McNellis v. Merchants Nat. Bank & Trust Co. of Syracuse

• Decision Date: 24 November 1967
• Docket Number: No. 105,Docket 31494.,105
• Citation: 385 F.2d 916
• Parties: Phillip J. McNELLIS, as Trustee of Donald S. Potter, Bankrupt, Plaintiff-Appellant, v. MERCHANTS NATIONAL BANK AND TRUST COMPANY OF SYRACUSE, Syracuse, New York, and Manufacturers Hanover Trust Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

385 F.2d 916 (1967)

Phillip J. McNELLIS, as Trustee of Donald S. Potter, Bankrupt, Plaintiff-Appellant, v. MERCHANTS NATIONAL BANK AND TRUST COMPANY OF SYRACUSE, Syracuse, New York, and Manufacturers Hanover Trust Company, Defendants-Appellees.

No. 105, Docket 31494.

United States Court of Appeals Second Circuit.

Argued October 11, 1967.

Decided November 24, 1967.

Laurence Sovik, Syracuse, N. Y. (Smith, Sovik, Terry, Kendrick, McAuliffe & Schwarzer, Syracuse, N. Y., on the brief), for plaintiff-appellant.

Roy L. Reardon, New York City (Simpson, Thacher & Bartlett, Richard D. Katcher, New York City, on the brief), for appellee Manufacturers Hanover Trust Co.

Lawson Barnes, Syracuse, N. Y. (Melvin & Melvin, Syracuse, N. Y., on the brief), for appellee Merchants National Bank and Trust Co. of Syracuse.

Before LUMBARD, Chief Judge, and SMITH and FEINBERG, Circuit Judges.

FEINBERG, Circuit Judge:

This is an appeal by plaintiff Phillip J. McNellis, as bankruptcy trustee of Donald S. Potter, from an order of the United States District Court for the Northern District of New York, Edmund Port, J., granting in substantial part a motion for summary judgment by defendants The Merchants National Bank and Trust Company of Syracuse and Manufacturers Hanover Trust Company. For the reasons set forth below, we dismiss the appeal.

In the spring of 1963, Donald S. Potter, a real estate broker, filed a voluntary petition in bankruptcy and was adjudicated bankrupt; shortly thereafter, Phillip J. McNellis was appointed trustee of the estate. Since then, trustee McNellis has been attempting to recover moneys he claims were paid out by Potter on allegedly usurious loans. E. g., In re Potter, 367 F.2d 513 (2d Cir. 1966); McNellis v. First Fed. Sav. & Loan Ass'n, 364 F.2d 251 (2d Cir.), cert. denied, 385 U.S. 970, 87 S.Ct. 504, 17 L.Ed.2d 434 (1966). In this case, the basic claim for relief of the trustee's action is that Donald Potter paid interest on a loan by defendant banks in fact made to him although in form to a corporation named Potter Securities Corporation; in other words, the trustee claims that the Corporation was a dummy for Donald Potter. The trustee's complaint contains two causes of action, both seeking recovery from the banks of allegedly usurious interest payments to them.¹ The first cause of action alleges payments of interest on the loan at an annual rate of eight and one-half per cent, one payment of $62,526.67 for the period from January 1 to April 1, 1962, and another of $53,446.35 for the period from April 1 to June 25, 1962. Pursuant to 12 U.S.C. § 86, the trustee seeks damages of double these amounts, or $231,946.04.² The second cause of action alleges that the two payments were fraudulent under sections 273-76 of the New York Debtor and Creditor Law, McKinney's Consol. Laws, c. 12 and that the later one also violated section 67d(2) of the Bankruptcy Act, 11 U.S.C. § 107(d) (2).

Both plaintiff and defendants moved for summary judgment in the district court. In his opinion, Judge Port found that:

The principal if not the sole use to which the Corporation was put was to hold title to various parcels of realty for relatively short times in order to borrow money, secured by mortgages, on that property.

Moreover, he recognized that:

Many of these loans * * * were made at rates of interest which would have been usurious if charged to an individual borrower.

The judge carefully reviewed the papers before him and concluded that:

The circumstances surrounding the execution of the May 3, 1961 building loan agreement inescapably lead to the conclusion that the loan was made to Potter Corporation and not to Donald Potter.

Judge Port found, therefore, that since under New York law the defense of usury is not available to a corporation, the building loan was not usurious; he dismissed the first cause of action entirely.

As to the second cause of action, the judge held that insofar as it rested on the premise that the two payments were made without fair consideration because they were usurious, it must also fall. See In re Potter, 367 F.2d 513 (2d Cir. 1966). According to Judge Port, however, the second cause of action sets forth another theory: Even if the building loan was made to the Corporation, the payments of interest were actually made by Donald Potter individually; since he was under no personal obligation, the payments were transfers of his property without fair consideration. As to this, the judge held that, except for payments of $3,439.63, the papers before him offered "no support for the contention." Accordingly, he entered an order specifying as facts that "appear without substantial controversy"³ that the loan was not usurious, and that all repayments of principal and interest were made for fair consideration and not in fraud of creditors except for payments of $3,439.63. The judge directed trial of the issue of whether those payments defrauded creditors under New York or federal law. Therefore, the trustee's second cause of action is still pending in the district court, although the relief he may obtain has been considerably diminished by an interlocutory order. The judge made an express determination under Fed.R.Civ. P. 54(b) that there was "no just reason for delay" in the entry of final judgment dismissing the first cause of action and directed it. McNellis, as trustee of Donald Potter, seeks to appeal from that dismissal.⁴

Although none of the parties has raised the point, we reluctantly conclude that we should not reach the merits in this case because we find that Judge Port's order, although framed in the words of Fed.R.Civ.P. 54(b), is not appealable. Rule 54(b) provides:

When more than one claim for relief is presented in an action * * * the court may direct the

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