In re Boardwalk Marketplace Securities Litigation
| Decision Date | 14 September 1987 |
| Docket Number | MDL No. 712 (WWE). |
| Citation | 668 F. Supp. 115 |
| Parties | In re BOARDWALK MARKETPLACE SECURITIES LITIGATION. |
| Court | U.S. District Court — District of Connecticut |
John A. Cvarch, Shipman & Goodwin, Hartford, Conn., for defendant Forbco Management Corp.
James G. Greene, Jr., Pepe & Hazard, Hartford, Conn., for defendants Arthur and Donna Minardi.
Frederick U. Conrad, Jr., Shipman & Goodwin, Hartford, Conn., for defendant William H. Horton.
Stephen P. Hoffman, Pomerantz Levy Haudek Block & Grossman, New York City, for plaintiffs David Bossy and Richard W. Lazaro.
Bennett H. Last, Gilbride, Tusa, Last & Spellane, New York City, for plaintiff Public Loan Co., Inc.
Ann M. Siczewicz, Walter E. Paulekas, Schatz & Schatz, Ribicoff & Kotkin, Hartford, Conn., for plaintiff Home Bank and Trust Co.
David G. Hetzel, Hebb & Gitlin, Hartford, Conn., for plaintiff BarclaysAmerican/Business Credit, Inc.
John W. Cannavino, Timothy G. Ronan, Cummings & Lockwood, Stamford, Conn. and William A. Harvey, John Spelman, Klehr, Harrison, Harvey, Branzburg, Ellers & Weir, Philadelphia, Pa., for defendant Syracuse Sav. Bank.
David W. Schneider, Tyler Cooper & Alcorn, New Haven, Conn., for defendant Binghamton Sav. Bank.
INTERLOCUTORY RULING ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT
This complex litigation arises from the formation and demise of nine limited partnerships organized to redevelop property in Atlantic City, New Jersey. Investors who purchased partnership interests sought tax benefits from their investments. To finance their purchases, the investors executed promissory notes payable to American Funding Limited. With the collapse of the redevelopment scheme, many of the investors ceased making payments on their notes which had been purchased from American Funding by various banks. The investors claim that they were defrauded in the promotion and sale of partnership interests, but the banks, seeking collection on the notes, assert that they are holders in due course and accordingly are immune from most of the defenses raised by the investors.
On February 18, 1987 the Judicial Panel on Multidistrict Litigation transferred to this district many of the cases arising from this scheme. Jurisdiction in these cases is based on diversity. To date, their number exceeds 300 and is increasing. Most of the actions are suits initiated by banks against defaulting investors. Some were initiated by investors suing the promoters, their professional advisors (lawyers and accountants) and the banks.
A threshold issue is whether the banks as purchasers of the investors' notes are holders in due course. Central to that issue is the determination of whether the notes are negotiable instruments. The investors, whether aligned as plaintiffs or defendants, have moved for "partial summary judgment" asserting that the notes are not negotiable. Though the banks argue that the notes are negotiable, they first argue that the issue is improperly raised on a motion for summary judgment.
The dispute is governed by Connecticut law pursuant to the parties' valid agreement. Appendix A, paragraph 13. In interpreting the Uniform Commercial Code ("Code"), Connecticut courts frequently rely on reasoning set forth in decisions from other jurisdictions.
The banks argue that the federal rule pertaining to summary judgment should be interpreted in a restrictive fashion, but that Article Three of the Code should be read in a more liberal way. Thus, they argue that Fed.R.Civ.P. 56 should be rigidly construed so as to prevent consideration of the investors' motions at this stage in the proceedings, but, on the merits, the rules in the Code which govern negotiability should be given a broad construction that would support the negotiability of the notes.
The crux of the banks' argument that the court should not consider the investors' motions styled as motions for "partial summary judgment" appears to be that any ruling on negotiability would not be a "judgment" in the sense that no appeal could be taken, or alternatively, that Rule 56(d) which allows for interlocutory summary judgments does not authorize summary judgment on only a portion of a claim.
These motions can be considered under Rule 56. There are no material issues of fact in dispute. The negotiability of a note is to be determined from its face, and the parties agree that all of the investors signed notes identical to those submitted with the moving papers and attached as appendix A to this ruling. See, e.g., Conn. Gen.Stat. Section 42a-3-109 comment 2 (1987);1Calfo v. D.C. Stewart Co., 717 P.2d 697, 700 (Utah 1986). These are the same notes purchased by the banks. Not only are the material facts agreed upon, but no additional facts can be adduced to alter the negotiability analysis.
The banks rely on Dexler v. Carlin, No. H 83-333 (MJB), slip op. (D.Conn. Mar. 20, 1986). In that case a handicapped plaintiff sued the United States Postal Service, alleging that its failure to hire him violated the Rehabilitation Act of 1973. One defense on which the defendant sought partial summary judgment was that the Act did not require the defendant to consider the plaintiff for any other position than the one for which he applied. Judge Blumenfeld noted that:
Granting summary judgment on this issue would not dispose of any claim in the case. The plaintiff's claim is that the defendant failed to make reasonable accommodations for his handicap. That claim encompasses far more than the theory that the defendant should have considered him for other positions, and will remain in the case whether or not this motion is granted.
Id. at 4 (emphasis added). Judge Blumenfeld went on, however, to decide the question under Rule 56(d), thereby narrowing the issues for trial.
It does not appear that "claim" as it is used in Dexler means a cause of action. The argument that the defendant failed to consider the plaintiff for other positions was only one theory under which the plaintiff was pursuing his reasonable accommodation claim under the Act, a claim which would survive regardless of the demise of one theory.
The banks are also not helped by the reasoning in Arado v. General Fire Extinguisher Corp., 626 F.Supp. 506 (N.D.Ill. 1985). The court was confronted with a motion for partial summary judgment on just that portion of one count in an age discrimination action demanding damages. It concluded that Rule 56 allows for granting only appealable judgments, and that Rule 56(d) was not an available alternative basis for rendering a decision because it could be the basis only of a motion ancillary to a full fledged motion for summary judgment. Id. at 509 ().
In this case, a negative determination on negotiability would completely dispose of the banks' claim to holder in due course status. Indeed, a negative ruling on this threshold question could forestall countless hours and dollars being expended in discovery that would proceed on the assumption that the banks are holders in due course. If the investors are correct, the entire focus of this litigation would change, speeding its resolution and avoiding wasteful discovery.
Regardless of the resolution of the motions, an appealable ruling will not result. Therefore, "partial summary judgment" is an unfortunate label. See Wright, Miller and Kane, Federal Practice and Procedure 463-4 (2d ed. 1983). It may well be, as the commentators suggest, that partial summary "adjudication" is a more accurate phrase.
A motion brought under Rule 56(a) or Rule 56(b) which either improperly seeks a final judgment on that which perforce cannot be final or which the court determines should fail on the merits can nevertheless be handled pursuant to Rule 56(d). It is this situation which the Arado court did not fully consider. Compare Driver v. F.A. Mitchell Co., 35 F.R.D. 226 (E.D.Pa. 1964). This is the route which Judge Blumenfeld implicitly took in Dexler, supra, and which this court will follow.
"Holder in due course" status under the Code, Section 3-302, involves relatively specific factual invariants of which a note's negotiability, Section 3-104, is the most important.2 The negotiability issue is fully briefed and ripe for decision. Depending upon how the court rules on the question, it may serve to limit the issues at trial. Fed. R.Civ.P. 56(d). Any doubt about the propriety of reading Rule 56 in this manner is resolved by reference to the general admonition that the federal rules "shall be construed to secure the just, speedy, and inexpensive determination of every action." Fed.R.Civ.P. 1.
Under the Code, a holder in due course is one who takes an instrument for value, in good faith and 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. Section 3-302. Throughout Article Three, "instrument" means negotiable instrument. Section 3-102(1)(e). To be negotiable, an instrument:
must (a) be signed by the maker or drawer; and (b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this article; and (c) be payable on demand or at a definite time; and (d) be payable to order or bearer.
The sole focus of the investors' challenge to the negotiability of these notes is Section 3-104(1)(c). The notes are relatively simple. See Appendix A. The relevant portions read as follows:
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Thornton v. Syracuse Sav. Bank
...not a holder in due course of the negotiable instruments because the promissory notes were not negotiable. In re Boardwalk Marketplace Sec. Litig., 668 F.Supp. 115 (D.Conn.1987). Following that decision, the bank and investors entered into a settlement agreement under which the investors ag......
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Boardwalk Marketplace Securities Litigation, In re, 88-7035
...BOARDWALK MARKETPLACE SECURITIES LITIGATION. No. 88-7035. United States Court of Appeals, Second Circuit. June 14, 1988. Prior report: 668 F.Supp. 115. Before FEINBERG, Chief Judge, and NEWMAN and PRATT, Circuit On consideration of the briefs and record and the oral argument in this appeal,......