US v. Freidus

• Decision Date: 15 July 1991
• Docket Number: No. 90 Civ. 4813 (RWS).,90 Civ. 4813 (RWS).
• Parties: UNITED STATES of America, Plaintiff, v. Jacob FREIDUS, Claire Britt, 601 West 26 Corp., S.L. Building Company, Caesar's World, Inc., Providence Gravure, Inc., Global Leasing Services, Inc., Starrett Restaurant, Inc., Larsen & Toubro, Inc., and Mericor, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

769 F. Supp. 1266

UNITED STATES of America, Plaintiff, v. Jacob FREIDUS, Claire Britt, 601 West 26 Corp., S.L. Building Company, Caesar's World, Inc., Providence Gravure, Inc., Global Leasing Services, Inc., Starrett Restaurant, Inc., Larsen & Toubro, Inc., and Mericor, Inc., Defendants.

No. 90 Civ. 4813 (RWS).

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

July 15, 1991.

Otto G. Obermaier, U.S. Atty. S.D. New York, New York City, for U.S.; (Steven C. Bennett, Asst. U.S. Atty., of counsel).

Dreyer and Traub, New York City, for defendant S.L. Building Co.; (Noah Nunberg, of counsel).

OPINION

SWEET, District Judge.

S.L. Building Company ("S.L. Building") has moved under Rule 56, Fed.R.Civ.P., for summary judgment dismissing the complaint by which plaintiff the United States of America (the "Government") seeks to collect, by way of foreclosure of the property 601 West 26th Street, $1.2 million in unpaid taxes, which are owed by Claire Britt Freidus ("Britt"). The Government has cross-moved for summary judgment directing foreclosure. For the reasons set forth below, the motion of the Government is granted and that of S.L. Building denied based upon the findings and conclusions set forth below.

Prior Proceedings

This action was filed on July 20, 1990 and certain discovery has been had. The instant motions were argued and submitted on February 15, 1991.

The Facts

The following facts have been established by the 3(g) statements submitted by the parties.

S.L. Building is a New York partnership with its principal place of business at 60 East 42nd Street, New York, New York, and is the current fee owner of the property located at 601 West 26th Street, New York, New York. S.L. Building acquired title to the property at public auction held on August 20, 1974, as a result of a mortgage foreclosure proceeding of a third mortgage held by Precision Dynamics Corporation.

On June 21, 1967, Britt entered into a settlement agreement (the "Settlement Agreement") with her husband, Jacob Freidus ("Freidus"), 601 West 26 Corp. (of which Freidus was then the president and principal owner) and other parties, resolving, inter alia, matters relating to Britt's divorce from Freidus.

The relevant portions of the Settlement Agreement include:

¶ 1: Jacob Freidus will indemnify Mrs. Freidus and hold her harmless with regard to any income tax claims which may be asserted against her by the United States Government.

¶ 2: If Mr. Freidus permits a tax judgment to be enforced against Mrs. Freidus, ... or suffers the enforcement of a tax lien ... this will be an act of default entitling Mrs. Freidus to proceed against the security.

¶ 3: A tax claim is an enforceable claim by the government. So that if Mr. Freidus obtains a stay of the enforcement of the judgment, or bonds a lien, this will not be an act of default.

¶ 4: Any income tax claims which may be asserted against her by the United States Government with respect to income taxes for the years 1949 through 1964, inclusive, and for New York State income taxes, personal income taxes, for the years 1941 through 1964, inclusive.

The Settlement Agreement also provided:

¶ 5: Upon such a default, Mr. Freidus shall be entitled to receive written notice thereof ..., and he shall be entitled to ten days' notice if the amount of the default is less than $5,000, and thirty days notice if it is in excess thereof, during which period of time Mr. Freidus shall have the opportunity to cure the default. If he fails to do so, the escrowee ... shall, if he is holding cash, pay over to Mrs. Freidus an amount thereof sufficient to cure the default, and if he is not holding sufficient cash, Mrs. Freidus may direct the sale of the securities which he the escrowee is holding in escrow.

It also provided that Freidus would indemnify Britt for any counsel fees that she might have expended "in defending or settling any claims which are covered by these indemnities, if Mr. Freidus failed adequately to defend or settle them...." and that in the event of a default under the Settlement Agreement, which default was defined as:

¶ 6: Mr. Freidus permitting a tax judgment to be enforced against Mrs. Freidus with regard to the tax years ... recited above 1961 through 1964, or suffers the enforcement of a tax lien with regard to those years, or if Mrs. Freidus has to make expenditures for counsel fees against which she has been indemnified, this will be an act of default,

Britt would be permitted to proceed against the security. On June 26, 1967, Britt, Freidus, 601 West 26 Corp. and others entered into an addendum to the Settlement Agreement and on June 29, 1967, Britt, Freidus and 601 West 26 Corp. entered into a further agreement.

On February 15, 1968, 601 West 26 Corp., by Freidus, created a guarantee (the "Guarantee") which guaranteed Freidus' performance of the Settlement Agreement with Britt. The Guarantee stated that:

601 West 26 Corp. consents that the obligations of Jacob Freidus (or any security therefor) may, at any time in whole or in part, be renewed, extended, modified, accelerated, compromises, settled or released by Claire Freidus.... Claire Freidus shall not be liable for failure to collect or realize upon Jacob Freidus' obligations or any security therefor, or any part thereof, or for any delay in so doing, nor shall Claire Freidus be under any obligation to take any action whatsoever with regard thereto. (emphasis added).

On March 29, 1968, 601 West 26 Corp. gave a mortgage to Britt, which was recorded in the office of the City Register of New York County on October 23, 1969 on reel 154, page 1067 (the "Mortgage"), to secure the February 15, 1968 Guarantee. It stated:

The mortgagor herein agrees that in the event of any default by said Jacob Freidus under the terms of said indemnity agreement the holder of this mortgage shall have the option to institute, without notice, and to maintain an action or actions of partial foreclosure for the sum or sum with respect to which said Jacob Freidus is then in default in connection with said indemnity agreement. (emphasis added).

The Mortgage agreement provides that there might be multiple defaults and partial foreclosures, each of which would be treated separately:

The mortgagor herein agrees that in the event of any default by said Jacob Freidus under the terms of said indemnity agreement the holder of this mortgage shall have the option to institute, without notice, and to maintain an action or actions of partial foreclosure for the sum or sum with respect to which said Jacob Freidus is then in default in connection with said indemnity agreement. Said actions of partial foreclosure may be maintained subject to the continuing lien of this mortgage. It being understood and agreed that the holder hereof may, from time to time, as defaults occur with respect to said indemnity agreement, maintain one or more actions of partial foreclosure hereof, as such defaults occur. (emphasis added).

On March 29, 1968, 601 West 26 Corp. was the fee owner of the property located at 601 West 26th Street, New York, New York.

By Judgment of Foreclosure and Sale, dated July 29, 1974, the Supreme Court of the State of New York directed a public sale of the property and further directed that the property be sold:

Subject to state of facts shown on an accurate survey, covenants, easements and restrictions of record, violations, zoning regulations, rights of tenants not parties to this action, and also subject to the lien of a consolidated first mortgage made by 601 WEST 26TH CORP. to THE NEW YORK BANK FOR SAVINGS, dated February 15, 1968 recorded in the Office of the Register of the City of New York, New York County, on February 18, 1968, in reel 277, page 412 ... and also subject to the lien of a mortgage dated March 28, 1968 made by 601 WEST 26TH CORP. to CLAIRE FREIDUS, recorded in the Office of the Register of the City of New York, New York County on October 23, 1969 in reel 151, page 1067.

On December 19, 1979, the United States Tax Court issued its decision in Freidus, et al v. Commissioner, Nos. 4317-63, 4319-63, 1205-68, 1206-68, and 1207-68, 1979 WL 3591 regarding Britt's federal personal income tax liability for tax years 1949 through 1960. Britt filed an appeal of this decision with the United States Court of Appeals for the Second Circuit, Claire Britt v. Commissioner of Internal Revenue, No. 82-4167 (2d Cir.).

On October 27, 1982, and November 19, 1982, the Internal Revenue Service made assessments of federal personal income tax, penalty and interest against Britt in the total amount of $6,791,987.39, based upon the United States Tax Court decision.

On June 20, 1984, Britt, through her attorneys, offered to settle the case of Claire Britt v. Commissioner of Internal Revenue, No. 82-4167 (2d Cir.). The offer for settlement stated:

Mrs. Britt and her attorneys will cooperate fully in attempting to obtain for the Government payment of the $1,200,000 mortgage, which will be assigned to the United States immediately upon acceptance, and in no event later than 30 days of the date of the letter advising of acceptance of the offer.

It also provided:

While the United States will be entitled to keep any property that has been surrendered to it pursuant to the Offer, the liability to the United States will be considered satisfied to the extent of the property so surrendered, and such surrendered amounts will reduce any continuing liability of Mrs. Britt.

On August 2, 1984, Britt, through her attorneys' letter confirmed the June 20, 1984 offer of settlement with clarifications. The letter stated:

We would appreciate your confirmation that upon the satisfaction by Mrs. Britt of the terms of the settlement offer, all Federal income tax liabilities of Mrs. Britt for the years 1949 through 1961, including any interest and penalties, will be extinguished, and that the United States will not, in connection with such Federal income tax liability seek to recover any

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