Opinion
005846/2010.
Decided November 30, 2010.
Jeffrey T. Strauss, Esq., Wachtel Masyr LLP, New York, New York, Counsel for Plaintiff.
Scott E. Mollen, Esq., Herrick, Feinstein LLP, New York, New York, Counsel for Defendant.
The plaintiff, Mr. John Persichilli filed and served a motion for summary judgment in lieu of complaint. He seeks to recover judgment on two defaulted promissory notes. The notes were signed by Mr. Salvatore J. Zizza, as agent for the defendants, Metropolitan Paper and MPR Properties. The first note, dated May 1, 2007, is for the $1,360,000. The second note is for $740,000 and is also dated May 1, 2007. Both notes indicate that they were issued in conjunction with a Redemption Agreement where Mr. Persichilli sold his interests in Metropolitan Paper and in MPR Properties. The defendants Metropolitan Paper and MPR Properties each paid 16 monthly installments before defaulting on the notes. The plaintiff seeks judgment against Metropolitan Paper for the sum of $1,421,770 and against MPR Properties for $773,770.42. Mr. Salvatore J. Zizza, currently the general manager of the defendants, has moved for leave to intervene as a defendant in order to assert an affirmative defense or counterclaim that the promissory notes are voidable as constructive fraudulent conveyances.
PROCEDURAL STANDARD
A potential plaintiff may file and serve a summons and a motion for summary judgment in lieu of a complaint under CPLR § 3213, if the matter "is based upon an instrument for the payment of money only or upon any judgment." Normally, the question whether the dispute involves an instrument for the payment of money only, is determined by reference to whether any extrinsic evidence, beyond proof of non-payment and the instrument itself, is required to establish a prima facie case for liability. ( Weissman v. Sinorm Deli, Inc., 88 NY2d 437, Craven v Rigas , 71 AD3d 1220 [3rd Dep't 2010]).
Once it is established that the action was properly brought under CPLR § 3213, the standard for summary judgment is the same as under CPLR § 3212. A plaintiff bringing an action under CPLR § 3213 may show entitlement to summary judgment by demonstrating that there are no triable issues of fact. In most cases under CPLR § 3213, the plaintiff would demonstrate no triable issues of fact by presenting the instrument upon which money is owed and proof of non-payment. ( Dresdner Bank AG v. Morse/Diesel, Inc., 115 AD2d 64 [1st Dep't 1986]). To defeat such a showing, a defendant must present admissible evidence that raises triable issues of fact that would preclude liability. ( Seanman-Andwall Corp., 31 AD2d 136 [1st Dep't 1968]). Therefore, even if the instrument itself and proof of non-payment present a prima facie case for liability under CPLR § 3213, affidavits which raise triable issues of fact with respect to a bona fide affirmative defense, may defeat summary judgment. ( See, e.g., Silvestri v. Iannone, 261 AD2d 387 [2d Dep't 1999], Silber v. Muschel, 190 AD2d 727 [2d Dep't 1993]). Similarly, if the instrument by its very terms references another agreement as to which triable issues of fact exist, summary judgment under CPLR § 3213 would be inappropriate. ( Technical Tape, Inc. v. Spray Tuck Inc., 131 AD2d 404 [1st Dep't 1987]).
DISCUSSION
A. Availability of CPLR § 3213
CPLR § 3213 permits a would-be plaintiff to file and serve a summons and a motion for summary judgment in lieu of a complaint, where the matter "is based upon an instrument for the payment of money only or upon any judgment." The defendants contend that the promissory notes at issue here are not instruments for the payment of money only, since the promissory notes include various other clauses relating to terms of default and a non-compete agreement. As promissory notes, which CPLR § 3213 is intended to embrace, the motion for summary judgment on these notes has been properly brought before this Court, and therefore the Court has authority to decide the motion. ( Cf. St. John Assoc. Engineers, P.C. v. Chase Architectural Assoc., P.C., 106 AD2d 743 [3d Dept 1984], Stevens v. Phlo Corp., 288 AD2d 56 [1st Dep't 2001]; see Interman Indus. Prods., Ltd. v. R.S.M. Electron Power, Inc., 37 NY2d 151, 154-55).
It has been difficult to lay down a clear rule as to CPLR § 3213 without conflating the separate questions whether, on the one hand, the matter involves an instrument for payment of money only, and whether, on the other hand, summary judgment in the instant matter is appropriate. New York courts which have found a matter to satisfy the "money only" provision of CPLR § 3213, have often settled the question by finding that "[i]n the instant action, no proof other than the instrument sued upon and the affidavit of non-payment is needed to establish a prima facie case." ( Council Commerce Corp. v. Paschilides, 92 AD2d 579 [2d Dep't 1983]; see also Technical Tape, Inc. v. Spray Truck Inc., 131 AD2d 404, 405 [1st Dep't 1987]; Seaman-Andwall Corp., 31 AD2d 136 [1st Dep't 1968]). However, disputes which involve only the non-payment of money due under an arguably discrete and separable provision to a contract, may not satisfy CPLR § 3213, since the Section was intended as a limited procedure for commercial paper, promissory notes, and similar instruments:
Had the Legislature intended that this simplified procedure for accelerated judgment be applicable to agreements wherein but one of the provisions related to the payment of money, the word only' would have been deleted from the critical phrase in the provision under discussion.
( Wagner v. Cornblum, 36 AD2d 427 [4th Dep't 1971]; see also Dresdner Bank AG v. Morse/Diesel, Inc., 115 AD2d 64 [1st Dep't 1986]; Grossman v. Clarey, 133 AD2d 443 [2d Dep't 1987]). Therefore, as the Court of Appeals has noted, "the cases permitting use of the CPLR 3213 procedural device have dealt primarily with some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged indebtedness." ( Interman Indus. Prod., Ltd. v. R.S.M. Electron Power, Inc., 37 NY2d 151, 154-55).
Since CPLR § 3213 was devised precisely to provide accelerated judgment to actions involving promissory notes, commercial paper, and similar instruments, it is generally immaterial that such instruments may be part of a larger transaction involving other agreements, or that a promissory note may not recite a sum certain such that resort to some outside documents may be necessary. ( Key Bank of Long Island v. Munkenbeck, 162 AD2d 503 [2d Dep't 1990]). It is likewise immaterial that affirmative defenses to such notes or commercial paper require extrinsic evidence, since that goes more to the question whether summary judgment is appropriate, rather than whether the instrument is for the payment of money only. ( See Seaman-Andwall Corp., 31 AD2d 136 [1st Dep't 1968]).
In this case the defendants admit that the promissory notes at issue involve obligations for the payment of a sum certain. The cases which the defendants cite to this Court are not in any way analogous to the instant matter. Those cases involved a marital separation agreement ( Wagner v. Cornblum, 36 AD2d 427 [4th Dep't 1971], a limited partnership agreement ( Grossman v. Clarey, 133 AD2d 443 [2d Dep't 1987]), and a construction agreement ( Dresdner Bank AG v. Morse/Diesel, Inc., 115 AD2d 64 [1st Dep't 1986]). The additional clauses in the defendants' promissory notes, which the defendants claim disqualify the notes as instruments for the payment of money only, do not make the payment on the note conditional on satisfaction of any outside or additional agreement. ( Cf. Technical Tape, Inc. v. Spray Tuck Inc., 131 AD2d 404 [1st Dep't 1987]). The several clauses which are in addition to the obligation to pay a sum certain, are salutary nature, intended to protect the parties' interests, and merely recite terms under which the obligor signed the promissory note as part of a broader agreement. ( Cf. St. John Assoc. Engineers, P.C. v. Chase Architectural Ass., P.C., 106 AD2d 743 [3d Dep't 1984]). Indeed, the fact that all parties identify and refer to the promissory notes at issue as the instruments which acknowledge the defendants' unconditional indebtedness, belies any notion that they are anything but instruments for the payment of money.
B. Motion to Intervene
Salvatore J. Zizza moves to intervene in this matter pursuant to CPLR § 1012(a)(2). The other subdivisions for intervention as of right are not applicable, as this is not a case where any statute specifically permits someone in Mr. Zizza's position to intervene or where the disposition or distribution of property is at issue. CPLR § 1012(a)(2) confers a right to intervene where two conditions are satisfied: (1) the putative intervenor "is or may be bound by the judgment" and (2) the parties' representation of the putative intervenor's interest "is or may be inadequate."
The test for the first condition was established by the Court of Appeals in Vantage Petroleum v. Board of Assessment Rev. of the Town of Babylon, 61 NY2d 695, 698: "whether the [putative intervenor] will be bound by the judgment within the meaning of that subdivision is determined by its res judicata effect." The substance of binding effect that would be required under CPLR § 1012(a)(2) is illustrated by the very case that Salvatore J. Zizza seeks to rely upon for his intervention, Plantech Housing, Inc. v. Conlan ( 74 AD2d 920 [2d Dep't 1980]). There, a tax certiorari proceeding determined that petitioner Plantech Housing's property had been incorrectly assessed taxes for the appellant school district. The school district was not given notice and a stipulated order was entered between Plantech Housing and the tax board. The school district sought to intervene after Plantech Housing made a demand for a refund of the taxes incorrectly assessed. The Appellate Division, Second Department, ruled that on such facts it was error to deny the school district permission to intervene: "appellant should not have been foreclosed from presenting its point of view on the record before final judgments were entered requiring it to refund to the petitioner any excess taxes." ( Id. at 921).
The Court of Appeals decision in Vantage Petroleum, supra, cited approvingly to a Supreme Court opinion issued in Matter of Unitarian Universalist Church v. Shorten ( 64 Misc 2d 851 [Sup. Ct., Nassau Cty Trial Term 1970], vac. on other grounds, 64 Misc 2d 1027). This opinion carefully analyzed CPLR § 3212(a)(2) by comparison to the similarly worded provision in Fed.R.Civ.Proc. 24(a) and the case law available. For the second condition of CPLR § 1012(a)(2), the decision indicates that the putative intervenor must actually have standing to assert the claims or interests that he would interpose in the matter, and which he contends are inadequately represented: "Though the motion is timely, movants may be bound by the judgment and their representation by respondents has become inadequate, they have no right to intervene unless the interest which they seek to protect gives them the necessary standing." ( 64 Misc 2d at 855-56). In other words, there must be some basis in law to defend the interest under which the putative party seeks to intervene.
Mr. Zizza does not satisfy both conditions necessary under CPLR § 1012(a)(2). First, he has failed to show how he, as creditor of the defendants, would be bound by a judgment on the defendants' defaulted notes. A defendant's impaired ability to pay its creditors after an adverse judgment does not rise to the level of binding judgment which CPLR § 1012(a)(2) requires. ( Nat'l Union Fire Ins. Co. v. Ashford Hotels, LTD., 235 AD2d 327 [1st Dep't 1997], Hocking-Hershey Assoc., Inc. v. Iandoli, 19 Misc 2d 210 [Sup. Ct., Nassau Cty. Spec. Term, 1959]). Cases which have permitted creditors to intervene have involved the actual disposition of a party's assets, such as by foreclosure. ( See Ercolani v. Sam And Al Realty Co., 17 NY2d 299).
Mr. Zizza's interests as creditor, which he claims are inadequately represented, are not in any way being adjudged by this Court, and those interests would in any case be presented improperly to this Court by way of Mr. Zizza's proposed affirmative defense or counterclaim. If permitted to intervene as defendant, he would interpose the affirmative defense or counterclaim that the notes at issue must be annulled as constructive fraudulent conveyances under DCL § 273. The defendants themselves do not question the validity of the notes as actually fraudulent or under any other affirmative defense to a contract, and they admit they cannot avail themselves of DCL § 273, since this section is only available to creditors. Mr. Zizza's attempt to carve out from DCL § 273 a defense to a contract he himself entered into and signed as an officer of the defendants, is disingenuous indeed.
Mr. Zizza would have no standing in this case to raise a constructive fraudulent conveyance in this case under the Debtor-Creditor Law, much less to assert it as an affirmative defense or counterclaim on behalf of the defendants. A constructive fraudulent conveyance was a presumption in the early common law, and it is adopted as a sui generis equitable claim in the Uniform Fraudulent Conveyance Act (adopted as Article 10 and Sections 270 through 281 of New York's Debtor Creditor Law) to prevent debtors from disposing of assets in order to defraud creditors. ( See 30 NY Jur.2d Creditors' Rights §§ 313, 414). In other words, it is strictly a legal construct created by courts of equity to afford creditors certain limited remedies, and it differs from actual fraud or actual fraudulent conveyance in that fraudulent intent need not be proven. ( See 30 NY Jur.2d Creditors' Rights §§ 312, 360).
Sections 278 and 279 of the Debtor Creditor Law, both titled with language beginning "Rights of creditors," fully set out creditors' remedies and standing to claim a constructive fraudulent conveyance under any of the sections of the Uniform Fraudulent Conveyance Act. Since a constructive fraudulent conveyance is solely an equitable remedy and a sui generis creation intended to protect creditors from fraudulent debtors in actions brought under DCL §§ 278 and 279, it is no surprise that Mr. Zizza is unable to cite to this court any case that has recognized a general affirmative defense to contract under DCL § 273. The Court's own research unearthed an early case which strongly rejected the very claim Mr. Zizza seeks to assert here, as a creditor with full knowledge of the allegedly fraudulent conveyance. ( Stewart v. Edgecomb, 168 Misc. 866 [Sup. Ct. Broome Cty. Spec. Term 1938]; see 30 NY Jur.2d Creditors' Rights § 420).
DCL § 278 (Rights of creditors whose claims have matured) provides:
1. Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when his claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser,
a. Have the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim, or
b. Disregard the conveyance and attach or levy execution upon the property conveyed.
2. A purchaser who without actual fraudulent intent has given less than a fair consideration for the conveyance or obligation, may retain the property or obligation as security for repayment.
DCL § 279 (Rights of creditors whose claims have not matured) provides:
Where a conveyance made or obligation incurred is fraudulent as to a creditor whose claim has not matured he may proceed in a court of competent jurisdiction against any person against whom he could have proceeded had his claim matured, and the court may,
a. Restrain the defendant from disposing of his property,
b. Appoint a receiver to take charge of the property,
c. Set aside the conveyance or annul the obligation, or
d. Make any order which the circumstances of the case may require.
Mr. Zizza seeks only to delay the accelerated judgment which he must know the plaintiff is entitled to. Nowhere does Mr. Zizza or the defendants assert — nor could they — that the promissory notes which he signed, defrauded him as a creditor. Mr. Zizza merely relies on legal presumptions in an attempt to prevent summary judgment against the business entities that he manages. Mr. Zizza's interest in this matter boils down to the fact that the legal presumptions that may establish a constructive fraudulent conveyance can only be raised by a creditor. This is categorically not a "real and substantial interest" such as would permit his intervention in this case. ( Cf. Plantech Housing, Inc. v. Conlan, 74 AD2d 920 [2d Dep't 1980]).
The Court notes that the submitted affidavits reveal no substantial concerns about the financial solvency of the defendants. Mr. Zizza relies on a questionable calculation of solvency, which counts all long-term, non-matured debts against the current value of the company' assets. [pg. 8 from Exh 8].
Proof of Liability
The plaintiffs have made a sufficient showing of defendants' liability, and the defendants have failed to come forward with any admissible evidence that would disprove this liability. The signed promissory notes identify the defendants' obligation to pay a sum certain over several installments. Plaintiffs have submitted proof of defendants' default on these promissory notes, and the defendants have not disputed this proof.
The evidence reflects that Metropolitan Paper owes Mr. Persichilli $1,421,770 in unpaid principal and interest, and MPR Properties owes Mr. Persichilli $773,770.42 in unpaid principal and interest. Plaintiff's proof also reveals that both notes included a provision for attorneys' fees in the event that any collection action became necessary.
Conclusion
Salvatore J. Zizza's motion to intervene is denied. Judgement is awarded to the plaintiff against Metropolitan Paper in the amount of § 1,421,770, plus interest to the date that notice of judgment is entered, and against MPR Properties in the amount of § 773,770.42 plus interest to the date that notice of judgment is entered. In addition,, the plaintiff may submit an affidavit of attorney's fees to determine an appropriate award of reasonable attorney's fees.
Enter judgment in accordance with this decision.
It is SO ORDERED