Quintel Corp. v. CITIBANK, NA

• Decision Date: 22 February 1985
• Docket Number: 82 Civ. 4856(RWS).,No. 80 Civ. 4936(RWS),80 Civ. 4936(RWS)
• Citation: 606 F. Supp. 898
• Parties: QUINTEL CORPORATION, N.V., Plaintiff, v. CITIBANK, N.A., Defendant. CITIBANK, N.A., Third-Party Plaintiff, v. H.R. GAJRIA, Arnold Alperstein, and Goldstick, Weinberg, Feldman, Alperstein & Taishoff, P.C., Third-Party Defendants. QUINTEL CORPORATION, N.V., and H.R. Gajria, Plaintiff, v. Arnold S. ALPERSTEIN, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

606 F. Supp. 898

QUINTEL CORPORATION, N.V., Plaintiff, v. CITIBANK, N.A., Defendant.

CITIBANK, N.A., Third-Party Plaintiff, v. H.R. GAJRIA, Arnold Alperstein, and Goldstick, Weinberg, Feldman, Alperstein & Taishoff, P.C., Third-Party Defendants.

QUINTEL CORPORATION, N.V., and H.R. Gajria, Plaintiff, v. Arnold S. ALPERSTEIN, et al., Defendants.

Nos. 80 Civ. 4936(RWS), 82 Civ. 4856(RWS).

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

February 22, 1985.

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Carro, Spanbock, Fass, Geller, Kaster & Cuiffo, New York City, for plaintiff and third-party defendant; Kenneth A. Lapatine, Jeffrey K. Cymblar, New York City, of counsel.

Sherman & Sterling, New York City, for defendant and third-party plaintiff; Mark P. Zimmett, Catherine Gallo, Joseph F. Haggerty, New York City, of counsel.

Wilson, Elser, Edelman & Dicker, New York City, for defendants and third-party defendants; Edward J. Boyle, Steven Kent, New York City, of counsel.

OPINION

SWEET, District Judge.

These consolidated actions were tried before a jury between November 5-16, 1984, and on November 16 the jury rendered its verdict for plaintiffs Quintel Corporation, N.V. and H.R. Gajria ("Gajria") (collectively, "Quintel"). Defendant and third-party plaintiff Citibank, N.A. ("Citibank") has now moved this court pursuant to Fed.R. Civ.P. 50(b) to overturn the jury verdict or, in the alternative, for a new trial pursuant to Fed.R.Civ.P. 59. Defendants Arnold S. Alperstein and Goldstick, Weinberger, Feldman, Alperstein & Taishoff, P.C. (collectively, "Alperstein") have cross-moved for judgment notwithstanding the verdict. Quintel has moved for the inclusion of prejudgment interest in the judgment against Citibank and Alperstein. Citibank also seeks prejudgment interest on its crossclaim. For the following reasons, Citibank and Alperstein's motions for judgment n.o.v. and for a new trial are denied and Quintel and Citibank's motion for prejudgment interest are granted in part and denied in part.

The Facts as Established at Trial

These actions arose out of real estate transaction in which plaintiff and third-party defendant H.R. Gajria acquired the limited partnership interest in Flag Associates, L.P. ("Flag"), a partnership to be formed for the purpose of acquiring, operating and converting to condominium ownership six apartment complexes located in the State of Florida (the "Developed Land"). Gajria is a non-resident of the United States who is engaged in the business of manufacturing and distributing watches and electronic equipment principally in Japan and the Middle East. Quintel is a corporation existing and organized pursuant to the laws of the Netherlands Antilles which was organized as an acquisition vehicle for the transaction. Citibank is a nationally chartered bank which acted as investment advisor and fiduciary agent to Quintel and Gajria in connection with the investment effectuated by Gajria's acquisition of all stock in Quintel and Quintel's acquisition of the limited partnership interest in Flag. Alperstein is an attorney engaged in the practice of law in the State of New York who was engaged by Gajria to represent him in the negotiation and the completion of the Flag investment.

In 1979, Monumental Properties Trust ("MPT") retained Brooks, Harvey & Co. ("Brooks Harvey") to manage the sale of its real estate holdings throughout the United States. One package of real estate consisted of MPT's real estate holdings in Florida (the "Florida Package"). In connection with the sale of the Florida Package, Brooks Harvey prepared and circulated a brochure (the "Blue Book") to prospective purchasers that described the package as including both the Developed Land, consisting of six garden apartment complexes, and approximately 80 acres of undeveloped land (the "Undeveloped Land"). The offering price for the Florida Package was $13.5 above existing mortgages, of which $1.486 million was attributed to the value of the Undeveloped Land.

In May 1979, MPT entered into a purchase agreement (the "Purchase Agreement") with Garrin Properties, Inc. ("Garrin"), an entity wholly owned by Nelson Rising ("Rising"), Robert Ginsberg ("Ginsberg") and John Rudey ("Rudey") (collectively, the "General Partners"), in which Garrin agreed to buy the Florida Package for a purchase price of $11.5 million in excess of existing mortgages. Garrin then approached Citibank's Gary Bulkley ("Bulkley"), a vice-president in the Bank's Real Estate Investment and Management Department, to obtain second mortgage financing. After obtaining second mortgage financing elsewhere Garrin returned to Citibank to obtain help in finding an investor who could supply equity financing to cover the balance needed. Although Garrin and Citibank initially discussed giving an investor a 25-30% interest in the entire Florida Package in exchange for $4,800,000, they ultimately negotiated a proposal eliminating the Undeveloped Land from the Florida Package and providing that the equity investor would receive a 49% interest in the Developed Property in exchange for $4.1 million. Garrin agreed to contribute $700,000 of its own funds towards the purchase of the Florida Package. On June 27, 1979, Garrin and Citibank set up Flag as a limited partnership in accordance with their negotiations. Citibank subsequently prepared a brochure (the "Red Brochure") which described the investment available in Flag for an equity investor. The Red Brochure did not mention the Undeveloped Land.

Gajria, who had been a Citibank client since July 1978, first became involved in the Flag transaction in August, 1979 when he was given a copy of the Red Brochure by Rusi Sanjani ("Sanjani") who had previously pursued other interests on Gajria's behalf. At that time, Gajria, through Sanjani, also contacted Alperstein for advice in connection with the proposed acquisition by Gajria of the limited partnership interest in Flag. Alperstein was also given a copy of the Red Brochure.

Gajria first met with representatives of Citibank on August 6, 1979 after Sanjani on Gajria's behalf had engaged in preliminary discussions with Citibank about the investment. Gajria also met with Alperstein on August 6 to discuss the investment. On August 7, Gajria flew to Florida to inspect the properties with Sanjani, his son, Kaizad Sanjani ("Kaizad"), Gary Bulkley, and Claude Kemper of Citibank ("Kemper"). At trial, Gajria and the Sanjanis testified that during the flight down to Florida and on three other occasions Gajria and the Sanjanis questioned the Citibank representatives as to why Quintel would receive only a 49% interest in Flag for a $4.1 million investment whereas the General Partners were receiving a 51% interest for their $700,000 commitment.

Gajria and the others were met in Florida by Rising, who accompanied them on their site inspections. During the visit, Rising discussed the history of the negotiations between MPT and Garrin which culminated in the Purchase Agreement, but the Purchase Agreement was never shown to Gajria or the Sanjanis, nor were they informed of the existence of the Undeveloped Land. At one point during the visit, Kaizad pointed to the Undeveloped Land and asked Rising if it was "ours." Rising responded by saying "No." Neither Bulkley or Kemper responded. Gajria also testified at trial that Rising was asked to identify all other Florida properties in which the General Partners had an interest, and that neither Rising nor the others mentioned the Undeveloped Land in response to this query. During the course of the inspection trip, Gajria and the Sanjanis saw Rising refer to the Blue Brochure for information about the properties. None of them were ever shown the Blue Brochure. There was no testimony presented that they requested to see the Blue Brochure.

On August 8, in New York, Gajria agreed orally to take the entire investment. He arranged to borrow $4.8 million from Citibank to cover both the $4.1 million investment and Citibank's $600,000 advisory fee. He subsequently signed an Acquisition Agreement, an Acquisition Authentication and a Service Agreement. These agreements provide, among other things, for Gajria to pay Citibank the sum of $600,000 in consideration for its services in connection with the Flag investment, for Citibank to render monitoring services in connection with the operation of some of the properties, for Gajria to make his investment through Quintel, and for Gajria and Quintel to indemnify Citibank except for gross negligence or willful misconduct. Gajria also on August 8 formally retained Alperstein as his attorney for the transaction. As Gajria's attorney, Alperstein reviewed these documents as well as the Red Brochure.

From August 7 through August 10, Gajria, the Sanjanis, Alperstein, Citibank and the General Partners negotiated the terms of the Flag Limited Partnership Agreement ("Partnership Agreement") and the related business plan. During the course of the August 9, 1979 meetings, Gajria was shown a copy of a draft partnership agreement prepared by Alperstein and Paul Kalos ("Kalos"), Citibank's in-house counsel. After reading paragraph 6.03 of the Partnership Agreement, which stated that the General Partners had entered into a Purchase Agreement with MPT to purchase all the properties listed in the Purchase Agreement and that the General Partners would cause all of the assets, excluding "the property described in Exhibit A annexed hereto" to be acquired by the Limited Partnership, Gajria inquired about Exhibit A which was not attached. Kalos responded by telling Gajria that Exhibit A was not ready yet because it was still being typed.

The documents for closing were finalized on August 11 and 12 by attorneys for the General Partners. Early on August 13, Citibank and Alperstein received execution copies of the documents, including Exhibit A to the Partnership Agreement, which is a metes and bounds description...