Scr Joint Venture L.P. v. Warshawsky, Docket No. 07-4029-cv.

• Decision Date: 12 March 2009
• Docket Number: Docket No. 07-4029-cv.
• Citation: 559 F.3d 133
• Parties: SCR JOINT VENTURE L.P., Plaintiff-Appellee, v. Ari WARSHAWSKY and Jerome Warshawsky, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

559 F.3d 133

SCR JOINT VENTURE L.P., Plaintiff-Appellee, v. Ari WARSHAWSKY and Jerome Warshawsky, Defendants-Appellants.

Docket No. 07-4029-cv.

United States Court of Appeals, Second Circuit.

Argued: November 21, 2008.

Decided: March 12, 2009.

Richard Gabriele, Westerman, Ball, Ederer, Miller & Sharfsten, LLP, Mineola, NY, for Appellants.

Steven Giordano, Vlock & Associates, P.C., New York, NY, for Appellees.

Before SACK and WESLEY, Circuit Judges, and KAHN, District Judge.^*

SACK, Circuit Judge:

Defendants-Appellants Jerome and Ari Warshawsky (the "Warshawskys"), father and son, appeal from an order of the United States District Court for the Eastern District of New York (Arthur D. Spatt, Judge) filed August 17, 2007, denying a motion to reconsider an order of the court filed June 6, 2007. In the June 6 order, the district court granted summary judgment in favor of Plaintiff-Appellee, SCR Joint Venture L.P. ("SCR"), based on the Warshawskys' guarantees to SCR of notes that had been issued by their business, I.W. Industries Inc. ("IW"), in connection with an ultimately unsuccessful reorganization in bankruptcy of the business.

The district court concluded that the relevant agreement between the parties required the senior IW debt to be repaid before SCR could seek to collect on the guarantees. It further held that the Warshawskys had the burden of establishing that the senior debt has not been repaid, and that they had not raised a triable issue of fact on that issue because their evidence as to it consisted only of hearsay deposition testimony and an affidavit of Jerome Warshawsky stating that "[t]o my knowledge, [the Senior Creditor] has not been paid in full."

We conclude that in this context, a statement made "to my knowledge," unlike a statement made "upon information and belief," is sufficient to assert personal knowledge and thus created a genuine issue of material fact as to the repayment. We therefore vacate the district court's judgment in that respect and remand as to that claim. We affirm the district court's grant of summary judgment against the Warshawskys, however, on their claim that SCR acquired its interest in the debt with a champertous purpose in violation of section 489 of New York's Judiciary Law, and on SCR's claim for repayment of one of the notes, which the parties refer to as the "Carve-Out Note."

BACKGROUND

On March 3, 2004, in connection with IW's ultimately unsuccessful Chapter 11 bankruptcy reorganization proceedings,¹ IW and SCR's predecessor in interest, Summitbridge National Investments, LLC ("Summitbridge"), executed three notes: (1) a "Carve-Out Note" in the sum of $79,971.77; (2) a "New Subordinated A Note" in the sum of $429,300; and (3) a "New Subordinated B Note" in the sum of $2,075,505.74 (collectively the "Notes"). On the same day, the Warshawskys each individually executed personal guarantees for payment of the Notes in the aggregate sum of $2,584,777.51 (the "Guarantees").

The next day, the Warshawskys, Summitbridge, Citibank N.A., and FCC, LLC doing business as First Capital ("First Capital"), executed another agreement with IW called the Debt Subordination and Intercreditor Agreement (the "Subordination Agreement"), which, among other things, subordinated the debt of Summitbridge and Citibank, the "Junior Creditors," to that of First Capital, the "Senior Creditor." About four months later, on July 12, 2005, Summitbridge assigned and transferred its interest in the Notes and Guarantees to SCR.

According to SCR, the Warshawskys defaulted with respect to their obligation under the Notes and Guarantees by failing to pay any of the principal of or interest on them. This appeal arises out of an action by SCR brought in the district court to collect this allegedly unpaid debt. The court granted summary judgment for SCR on three grounds relevant to this appeal. Memorandum and Order Granting Summary Judgment 21, SCR Joint Ventures, L.P. v. Warshawsky, No. 06 Civ. 3532 (E.D.N.Y. Sept. 18, 2007) (Docket No. 47). First, the court rejected the Warshawskys' argument that SCR could not collect its debt because the senior debt had not been repaid, concluding that the Warshawskys had submitted no admissible evidence to show that the senior creditor had not been paid in full. Id. at 10-13. Second, the court rejected the Warshawskys' argument that SCR acquired the debt with a champertous purpose in violation of section 489 of New York's Judiciary Law, concluding that this argument was waived, and, even were it not, that there was no evidence establishing a triable issue of fact to support it. Id. at 13-18. Third, the court rejected the Warshawskys' argument that more discovery was needed prior to summary judgment in light of SCR's refusal to cooperate, concluding that the Warshawskys could have obtained the requested information previously. Id. at 18-21. The Warshawskys filed a motion to reconsider the grant of summary judgment, which the district court denied. The Warshawskys appeal.

DISCUSSION

I. Reviewability of the Summary Judgment Order

The Warshawskys' notice of appeal, while referring to the grant of summary judgment, explicitly appeals only from the denial of their motion to reconsider.² SCR argues that we therefore have jurisdiction to review only that order, not the underlying grant of summary judgment.

Our recent decision in "R" Best Produce, Inc. v. DiSapio, 540 F.3d 115 (2d Cir. 2008), counsels otherwise. In "R" Best Produce, we decided that we had jurisdiction to review an underlying district court order—in that case denying a motion to vacate a default judgment—where the notice of appeal referred to an order denying reconsideration, but not the underlying order itself. We endorsed a "straightforward approach" to resolving the issue of which orders, not referred to in a notice of appeal, are reviewable, concluding that "a notice of appeal from denial of a motion to reconsider, filed within ten days of the order or judgment sought to be considered suffices to bring up for review the underlying order or judgment, at least where the motion renews arguments previously made." Id. at 121. The motion to reconsider in the instant case similarly "renews arguments previously made," and, therefore, we may review the underlying order granting summary judgment.

II. Standard of Review

"We review a district court's grant of summary judgment de novo, construing the evidence in the light most favorable to the non-moving party and drawing all reasonable inferences in its favor." Allianz Ins. Co. v. Lerner, 416 F.3d 109, 113 (2d Cir.2005). Summary judgment must be granted to the movant "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir.2008). "An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. A fact is material if it might affect the outcome of the suit under the governing law." Id. (citation and internal quotation marks omitted).

III. Payment of the Senior Debt

Section 2.4(a) of the Subordination Agreement provides:

Until the Senior Creditor Repayment, no Junior Creditor shall be entitled to exercise any rights or remedies with respect to ... any Guarantor or any Junior Creditor Guaranty, including without limitation to the right to ... make demand under, sue under or otherwise seek payment under any Junior Creditor Guaranty....

Subordination Agreement, § 2.4(a). Under the terms of the Subordination Agreement, then, until full repayment has been made to the Senior Creditor, Junior Creditors, such as Summitbridge and its successor in interest SCR, cannot bring suit against the Guarantors, the Warshawskys, for the Junior Creditor Guaranty, i.e., the debt owed to the Junior Creditor by the Warshawskys.

This lawsuit was brought for precisely that purpose: to collect on the debt allegedly owed to SCR by the Warshawskys. The Warshawskys assert that the Senior Creditor had not been paid in full at the time this action was begun, and that, therefore, this lawsuit is barred.

A. SCR's Arguments Based on Contractual Language

SCR argues that the remainder of section 2.4(a)³ nonetheless permits it to bring this suit. But the proviso contained in that section applies only to "the Citibank Carve-Out Note, the Summitbridge Carve-Out Note or the Citibank Short Fall Note," not the New Subordinated A Note or the New Subordinated B Note at issue.

Section 2.6(b) of the Subordination Agreement provides that the "rights and interests ... hereunder ... shall remain in full force and effect irrespective of ... any ... defense available to ... Borrower." Subordination Agreement, § 2.6(b) (emphasis added). SCR argues that this section permits it to assert its claim under the subordinated notes because it establishes that the Subordination Agreement does not "provide a defense" for the Warshawskys or "limit the rights" of SCR. Appellee Br. 20. But the provision refers only to the rights and interests under the Subordination Agreement. The Warshawskys are not asserting that the rights thereunder are not "in full force and effect." They insist only that these rights not be expanded to permit collection of the junior debt before the senior debt has fully been paid.⁴

B. The Warshawkys' Arguments Based on Nonpayment of the Senior Debt

The district court found that while the Senior Creditor had to be repaid before SCR could bring suit for its debt, the Warshawskys had not submitted admissible evidence to establish that the Senior Creditor had not been paid in full. In their motion to reconsider, the Warshawskys pointed out that prior to the court's ruling on the summary judgment motion, they had submitted an affidavit by Jerome Warshawsky. It stated in pertinent part: "To my...