Opinion
No. 93 Civ. 6784 (LLS).
March 30, 2005
OPINION and ORDER
National Union Fire Insurance Company of Pittsburgh, PA. ("National Union"), an issuer of financial guarantee bonds, sues to enforce indemnity agreements between itself and two limited partners in a limited partnership, and to enforce its rights as transferee of their promissory note. National Union issued bonds which guaranteed to the partnership and to the Bank of New York, which financed the partnership, that the limited partners would make all of the capital contributions required by their promissory note to the partnership. The defendant limited partners, Cheryl Keenan and Thomas Keenan, stopped making their required contributions and National Union paid them on their behalf. National Union sues the Keenans for reimbursement under the indemnity agreement they gave National Union at the time it guaranteed their payments, and as subrogee on the notes on which they defaulted.
National Union now moves for summary judgment pursuant to Fed.R.Civ.P. 56. The Keenans cross-move for sanctions and production of documents. For the reasons that follow, National Union's motion is granted and the Keenans' motions are denied.
Background
In November 1985, the Keenans purchased a limited partnership in Virgin Isle Hotel Limited Partnership ("Virgin Isle"). They made a cash down payment of $5,500 and executed a promissory note for the remaining $94,500. National Union issued a financial guarantee bond in favor of Virgin Isle and the Bank of New York, guaranteeing payment of the Keenans' note in the event they defaulted. In return for issuing the bond, the Keenans executed an indemnity agreement, requiring them to reimburse National Union for any payments it made on their behalf.
The Keenans failed to make the last five payments (out of six) due under the note. As it was required to do by the bond, National Union made the payments to the bank on the Keenans' behalf, and thereby became subrogated to the bank's rights to claim those amounts from the Keenans. It commenced this lawsuit in September 1993 to enforce the indemnity agreement and its rights as subrogee on the note, and now seeks summary judgment.
Discussion
This court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Under the indemnity agreement, New York law governs this action. Complaint, Exhibit C at ¶ 13. To establish a prima facie case for recovery, a holder seeking to enforce a promissory note must prove the defendant's execution of the note and default in payment pursuant to its terms. Alard, L.L.C. v. Weiss, 1 A.D. 3d 131, 131, 767 N.Y.S.2d 11, 12 (1st Dep't. 2003); Mastro v. Carroll, 296 A.D.2d 802, 802 N.Y.S.2d 619, 620 (3d Dep't. 2002). Once the holder has established a prima facie claim, the defendant has the burden of proving the "existence of a triable issue of fact in the form of a bona fide defense against the note." Couch White L.L.P. v. Kelly, 286 A.D.2d 526, 527, 729 N.Y.S.2d 206, 207 (3d Dep't. 2001).National Union has submitted ample evidence to make a prima facie case. It has tendered the following documents in support of its motion: (1) a copy of the note defendants executed on November 11, 1985 (Complaint, Exhibit A); (2) a copy of the bond National Union issued to the Bank of New York (id., Exhibit B); (3) a copy of the indemnity agreement defendants executed in favor of National Union on November 10, 1985 (id., Exhibit C); (4) copies of five default notices from the bank to National Union stating that defendants had failed to make payments due October 1, 1987, 1988, 1989, 1990, and 1991, respectively (Rosati Affidavit, Exhibit C); and (5) copies of transmittal letters and checks National Union sent to the bank when it paid each installment on behalf of the defaulting defendants (id., Exhibit D). Under the bond, National Union became subrogated to the bank's rights on the note once it made a payment on defendants' behalf (Complaint, Exhibit B, ¶ 7), which it did for the last five payments defendants owed.
Defendants make numerous defensive assertions in opposition to the motion. None of them raises a "triable issue of fact in the form of a bona fide defense against the note." They are mere conclusory pretexts, which neither refute the plaintiff's prima facie case, nor (except for two) merit discussion.
1. The Note and Indemnity Agreement
Defendants do not directly deny, but demand "strict proof" of, the genuineness of their signatures on the note and indemnity agreement submitted by National Union as well as the validity of the documents.
With respect to the note, by law "the signature is presumed to be genuine or authorized." N.Y. Uniform Commercial Code § 3-307(1)(a). This presumption of authenticity places on a defendant challenging the signature's validity the burden to "make some sufficient showing of the grounds for his denial before the plaintiff is put to his proof." N.Y.U.C.C. § 3-307 cmt. 1. Defendants have not done so.
In fact, defendants admit their "execution of documents pertaining to a limited partnership interest in Virgin Isle Hotel Limited Partnership," (Their Statement Pursuant to Local Rule 56.1, September 2, 2004, at ¶ 1). They admit that the signatures on the indemnity agreement "appear to be those of the defendants" (Their Responses to Requests For Admissions at 2, Chafiian Affidavit, Exhibit D), and that the Indemnity Agreement provided by National Union "appears to be a copy of a document executed by defendants in blank on or about November 10, 1985." Id. at ¶ 3. Thus, their quibble that they did not sign the documents "in the form presented by National Union in the Complaint," Def. Mem. at 3, can signify no more than that some blanks were filled in later. That does not invalidate an instrument. See N.Y.U.C.C. § 3-115(1); National Exchange Bank v. Lester, 194 N.Y. 461 (N.Y. 1909) (when maker signs note with blanks, he authorizes holder to fill them in; if there are not blanks, but merely sufficient space to allow fraudulent increase in the stated amount, such a material alteration is a forgery and relieves the maker of liability). Since defendants do not point to any alteration or addition that changed their legal obligations, they do not present a triable issue of material fact.
2. Improper Service of Process
Defendants allege that National Union failed to file proper proof of service, thus invalidating service of process and personal jurisdiction. They argue that the affidavits of service are insufficient because they do not include a notarial seal or the words "under penalty of perjury." The affidavits do, however, demonstrate that the affiant was duly sworn; and they were signed before a notary public. Chafiian Affidavit, Exhibit A.
Defendants also allege that the complaint was first served on them on a Sunday, and then more than 120 days after its filing. However, the latter service was within the time specifically authorized by this Court, after the invalid Sunday service had come to light.
Even if there were such technical defects, they would be immaterial, because defendants have appeared generally by defending on the merits and seeking affirmative relief. Defendants answered the complaint, denying jurisdiction and venue, and asserting twenty-five affirmative defenses. Defendants thereafter defended on the merits, responding to plaintiff's requests for admissions (Chafiian Affidavit, Exhibit D), serving their own discovery requests (id., Exhibits E and G), serving an information subpoena on a non-party, Prudential Securities, Inc. (id., Exhibit I), and moving for production of documents, for dismissal of the action, and for sanctions. These actions waived any defense of lack of personal jurisdiction.Hamilton v. Atlas Turner, Inc., 197 F.3d 58 (2d Cir. 1999),cert. denied, 530 U.S. 1244 (2000); Continental Bank v. Meyer, 10 F.3d 1293, 1296-97 (7th Cir. 1993).
3. Motion to Compel Document Production
Defendants have made no showing that any of the documents they seek would sufficiently support a claim that National Union was a participant in any fraud committed by any of the other parties to the Virgin Isle transaction, so as to give the Keenans a defense against National Union's claims. See National Union Fire Insurance Co. of Pittsburgh, PA. v. Woodhead, 917 F.2d 752 (2d Cir. 1990); National Union Fire Insurance Co. of Pittsburgh, PA. v. Eaton, 701 F.Supp. 1031 (S.D.N.Y. 1988). Therefore, the documents they seek would not help them defeat National Union's motion, and their motion to compel production is denied.
Conclusion
It is clear as a matter of law that defendants executed the note and indemnity agreement, and that they defaulted in making five installment payments, which National Union made on their behalf. Under the terms of the indemnity agreement, and as subrogee of the note, National Union is entitled to recover the sums it paid on defendants' behalf.National Union's motion for summary judgment is granted. Defendants' motion for sanctions is denied.
This action is respectfully referred to Magistrate Judge Dolinger of this Court, to hear and determine the proper amount of damages, and enter judgment accordingly together with costs and disbursements in favor of plaintiff according to law. See 28 U.S.C. § 636(b)(1)(a).
So ordered.