American Inv. Bank, N.A. v. Hutchings
| Decision Date | 15 May 1997 |
| Citation | 657 N.Y.S.2d 650,239 A.D.2d 207 |
| Parties | , 32 UCC Rep.Serv.2d 1134, 35 UCC Rep.Serv.2d 522 AMERICAN INVESTMENT BANK, N.A., Plaintiff-Appellant, v. David M. HUTCHINGS, et al., Defendants-Respondents. |
| Court | New York Supreme Court — Appellate Division |
Eric C. Olson, for plaintiff-appellant.
James J. Mahon, for defendants-respondents.
Before MURPHY, P.J., and ROSENBERGER, ELLERIN and NARDELLI, JJ.
Order of the Supreme Court, New York County (Ira Gammerman, J.), entered December 19, 1995, which denied plaintiff's motion for summary judgment, is unanimously affirmed, without costs or disbursements.
Defendants herein are private individuals who had each invested in one of six limited partnerships created by the Citi-Equity Group (the Group), a conglomerate whose stated business was the ownership and management of low income housing. The defendants had purchased their interests at different times between November 1991 and December 1993 by executing individual promissory notes payable to the appropriate limited partnership. The partnerships sold all of the notes, including notes given by non-parties, in bulk to the plaintiff American Investment Bank, N.A. (American or the Bank). The notes were endorsed to the order of the Bank by Gary W. Lefkowitz, the President and General Partner of each of the Group's partnerships. After being notified of the assignment, each of the defendants made at least one payment to the Bank.
In May and June of 1994, Mr. Lefkowitz was charged in an indictment and superseding indictment in Federal Court in Minnesota with conducting a six year, $50 million embezzlement and fraud scheme intended to defraud the United States Internal Revenue Service, low income housing developers and 7,000 investors. Engaging in a Ponzi-type scheme with the funds raised from the investors in the Limited Partnerships, Lefkowitz allegedly used the funds to support a lavish life style rather than to purchase real estate and to construct low income housing. Further Lefkowitz was charged, through the Group, with embezzling and converting partnership funds, juggling funds between partnerships, fraudulently obtaining tax credits and falsely misrepresenting how investor funds would be used. Defendants claim, and the plaintiff concedes, that Lefkowitz was ultimately convicted on all counts. The Citi-Equity Group and certain affiliated limited partnerships were forced into involuntary bankruptcy in the same Federal court in Minnesota and defendants defaulted on their payments to the Bank due on August 1, 1994.
The IAS court denied the motion by the plaintiff Bank for partial summary judgment to recover the balance due under the promissory notes, finding that there were issues of fact, including whether the Bank was a holder in due course of the notes, and whether the Bank took the notes without notice of any defenses. We agree with this conclusion and, therefore, affirm. Section 3-302 of the Uniform Commercial Code defines "Holder in Due Course" in pertinent part as follows:
(1) A holder in due course is a holder who takes the instrument
(a) for value; and
(b) in good faith; and
(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.
The same section notes that: "A holder does not become a holder in due course of an instrument: ... (c) by purchasing it as part of a bulk transaction not in regular course of business of the transferor" (Uniform Commercial Code, § 3-302[3][c] ).
"Whether a transfer is a bulk transaction not in the regular course of business turns on the facts of the particular case" (Combine International v. Berkley, 141 A.D.2d 465, 468, 529 N.Y.S.2d 790; Baldasano v. Bank of New York, 174 A.D.2d 457, 460, 571 N.Y.S.2d 242).
[A] transfer between two financial institutions ... would be...
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