Baron Financial Corp. v. Natanzon

• Decision Date: 21 March 2007
• Docket Number: No. SKG-03-3563.,SKG-03-3563.
• Citation: 509 F.Supp.2d 501
• Parties: BARON FINANCIAL CORP., et al., Plaintiff v. Rony NATANZON, et al., Defendants.
• Court: U.S. District Court — District of Maryland

509 F.Supp.2d 501

BARON FINANCIAL CORP., et al., Plaintiff v. Rony NATANZON, et al., Defendants.

No. SKG-03-3563.

United States District Court, D. Maryland.

March 21, 2007.

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David B. Goldstein, Daneker McIntire Schumm Prince Goldstein Manning and Widmann, Baltimore, MD, for Plaintiff.

Robert B. Levin, Paul Mark Sandler, Shapiro Sher Guinot and Sandler, Andrew Jay Graham, John Augustine Bourgeois, Max Higgins Lauten, Kramon and Graham PA, Larry Lee Puckett, Jr., Eccleston and Wolf PC, Baltimore, MD, for Defendants.

MEMORANDUM OPINION

SUSAN K. GAUVEY, United States Magistrate Judge.

This opinion concerns four of the five counts remaining in the Second Amended Complaint filed by Baron Financial Corporation ("plaintiff" or "Baron") in this matter. Specifically at issue are Count I (Breach of Contract) against defendant Rony Natanzon, Counts III (Intentional Interference with Contractual Rights) and IV (Civil Conspiracy to Intentionally Interfere with Contractual Rights) against individual defendants and four limited liability companies,¹ and Count X (Fraudulent Transfer of Contractual Rights) against' ERN Acquisition, LLC. Currently pending before the Court are the parties' cross-motions for summary judgment on Count I and defendants' motion for summary judgment on Counts III, IV, and X and plaintiffs opposition thereto. (Papers nos. 110, 124, 125, 129, and 130). A hearing was held before this Court on March 5, 2007. Post hearing briefing was accepted. (Paper nos. 138, 139, 143). For the reasons discussed below, the Court DENIES both parties' motions for summary judgment on Count I and DENIES defendants' motion for summary judgment on Counts III, IV, and X.

I. Background

As part of the settlement of Civil Action No. MJG-02-1868,² on July 12, 2002, Rony Natanzon ("Mr. Natanzon"), for himself and as manager and on behalf of ERN, LLC, and Samuel Buchbinder ("Mr. Buchbinder"), for himself, Michelle Trading Corporation ("MTC"), and Baron Financial Corporation, entered into a two-part written agreement consisting of a "Memorandum of Understanding Re: Settlement Agreement" and a "Rider to Memorandum of Understanding Re Settlement Agreement."³ (Paper no. 110, Ex. A and Ex. B). Mr. Natanzon and Mr. Buchbinder had at one time been members in ERN, LLC ("company" or "ERN"), a company involved in the business of debit and credit card processing, check processing and check guaranty, and the leasing and sales of point-of-sale terminals and other equipment related to credit card and check transactions. (Paper no. 45, 7). Among its various provisions, the agreement set forth the arrangement by which ERN would obtain Mr. Buchbinder and Baron's interest in the company as well as repay certain loans made by Baron to the company. (MOU and Rider).

According to the agreement's terms, Mr. Natanzon was to immediately purchase MTC's interest in ERN for $1.00 and to pay $1,999,999.00 directly to Baron as partial repayment for loans made to the company.⁴ (Rider ¶ 3). As security for the payment of this sum, ERN assigned to Baron residual payments due from its Concord and CPS portfolio.⁵ (MOU ¶ 4). Moreover, Mr. Natanzon agreed to inform Baron "of any event which might affect the security interests granted" in the agreement. (Rider ¶ 12). For as long as the $2 million remained unpaid, the parties agreed that there would be no payments of insider debt and no insider distributions other than the "ordinary salaries currently paid" to Mr. Natanzon and his family and "industry standard commissions to Amit Natanzon[.]" (MOU ¶ 15; Rider ¶ 7.4). To verify this provision, a copy of ERN's check register, certified as true and correct by Mr. Natanzon, was to be delivered to Baron's counsel every Friday. Id.

The agreement also provided for a $10 million payment to be made by ERN to Baron by July 31, 2005. (MOU ¶ 5). If such payment was not timely made, all of ERN's net income was to be paid to Baron and ERN was to sell any credit card income stream portfolio with profits going to Baron. Id. In any event, the $10 million was to be paid in full by July 31, 2007. Id. During the pendency of this payment, compensation to Mr. Natanzon and his family members was to "be limited to total direct and indirect compensation of $550,000 per year plus a salary to Amit Natanzon of not more than $50,000 plus commissions." (MOU ¶ 6).

In addition to a ban on insider distributions and the limiting of compensation to the extended Natanzon family,⁶ the settlement contained two other provisions which factor heavily into the motions currently before the court. First, according to the Rider, until all obligations detailed in the settlement agreement were satisfied, Mr. Natanzon convenanted and agreed to "operate ERN in the ordinary course of business and use his best efforts to maximize the profitability of ERN." (Rider ¶ 4). Second, the MOU provided that Mr. Natanzon "shall diligently prosecute any and all patent applications and they shall be assigned to ERN, LLC." (MOU ¶ 14).

In and around April 2003, Mr. Natanzon and at least two of his family members formed four new companies that provided similar services to those provided by ERN: MAP, LLC ("MAP"); Nationwide Check Services, LLC; Nationwide Credit Card Center, LLC; and Nationwide Equipment Sales, LLC. (Paper no. 129, Exhibit 5). ERN filed for bankruptcy on April 28, 2004. Id. After a hearing on May 21, 2004 in the United States Bankruptcy Court for the District of Maryland before the Honorable James F. Schneider ("Judge Schneider"), Lawrence D. Coppel, Esq. ("Mr. Coppel" or "trustee") was appointed ERN's Chapter 11 Trustee on May 24, 2004. (Paper no. 129, Exhibit 39 and Exhibit 41). On July 9, 2004, Judge Schneider entered an Order accepting Mr. Coppel's recommendation that the sale of ERN's assets free and clear of liens, claims, encumbrances and other interests⁷ be made to "Rony Natanzon or his designee ("Acquisition LLC")," one of the three bidders in the sale. (Paper no. 110, Exhibit F; Paper no. 129, Exhibit 41). This Court approved the bankruptcy sale on July 20, 2004. See In re ERN, LLC, No. 04-2111 (D.Md. July 20, 2004) (unpublished order affirming bankruptcy court) (Garbis, J.), appeal dismissed as moot by In re ERN, LLC, No. 04-1834, No. 04-1951 (4th Cir. Jan. 31, 2005) (unpublished per curiam opinion).

II Analysis

Plaintiffs Count I Breach of Contract claim is the primary focus of defendants' motion for summary judgment. Defendants argue that both the "best efforts" and patent applications provision of the settlement agreement are too vague to be enforced. They further contend, that Baron's Count I claims were not ripe when filed, that Baron lacks standing to assert claims regarding improper insider payments, and that the claim related to transfers from ERN to ERN Israel, LLC ("ERN Israel")⁸ is barred by the ERN bankruptcy sale Order. As to Counts III and IV, defendants argue that Mr. Natanzon's co-defendants cannot be held liable for intentional interference with contractual rights in the absence of his material breach of the settlement agreement and because several of them allegedly had no prior knowledge of the agreement's terms. Finally, defendants maintain that there was no fraudulent conveyance of ERN's assets to ERN Acquisition, LLC ("Acquisition").

In its own motion for summary judgment on Count I, plaintiff counters that both the "best efforts" and patent application provisions are enforceable and were violated by Mr. Natanzon. Additionally, Baron maintains that its breach of contract claims were ripe when filed, that it has standing to prosecute a claim for wrongful insider payments, and that its claim regarding transfers to ERN Israel are not barred by the bankruptcy sale Order. In response to defendants' motion for summary judgment on Counts III and IV, plaintiff argues that breach of contract is not an essential element of intentional interference with `contractual relations, and because there is evidence that defendants had knowledge of the settlement agreement, they are not entitled to summary judgment. Lastly, plaintiff also contends that there is no entitlement to summary judgment on Count X as material facts establish that there was a fraudulent transfer by Mr. Natanzon to ERN Acquisition of his right to purchase ERN's assets, thereby rendering Acquisition a fraudulent transferee.

After a brief consideration of the standard of review for requests for summary judgment, the Court will address these various arguments in turn. As the parties have done in their motions, the Court will center much of its discussion on the "best efforts" provision of the settlement agreement.

A. Standard of Review

A moving party is entitled to summary judgment as a matter of law "if the pleadings depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact[.]" Fed.R.Civ.P. 56(c). Thus, summary judgment is appropriate when it is clear that no genuine issue of material fact remains unresolved and an inquiry into the facts is unnecessary to clarify the application of the law. Haavistola v. Community Fire Co. of Rising Sun, 6 F.3d 211, 214 (4th Cir.1993).

The moving party bears the burden of showing "the absence of a genuine issue as to any material fact." Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The burden then shifts to the nonmoving party to "make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When the nonmoving party fails to make such a showing, summary judgment is appropriate because the nonmoving party would be unable to establish an element of its claim at trial. Id.

To survive summary judgment,...