First City Federal Sav. Bank v. Dennis, 87 Civ. 2959 (RWS) to 87 Civ. 2968 (RWS)
| Decision Date | 26 January 1988 |
| Docket Number | 87 Civ. 3005 (RWS) and 87 Civ. 3006 (RWS).,No. 87 Civ. 2959 (RWS) to 87 Civ. 2968 (RWS),87 Civ. 2959 (RWS) to 87 Civ. 2968 (RWS) |
| Citation | 680 F. Supp. 579 |
| Parties | FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Burk DENNIS, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Gilbert FUENTES, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Terry FOSTER, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Fred CROWLEY and Jeanice Drury Crowley, Defendants. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Ralph E. CLURE, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Larry MAURER, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Francis A. DESARRO, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Mark SILVER, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Marvin PERLMAN, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Richard FORINGER, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Jon WALLIN, Defendant. FIRST CITY FEDERAL SAVINGS BANK, Plaintiff, v. Gerald FRESONKE, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Bizar D'Alessandro Shustak & Martin, New York City (Gayle S. Sanders, Adele Taylor-Scott, of counsel), for plaintiff.
Hannoch Weisman, P.C., Roseland, N.J. (William J. Heller, of counsel), Reisch, Clarey, Simone & Gleason, Mineola, N.Y., for defendants.
Twelve individual defendants have moved under Rule 12(b)(2), Fed.R.Civ.P., to dismiss the complaints filed against them by plaintiff First City Federal Savings Bank ("First City") for lack of personal jurisdiction. Each has submitted an affidavit as has Richard Gipe ("Gipe"), a broker-dealer who participated in the limited partnership transaction that underlies this case. First City has submitted the affidavits of its president Richard Greenberg and Michael Cash, the president of National Capital Corporation ("National"). Except as noted below, these affidavits do not present any issues of fact. Oral argument was held on November 6, 1987. Upon the facts and conclusions set forth below, the motions are denied.
On May 1, 1987, First City filed the complaints and mailed the summons and complaints, with acknowledgement of service forms, to the individual defendants. When defendants refused to acknowledge service of the papers, First City retained a process server to serve them in person. Thereafter, by motion returnable September 25, 1987, First City moved for summary judgment and was met by defendants' motions, filed October 9, 1987, to dismiss these twelve actions for lack of personal jurisdiction.
First City's motion has been adjourned pending the disposition of the instant motion.
First City is a national banking association with its only offices in New York City. The defendants are limited partners in the Colburn Energy Split Asset Fund, Ltd., a California limited partnership ("CESAF"). Each defendant resides and works in California or, in one case, in Texas. None of the defendants owns any real estate in New York or has any holdings, assets or bank accounts in New York. Certain defendants have visited New York sporadically for matters in no way related to the instant dispute.
CESAF was structured as a tax-advantaged limited partnership investing in oil and gas ventures. The principal promoter and general partner of CESAF was Colburn Energy Corporation ("Colburn Energy") represented by its principal, Charles Colburn ("Colburn"). As the deal was initially presented to potential investors in a private placement memorandum for CESAF, investors had the option of paying for units either in cash or by executing and delivering a promissory note. The payee on that promissory note would have been CESAF, and CESAF would have had the right to use that promissory note as collateral for its own bank loan. The partnership, rather than numerous limited partners, would then have serviced the debt on bank loans obtained to finance CESAF operations, and for this purpose CESAF would invest initially in stable, income-producing wells in order to provide cash flow.
Notwithstanding the private placement memorandum, the financing for CESAF was ultimately achieved under a different structure. In November 1985, a financial broker contacted National, which had a relationship with First City. The broker represented that he had been retained by Colburn Energy to secure financing for individuals who were investing in a limited partnership. Shortly thereafter, the broker came to New York and met with officers of National. He brought financial statements, tax returns and various other financial information on the prospective borrowers, including many of the defendants.
In December 1985, David Young ("Young"), a vice-president of Colburn Energy, came to New York and met with representatives of National to arrange individual loans to defendants and others. Based upon its review of the financial information that it had been provided in November, National rejected certain individuals from consideration for loans, and asked Young to obtain additional financial information, which Young agree to do. National then forwarded to Young, in Virginia, loan application materials to be completed by the individual defendants.
Gipe, a broker-dealer from California, also travelled to New York to explain CESAF to National and First City as the venture was described in the private placement memorandum before any investments had been made by any of the potential limited partners, and before CESAF was formed. After Gipe returned from his visit to New York, he received a package of materials from First City which he forwarded to the individual defendants. The package included a First City Personal Loan Application ("Application"), a First City Supplemental Personal Financial Statement and Agreement ("Financial Statement"), a Borrower's Letter ("Borrower's Letter") addressed to First City, an Assignment and Security Agreement ("Assignment"), a Promissory Note ("Note"), and an Engagement and Authorization Letter ("Engagement Letter") addressed to National.
Each of the defendants signed a Borrower's Letter addressed to First City in New York City which contains a specific request by each of the individual defendants to the Bank for a loan to invest in a limited partnership. The Borrower's Letter provided, in part:
Pursuant to the Borrower's Letter each defendant agreed:
... to furnish the Bank information regarding my financial condition at least once a year or more often when the Bank requests me to. I will inform the Bank of any change in my employment. If a significant portion of my assets is replaced, or if a material change occurs in my financial condition, I will notify the Bank promptly.
In addition, the Borrower's Letter signed by each defendant authorized First City to date the Note on the date that it disbursed the loan proceeds, and contained an agreement whereby each defendant agreed to hold First City harmless and released First City from any and all claims that they had relating to or arising out of their investments.
Each individual defendant filled out and signed the Application which sets forth the name of First City in bold print, as does the Financial Statement. Each defendant marked the space on the Financial Statement indicating he was applying to the Bank as an individual applicant and acknowledged in the Financial Statement that he was making a direct request to the bank for financing:
Because I have asked First City Federal Savings Bank (the "Bank") to grant credit to me or to someone else in reliance on my guarantee, I am supplying you with the following true and complete financial statement.
Each defendant also signed a Note which recited that payment was to be made to First City in New York and provided that the Note would be governed by and construed in accordance with the laws of New York. The Note provided that interest would be computed at "2% above the rate of interest publicly announced by the Bank in New York, New York from time to time as its reference rate" and that due dates were to be calculated by taking into account the day on which banks were authorized to close under New York law.
In addition, each defendant executed an Assignment by which he granted First City a security interest in his limited partnership interest. In the Assignment, each defendant acknowledged that he was a limited partner in CESAF and that delivery of the Assignment to First City in New York was a condition precedent to the individual loan being made. The Assignment provides, in part, as follows:
WHEREAS the assignor is a limited partner in the firm of Colburn Energy Split Asset Fund, Ltd. (the "Partnership"); and WHEREAS it is a condition precedent to making the loan that the assignor execute and deliver this assignment and security agreement (the "assignment" to the Bank.
Each defendant signed a complete set of the documents and transmitted them to National either directly or through Young. In addition to the loan documents addressed to First City, each defendant also signed an Engagement Letter addressed to National in New York City, requesting National to assist the individual defendants in obtaining the loans and authorizing National to obtain credit information and contact credit references, as follows:
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