07-4029-cv
SCR v. Warshawsky
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3 August Term, 2008
4 (Argued: November 21, 2008 Decided: March 12, 2009)
5 Docket No. 07-4029-cv
6 -------------------------------------
7 SCR JOINT VENTURE L.P.,
8 Plaintiff-Appellee,
9 - v -
10 ARI WARSHAWSKY and JEROME WARSHAWSKY
11 Defendants-Appellants.
12 -------------------------------------
13 Before: SACK and WESLEY, Circuit Judges, and KAHN, District
14 Judge.*
15 Appeal from a judgment of the United States District
16 Court for the Eastern District of New York (Arthur D. Spatt,
17 Judge). The district court granted summary judgment for
18 plaintiff-appellee SCR Joint Venture L.P. in its action to
19 collect an allegedly unpaid debt from defendants-appellants
20 Jerome and Ari Warshawsky, and denied the Warshawskys' motion to
21 reconsider that decision.
22 We conclude, contrary to the decision of the district
23 court, that, in the circumstances presented, a statement in an
*
The Honorable Lawrence E. Kahn, of the United States
District Court for the Northern District of New York, sitting by
designation.
1 affidavit opposing the motion for summary judgment made "to my
2 knowledge" was made with sufficient personal knowledge to create
3 a genuine issue of material fact as to whether the senior debt
4 had not been repaid, a fact that, if established, would preclude
5 suit based on certain guarantees made by the defendants. To that
6 extent we vacate the judgment of the district court. We agree
7 with the district court and affirm, however, insofar as it
8 dismissed on summary judgment the Warshawskys' claim that SCR
9 acquired its interest with a champertous purpose in violation of
10 section 489 of New York's Judiciary Law, and insofar as it
11 granted summary judgment on SCR's claim for payment of debt on
12 the so-called "Carve-Out Note."
13 Affirmed in part, vacated in part, and remanded.
14 RICHARD GABRIELE, Westerman, Ball,
15 Ederer, Miller & Sharfsten, LLP,
16 Mineola, NY, for Appellants.
17 STEVEN GIORDANO, Vlock & Associates,
18 P.C., New York, NY, for Appellees.
19 SACK, Circuit Judge:
20 Defendants-Appellants Jerome and Ari Warshawsky (the
21 "Warshawskys"), father and son, appeal from an order of the
22 United States District Court for the Eastern District of New York
23 (Arthur D. Spatt, Judge) filed August 17, 2007, denying a motion
24 to reconsider an order of the court filed June 6, 2007. In the
25 June 6 order, the district court granted summary judgment in
26 favor of Plaintiff-Appellee, SCR Joint Venture L.P. ("SCR"),
27 based on the Warshawskys' guarantees to SCR of notes that had
2
1 been issued by their business, I.W. Industries Inc. ("IW"), in
2 connection with an ultimately unsuccessful reorganization in
3 bankruptcy of the business.
4 The district court concluded that the relevant
5 agreement between the parties required the senior IW debt to be
6 repaid before SCR could seek to collect on the guarantees. It
7 further held that the Warshawskys had the burden of establishing
8 that the senior debt has not been repaid, and that they had not
9 raised a triable issue of fact on that issue because their
10 evidence as to it consisted only of hearsay deposition testimony
11 and an affidavit of Jerome Warshawsky stating that "[t]o my
12 knowledge, [the Senior Creditor] has not been paid in full."
13 We conclude that in this context, a statement made "to
14 my knowledge," unlike a statement made "upon information and
15 belief," is sufficient to assert personal knowledge and thus
16 created a genuine issue of material fact as to the repayment. We
17 therefore vacate the district court's judgment in that respect
18 and remand as to that claim. We affirm the district court's
19 grant of summary judgment against the Warshawskys, however, on
20 their claim that SCR acquired its interest in the debt with a
21 champertous purpose in violation of section 489 of New York's
22 Judiciary Law, and on SCR's claim for repayment of one of the
23 notes, which the parties refer to as the "Carve-Out Note."
3
1 BACKGROUND
2 On March 3, 2004, in connection with IW's ultimately
3 unsuccessful Chapter 11 bankruptcy reorganization proceedings,1 IW
4 and SCR's predecessor in interest, Summitbridge National
5 Investments, LLC ("Summitbridge"), executed three notes: (1) a
6 "Carve-Out Note" in the sum of $79,971.77; (2) a "New
7 Subordinated A Note" in the sum of $429,300; and (3) a "New
8 Subordinated B Note" in the sum of $2,075,505.74 (collectively
9 the "Notes"). On the same day, the Warshawskys each individually
10 executed personal guarantees for payment of the Notes in the
11 aggregate sum of $2,584,777.51 (the "Guarantees").
12 The next day, the Warshawskys, Summitbridge, Citibank
13 N.A., and FCC, LLC, doing business as First Capital ("First
14 Capital"), executed another agreement with IW called the Debt
15 Subordination and Intercreditor Agreement (the "Subordination
16 Agreement"), which, among other things, subordinated the debt of
17 Summitbridge and Citibank, the "Junior Creditors," to that of
18 First Capital, the "Senior Creditor." About four months later,
19 on July 12, 2005, Summitbridge assigned and transferred its
20 interest in the Notes and Guarantees to SCR.
21 According to SCR, the Warshawskys defaulted with
22 respect to their obligation under the Notes and Guarantees by
23 failing to pay any of the principal of or interest on them. This
24 appeal arises out of an action by SCR brought in the district
1
The company later underwent a consensual liquidation by
its secured creditors.
4
1 court to collect this allegedly unpaid debt. The court granted
2 summary judgment for SCR on three grounds relevant to this
3 appeal. Memorandum and Order Granting Summary Judgment 21, SCR
4 Joint Ventures, L.P. v. Warshawsky, No. 06 Civ. 3532 (E.D.N.Y
5 Sept. 18, 2007) (Docket No. 47). First, the court rejected the
6 Warshawskys' argument that SCR could not collect its debt because
7 the senior debt had not been repaid, concluding that the
8 Warshawskys had submitted no admissible evidence to show that the
9 senior creditor had not been paid in full. Id. at 10-13.
10 Second, the court rejected the Warshawskys' argument that SCR
11 acquired the debt with a champertous purpose in violation of
12 section 489 of New York's Judiciary Law, concluding that this
13 argument was waived, and, even were it not, that there was no
14 evidence establishing a triable issue of fact to support it. Id.
15 at 13-18. Third, the court rejected the Warshawskys' argument
16 that more discovery was needed prior to summary judgment in light
17 of SCR's refusal to cooperate, concluding that the Warshawskys
18 could have obtained the requested information previously. Id. at
19 18-21. The Warshawskys filed a motion to reconsider the grant of
20 summary judgment, which the district court denied. The
21 Warshawskys appeal.
22 DISCUSSION
23 I. Reviewability of the Summary Judgment Order
24 The Warshawskys' notice of appeal, while referring to
25 the grant of summary judgment, explicitly appeals only from the
5
1 denial of their motion to reconsider.2 SCR argues that we
2 therefore have jurisdiction to review only that order, not the
3 underlying grant of summary judgment.
4 Our recent decision in "R" Best Produce, Inc. v.
5 DiSapio, 540 F.3d 115 (2d Cir. 2008) counsels otherwise. In "R"
6 Best Produce, we decided that we had jurisdiction to review an
7 underlying district court order -- in that case denying a motion
8 to vacate a default judgment -- where the notice of appeal
9 referred to an order denying reconsideration, but not the
10 underlying order itself. We endorsed a "straightforward
11 approach" to resolving the issue of which orders, not referred to
12 in a notice of appeal, are reviewable, concluding that "a notice
13 of appeal from denial of a motion to reconsider, filed within ten
14 days of the order or judgment sought to be considered, suffices
15 to bring up for review the underlying order or judgment, at least
16 where the motion renews arguments previously made." Id. at 121.
17 The motion to reconsider in the instant case similarly "renews
2
The Notice of Appeal states that the appeal is
from the Memorandum Decision and Order of the
Honorable Arthur D. Spatt, United States
District Judge, denying Defendant's Motion
for Reconsideration, entered on the 20th day
of August, 2007, which Order denied
reconsideration of the Memorandum Decision
and Order granting Plaintiff's Motion for
Summary Judgment, denying Defendants' Cross-
Motion for Summary Judgment and granting
related relief, entered on the 21st day of
June, 2007.
Notice of Appeal, SCR Joint Ventures, L.P. v. Warshawsky, No. 06
Civ. 3532 (E.D.N.Y Sept. 18, 2007) (Docket No. 59).
6
1 arguments previously made," and, therefore, we may review the
2 underlying order granting summary judgment.
3 II. Standard of Review
4 "We review a district court's grant of summary judgment
5 de novo, construing the evidence in the light most favorable to
6 the non-moving party and drawing all reasonable inferences in its
7 favor." Allianz Ins. Co. v. Lerner, 416 F.3d 109, 113 (2d Cir.
8 2005). Summary judgment must be granted to the movant "if the
9 pleadings, the discovery and disclosure materials on file, and
10 any affidavits show that there is no genuine issue as to any
11 material fact and that the movant is entitled to judgment as a
12 matter of law." Fed. R. Civ. P. 56(c); see also Roe v. City of
13 Waterbury, 542 F.3d 31, 35 (2d Cir. 2008). "An issue of fact is
14 genuine if the evidence is such that a reasonable jury could
15 return a verdict for the nonmoving party. A fact is material if
16 it might affect the outcome of the suit under the governing law."
17 Id. (citation and internal quotation marks omitted).
18 III. Payment of the Senior Debt
19 Section 2.4(a) of the Subordination Agreement provides:
20 Until the Senior Creditor Repayment, no
21 Junior Creditor shall be entitled to exercise
22 any rights or remedies with respect to . . .
23 any Guarantor or any Junior Creditor
24 Guaranty, including without limitation to the
25 right to . . . make demand under, sue under
26 or otherwise seek payment under any Junior
27 Creditor Guaranty. . . .
28 Subordination Agreement, § 2.4(a). Under the terms of the
29 Subordination Agreement, then, until full repayment has been made
30 to the Senior Creditor, Junior Creditors, such as Summitbridge
7
1 and its successor in interest SCR, cannot bring suit against the
2 Guarantors, the Warshawskys, for the Junior Creditor Guaranty,
3 i.e., the debt owed to the Junior Creditor by the Warshawskys.
4 This lawsuit was brought for precisely that purpose: to
5 collect on the debt allegedly owed to SCR by the Warshawskys.
6 The Warshawskys assert that the Senior Creditor had not been paid
7 in full at the time this action was begun, and that, therefore,
8 this lawsuit is barred.
9 A. SCR's Arguments Based on Contractual Language
10 SCR argues that the remainder of section 2.4(a)3
11 nonetheless permits it to bring this suit. But the proviso
12 contained in that section applies only to "the Citibank Carve-Out
13 Note, the Summitbridge Carve-Out Note or the Citibank Short Fall
14 Note," not the New Subordinated A Note or the New Subordinated B
15 Note at issue.
3
The remainder of Section 2.4(a) reads:
Notwithstanding the foregoing, if a Junior Creditor
Note Default occurs with respect to the Citibank Carve-
Out Note, the Summitbridge Carve-Out Note or the
Citibank Short Fall Note, other than a default based
solely upon the fact that a Junior Creditor Note
Default under the Citibank Sub A Note, the Summitbridge
Sub A Note, the Citibank Sub B Note or the Summitbridge
Sub A Note has occurred, the applicable Junior Creditor
may demand, sue for, take or receive from any Guarantor
(but not from Borrower), by set off or in any other
manner, the whole or any part of the amount due to such
Junior Creditor in respect of the Citibank Carve-Out
Note, the Summitbridge Carve-Out Note and/or the
Citibank Short-Fall Note.
Subordination Agreement, § 2.4(a).
8
1 Section 2.6(b) of the Subordination Agreement provides
2 that the "rights and interests . . . hereunder . . . shall remain
3 in full force and effect irrespective of . . . any . . . defense
4 available to . . . Borrower." Subordination Agreement, § 2.6(b)
5 (emphasis added). SCR argues that this section permits it to
6 assert its claim under the subordinated notes because it
7 establishes that the Subordination Agreement does not "provide a
8 defense" for the Warshawskys or "limit the rights" of SCR.
9 Appellee Br. 20. But the provision refers only to the rights and
10 interests under the Subordination Agreement. The Warshawskys are
11 not asserting that the rights thereunder are not "in full force
12 and effect." They insist only that these rights not be expanded
13 to permit collection of the junior debt before the senior debt
14 has fully been paid.4
15 B. The Warshawkys' Arguments Based on Nonpayment of the Senior
16 Debt
17 The district court found that while the Senior Creditor
18 had to be repaid before SCR could bring suit for its debt, the
19 Warshawskys had not submitted admissible evidence to establish
20 that the Senior Creditor had not been paid in full. In their
21 motion to reconsider, the Warshawskys pointed out that prior to
22 the court's ruling on the summary judgment motion, they had
4
SCR also insists that it is entitled to relief on the
basis of principles established in Minority Equity Capital Co. v.
Jackson, 798 F. Supp. 200 (S.D.N.Y. 1992). But even were Jackson
binding on the district court or on us, SCR's reliance is
misplaced. The subordination agreement there contained an
exception whereby the clause barring the right to bring suit
before the senior debt was paid was not applicable if the debtor
missed three consecutive payments. Id. at 202. There is no
similar exception here.
9
1 submitted an affidavit by Jerome Warshawsky. It stated in
2 pertinent part: "To my knowledge, First Capital has not been
3 paid in full." Affidavit of Jerome Warshawsky, dated February 9,
4 2007 ("Warshawsky Aff.") ¶ 7. The district court nonetheless
5 denied the motion to reconsider because it concluded that
6 "statements made 'to my knowledge,' or similar statements made
7 upon information and belief or upon speculation are generally
8 insufficient to raise a triable issue of fact sufficient to
9 defeat summary judgment." Order Denying Motion To Reconsider 6,
10 SCR Joint Venture, L.P. v. Warshawsky, No. 06 Civ. 3532 (E.D.N.Y.
11 Aug. 17, 2007) (Docket No. 52).
12 We disagree. To be sure, for summary judgment
13 purposes, "[a] supporting or opposing affidavit must be made on
14 personal knowledge." Fed. R. Civ. P. 56(e)(1). "The Rule's
15 requirement that affidavits be made on personal knowledge is not
16 satisfied by assertions made 'on information and belief.'"
17 Patterson v. County of Oneida, N.Y., 375 F.3d 206, 219 (2d Cir.
18 2004). An affidavit making allegations on the basis of a party's
19 personal knowledge, and not merely on information and belief,
20 however, may be relied upon to oppose summary judgment. See id.
21 Jerome Warshawsky's affidavit satisfies the
22 requirements of Rule 56(e). He stated that he was a former Vice
23 President of IW and "fully familiar with the facts and
24 circumstances set forth" in the affidavit. Warshawsky Aff. ¶ 1.
25 He testified, "To my knowledge, First Capital has not been paid
26 in full." Id. ¶ 7.
10
1 It is perhaps unfortunate that the drafter of the
2 affidavit, likely not Mr. Warshawsky himself, used the phrase
3 "[t]o my knowledge" before asserting that First Capital had not
4 been paid in full. He could have simply said, "First Capital has
5 not been paid in full," and thereby avoided the issue of the
6 significance of the phrase "[t]o my knowledge." In this context,
7 though, we think that the phrase "to my knowledge" was redundant
8 -- it clearly meant "I know that . . . ." It does not mean that
9 the asserted fact was made only "upon information and belief,"
10 the ordinary suggestion of which is: "I have reason to believe
11 this fact but do not have personal knowledge of it."5
12 Insofar as there is confusion, it likely arises because
13 the phrase "to my knowledge" is similar to the common expression
14 "to the best of my knowledge," which seems to inject a level of
15 uncertainty into just how sure the declarer is of the truth of
16 the asserted fact. We need not decide today, and therefore do
17 not address, the extent to which a statement "to the best" of an
18 affiant's knowledge is, in a particular context, made with
19 personal knowledge sufficient to raise a genuine issue of
20 material fact when opposing a motion for summary judgment.
21 We conclude that Jerome Warshawsky's statement, based
22 on his personal knowledge, that the Senior Creditor had not been
5
Several of the cases on which the district court relied to
conclude that Jerome Warshawsky's statement did not raise a
triable issue of fact dealt with statements made "on information
and belief," or grounded on suspicion or hearsay. The cases that
specifically involved the phrase "to my knowledge," in addition
to not being binding on this court, were cases, unlike this one,
where the affidavit made no claim of personal knowledge.
11
1 paid raised a "genuine issue" as to whether the Senior Creditor
2 has been paid in full, a fact, which, if established, would
3 certainly be "material." The district court therefore erred in
4 granting summary judgment for SCR on this ground.
5 IV. The Defense of Champerty
6 The Warshawskys also argue that SCR may not maintain a
7 lawsuit against them based on its interest in the Notes and
8 Guarantees because that interest was obtained with a champertous
9 purpose in violation of Section 489 of New York's Judiciary Law.
10 Section 489 renders it unlawful for a "corporation or
11 association . . . [to] solicit, buy or take an assignment
12 of . . . a bond, promissory note . . . or any claim or demand,
13 with the intent and for the purpose of bringing an action or
14 proceeding thereon." N.Y. Jud. L. § 489. "[A]n assignment made
15 in violation of [this] statute is void and may not be sued upon."
16 Semi-Tech Litig., LLC v. Bankers Trust Co., 272 F. Supp. 2d 319,
17 331 (S.D.N.Y. 2003), aff'd and adopted in relevant part, 450 F.3d
18 121, 123 (2d Cir. 2006) (per curiam). The statute is violated if
19 the "'primary purpose . . . , if not the sole motivation behind[]
20 entering into the transaction'" was bringing suit. Id. (quoting
21 Bluebird Partners, L.P. v. First Fid. Bank, N.A., 94 N.Y.2d 726,
22 736, 709 N.Y.S.2d 865, 871, 731 N.E.2d 581, 587 (2000)) (ellipsis
23 in original). But if "the accused party's primary goal is found
24 to be satisfaction of a valid debt," and the party only intends
25 to bring suit absent full performance of the valid debt, the
26 statute is not violated. Elliot Assoc., L.P. v. Banco De La
12
1 Nacion, 194 F.3d 363, 381 (2d Cir. 1999) (internal quotation
2 marks omitted). The district court concluded that the
3 Warshawskys had waived the champerty defense by failing to raise
4 it in their answer and found that, in any event, the claim failed
5 on the merits.
6 SCR offered proof, by affidavit, that it attempted to
7 collect the debt without litigation, and that only after the
8 Warshawskys failed to satisfy the debt did SCR decide to bring
9 suit. Unrebutted as it is, we think this is sufficient evidence
10 to support the district court's conclusion as a matter of law
11 that SCR's primary goal was satisfaction of the debt, and,
12 therefore, it did not violate section 489 in obtaining its
13 interest in the Notes and Guarantees and bringing suit thereon.
14 While the Warshawskys point to evidence of the denial of a
15 license in Massachusetts to a company related to SCR because of
16 the company's predatory collection practices, this raises no
17 issue of triable fact as to SCR's intent in acquiring its
18 interest in the Notes and Guarantees. The district court
19 therefore correctly granted summary judgment to SCR with respect
20 to the Warshawskys' claim that SCR's interest in the Notes and
21 Guarantees is not valid because it was acquired in violation of
22 section 489. Because the district court correctly granted
23 summary judgment on the merits, we need not decide whether the
24 court correctly found the argument to have been waived.
25 The Warshawskys had sought to determine the amount of
26 consideration SCR had paid Summitbridge for its interest in the
13
1 Notes in hopes of demonstrating that it was nominal -- an
2 indication of a champertous purpose in obtaining them. See,
3 e.g., Aubrey Equities, Inc. v. SMZH 73rd Assocs., 212 A.D.2d 397,
4 398, 622 N.Y.S.2d 276, 278 (1st Dep't 1995) (finding issue of
5 triable fact where "the transfer was for what appears to be a
6 token consideration"). But the district court concluded, rightly
7 in our view, that further discovery regarding the amount of
8 consideration SCR paid for the Notes and Guarantees was not
9 warranted. The Warshawskys had adequate opportunity to obtain
10 that information, through discovery and otherwise, and failed to
11 do so.
12 V. The "Carve-Out" Agreement
13 Finally, the Warshawskys conceded at oral argument that
14 Section 2.4 of the Subordination Agreement does not bar suit on
15 their debt under the "Carve-Out Note." It is thus not contested
16 that summary judgment was properly granted for SCR with respect
17 to SCR's suit for repayment on the Carve-Out Note.
18 CONCLUSION
19 For the foregoing reasons, we affirm the district
20 court's grant of summary judgment dismissing the Warshawskys'
21 claim that SCR violated section 489 of New York's Judiciary Law.
22 We also affirm the district court's grant of summary judgment for
23 SCR with respect to the Carve-Out Note. But we vacate the
24 judgment insofar as it was based on the absence of a genuine
25 issue of material fact as to whether First Capital, the Senior
26 Creditor, had been paid in full. The judgment of the District
14
1 Court is affirmed in part, vacated in part, and the case is
2 remanded for further proceedings.
15