In re American Motor Club, Inc.
| Decision Date | 11 August 1992 |
| Docket Number | Adv. No. 189-0044.,No. 887-70763-260,887-70763-260 |
| Parties | In re AMERICAN MOTOR CLUB, INC., Debtor. AMERICAN MOTOR CLUB, INC., Plaintiff. v. Nicholas NEU, David Gershuny and Jacqueline Couch, as Executor of the Estate of Dante Senise, Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Phillips, Nizer, Benjamin, Krim & Ballon by Louis A. Scarcella, Garden City, N.Y., for debtor.
Philip Irwin Aaron, P.C. by Philip Irwin Aaron, Jules A. Epstein, Syosset, N.Y., for the Creditor Committee.
Rosner & Goodman by Marianne F. Murray, New York City, for Nicholas Neu and David Gershuny.
Spodek & Brownstein by Jerome D. Brownstein, New York City, for Jacqueline Couch.
DECISION ON MOTION FOR SUMMARY JUDGMENT SEEKING PAYMENT ON PROMISSORY NOTES AND CROSS-MOTION FOR SUMMARY JUDGEMENT SEEKING TO DISMISS THE OFFICIAL COMMITTEE OF UNSECURED CREDITOR'S COMPLAINT
This is an adversary proceeding in which the Official Committee of Unsecured Creditors (the "Committee") is the plaintiff seeking payment on certain promissory notes allegedly executed and delivered by the defendants to the Debtor, wherein it moves for summary judgment (the "Motion") against defendants Nicholas Neu ("Neu"), David Gershuny ("Gershuny"), and Jacqueline Couch as Executor of the Estate of Dante Senise ("Senise" or the "Senise Estate"). Pursuant to this Court's order of April 30, 1991, the Committee was empowered to bring and defend all litigation proceedings by or against American Motor Club, the debtor herein (the "Debtor" or "AMC"). In response to the Committee's motion, the Senise Estate filed a motion for summary judgment, which has been deemed a cross-motion by the Court (the "cross-motion"). For the reasons stated below, both motions are denied.
The Debtor was in the business of selling pre-paid collision repair contracts to the general public in the state of New York. On April 8, 1987, the Honorable Milton M. Richardson of the Supreme Court of the State of New York, County of New York, entered an order in an action instituted by the State of New York against the Debtor permanently enjoining it from conducting its auto insurance business and imposing penalties of $5,001,000.00 jointly and severally against the Debtor, John Senise and Neu, and $10,500.00 jointly and severally against John Senise and Neu. However, on October 29, 1987 both judgments against Neu and the $5,001,000.00 judgment against Senise were vacated by the Appellate Division of the Supreme Court of New York, County of New York. People by Abrams v. American Motor Club, Inc., 133 A.D.2d 593, 520 N.Y.S.2d 383, 520 N.Y.S.2d 383 (1st Dept.1987).
The Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code on May 19, 1987. On April 18, 1989, the Committee commenced the within adversary proceeding against Neu, Gershuny and the Senise Estate, seeking payment on the notes allegedly executed and delivered by the defendants to the Debtor.
It is alleged in the complaint and cross motion that on or about May 2, 1986, Neu, a former officer and director of the Debtor, executed and delivered to the Debtor two promissory notes: one in the sum of $300,000.00, payable on May 2, 1988 (the "Neu Note I") and a second in the sum of $305,000.00 payable on January 31, 1987 (the "Neu Note II"). The Committee also claims that Gershuny, President of International Tillex Enterprises, Ltd. ("Tillex"), the Debtor's parent corporation, executed and delivered to the Debtor two promissory notes, the first executed on May 2, 1986 in the amount of $180,000.00 (the "Gershuny Note I") and the second on May 30, 1986, in the sum of $181,852.00 (the "Gershuny Note II"). In addition, the Committee claims that Senise, an original incorporator, shareholder, officer, and director of the Debtor, executed and delivered to the Debtor a promissory note in the sum of $305,000.00 payable on January 31, 1987 (the "Senise Note"). The Committee asserts that Neu, Gershuny, and the Senise Estate have refused to pay the Notes upon their maturity.
The Senise Estate filed a cross-motion for summary judgment arguing that it is not liable to the Debtor for the repayment of the Senise Note due to the fact that the signature on the note is a forgery, and furthermore, that no consideration was given in exchange.
In opposition to the Committee's Motion for Summary Judgment, Neu alleges that the copy of Neu Note I attached to the complaint is materially different from the copy of Neu Note I attached to the Committee's motion. The copy of Neu Note I attached to the complaint has a due date of May 2, 1988, with an interest rate equal to the best rate of the Israel Discount Bank. However, the copy of Neu Note I attached to the Committee's motion has a due date of the earlier of January 31, 1987 or the closing of a sale of property located at Nine Partner's Lane, Millbrook, New York, with an interest rate equal to 1% above the prime rate as set by the Federal Reserve Board. Neu argues that, due to this discrepancy, the Committee should be compelled to produce the originals of all Notes on which the Committee seeks summary judgment. In response, the Committee argues that, since Neu does not question the signature on Note I, production of the original documents is not required under Fed. R.Evid. 1003, which provides that:
A duplicate is admissible to the same extent as an original unless (1) a genuine question is raised as to the authenticity of the original or (2) in the circumstances it would be unfair to admit the duplicate in lieu of the original.
Fed.R.Evid. 1003. The Committee argues that the discrepancy affects only the date the note matured, not Neu's underlying obligation on the Note, since he admits that he signed the original Note.
In addition, Neu asserts that the portion of the complaint based on the $300,000.00 Neu Note I should be severed from this proceeding, since this Note is presently consolidated with claims in another adversary proceeding brought by the Committee against Neu's wife, Marie Neu, in which it is seeking to impress a constructive trust and equitable lien on the Neus' residence. Neu argues that the Committee should not have the opportunity to dispute the same note against Neu in two different proceedings. In response, the Committee claims that Neu Note I is an issue in the present adversary proceeding since the stipulation severing and consolidating it with the Marie Neu adversary proceeding may not be effective, and that only one judgment based on the note is sought for the benefit of the creditors.
Although Neu Note II is dated May 2, 1986, Neu states that it was not actually executed or delivered until January or February of 1987. Neu contends that prior to January of 1987 he received payments of $300,000.00 and $305,000.00 as commissions and compensation in consideration for services rendered. Therefore, since he did not receive any additional consideration upon signing the notes, the notes are void for lack of consideration. In support, Neu alleges that he reported the $300,000.00 and $305,000.00 as income on his 1987 State and Federal income tax forms, and that Philip Plaskin ("Plaskin"), President of Tillex, tacitly approved of the payment as compensation for services in connection with limousine livery services.
Neu maintains that in late January or early February of 1987, Sam Ford ("Ford"), acting as the controlling party and designee of Tillex, requested that he sign the notes to enable Tillex to represent prior compensation as loans on its financial statements which would be disseminated to the public.
Furthermore, Neu claims that in order to induce him to sign the notes, Ford stated that he would receive an employment contract and/or voting trust agreement ensuring employment in the Debtor's senior management for a period of five years, and during the term of this employment, the notes would be forgiven. However, in the event that he did not sign the notes, his employment with the Debtor would be terminated. Neu argues that the notes are void as induced by fraud based on the fact that at the time Ford represented to him that the notes would be forgiven, Ford knew that neither he nor Tillex had any intention to forgive the notes and that Ford had already instructed the management of British Insurance Management Co. ("BIM"), Tillex's subsidiary and Debtor's direct parent, that it vote to remove the Debtor's Board of Directors and dismiss Neu.
In response, the Committee claims these representations are impermissible hearsay, Neu's involvement in such a fraud scheme bars his defense as a matter of public policy inasmuch as courts do not aid either party to an illegal contract, and the defense that the Note is void for lack of consideration is unavailable to one who knowingly participates in the deceit. In addition, the Committee argues, the fraud claims are not viable since it was unreasonable for Neu to rely on a promise of continued employment given that he was aware of the aforementioned action instituted by the State of New York against the Debtor pending in the New York State Supreme Court at the time.
In opposition to the Committee's Motion, Gershuny argues that he was fraudulently induced to sign the notes, and that the notes are therefore void as illegal. In addition, Gershuny claims, the notes are void for lack of consideration.
Although the Gershuny Notes are dated May 2 and May 30, 1986, respectively, Gershuny states that they were not executed until January or February of 1987. Gershuny alleges that prior to January 1987, he received payments of $181,852 as commissions and compensation in consideration of services rendered. Gershuny claims that he executed the first note for $180,000 because that was his approximation of the sum he had earlier received as compensation, and that he executed the second note after he told Plaskin or AMC's...
To continue reading
Request your trial