National Union Fire Ins. Co. v. Arioli
| Decision Date | 04 October 1996 |
| Docket Number | Civil Action No. 92-CV-40587. |
| Citation | 941 F.Supp. 646 |
| Parties | NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff/Counter Defendant, v. Edward D. ARIOLI, Individually and as Trustee for the Edward D. Arioli Revocable Living Trust, Defendant/Counter Plaintiff. |
| Court | U.S. District Court — Eastern District of Michigan |
Stephen M. Ryan, Raymond & Prokop, Southfield, MI, for Tench C. Coxe.
Amy L. Glenn, Hammond, Ziegelman, Roach & Sotiroff, Detroit, MI, for James M. Dangelo.
Michael J. Sullivan and Gerald A. Pawlak, Collins, Einhorn, Farrell & Ulanoff, PC., Southfield, MI, Peter B. Worden, Garan, Lucow, Miller, Seward & Becker, PC., Detroit, MI, for National Union Fire Ins. Co.
ORDER ADOPTING IN PART AND DENYING IN PART MAGISTRATE'S PEPE'S REPORT AND RECOMMENDATION
This court, pursuant to 28 U.S.C. § 636(b)(1)(B), Fed.R.Civ.P. 72(b), and LR 72.1(d) (E.D.Mich. Dec. 6, 1993), has reviewed the January 19, 1996 report and recommendation of Magistrate Judge Steven D. Pepe, National Union's April 16, 1996 objections to the report and Edward D. Arioli's May 2, 1996 reply thereto, and the objections filed by Arioli on April 16, 1996 and National Union's May 6, 1996 reply thereto. In addition, the court has examined the voluminous record and relevant authorities in this matter. After conducting a de novo review, the court accepts the magistrate judge's report and recommendation in part and denies the magistrate's report and recommendation in part.
Although an extensive discussion of the facts are set forth in the magistrate's report and recommendation, this court deems it necessary to recapitulate the facts in order to facilitate an understanding of this order.
This matter arises out of an alleged default on a 1984 investment of $300,000 by Arioli into a Georgia limited partnership, Bordeaux Partners, Ltd. (hereinafter "Bordeaux"). Bordeaux was formed for the purpose of acquiring, owning and operating two apartment complexes in Georgia. Prudential-Bache was designated as placement agent for Bordeaux and authorized to sell the Bordeaux limited partnership units to the public at the time of Arioli's investment.
Arioli's investment was secured by a $26,850 down payment and $273,150 promissory note notarized on October 1, 1984 (hereinafter the "October note"). The October note required Arioli to make nine semi-annual payments initiating on March 1, 1985 and terminating on March 1, 1989. The October note contained a discrepancy on its face between the interest rates and calculated interest payments.
A second note was allegedly signed by Arioli on October 15, 1984 and notarized on November 26, 1984 (hereinafter the "November note"). This November note corrected the discrepancy between the interest rates and the interest payments delineated in the October note. Arioli's purported signature on the November note was in fact a forgery.
Bordeaux financed the purchase of its two apartment complexes, costing approximately $10 million, through two loan closings. First, Paine Webber loaned $4,802,877 to Bordeaux. At the closing for this loan from Paine Webber on October 19, 1984, Bordeaux endorsed Arioli's October note, along with other limited partnership notes, to Paine Webber. National Union guaranteed the notes by issuing a financial guarantee bond to Paine Webber.
Banker's Life ultimately replaced Paine Webber as a lender and loaned Bordeaux $9,969,948, the entire amount needed to purchase the two apartment complexes. The closing for this loan was December 12, 1984 and again, the limited partners' promissory notes secured this loan. This time, Arioli's forged November note was endorsed by Bordeaux to Paine Webber, which in turn endorsed the note to LaSalle National Bank (hereinafter "LaSalle") as trustee for Banker's Life Company (hereinafter "Banker's Life")1. National Union acted as a surety for the loan. This loan from Banker's Life had two unique features uncommon to ordinary real estate transactions: (1) Banker's Life did not receive a mortgage on the real estate, and (2) the general partners were exempt from personal liability on the loan. As a condition for acting as surety for these notes, National Union required each limited partner to sign an indemnification and pledge agreement (hereinafter "the agreement").2 Arioli signed the agreement on October 1, 1996.
Arioli made six semi-annual payments to LaSalle from March 1985 through September 1987, but failed to make payments on March 1 and September 1, 1988 and March 1, 1989. National Union cured the default, at which time LaSalle endorsed Arioli's November note over to National Union, which now holds as subrogee.
National Union asserts four causes of action in its original complaint filed on May 17, 1989.3 First, National Union claims that it is subrogated to the rights of a holder in due course of the promissory note endorsed to National Union by LaSalle, as trustee for Banker's Life. Second, National Union contends that it is entitled to receive specific performance of its rights under the agreement. Third, National Union seeks to recover for Arioli's alleged breach of contract of the agreement. Lastly, National Union argues that it has a security interest in Arioli's limited partnership which has matured as a result of Arioli's alleged default on a promissory note and the October 1, 1984 agreement. In essence, National Union brings the first claim pursuant to the New York Commercial Code () and the remaining three claims based upon the agreement (hereinafter collectively "the agreement claims").4
On June 5, 1995, both National Union and Arioli filed motions for summary judgment on National Union's four claims. The magistrate found that National Union's claims all were based upon the forged November note, not the October note.5 Proceeding upon this finding, the magistrate recommended that Arioli's motion for summary judgment be granted and National Union's motion be denied with respect to National Union's three agreement claims. The magistrate also recommended that both Arioli's and National Union's motions for summary judgment on National Union's holder in due course claim be denied.
At this time, this court does not concur with the magistrate's conclusion that the complaint encompasses only the November note. Rather, this court finds that the language of the complaint does not foreclose the possibility that National Union intended the complaint to include the October note. Therefore, this court grants the parties thirty days leave to file a motion as to whether the scope of the complaint includes the October note.
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." "A fact is `material' and precludes grant of summary judgment if proof of that fact would have [the] effect of establishing or refuting one of the essential elements of the cause of action or defense asserted by the parties, and would necessarily affect [the] application of appropriate principle[s] of law to the rights and obligations of the parties." Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir.1984) (citation omitted). The court must view the evidence in a light most favorable to the nonmovant as well as draw all reasonable inferences in the nonmovant's favor. See United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); 60 Ivy Street Corporation v. Alexander, 822 F.2d 1432, 1435 (6th Cir.1987). The court is not required or permitted, however, to make credibility determinations or weigh the evidence. Harris v. City of Akron, 20 F.3d 1396, 1403 (6th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 512, 130 L.Ed.2d 419 (1994).
The movant bears the burden of demonstrating the absence of all genuine issues of material fact. See Gregg v. Allen-Bradley Co., 801 F.2d 859, 861 (6th Cir.1986). This burden "may be discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Once the moving party discharges that burden, the burden shifts to the nonmoving party to set forth specific facts showing a genuine triable issue. Fed.R.Civ.P. 56(e); Gregg, 801 F.2d at 861.
To create a genuine issue of material fact, however, the nonmovant must do more than present some evidence on a disputed issue. As the United States Supreme Court stated in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986),
There is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the [nonmovant's] evidence is merely colorable, or is not significantly probative, summary judgment may be granted.
(Citations omitted). See Catrett, 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). The evidence itself need not be the sort admissible at trial. Ashbrook v. Block, 917 F.2d 918, 921 (6th Cir.1990). However, the evidence must be more than the nonmovant's own pleadings and affidavits. Id.
This Court adopts Magistrate Pepe's recommendation to grant summary judgment to Arioli on...
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