443 F.3d 180 (2nd Cir. 2006), 04-5824, Grace v. Bank Leumi Trust Co. of New York

Docket Nº:04-5824-CV(L), 04-5840(CON), 04-5842-CV(CON).
Citation:443 F.3d 180
Party Name:Lorraine G. GRACE, Individually and as Executrix of the Estate of Oliver R. Grace, Gerald I. White, Trustee U/W Morgan H. Grace, for the Marital Deduction Trust, Gerald I. White, Trustee U/W Morgan H. Grace for the Non-Marital Deduction Trust and Gerald I. White, Trustee U/W Morgan H. Grace for the Generation Skipping Trust and Gerald I. White, Tru
Case Date:April 04, 2006
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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443 F.3d 180 (2nd Cir. 2006)

Lorraine G. GRACE, Individually and as Executrix of the Estate of Oliver R. Grace, Gerald I. White, Trustee U/W Morgan H. Grace, for the Marital Deduction Trust, Gerald I. White, Trustee U/W Morgan H. Grace for the Non-Marital Deduction Trust and Gerald I. White, Trustee U/W Morgan H. Grace for the Generation Skipping Trust and Gerald I. White, Trustee of the John E. Grace Trust, individually and as stockholders of Briggs Leasing Corp., suing on behalf of themselves and for the benefit of said corporation and for the class of all other stockholders of said corporation similarly situated, Plaintiffs-Appellants,

v.

BANK LEUMI TRUST COMPANY OF NEW YORK, David Mack, the Estate of Leo V. Berger, Apex Marine Corp., Harvey Schwartz, Phyllis Sepe and Sigmund Kassap, Trustee of the Leo V. Berger Grantor Trust No. 1 as Personal Representative of the Estate of Leo V. Berger, Non-Party Movants-Defendants-Appellees,

Robert Rosenstock, Robert Genser, Edward Rosenstock, Briggs Leasing Corporation and Briggs Acquisition Corporation, Defendants.

Nos. 04-5824-CV(L), 04-5840(CON), 04-5842-CV(CON).

United States Court of Appeals, Second Circuit

April 4, 2006

Argued: September 12, 2005

Plaintiffs-appellants appeal from an order, entered in the United States District Court for the Eastern District of New York (Trager, J.), granting non-party movants-defendants-appellees' motion to vacate a judgment. See Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Oct. 5, 2004). Plaintiffs-appellants also appeal from two orders, entered sua sponte in the United States District Court for the Eastern District of New York (Trager, J.). Grace v. Bank Leumi Trust Co. of New York, No. 04-cv-0708 (E.D.N.Y. Oct. 14, 2004); Grace v. Schwartz, No. 04-cv-1622 (E.D.N.Y. Oct. 14, 2004).

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SIDNEY BENDER and Risa Bender, Leventritt Lewittes & Bender, New York, NY, for Plaintiffs-Appellants.

ROBERT FRYD and Donald Levinsohn, Warshaw Burstein Cohen Schlesinger & Kuh, LLP, New York, NY, for Non-Party Movant-Defendant-Appellee Bank Leumi Trust Company of New York,

DAVID T. AZRIN and Harvey Schwartz, Gallet Dreyer & Berkey, LLP, New York, NY, for Non-Party Movants-Defendants-Appellees David Mack, the Estate of Leo V. Berger, Apex Marine Corp., Harvey Schwartz, Phyllis Sepe and Sigmund Kassap, Trustee of the Leo V. Berger Grantor Trust No. 1 as Personal Representative of the Estate of Leo V. Berger.

CARDAMONE, CABRANES, and POOLER, Circuit Judges

POOLER, Circuit Judge

Three appeals have been consolidated in this case. On July 3, 1985, plaintiffs-appellants ("plaintiffs") commenced a federal

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action, against Briggs Leasing Corporation ("Briggs"), Briggs Acquisition Corporation ("BAC"), and individual defendants, in which plaintiffs asserted individual, class, and derivative claims for "equitable and other relief." On March 17, 1994, the United States District Court for the Eastern District of New York (Johnson, J.), entered a default judgment against Briggs. A trial against defendant Robert Rosenstock and an inquest to fix damages against Briggs were scheduled to begin in August 1997. On July 31, 1997, plaintiffs and Robert Rosenstock entered into a stipulation of settlement against Briggs and Robert Rosenstock. On August 5, 1997, the United States District Court for the Eastern District of New York (Trager, J.) approved the stipulation by order and directed the clerk to enter a final judgment, which the clerk did against Briggs on August 15, 1997.

In 2002, plaintiffs brought fraudulent conveyance actions in the United States District Court for the Southern District of New York, against non-party movants-defendants-appellees ("movants"), under New York Debtor and Creditor Laws ("DCL"), predicated upon the August 15, 1997, judgment against Briggs. In late 2002, movants initiated proceedings to vacate plaintiffs' judgment against Briggs under Rules 60(b)(4) and 60(b)(6) of the Federal Rules of Civil Procedure.

The district court (Trager, J.) granted movants' motion to vacate. Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Oct. 4, 2004). The district court also dismissed the fraudulent conveyance actions, because without an uncollected judgment as a predicate, there could be no causes of action for fraudulent conveyances. Grace v. Bank Leumi, No. 04-cv-0708 (E.D.N.Y. Oct. 6, 2004); Grace v. Schwartz, No. 04-cv-1622 (E.D.N.Y. Oct. 6, 2004).

We affirm.

Background

Prior to 1985, Briggs was a publicly-held auto-leasing company incorporated in New York. Robert Rosenstock, his father Edward Rosenstock, and Robert Genser ("Genser") were officers and directors of Briggs and owned, respectively, approximately 64 percent, 3 percent, and 5 percent of its outstanding stock. In January 1985, Robert Rosenstock and Genser decided to take Briggs private in a freeze-out merger.1 They incorporated BAC and planned to merge BAC and Briggs, buy out Briggs's minority shareholders, and make Briggs the surviving corporation. Rosenstock and Genser contributed all of their Briggs shares to BAC. Rosenstock purchased his father's shares of Briggs stock and contributed them to BAC. As a result, BAC owned 72 percent of the stock of Briggs, with Rosenstock and Genser owning all of the stock of BAC.

Briggs outlined a plan for a merger with BAC in a January 1985 proxy statement to its shareholders. All shareholders would be bought out at $1.50 per share. Eighty-six percent of the minority shareholders, including named plaintiffs, filed notices of election to dissent. A February 1985 special meeting approved the merger based solely on BAC's vote. At the meeting, plaintiffs voted their shares against the merger. The merger was nevertheless consummated on February 26, 1985, when Rosenstock and Genser became the sole holders of Briggs shares, owning approximately 93 percent and 7 percent, respectively.

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On May 20, 1985, plaintiffs brought an appraisal action against Briggs in the Supreme Court of the State of New York, Nassau County, to fix the fair value of their shares as dissenting shareholders.2 Briggs answered this action through counsel on July 23, 1985. Plaintiffs also notified the state court of their intention to file a federal action and requested that their appraisal action be held in abeyance pending the final determination of their case in federal court. The state court did so on October 7, 1985. Plaintiffs then commenced a federal action, asserting individual, class, and derivative claims for "equitable and other relief," in an amended complaint dated July 1, 1985. They named Robert Rosenstock, Genser, Edward Rosenstock, Briggs, and BAC as defendants. They alleged, inter alia, violations of the Securities Exchange Act of 1934, the New York Business Corporation Law ("BCL"), and fiduciary duties. They also brought derivative actions on behalf of Briggs against Robert Rosenstock, Genser, and Edward Rosenstock, for allegedly using corporate funds for personal expenses and diverting corporate opportunities to competing companies they owned. They requested that the class action be certified, the merger be set aside, the terms of the merger be reformed, the defendants "account for the damages suffered by Briggs and the profits and benefits enjoyed by the individual defendants by reason of [their wrongful conduct]," and the court give "such other, further, and different relief as may be just, including damages, together with costs, disbursements and a reasonable fee for plaintiffs' attorneys." Defendants Robert Rosenstock, Genser, and Edward Rosenstock answered this complaint on July 22, 1985, and Briggs answered separately, also on July 22, 1985. Briggs and the individual defendants were represented by different attorneys.

In an August 14, 1986, memorandum and order, the district court (Costantino, J.) granted plaintiffs' motion for class certification. Grace v. Rosenstock, No. cv-85-2039 (E.D.N.Y. Aug. 14, 1986) ("Grace I").3 In January 1988, Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey ("Finley Kumble"), the law firm that represented Briggs, declared bankruptcy, leaving Briggs without legal representation. Michael Rosen, the attorney for the individual defendants, determined that Briggs and his clients had a conflict of interest, and he could therefore not represent Briggs. Briggs did not appear by counsel for the next five years. Meanwhile, on January 19, 1989, an order of discontinuance was entered by the United States District Court for the Eastern District of New York (Costantino, J.), because the court received a report stating that the action had been settled. Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Jan. 19, 1989) ("Grace II"). In fact, Halperin v. Rosenstock, No. 85-cv-1258, an action brought by Robert Rosenstock's sister and brother-in-law (also Briggs minority shareholders), had settled. This settlement inadvertently led Judge Costantino to close Grace I.

Four years later, on March 1, 1993, plaintiffs moved to set aside the order of discontinuance and reopen Grace I. On

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March 24, 1993, an order from the United States District Court for the Eastern District of New York (Raggi, J.) held that Grace I had been closed in error and reopened it. Grace v. Rosenstock, No. cv-85-2354 (E.D.N.Y. Mar. 29, 1993) ("Grace III"). Plaintiffs then moved for a default judgment against Briggs and BAC on the issue of liability, and for an inquest after discovery to determine the amount of damages to be included in the judgment. Michael Rosen filed a motion to withdraw as counsel for defendants in June 1993. Genser obtained new counsel. Briggs and Rosenstock did not obtain new counsel. In 1993, pursuant to Rule 55 of the Federal Rules of Civil Procedure, default judgments were entered against...

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