Matter of Newmark, Bankruptcy No. 180-05556-16

CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York
Writing for the CourtMANUEL J. PRICE
Citation20 BR 842
PartiesIn the Matter of Michael NEWMARK, Debtor. NATIONAL BANK OF NORTH AMERICA, Plaintiff, v. Michael NEWMARK, Defendant.
Docket NumberBankruptcy No. 180-05556-16,Adv. No. 180-1057.
Decision Date01 June 1982

20 B.R. 842 (1982)

In the Matter of Michael NEWMARK, Debtor.
Michael NEWMARK, Defendant.

Bankruptcy No. 180-05556-16, Adv. No. 180-1057.

United States Bankruptcy Court, E.D. New York.

June 1, 1982.

20 BR 843

Cole & Deitz, New York City, for plaintiff; Edward N. Meyer and James J. Terry, New York City, of counsel.

Leinwand, Maron, Hendler & Krause, New York City, for defendant/debtor; Robert Rubinger, New York City, of counsel.

MANUEL J. PRICE, Bankruptcy Judge.

This is an adversary proceeding brought by the National Bank of North America (the BANK), a creditor of Michael Newmark (NEWMARK or the DEBTOR), to have its claim against the debtor declared non-dischargeable pursuant to Section 523(a)(2)(A) of the Bankruptcy Reform Act of 1978 (the CODE), 11 U.S.C. § 523(a)(2)(A).

On September 17, 1980, Newmark filed his voluntary petition for relief with this court under Chapter 7 of the Code, 11 U.S.C. § 701 et seq. He listed among those creditors having unsecured claims without priority in his schedule A-3, a debt which he owed to the National Bank of North America in the sum of $7,450,000. This debt evidently represented the deficiency judgment in the sum of $7,374,208.05 which the Bank had obtained against him based on his co-guaranty of a mortgage made by a corporation controlled in part by him, to the Bank. (Plaintiff's Exhibit 1) The Bank filed a proof of claim in this case in the sum of $7,855,451.10 on April 17, 1981. (Proof of claim filed by the National Bank of North America on April 17, 1981)

On December 3, 1980, the Bank filed a complaint objecting to the dischargeability of its debt. After several delays, a trial was held on the issues raised by the pleadings. Lasting four days, the trial generated nearly 500 pages of testimony. A summary of the facts adduced thereat is provided to set this matter in proper perspective.

The debtor has been an accomplished builder-developer who, through his partnership with another developer, Lawrence Rosano (ROSANO), was responsible for the construction of several major projects, mostly large-scale residential complexes, built in Queens, New York during the late sixties and early seventies. (Tr., pp. 331-32)

In September of 1972, Newmark and Rosano, representing their corporation, Village Mall Properties, Incorporated, began what would be a series of negotiations with General Telephone and Electronics, Laboratories, Incorporated (GTE), for the purchase

20 BR 844
of a tract of basically undeveloped land owned by the latter in Bayside, Queens. (Tr., pp. 26-27)

The property deservedly generated much enthusiasm among the prospective buyers. Described as "one of the last remaining highly desirable suburban areas in New York City" (Plaintiff's Exhibit 19, "Background Information" sheet), the parcel consisted of 28.095 acres located at Willets Point Boulevard on Long Island Sound. The situation of the property afforded scenic views of the Sound and Manhattan, as well as easy access by such major highways as the Clearview and Long Island Expressways, and the Cross-Island Parkway. In addition, the many attributes of the surrounding community of Bayside, in conjunction with the proximity of mass transportation facilities, further contributed to the site's potential for successful residential development.

At this first meeting, Newmark learned that GTE's "asking price" for the parcel was $12 million. (Tr., p. 28) Due to the fact that the property was zoned for light manufacturing use and that Newmark and Rosano required the property to be rezoned for higher density residential use, their original offer was contingent on their acquiring a zoning variance. (Tr., p. 29)

GTE was at this time also pursuing sales discussions with five other prospective purchasers. (Tr., p. 30) As of November 28, 1972, the highest bid GTE had received was a non-contingent offer from one Alexander Muss in the amount of $8,750,000. (Tr., pp. 33-35) This bid was greater than the offer submitted by Newmark and Rosano, which was then $8,500,000. (Tr., p. 36)

When GTE failed to respond to their offer, Newmark and Rosano became concerned and contacted representatives of GTE who informed them that it had received a "better offer" than they had submitted. (Tr., pp. 37-38) Despite repeated requests by them, GTE refused to divulge the amount of this higher offer. (Id.) A meeting among GTE's representatives and Newmark and Rosano was thereupon held on December 7, 1972 to enable the latter to make a counter-offer. This meeting culminated with GTE's immediate acceptance of their offer to purchase the property for $10 million in cash, not subject to their obtaining the zoning variance mentioned above. (Tr., pp. 39-40) Newmark confirmed this agreement by a letter composed during the meeting and addressed to GTE. (Plaintiff's Exhibit 5)

On the following day, December 8, 1972, a meeting for the signing of the contract for the purchase of the property was held. Up to this time, it was understood by GTE's representatives that Newmark and Rosano would be purchasing the land in the name of their corporation, Village Mall Properties. (Tr., p. 43) On this day, however, Newmark designated an entity named American European Development Corporation (AMERICAN EUROPEAN) to be the buyer whose president, Remo Tinti, Esq., appeared that afternoon to sign the agreement on its behalf. (Tr., p. 44)

American European was a nominee corporation owned and controlled by Newmark and Rosano. (Tr., p. 93) Every official act of its president, Tinti, was directed by the debtor and his partner. As Newmark himself testified on cross examination:

"Q American European was your nominee, was it not?
A That is correct.
Q Mr. Tinti did what you told him to do?
A That is correct.
Q You told him to come to the December 8th closing and he came?
A That\'s correct.
Q You told him to sign that agreement and he did?
A Yes.
Q He signed all the documents, which I have shown to you in the last few minutes, relating to this transaction?
A If his signature appears there, then he did.
Q And when he did it, he did it because you told him?
A That\'s correct."
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(Tr., p. 345)

It should be noted that this day also apparently marked Tinti's first involvement with the transaction to purchase the GTE property. (Tr., pp. 43-44, 88-89) In fact, the first time he saw the purchase agreement was on December 8, 1972. (Tr., p. 88) In retrospect, the entire extent of Tinti's participation in this undertaking as of this date consisted of merely his pro forma presence at this meeting and of his signing the contract as the president of American European. (Tr., pp. 90-91)

As GTE had not had any dealings with American European nor with its president, it insisted that Newmark and Rosano personally guarantee performance of the contract, to which they agreed. (Plaintiff's Exhibit 7; Tr., pp. 341-42) Having secured the personal guarantees of Newmark and Rosano, GTE then signed the contract for the sale of the property to American European, dated December 8, 1972. (Plaintiff's Exhibit 6) This contract, in its final form, provided for a $10 million cash purchase price and stipulated that the closing would take place on June 8, 1973. (Id. at pp. 2-3)

Following the signing of the purchase agreement on December 8, 1972, the succeeding events essentially bifurcate into two distinct sets of facts. Although the contract provided for the closing to take place on June 8, 1973, it was delayed several times due to Newmark's inability to obtain sufficient financing necessary to complete the acquisition of the property. (Tr., p. 50) Thus, in one category there are those facts concerning Newmark's subsequent dealings with GTE and, in another, are those facts regarding his efforts to secure the financing for the closing. To avoid confusion between these two simultaneously occurring events, my rendition of the facts will treat them separately by the categories and order just described.

After the December 8, 1972 purchase contract was entered into, a rather curious document entitled by the misnomer "PURCHASE AGREEMENT" was executed on January 2, 1973 between Rosano and Newmark and American European. (Plaintiff's Exhibit 12) The first three paragraphs of this 14-page document provide as follows:

"Purchase Agreement made this 2nd day of January, 1973 by and between AMERICAN EUROPEAN DEVELOPMENT CORP., a New York corporation with principal offices at 217 Broadway, New York, New York 10007, hereinafter described as the Seller and MICHAEL NEWMARK and LAWRENCE ROSANO, hereinafter described as the "Purchasers". In consideration of the mutual promises each to the other made herein, Seller and Purchasers agree as follows:
1. All references made herein to Seller shall, for the purposes of this Purchase Agreement be applicable to the fee owners of the subject property. The parties hereto acknowledge that the Seller is the contract vendee of said property and that American European Development Corp. does not presently own said property and that in the event it is not the fee owner at the time of the delivery of the deed and closing of title hereunder, that it shall assign all its rights, title and interest in such contract and the property described herein to Purchasers, free and clear of all encumbrances.
2. Seller shall sell and convey, and Purchasers shall purchase all the plots, pieces of parcels of land, with the buildings and improvements thereon erected, situate, lying and being at Bayside in the Third Ward of the Borough and County of Queens, City and State of New York, bounded and described as follows. . . ." (Id.)

Without question, this lengthy agreement was, in effect, an assignment to Newmark and Rosano from one of their nominees of its right to purchase the property for $5 million more than it had agreed to pay GTE. Newmark, in response to questions put to him by opposing counsel at trial, described the nature of this...

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