting the
justice position of ilegal dispute for all parties and conserving already overburdened
judicial resources. Suffolk Co. Dept. of Soc. Servs. o/b/o Michael V. V. James M. , 83
Y. 2d178, 182 (1984).
It is well settled that summary judgment is a drastic remedy that is granted only
when it is clear that no triable issue of fact exists. Andrev. Pomeroy, 35 N. 2d 361
(1974); and Alvarez V. Prospect Hosp. , 68 N. 2d 320 , 325 (1986). The moving party
bears the burden of making a prime facie showing that he or she is entitled to summary
judgment as a matter of law. Silman V. Twentieth Century - Fox Film Corp , 3 N.
395 (1957); Zuckerman V. City of New York , 49 N. 2d 557 , 562 (1980); Friends of
Animals. Inc. V. Associated Furs Mfrs.. Inc. , 46 N. 2d 1065, 1067 (1979). A failure to
make such a prima facie showing requires a denial of the summary judgment motion
regardless of the sufficiency of the opposing papers. Ayotte V. Gerasio , 81 N.
1062 , 1063 (1993).
Upon the completion of the court's examination of all the documents submitted in
connection with a summary judgment motion , the motion must be denied if there is any
doubt as to the existence of a triable issue. Rotuba Extruders. Inc. V. Ceppos , 46
2d 223 , 231 (1978).
SPECTOR, et ano. , v. GOTHAM BANK OF NEW YORK , et aI.Index No. 19657-
Fraud Claims - Seventh & Eighth Causes of Action
In order to establish a prima facie case for fraud, one must demonstrate the
misrepresentation of a material fact, knowledge of its falsity, the intention to deceive the
other party, the detrimental reliance by the other party and damages. See Lama
Holding Co. V. Smith Barney. Inc. , 88 N.Y. 2d 413 , 421 (1996); and Channel Master
Corp. v. Aluminum Limited Sales. Inc. , 4 N.Y. 2d 403, 407 (1958). The intentional
concealment of a known material fact can likewise be a false representation based upon
the context of refusing to speak. See, AII Mack Holdings. Inc. v. Union Truck Co. of
New York, 196 A.D. 2d 518, 518-19 (2 Dept. 1993). In their seventh and eighth
causes of action of the amended complaint, Plaintiffs allege both affirmative
misrepresentations and fraud by concealment by Defendants.
The key to the allegations in the seventh and eighth causes of action, however
relate to misrepresentations made by Howard Wendy; not a party to this action. The
alleged misrepresentations were with regard to the 1999 guarantee being in the same
format as an earlier guarantee for a loan to Innomed made in 1998; that Plaintiffs were
guaranteeing an installment loan with payment terms of $20 000.00 per month plus
interest; and that 14 600 shares of stock in Omnicom Group Inc. ("Omnicom ) were
being used to secure the Innomed loan and would be available to satisfy any default.
As to each of the foregoing elements of fraud claimed by Plaintiffs , they cannot
succeed. The part who alleges that he/she has been defrauded must demonstrate that
his/her reliance upon the alleged fraudulent misrepresentations of the Defendant were
SPECTOR, et ano., v. GOTHAM BANK OF NEW YORK, et aI.Index No. 19657-
reasonable. See, Schlaifer Nance & Co.. Inc. v. Estate of Warhol , 927 F.Supp. 650,
660 (SDNY 1996), aff' 119 F.3d 91 (2d Cir. 1997). Where a party could reasonably
ascertain , through inquiry or investigation of available information as to the true nature
of the transaction , his/her reliance cannot be said to be reasonable which negates an
essential element of a fraud claim. Gruman Alled Indus.. Inc. v. Rohr Indus.. Iric. , 748
F. 2d 729, 737 (2 Cir. 1984). See also Philp Credit Corp. v. Regents Health Group.
Inc. , 953 F. Supp. 482 (SDNY 1997); and Pappas v. Harrow Stores. Inc. , 140 AD. 2d
501 (2 Dept. 1988). Plaintiffs ' reliance on these representations is neither justified nor
reasonable under the circumstances.
It is clear that reasonable inquiry on the part of Plaintiffs would have resolved any
confusion or misapprehension on their part. Plaintiffs cannot blame Defendants for
their own failure of due dilgence exercise of ordinary care in the pursuant of this
\ transaction.
Further, it is , at best, difficult to understand how Plaintiffs could have relied upon
representations or misrepresentations of Gotham when they were made by Howard
Wendy. In fact, the papersdemonstrate that Wendy was operating solely in his capacity
as Plaintiffs ' close friend and long time attorney. He was not an agent of Gotham.
fact, during the deposition of Plaintiff Myra Spector, she testified that she signed
whatever papers Wendy put before her to sign. When she asked what she was signing,
Wendy told her that it was what the bank wanted and she signed the papers without
further discussion. She acknowledges that she did not even read the papers before she
SPECTOR, et ano., v. GOTHAM BANK OF NEW YORK, et aI.Index No. 19657-
signed them since she would have not understood it then and that she relied upon and
trusted Wendy as her attorney. There is nothing in this record to even remotely suggest
that Wendy was directly or indirectly acting on behalf of Gotham Bank. In fact, he was
acting solely as Plaintiffs' attorney; nothing more. Certainly, Plaintiffs have not been
able to demonstrate or show on this record, that Wendy had any authority to act on
behalf of Gotham which is a prerequisite for a finding of an agency relationship. See,
Ford v. Unity Hose. , 32 N.Y. 2d 454 , 472-3 (1972); and Shaw Temple AM.E. Zion
Church v. Mount Vernon Fire Ins. Co. , 199 AD. 2d 374 , 376 (2 Dept. 1993).
Likewise, with regard to the alleged fraudulent concealment , Plaintiffs ' failure to
respond to, and make inquiry of, the parties involved and to resolve issues of fact which
were then known to them bars recovery now. Plaintiffs have failed to establish that
there was a relationship between Plaintiffs and Defendants which would give rise to a
duty to disclose. See Lane v. McCallion , 166 AD. 2d 688 , 691 (2 Dept. 1990). As to
this issue , Mr. Spector testified in his deposition , that he was relying upon Wendy
statements to him and not any other information. It is pure speculation on the part of
Plaintiffs that Wendy represented that there was an involvement with Defendants so as
to. give rise to liabilty under a fraud theory.
Accordingly, summary judgment dismissing the fraud causes of action should be
granted.
SPECTOR, et ano. , v. GOTHAM BANK OF NEW YORK, et aI.Index No. 19657-
UCC Article 9
Plaintiffs claim that Defendants improperly released the primary collateral of the
underlying loan , 14 600 shares of Omnicom to Diana Wendy which was part of her
purchase of the underlying Innomed note. They claim that this was commercially
unreasonable and without notice to them. Thus, they argue that the transaction was in
violation of UCC 9-504 which provides that a secured creditor may utilze collateral for
the payment of a secured debt only after there has been a default.
The key question , which avoided dismissal of the UCC claims in prior motion
practice, is whether the default which triggered the release of the Omnicom stock
occurred before or after a default. Now, in the absence of any opposition on the part of
Plaintiffs on this crucial question, it is clear that there was no default when Diana Wendy
purchased the loan from Gotham. At that point, she sent the demand letter to Plaintiffs.
Thereafter, she declared the default when payment was not made in accordance with
her demand. To transfer the collateral to Diana Wendy when she purchased the note
does not compromise it nor is it violative of UCC 9-504 and 9-507. Thus, the cause of
this action sounding in these theories must be dismissed.
Fourth Cause of Action
Plaintiffs ' fourth cause of action arises under the guarantee. Although Plaintiffs
seem to assert this claim against the individual Defendants as well as Gotham, it is
clear that only Gotham can be liable with regard to this contractual obligation with
Plaintiffs. Specifically, Plaintiffs' allege claims under 1f1f 7 and 8 of the Guarantee.
SPECTOR, et ano., v. GOTHAM BANK OF NEW YORK, et aI.,Index No. 19657-
The primary thrust of Plaintiffs claim is that Gotham breached its obligation of
good faith and fair dealing. However, no such independence cause of action exists
Silvester v. Time Warner. Inc., 1 Misc. 3d 250 258 (Sup. Ct., NY Co. 2003)), even
though there is an implied covenant of good faith and fair dealing in the every contract.
See Wood v. Lucy. Lady Duff-Gordon , 222 N.Y. 88 (1917); and Murphy v. American
Home Products Corp. , 58 N. 2d 293 (1983). Thus, any of Plaintiffs ' claims with regard
to such a breach must be dismissed.
With regard to 1f 4 of the Guarantee, Plaintiffs Claim that Gotham failed to use
reasonable care in the preservation of the collateral - - the 14 600 Omnicom shares
in that those shares were released to Diana Wendy. Paragraph 4 oftheGuarantee
provides, with Plaintiffs' express consent andagraement
,.
that the collateral could be
exchanged , sold , released , surrendered or otherwise de lt with" by Gotham without
notice or further consent by Plaintiffs. This Court sO found in its March 2003 Order.
Thus, any claims arising under1f 4 ofthe Guarantee must be dismissed.
As to 1f 7 of the Guarantee , Plaintiffs claim that Gotham was required to give
notice to the guarantors of any disposition of the collateral; to wit: release of the 14 600
Omnicon shares to Diana Wendy. These are same issues which were litigated in the
Westchester County action. Accordingly, as this Court determined in its March 2003
decision , Plaintiffs ' are estopped from raisingtheseself-sarne arguments in this action.
Accordingly, the claims relating to 1f 7 ofthe Guaranteernust be dismissed.
Under 1f 8 of the Guarantee, Plaintiffs claim that Gotham had an obligation to
SPECTOR, et ano. , v. GOTHAM BANK OF NEW YORK, et aI.Index No. 19657 -
account to them with regard to any surplus realized in the disposition of the collateral.
They also assert that such disposition must have been in a commercially reasonable
manner although the language of 8 makes no such provision. In the context of the
language of the guarantee itself, no basis can be found for Plaintiffs' claims.
In addition , it is noted that when the loan was sold to Diana Wendy, the collateral
went with it. Thus , if there was any breach of the agreement with regard to the
disposition of the collateral , Plaintiffs can only look to Diana Wendy; not Gotham.
However, since Plaintiffs have already liigated these claims in the Westchester action
against Diana Wendy, without success , they cannot now set their sights on Gotham
which disposed of the collateral along with the loan package in a reasonable and
appropriate manner. Plaintiffs ' claims in this regard must also be dismissed.
E. The Fifth Cause of Action
In the fifth cause of action, Plaintiffs Claim that Defendants (again Gotham is the
only party against whom such claim is properly made).breached the Consent to
Hypothecation and Security Agreement ("Hypothecation Agreement") executed by
Plaintiff Gilbert Spector on April 8, 1998. In that agreement, Mr. Spector pledged to
Gotham fift (50) shares of Hogil Pharmaceutical Co. Plaintiffs allege that the
Hypothecation Agreement related only to the 1998 loan transaction. That claim is not
supported by the evidence.
The Hypothecation Agreement provided that it was to encompass "each and
every liabilty of the customers" (which was defined as Innomed) to Gotham which then
SPECTOR , et ano. , v. GOTHAM BANK OF NEW YORK, et aI.Index No. 19657-
existed or which thereafter would be incurred. In fact, the Hypothecation Agreement
provides that Mr. Spector agreed to waive any and all notice of the creation of any
obligations which would be subject to the Hypothecation Agreement or that he would
have notice that the Hogil stock would be considered a part of the subsequent 1999
Innomed loan.
When the loan was transferred to Diana Wendy, the Hypothecation Agreement
was assigned as well. There is no provision in any agreement before this Court which
would suggest that such transfers to Diana Wendy were improper, inappropriate or
violative of any contractual provision or agreement.
Plaintiffs have failed to come forward with any evidentiary proof to demonstrate
that Gotham , in any way, violated the nbtice provisions or any other provisions of the
Hypothecation Agreement. The provisions relating to the notice of disposition relate to
the disposition of the Hogil stock in the event of a default. That is not the circumstance
which occurred between Plaintiffs and Gotham.
Gotham s transfer of the loan package to Diana Wendy occurred prior to any
default. Thus , Gotham was under no notice obligation to Plaintiffs. Indeed, UCC 9-504
contemplates notice upon the disposition of collateral when a secured party enforces its
rights against a debtor via a foreclosure on the secured property. The assignment of a
debt or an interest in collateral under a security agreement cannot be viewed as a
disposition of collateral as contemplated in UCC 9-504. See Trans America
Commercial Finance Corp. v. Rochfort, 244 Neb. 802 , 806, 509 N.W. 2d 214, 219
SPECTOR, et ano. , v. GOTHAM BANK OF NEW YORK, et aI.,Index No. 19657-
(1993). See also, Hairgrove v. Cramer Financial Gro.. Inc. , 895 S.W. 2d 874 (Tex. Ct.
App. 1995).
Accordingly, Plaintiffs' claims with regard to the Hypothecation Agreement must
be dismissed.
Declaratory Judgment Cause of Action
Plaintiffs seek to have this Court declare that the. Hypothecation Agreement was
null and void for lack of consideration or that it is null and void as of the date of the 1999
loan agreement. The Hypothecation Agreement itself recites consideration for
Gotham s agreement to provide loans to Innomedirlthefuture. A guarantee which
contemplates the accrual of future indebtedness constitutes consideration for past and
future indebtedness and obligations. Sun OilYCo. v. Heller, 248 N.Y. 28 (1928). See
also, Columbus Trust Co. V. Campolo, 110 A. 2d 616 (2 Dept. 1985); and Halpern
v. Rosenblum , 459 F.Supp. 1346 (SDNY 1978). . Plaintiffs received value for their
guarantee and under the. Hypothecation Agreement. Thus , fClir consideration was paid
for the obligation and guarantee.
Attorneys Fees
The sixth cause of action of the amended complaint seeks attorneys fee.
However, inasmuch as all of the remaining substantive claims of Plaintiffs are dismissed
by virtue of this decision and order, counsel fees are unavailable to Plaintiffs.
Accordingly, it is,
SPECTOR, et ano., v. GOTHAM BANK OF NEW YORK, et aI.,Index No. 19657-
ORDERED that Defendants ' motion for summary judgment dismissing the
amended complaint is granted. The amended complaintherein is hereby dismissed.
Mineola, NYJanuary 12 2005 Hem. LEONA
~~~.,
cou'f
s"\) s of..s
This constitutes the decision and Order of the Court.
Dated:
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