National Westminster Bank, USA v. Ross

• Decision Date: 13 August 1991
• Docket Number: No. 86 Civ. 6277 (SWK),89 Civ. 4959 (SWK).,86 Civ. 6277 (SWK)
• Citation: 130 BR 656
• Parties: NATIONAL WESTMINSTER BANK, U.S.A., Plaintiff, v. Walter L. ROSS, Defendant. William L. YAEGER, as Chapter 7 Trustee of RPC Corporation, Plaintiff, v. NATIONAL WESTMINSTER BANK, U.S.A., Roy Grossman and Murray Markowitz, Defendants.
• Court: U.S. District Court — Southern District of New York

130 B.R. 656 (1991)

NATIONAL WESTMINSTER BANK, U.S.A., Plaintiff, v. Walter L. ROSS, Defendant.

William L. YAEGER, as Chapter 7 Trustee of RPC Corporation, Plaintiff, v. NATIONAL WESTMINSTER BANK, U.S.A., Roy Grossman and Murray Markowitz, Defendants.

Nos. 86 Civ. 6277 (SWK), 89 Civ. 4959 (SWK).

United States District Court, S.D. New York.

July 31, 1991.

As Amended August 13, 1991.

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Winston & Strawn, New York City by Edward N. Meyer, Arthur P. Hui and Susan R. Dyer, for plaintiff National Westminster Bank USA and defendants Roy Grossman and Murray Markowitz.

Ross & Hardies, New York City by Sean M. Sullivan, Helen D. Chaitman, for defendant Walter L. Ross and plaintiff William L. Yaeger.

MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

These related cases involve National Westminster Bank USA's ("Natwest" or the "Bank") efforts to recover upon a written guarantee (the "Guarantee") of RPC Corporation's ("RPC") president Walter L. Ross ("Ross"), and Ross's and RPC's "lender liability" claims. The essential facts are set forth in the Court's prior opinions, National Westminster Bank v. Ross, 676 F.Supp. 48 (S.D.N.Y.1987) ("Natwest I") and National Westminster Bank v. Ross, 86 Civ. 6277, slip op., 1988 WL 96032 (S.D.N.Y. August 30, 1988) ("Natwest II"), familiarity with which is assumed. Presently before the Court in Natwest's guarantee action (the "Natwest Action") is defendant Ross's motion for reconsideration of Natwest II, in which the Court granted Natwest's motion for summary judgment upon the Guarantee as to liability only and dismissed Ross's first (breach of contract), third (breach of fiduciary duty) and fourth (breach of good faith dealing) counterclaims. Also before the Court is Ross's motion for leave to file an amended counterclaim and the Bank's motions to enter final judgment and to strike Ross's jury demand.

Before the Court in the Trustee's action (the "Yaeger Action") are defendant Roy Grossman's ("Grossman") and Murray Markowitz's ("Markowitz") motions, pursuant to 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing the complaint for failure to state a claim upon which relief can be granted, and the Bank's motion, pursuant to Rule 56, for an order granting the Bank summary judgment dismissing the amended complaint or, in the alternative, striking the Trustee's jury demand. Also pending are the Trustee's cross-motions for partial summary judgment and for consolidation of the Yaeger and Natwest Actions.¹

I. The Natwest Action

The Court has received and reviewed the Report and Recommendation of Magistrate Judge Leonard Bernikow dated January 12, 1990 (the "Report") issued in connection with Ross's motion, pursuant to Rule 15(a), for an order granting him leave to assert a consumer fraud counterclaim, to assert a tortious interference counterclaim, to implead Grossman and Markowitz, account officers at the Bank, as third-party defendants and to add to and clarify the original counterclaims. (A copy of the Report is annexed hereto as an Appendix.) The Report recommends that Ross's motion for leave to amend his answer be denied with respect to the first (breach of contract), third (breach of fiduciary duty) and fourth (breach of good faith dealing) counterclaims, upon the basis that those claims are barred by the doctrine of law of the case as a result of this Court's decision in Natwest II. The Report also recommends that leave to amend to clarify the common law fraud claim, and assert a consumer fraud claim, be denied. The Court has reviewed the parties' objections to the Report. For the reasons set forth below, the Report is adopted in part and rejected in part, and Ross's remaining counterclaims are dismissed in their entirety.

A. The Proposed Amended Counterclaims

The Court adopts that portion of the Report which denies Ross leave to amend his fraud counterclaim.² See Report at 687-88. Notwithstanding this Court's refusal on two earlier occasions to dismiss this claim, see Natwest I, 676 F.Supp. at 581; Natwest II at 5-6, the Court now agrees with the Magistrate Judge that Ross has failed to allege a viable fraud claim.

In evaluating the sufficiency of the fraud counterclaim, the Court acknowledges Ross's contention that a specific representation regarding future conduct, made with the undisclosed intention not to perform, is actionable fraud. See Channel Master Corp. v. Aluminium Ltd. Sales, 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958); Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714, 143 N.E.2d 906 (1957). Clearly, "an action for fraud will lie if the promisor did not intend to keep his promise at the time he made it. His present intent is the fact misrepresented." Hotel Constructors, Inc. v. Seagrave Corp., 574 F.Supp. 384, 387 (S.D.N.Y.1983). The law is well settled, however, that a party may not establish fraudulent intent solely from the non-performance of the future event. See Pope v. New York Property Ins. Underwriting Ass'n, 112 A.D.2d 984, 492 N.Y.S.2d 796 (2d Dept.), aff'd in part and appeal dismissed in part, 66 N.Y.2d 857, 498 N.Y.S.2d 360, 489 N.E.2d 247 (1985). The defrauded party must allege specific facts showing that the promisor intended not to honor his obligations at the time the promise was made. See Songbird Jet Ltd., Inc. v. Amax Inc., 581 F.Supp. 912 (S.D.N.Y.1984), aff'd, 812 F.2d 713 (2d Cir. 1987); Fed.R.Civ.P. 9(b).

Misrepresentation of a promisor's present intent to perform a future act is only one of five necessary elements of a fraud claim. Under well-established requirements for pleading fraud, a claimant must allege with particularity not only a knowingly false misrepresentation and scienter but that the misrepresentation was of a fact material to the transaction, relied upon by the complainant to his detriment. See Sabo v. Delman, 3 N.Y.2d at 160, 164 N.Y.S.2d at 716, 143 N.E.2d at 907.

Although Ross repeatedly states that the Bank officers acted with present fraudulent intent, Ross alleges no evidentiary facts from which any rational trier of fact could directly or indirectly infer such intent. The fraud counterclaim simply states and restates, in conclusory fashion, that the Bank's officers never intended to perform and in fact failed to perform any of the promises made to RPC through Ross. Such allegations are insufficient, as a matter of law, to satisfy the requirements for properly pleading present fraudulent intent. See Songbird, 581 F.Supp. at 925. Illustrative of Ross's failure to allege specific facts establishing fraudulent intent are the following allegations:

In November 1985, Markowitz told Ross that RPC\'s line of credit was coming up for renewal and that the Bank would agree to extend the RPC line of credit for one year only if RPC paid the Bank a $30,000.00 "collateral management fee" and Ross agreed to invest an additional $100,000.00 in subordinate capital.

* * * * * *

At the time Markowitz and Grossman made this agreement they had no intention of honoring it. They made the agreement with the intention to induce Ross to put more of his own personal funds into RPC in order to enhance the Bank\'s position.

Proposed Amended Counterclaim ("PAC") ¶¶ 36, 38. These assertions of fraudulent intent, typical of those contained in Ross's fraud counterclaim, are wholly conclusory and contain no facts from which present fraudulent intent may be inferred. The allegation that the Bank requested Ross to supply additional capital in order to "enhance the Bank's position" adds nothing to Ross's fraud claim. It is but a truism that a lender's request for its borrower to infuse capital as a condition of restructuring or extending a loan is an obvious and overt attempt to reduce the lender's potential loss in the eventuality of a default.

Ross similarly fails to allege any facts giving rise to a duty to disclose. Although the record is uncontradicted that Bank employees made decisions concerning the Bank's lending relationship with RPC which were not immediately communicated to RPC, see Deposition of Murray Markowitz, dated February 9, 1989, annexed to Appendix of Exhibits to Affidavit of Sean M. Sullivan, sworn to November 9, 1989 ("Sullivan Aff."), as Exhibit "1," at 78-80, 90-92; Deposition of Roy Grossman, Sullivan Aff.Ex. "2," at 123-25, 129; Deposition of Austin Ludlow, Sullivan Aff.Ex. "3," at 75-76, 89, the Loan Agreements imposed no obligation upon the Bank to advise RPC of its internal policy decisions and the Trustee has suggested no basis for the Court to imply such an obligation between the parties. Accordingly, the Court refuses to imply such an obligation upon the Bank independent of its contractual obligations.

Moreover, even accepting as true Ross's bald assertions of fraudulent intent and/or fraudulent failure to disclose certain facts, Ross fails to allege how any such representation, if false, concerned facts material to any transaction involving RPC in which Ross, as opposed to RPC, suffered resulting injury. In effect, Ross seeks to claim the corporation's alleged injury as his own. The law is clear, however, that

even where plaintiff claims that defendant\'s actions destroyed his business reputation and good will, it is clear that the ultimate damage suffered is to the business. . . . Plaintiff, even as president and principal shareholder of the corporation, may not claim the company\'s damages as his own.

Sirinakis v. Colonial Bank, 600 F.Supp. 946, 953 n. 10 (S.D.N.Y.1984); accord Kruse v. Bank of America N.T. & S.A, 202 Cal.App.3d 38, 248 Cal.Rptr. 217 (1st Dist. 1988), cert. denied sub nom, Duck v. Bank of America, 488 U.S. 1043, 109 S.Ct. 869, 870, 102 L.Ed.2d 993 (1989). For example, Ross's allegation that "in or about October 1984, the Bank . . . decided to manage RPC out of the Bank . . . but did not inform Ross or...