New England Merchants Nat. Bank v. Rosenfield
| Decision Date | 01 July 1982 |
| Docket Number | No. 77-1627,77-1627 |
| Parties | NEW ENGLAND MERCHANTS NATIONAL BANK, Plaintiff-Appellee, v. Coleman R. ROSENFIELD, and Gladys Rosenfield, Defendants-Appellants. . Unit B |
| Court | U.S. Court of Appeals — Fifth Circuit |
Gary D. Fox, Alan G. Greer, Miami, Fla., for defendants-appellants.
Gordon N. Schultz, Cyril Hochberg, Boston, Mass., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before GODBOLD, Chief Judge, TJOFLAT and THOMAS A. CLARK, Circuit Judges.
New England Merchants National Bank of Boston, Massachusetts (New England Merchants), brought this diversity action against Coleman and Gladys Rosenfield, the guarantors of several defaulted promissory notes given the bank by a bankrupt restaurant chain, Mama Tino, Inc. The amount due on the notes, $371,196, was not in dispute, but the Rosenfields denied they were liable to the bank as guarantors. The case was tried to a jury, and at the close of all the evidence the court directed a verdict in favor of the bank. In this appeal, the Rosenfields argue on several grounds that they are entitled to judgment as a matter of law or, alternatively, a new trial. None of their arguments has merit, and we therefore affirm.
In 1968, Nicholas and Pauline Fiorentino and Coleman and Gladys Rosenfield, decided to establish a chain of Italian restaurants. They lacked sufficient capital to fund the enterprise, so they persuaded several investors, including Jessup & Lamont, a New York brokerage firm, to join them. This group formed Mama Tino, Inc., and the Fiorentinos and the Rosenfields collectively purchased the controlling stock interest in the corporation. 1 Mama Tino's board of directors 2 elected Coleman Rosenfield chairman of the board and treasurer of the company and Nicholas Fiorentino president and chief executive officer. Jessup & Lamont became Mama Tino's financial advisor.
Mama Tino started its restaurant chain in South Florida with eight restaurants. 3 To obtain the funds necessary to construct these restaurants and to provide working capital, Mama Tino borrowed nearly one million dollars from Butlers Bank Limited of Nassau, Bahamas (Butlers Bank), and New England Merchants. This borrowing took place during various stages of restaurant construction and involved a series of promissory notes, some secured by restaurant properties and some unsecured. Mama Tino gave New England Merchants three of the unsecured notes: a $100,000 note due February 2, 1970; a $50,000 note due February 9, 1970; and a $50,000 note due March 9, 1970. Coleman Rosenfield executed each note as chairman of the board.
It soon became apparent that Mama Tino was undercapitalized. To cure this problem, its board of directors asked Jessup & Lamont to arrange a public stock offering. When, after considerable effort, Jessup & Lamont was unable to bring a stock issue to market, Mama Tino was forced to look elsewhere for help.
Coleman Rosenfield and Nicholas Fiorentino contacted Constantinos Philips, assistant vice-president of New England Merchants, and asked that the bank renew Mama Tino's $100,000 note due February 2, 1970, and its $50,000 note due February 9, 1970; "discount" two of Mama Tino's outstanding secured loans; 4 and lend $50,000 to Mama Tino for working capital. On February 2, 1970, Philips wrote Nicholas Fiorentino stating that the bank would discount the two secured loans and would renew the two notes if the Fiorentinos and the Rosenfields guaranteed all of Mama Tino's indebtedness to the bank; the bank, however, would not lend Mama Tino the additional $50,000 it requested. Philips also stated that each guarantor would have to file a personal financial statement with the bank. Nicholas Fiorentino and Coleman Rosenfield discussed this letter and decided to proceed in accordance with its tenor. On February 6, 1970, Coleman Rosenfield, as chairman of Mama Tino's board of directors, signed a thirty-five day $150,000 promissory note, dated February 2, 1970, payable to New England Merchants, and on February 8, Nicholas Fiorentino hand delivered the note and the required guaranties to the bank in Boston. On February 10, the bank marked paid the Mama Tino notes due February 2 and 9, 1970, and entered the new $150,000 note on its ledger. At this time, Nicholas Fiorentino gave the bank his personal financial statement, but the other guarantors did not.
Mama Tino was unable to obtain from any source the working capital it needed, and it developed a negative cash flow. It did not pay the unsecured notes due New England Merchants in March 1970, and in April, Philips went to Florida to evaluate Mama Tino's financial condition. At an April 9 meeting of Mama Tino's board of directors, 5 Philips learned that the company was technically insolvent and that additional operating funds were not available. Philips repeated to the board what he had written Nicholas Fiorentino on February 2: New England Merchants would make no more loans to the company. Philips also asked the Rosenfields and Mrs. Fiorentino for the financial statements they had neglected to furnish the bank. Mrs. Fiorentino immediately complied, signing her husband's financial statement. But the Rosenfields refused to provide their financial statements until they discussed the matter with their attorney, and, in the end, they never submitted their statements to the bank. Coleman Rosenfield told Philips that his guaranty might not be enforceable, though he did not explain why. Philips consequently had Rosenfield reexecute his guaranty on the spot.
Mama Tino's board of directors thereafter met several times to discuss the company's financial troubles. By April 21, 1970, the board members concluded that unless they immediately raised $50,000 in working capital, the company was headed for bankruptcy. In May, Coleman Rosenfield proposed that Mama Tino raise the $50,000 by selling its surplus real estate and by instituting a damage suit against Jessup & Lamont for failing to perfect a public stock offering. 6 The real estate was not sold, however, and Mama Tino, on June 3, 1970, commenced proceedings in the Southern District of Florida for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq. (1976). On the same day Mama Tino brought a damages action against Jessup & Lamont in Florida state court. The case was soon dismissed, however, because the court lacked personal jurisdiction over Jessup & Lamont.
To protect its financial interest in Mama Tino and to proceed against the Rosenfields and Fiorentinos as the guarantors of Mama Tino's debts, New England Merchants employed a Florida attorney, J. J. Simons. Simons appeared for the bank in the Chapter XI arrangement proceedings, but he refused to sue the guarantors, and so informed them, because the bank had been referred to him by Coleman Rosenfield. New England Merchants thus dealt with the guarantors directly. On June 18, 1970, it contacted Nicholas Fiorentino and offered to refrain from suing him and his wife on the guaranties if he would sue Jessup & Lamont and apply the proceeds of any recovery to Mama Tino's indebtedness to the bank. 7 Fiorentino did not respond to this offer, however, so the bank withdrew it. Some time prior to September 22, 1970, New England Merchants obtained from the bankruptcy court various assets of Mama Tino, including several restaurants, in which the bank held a security interest. 8 The bank then employed Nicholas Fiorentino to aid it in liquidating some of these assets and to operate the restaurants the bank had acquired. As part of this employment arrangement, the bank agreed not to sue Fiorentino or his wife on their guaranties.
New England Merchants did not proceed against the Rosenfields until May 1974, when it demanded that they pay off the balance due on Mama Tino's loans. The Rosenfields refused to pay, and the bank brought this suit in the United States District Court for the District of Massachusetts. The Rosenfields promptly moved for a change of venue pursuant to 28 U.S.C. § 1404(a) (1976); the motion was granted, and the case was transferred to the Southern District of Florida.
The Rosenfields raised four defenses to New England Merchants' claim that they were liable, as guarantors, for Mama Tino's $371,196 indebtedness to the bank. First, they contended that the guaranties they had executed in favor of the bank had been delivered conditionally: the guaranties were not to take effect unless and until the bank loaned Mama Tino an additional $50,000 for working capital and the Rosenfields and the Fiorentinos gave the bank their financial statements; since neither of these conditions was fulfilled, the guaranties were void. Second, the Rosenfields contended that the bank orally promised to cancel their guaranties if they would cause Mama Tino to sue Jessup & Lamont; the guaranties were thereafter cancelled on June 3, 1970, when Mama Tino sued Jessup & Lamont. Third, the Rosenfields contended that the statement of the bank's attorney, J. J. Simons, that he would not bring suit against the guarantors, released the Rosenfields from any liability to the bank on their guaranties. Fourth, the Rosenfields contended that the bank released them as guarantors when it employed Nicholas Fiorentino to look after some of Mama Tino's assets and agreed not to sue the Fiorentinos on their guaranties. The Rosenfields also counterclaimed, seeking damages from the bank for refusing to lend Mama Tino an additional $50,000 for working capital. This counterclaim was dismissed prior to trial on statute of limitations grounds and is not involved in this appeal.
The case was tried to a jury. At the close of all the evidence, the bank moved for a directed verdict on all issues, and its motion was granted. The district court entered judgment for $371,196, and the Rosenfields took this appeal.
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