Opinion
Index No. 2016-2220 RJI No. 46-1-2016-1161
03-31-2023
ADVANCE FUNDING, LLC, Petitioner, v. RUBEN MARTINEZ, Respondent.
Unpublished Opinion
PRESENT: HON. MICHAEL R. CUEVAS, JUSTICE.
DECISION AND ORDER
HON. MICHAEL R. CUEVAS, Supreme Court Justice
INTRODUCTION
On April 15, 2008, Respondent Ruben Martinez ("Martinez.") won the New York State Lottery "Win for Life" instant cash game, with a guaranteed minimum prize of $2 million to be paid in quarterly installments of $26,000.00 each. In October 2016, Petitioner Advance Funding, LLC ("AF") instituted a proceeding for court approval of a Lottery Prize Assignment Agreement ("LPAA"), pursuant to New York State Tax Law Section 1613 (a) and (d), between Petitioner Advance Funding, and Respondent Ruben Martinez. The agreement submitted to the Court purported to assign 32 of Martinez's remaining guaranteed lottery prize installment payments to AF, and then to AF's assignee, Intervenor Trinity Life Insurance Company ("Trinity").
AF's proceeding was initiated by an ex parte application signed by Susanne Gennusa ("Gennusa"), Esq., attorney for AF, dated September 29, 2016, which was supported by the Affidavit of Dan Cevallos ("Cevallos"), President of AF, sworn to August 31, 2016 the purported affidavit of Ruben Martinez, allegedly sworn August 31, 2016; and the Affirmation of Robert G. Schacht, Esq. ("Schacht"), dated September 14, 2016, as the purported attorney for Martinez. Given the waiver of Martinez's appearance, consent to the petition, and approval of AF's proposed order by attorney Schacht, and the representations made in the papers submitted, the court (Hon. Barry D. Kramer, J.S.C.) approved the application by an Order dated December 6, 2016, without an appearance by any of the parties.
Trinity, Ex. L.
Trinity, Ex. L.
In May 2017, Martinez, through his attorney John P. McHugh, Esq. ("McHugh"), made a motion to set aside the approval order. Martinez claimed that he never assigned his lottery winnings, that the application to the Court contained forged signatures and that he never met, much less retained, attorney Schacht. AF appeared through counsel Gennusa, to the point of reaching a potential settlement, which was memorialized in a Stipulation of Settlement dated September 17, 2017. When AF failed to comply with the terms of the settlement, Martinez sought to withdraw the Stipulation of Settlement and requested a Court Order declaring the LPAA unenforceable due to AF's fraud and misrepresentations and directing the Lottery to make all future payments to him. Neither AF nor Trinity appeared or answered Martinez's motion and Supreme Court (Hon. Mark D. Powers, J.S.C.) granted Martinez the relief he sought. Trinity later petitioned to intervene and set aside Judge Powers' Order. The Supreme Court granted Trinity's motions, allowing Trinity to intervene and directing the New York State Division of the Lottery to withhold payment of the lottery prize installments at issue. Trinity now asserts that it was assigned the rights to Martinez's 32 lottery prize installment payments by AF, that it was a good faith purchaser for value, that it is entitled to an Order of this Court declaring the assignment of the lottery payments enforceable, and directing the Lottery to make all future payments to Trinity.
Trinity further asserts that this matter should be dismissed, in its entirety, due to the res judicata impact of the prior Stipulation of Settlement entered into between AF and Martinez that withdrew all claims addressed herein, with prejudice, for consideration of $482,500.00 minus the $280,000.00 already paid, or $202,500.00.
On September 9, 2016. AF made payments to Martinez of $20,000.00 and S260.000.00. February 14, 2020, p. 6:12-14; 16:11-15; 24:2-8; Ex. 5.
The record in this proceeding makes it abundantly clear that AF engaged in an elaborate scheme to defraud both Martinez and Trinity. For the reasons stated below, this Court finds:
(1) Res Judicata does not apply to bar the present action from proceeding;
(2) Trinity is not a bona fide purchaser for value;
(3) The assignment of lottery payments to Trinity is unenforceable due to the fraud, misrepresentations, and other misconduct that occurred in the procurement of the LPAA and the initial Court approval;
(4) The Court did not obtain jurisdiction over Martinez in the original application as the appearance by Schacht was unauthorized;
(5) The Lottery Commission shall be directed to make all future lottery prize installment payments, commencing with the February 15, 2023, payment, to Martinez;
(6) Balancing the equities, the $280,000.00 paid to Martinez by AF must be paid to Trinity as the assignee of AF;
(7) Trinity is entitled to recover against Martinez in the amount of $280,000.00 and the Gaming Commission is directed to pay same from lottery prize payments that have been withheld pending resolution of this case, with the balance of $84,000.00 to be paid to Martinez,
(8) Martinez is entitled to an award of costs and attorney's fees against AF.
PROCEDURAL AND FACTUAL HISTORY
Martinez's Win for Life prize entitled him to the equivalent of $2,000.00 per week, with a minimum guaranteed prize of $2,000,000.00. The initial payment was $38,000.00 (minus withholding taxes), with additional payments of $26,000.00 to be made each quarter thereafter, commencing August 15, 2008, and continuing each 15th day of November, February, May, and August thereafter until 2027.
Trinity Ex. B.
Representatives of AF and Martinez entered into discussions during 2016. Martinez claims that these discussions involved him taking a loan from AF, not the assignment of his lottery rights. Thereafter, there were a series of bank transfers between AF and Martinez:
1. 9/9/16 $20,000.00 AF (Citibank) wire transfer to Martinez (JPMorgan Chase)
2. 9/12/16 $140,000.00 AF (Citibank) check #2485 to Martinez (JPMorgan Chase)
3. 10/31/16 $120,000.00 AF (Citibank) check #2511 to Martinez (JPMorgan Chase)
4. 11/2/16 $120,000.00 AF (Citibank) check #2511 returned - insufficient funds
5. 11/2/16 $120,000.00 AF (Citibank) wire transfer to Martinez (JPMorgan Chase)
6. 10/30/16 $20,000.00 Martinez (JPMorgan Chase) check #9827 to "AF"
Martinez asserts that he made two payments of $20,000.00 each to AF, as payments on the loan agreement he believed he was entering into. One payment is evidenced by his check #9827, dated October 30, 2026; the other is supposedly evidenced by a $20,000.00 withdrawal from his account on September 13, 2016.
In a sworn affidavit, Jeffrey J. Wood, Trinity's Chief Financial Officer, Secretary and Treasurer, asserts that Trinity received confirmation from AF of payment in full to Martinez in the form of proof of a wire transfer from AF to Martinez on December 2, 2016, in the amount of $335,000.00, and check #2485 for $140,000.00. However, the alleged "confirmation" of the wire transfer was merely a computer screen image sent by AF to Trinity. Bank records of the AF account from which funds were allegedly sent, and Martinez's bank records for the account to which the funds were allegedly sent, demonstrate that no such wire transfer was sent or received. Clearly AF made a fraudulent misrepresentation to Trinity.
Trinity. Ex. B, Wood Aff. ¶16.
AF's assignment of the LPAA to Trinity is dated September 27, 2016, and specifically states that it is intended to take effect prior to the Court approval of the LPAA. That assignment further states that the assignee assumes all obligations under the LPAA. The LPAA called for a lump sum payment to Martinez in the amount of $482,500.00 once the LPAA was approved by the Court. Neither AF nor Trinity made the lump sum payment to Martinez. None of the documents submitted to the Court, with the application for approval of the LPAA, refers to a loan or an advance of funds by AF to Martinez or that a repayment from the lump sum payment would be required.
A. October 4, 2016 £y Paste Application For Assignment Of Lottery Rights
On October 4, 2016, AF commenced a special proceeding under New York Tax Law §1613 (a) and (d) and 21 N.Y.C.R.R. 2803.11 for judicial approval of the assignment of certain of Martinez's lottery prize payments to AF's designated assignee, Trinity. The ex parte proceeding was brought before the Honorable Barry D. Kramer, in the Schenectady County Supreme Court.
The application consisted of:
• A document entitled "Ex Parte Application" dated September 29, 2016, signed by Gennusa.
• An affirmation of service of Gennusa dated September 29, 2016, affirming that she served the application and proposed Order by mail upon Counsel for the Division of the Lottery and upon Schacht, purported attorney for Martinez.
• Cevallos' affidavit, sworn to August 31, 2016 that included the following exhibits: "A":A Certificate of Term Payment for Martinez's lottery prize; "B": AF's customer privacy policy; "C": A summary of AF's contacts with Martinez; "D": the Lottery Prize Assignment Agreement; "E": a written disclosure statement; "F": the purported Affidavit of the Martinez, purportedly sworn to on August 31, 2016; "G": the Assignment of Sale Agreement from AF to Trinity dated September 27, 2016; "H"; the affirmation of attorney Robert G. Schacht, Esq., dated September 18, 2016; and "I": a copy of an Order of the Supreme Court, Schenectady County in the proceeding of Advance Funding LLC v. Riyal Kamal, dated December 16, 2015.
The Waiver of Appearance and Consent to the Order signed by Schacht dated October 19, 2016.Cevallos' affidavit states in the final paragraph of paragraph number 13, "In return, Mr. Martinez has agreed to accept, as consideration for such assignment, payment in a lump sum amount, as such is set forth in the Agreement...."
Cevallos went on to state, in paragraph 17,
"Pursuant to Section 11 of the Agreement, AF intends to assign its obligations and rights under the Agreement to Trinity Life Insurance Company/Tax I.D.#74-2843158, prior to entry of a final Order in this case. A copy of the Assignment of Sale Agreement is attached hereto as Exhibit G."
At paragraph 20, Cevallos states:
"Mr. Martinez has designated attorney, Robert G. Schacht, Esq. as attorney of record with respect to this Ex Parte Application."
Cevallos' affidavit states that AF maintains a computerized record of every outbound call made, including the date, time, and number called, to ensure compliance with privacy and nonharassment policies. In the separate Statement of Contacts, AF details that prior to the execution of a written purchase and sale agreement, AF had contact with Martinez and/or his legal counsel or financial advisors. Exhibit C to the Cevallos Affidavit summarizes seven alleged contacts with Martinez. None of the contact summaries mentions an advance payment or loan. Attorney Schacht's affirmation and testimony make it clear that he had no contact with AF until after the LPAA was purportedly executed.
Trinity, Ex. L. Cevallos Aff. ¶11.
Trinity, Ex L, Cevallos Aff. T12. Ex. C.
Id.
Exhibit D to the Cevallos affidavit is the LPAA. purportedly signed by Cevallos and Martinez and dated August 31, 2016. Neither signature is witnessed in any manner. A Disclosure Statement and a Certificate of Marital Status are also attached to the Agreement, each purportedly signed by Martinez, but neither signature was witnessed.
Trinity, Ex. L.
Id.
Id.
The September 29, 2016 application to the Court also includes an Affidavit purportedly signed by Martinez on August 31, 2016. That August 31 Martinez affidavit states that he has reviewed all of the documents associated with the ex parte application for approval of the assignment. However, several of the documents submitted with the ex parte application were dated after August 31, 2016. For example, the Ex Parte Application is dated September 29, 2016, the Affirmation of attorney Schacht is dated September 14, 2016, the Assignment to Trinity is dated September 17, 2016, a second Assignment of Sale Agreement is dated September 27, 2016; the assignment to Acubens is dated October 18, 2016 and the Waiver and Consent of Schacht is dated October 18, 2016. The Affidavit also states that the signer (Martinez) completely understands and approves the court documents as to substance and to form, consents to the relief requested, and agrees to the entry of an order approving the Assignment Agreement, even though the aforementioned documents didn't exist when the Affidavit was signed.
Trinity, Ex. L.
Trinity. Ex. L, Martinez Aff. ¶9.
Trinity, Exs. A.B, L, Jt. Ex. I, GEN00279.
Trinity, Ex. L, Martinet Aff. ¶9.
Schacht's Affirmation states that he is Martinez's independent counsel, that he is not being compensated by AF; that he has extensively reviewed the documents with Martinez; that Martinez comprehends all terms within the documents; that the agreement is fair and reasonable and in Martinez's best interest.
Trinity, Ex. L.
Schacht's testimony is not consistent with the assertions made in his affirmation that was not prepared by him, but was prepared and submitted to him by AF. The testimony is addressed in greater detail later in the decision, but will be discussed briefly here for purposes of addressing these contradictions. Contrary to his statement in (¶l), Schacht testified that could not swear that he ever spoke to Martinez; Contrary to (¶2), Schacht admitted that he was compensated by the assignee, AF, but without basis claimed that he thought the payment was made on behalf of Martinez; In contrast to affirmation (¶3), Schacht's testimony clearly demonstrates that he had not "thoroughly reviewed the terms and conditions of the Lottery Prized Assignment Agreement" nor had he "extensively discussed such terms with Mr. Martinez." Schacht's sw'orn testimony demonstrated his ignorance of the contents of the LPAA. Further, he admitted that he did not discuss any of the terms of the agreement, but only asked the person he believed to be Martinez if he had read the document, understood it and had any questions; Contrary to his sworn affirmation (¶4), in his testimony, Schacht professed an ignorance of the financial terms and stated that it was not his job to discuss them with his "client." Despite his affirmation statement in (¶5) based his ignorance of the financial terms and his limit inquiry, Schacht would have no basis upon which to conclude that the transaction was "fair and reasonable and in the best interest of Mr. Martinez."
B. October 6, 2016 Request for Assignment To Acubens, Instead of Trinity.
Before an Order had been entered on AF's original ex parte application, by a letter to Judge Kramer dated October 6, 2016, Gennusa represented to the Court that it had become economically unfeasible for AF to continue with the assignment to Trinity. The correspondence included an Assignment of Sale dated October 18, 2016, an IRS W-9 form dated October 12, 2016, and a Revised Proposed Order which would change AF's assignee from Trinity to Acubens II LLC. Gennusa's letter indicates that copies of the letter were sent to Monica Ray, CLA (of AF), Schacht, (purported counsel for Martinez) and Edmund C. Burns, Esq. (counsel to the Gaming Commission). There is no indication that copies were sent to anyone on behalf of Trinity or Acubens II LLC. With this letter, Gennusa included a short form consent of Schacht dated October 19, 2016; however, that consent is signed by Schacht on behalf of a different respondent, one Nahum A, LaCema. The Court (Barry D. Kramer, J.S.C.) executed the Order which then directed the Lottery to make payments of Martinez's lottery prize payments to Acubens II LLC.
It Ex. 1, GEN00277.
Id.
In fact, Schacht did not sign this consent, but instead authorized Gennusa to sign on his behalf. There is no indication that Gennusa disclosed this fact to the Court.
C. December 2, 2016 Request For Assignment Back To Trinity.
By letter to Judge Kramer, dated December 2, 2016, Gennusa again represented that an assignment had become economically unfeasible for AF, requesting an Amended Order to reflect that the assignment of the lottery prize payments to Acubens (made in the Court's November 9, 2016 Order) should be changed to reflect a new assignment to Trinity. Gennusa represented to the Court that the attorney for Martinez consented to the proposed Amended Order and attached a short statement to that effect, purportedly signed by Schacht (as Counsel for Martinez) on December 2, 2016. Schacht "signed" the Waivers and Consents even though he claimed his representation of Martinez was limited solely to explain the transaction to him in a telephone call. With the letter, Gennusa also submitted an Assignment of Sale dated September 27, 2016, and an IRS W-9 form, together with an Amended Proposed Order. There is no indication that anyone on behalf of Trinity or Acubens II, LLC was copied on the letter. Nor is it explained how the September 27, 2016, assignment to Trinity supersedes the later dated October 18, 2016, assignment to Acubens, or how the Acubens assignment was cancelled. Judge Kramer signed the Amended Order, dated December 6, 2016, directing that Martinez's lottery prize payments be made to Trinity, as the designated assignee of AF. It is this Order that is now at issue. For the reasons discussed throughout this Decision and Order, this Court finds that the subject order and the underlying LPAA were procured through fraud, misrepresentations of material facts, and misconduct of AF, AF's counsel (Gennusa), and the purported counsel for Martinez (Schacht). Chief among the false and fraudulent actions was the false representation that AF had obtained jurisdiction over Martinez. As a result, the LPAA is void ah initio, as the Court lacked jurisdiction to render the Order, and Martinez must be relieved of the effects of the order since it was the product of fraud, misrepresentations, and misconduct.
M. Ex. 1, 00309.
id.
Tr. 202:16 -21.
Id.
D. May 11, 2017 OSC To Strike Prior Assignments/Orders
On May 11, 2017, McHugh submitted a proposed Order to Show Cause in this proceeding on behalf of Martinez. The Order to Show Cause was supported by the affirmation of McHugh dated May 9, 2017 and the Affidavit of Martinez, sworn to May 7, 2017. On May 15, 2017, Judge Kramer directed that AF, through Gennusa and Schacht, purported attorney for Martinez, show cause why an Order should not be granted striking the prior Orders in this proceeding and accounting for all funds received by them. The Order to Show Cause was also served upon Trinity, as assignee of AF.
E. September 11, 2017 Stipulation Between the Parties
On consent, AF and Martinez, through their attorneys, Gennusa and McHugh agreed to adjourn the return date of the Order to Show Cause several times (to June 14, 2017, to July 26, 2017, and lastly to September 6, 2017).
By a Stipulation dated September 11, 2017, Martinez (incorrectly referred to as Petitioner in the Stipulation) agreed to withdraw his Order to Show Cause, with prejudice, in exchange for AF's agreement to pay him the sum of $482,500.00, less amounts previously advanced by AF to Martinez, or $280,000.00, by January 15, 2018. Trinity was not a party to the Stipulation. No proof was offered to indicate that the Stipulation was filed with the County Clerk and the copy received into evidence bears no date stamp or other indicia or filing. No allegation is made that a Stipulation of Discontinuance was filed with the County Clerk. However, it is acknowledged that AF did not pay the amount agreed upon by January 15, 2018, or at all.
Trinity Ex. R.
F. Subpoena Request and OSCs To Strike Prior Orders/Stjpulation
By a letter to Judge Kramer dated November 30, 2017, (copied to Gennusa, Schacht, and Trinity), McHugh requested that the Court issue a subpoena to Chase Bank in order to trace a payment allegedly made by Martinez to AF. Judge Kramer signed the Subpoena on January 8, 2018.
On August 17, 2018, upon Application and Affirmation of McHugh, Judge Kramer issued an Order to Show Cause dated August 29, 2018 directing the parties to show cause why the prior Orders and the Stipulation of Settlement of September 11, 2017 should not be stricken and set aside. That Order to Show cause was superseded by an Amended Order to Show Cause dated September 27, 2018. On November 16, 2018, Judge Kramer issued an Order granting the application of Gennusa to be relieved as Counsel for AF. Thereafter, the Hon. Barry D. Kramer, J.S.C, retired, effective December 31, 2018, and this matter was re-assigned to the Hon. Mark L. Powers, J.S.C.
Upon Application and Affirmation of McHugh, Judge Powers issued an Order to Show Cause dated January 8, 2019, restraining the Lottery from making any further payments to AF and directing AF to show cause why the prior Orders of the Court should not be stricken. The Order to Show Cause was served upon AF and its assignee, Trinity. By a letter dated March 8, 2019, attorney McHugh advised the parties that the Order to Show Cause was re-scheduled for hearing on March 19, 2019. No party appeared in opposition to the Order to Show Cause. Thereafter, on March 28, 2019, Judge Powers granted an Order striking the November 10, 2016 Order approving the LPAA, declaring the August 31, 2016 agreement null and void, directing the Lottery7 pay all future prize payments to Martinez, and expunging any claim of Trinity to such payments.
G. Trinity's Motion To Ixtervene/Pro HAC Motion
Trinity brought a motion on March 29, 2019, seeking to intervene in this proceeding and to set aside Judge Powers' March 28, 2019 Order. In support of the motion, Trinity submitted the Affidavit of Jeff Wood ("Wood"), Trinity's Chief Financial Officer. In paragraph 2 of his affidavit, Wood swears:
On December 12, 2016, Trinity Life Insurance Company entered into an agreement with Advanced (sic) Funding LLC and Ruben Martinez to purchase his right, title and interest to the Lottery Prize Assignment Agreement in which Advanced (sic) Funding LLC agreed to purchase Ruben Martinez's rights to certain lottery payments in exchange for the discounted present value of those payments.
Wood went on to swear in paragraph 3 that "Advanced (sic) Funding LLC executed an Assignment of Sale Agreement in favor of Trinity Life Insurance on December 6, 2016, when in fact, the Assignment was dated as executed on September 27, 2016. In paragraph 4, Wood claims Trinity received confirmation of a wire transfer of $335,000.00 to JPMorgan Chase for the benefit of Martinez. If fact, JPMorgan Chase made no such confirmation, nor did the alleged sending bank, Citibank N.A.. All Trinity received was a "screen shot" labelled "Completed Wires" from AF. In paragraph 5, Wood claims that at the time of purchase, Trinity was unaware that funds were not paid to Martinez as contemplated by the agreement. The agreement called for one lump sumpayment to Martinez of $465,000.00. By Wood's own admissions in his affidavit, that payment was not made, nor was any proof offered to Trinity that the payment "as contemplated" was made.
If Trinity entered into an agreement with AF and Martinez, then it cannot be a subsequent good faith purchaser for value.
On April 9, 2019, Danielle J. Marlow, Esq., applied for an Order to admit attorney George Gibbs, Esq. ("Gibbs") of the law firm of Gibbs Armstrong Borochof, P.C. in Tulsa, Oklahoma as Counsel pro hac vice for Trinity, with her as his sponsor. The applications to intervene and for Gibbs' pro hac representation were unopposed, and Judge Powers signed an Order granting the pro hac application and allowing Trinity to intervene on August 14, 2019.
On December 4, 2019, Trinity brought a motion to dismiss under CPLR 3211(a)(1) and/or CPLR 3211(a)(7), or in the alternative, to grant summary judgment in favor of Trinity pursuant to CPLR 3212 on a bona fide purchaser argument. On January 8, 2020, this proceeding was reassigned to the Hon. Michael R. Cuevas, J.S.C.
On February 7, 2020, Martinez opposed the motion and brought a cross-motion for summary judgment. Martinez argued that the total of the payments claimed to have been purchased was $818,000.00 (32 payments: 31 payable quarterly at $26,000.00 from August 15, 2019. through February 15, 2027, with one payment of $12,000.00 payable on May 15, 2027). The WSJ prime rate for December 2016 through March 2017, was 3.75%. Accordingly, the maximum discount rate allowed under Tax Law §1613 was 13.75% (the prime rate plus 10%). The LPAA provided for a lump sum payment to Martinez of $465,000.00. This amount was calculated by applying a discount rate of 8.62% to the scheduled payments. However, Martinez claims only $260,000.00 was actually paid, when the minimum lawful payment, using the maximum 13.75% discount rate, would amount to $291,838.15. Martinez argues that this makes the transfer void and unenforceable under Tax Law 1613.4(d); Settlement Funding of New York v. Hartford Competitive Employee Ben. Svc., 25 Misc.3d 1220 (A) (Queens Sup. 2009). Additionally, Martinez argues that Trinity is not entitled to the bona fide purchaser finding, since they entered into the agreement at a time when they knew that AF had not paid Martinez and forwarded funds to AF before Martinez had been paid. Booth v. Ameriquest Mtge. Co., 63 A.D.3d 769 (2d Dept. 2009); Chen v. Geranium Development Corp., 243 A.D.2d 708. 709 (2d Dept. 1997). Trinity opposed the motion on June 29, 2020.
The Court held oral argument on the motion on February 14, 2020. At hearing, the Court denied Trinity's motion to dismiss Martinez's "complaint" as procedurally improper (as there was no Complaint to dismiss), and counsel for Trinity responded by withdrawing the motion for summary judgment. McHugh requested that the Court grant Martinez a judgment setting aside the transfer of lottery payments from Martinez to AF, declaring the LPAA unenforceable and directing the Lottery to make all installment payments due August 15, 2019, and thereafter, to Martinez. The Court reserved decision on Martinez's request while noting that the number of misrepresentations made by AF in its submissions were significant.
H. Mo tions for Summ ary Judgment/Dismissal/Post-Trial Submissions
On March 2, 2020, Jeffrey Siegel ("Siegel") of the law firm of O'Connell &Aronowitz substituted in as counsel of record on behalf of Trinity. On March 6, 2020, Martinez filed a Supplemental Response to the Motion for Summary Judgment, in which he sought summary judgment against Trinity, claiming the December 6, 2016 assignment is void. Martinez requested that the Order be nullified and argued that the assigmnent agreement failed to comply with Tax Law 1613(4)(d). Section 1613 (4)(d) provides that the purchase price paid for an assignment must represent the present value of the payments, discounted at an annual rate, not to exceed ten percentage points over the Wall Street Journal ("WSJ") prime rate (published on the business day prior to the date of execution of the contract).
On June 29, 2020, Wood, executed an Affidavit in Opposition to Petitioner's Summary Judgment Request. Wood explained that Trinity acquired another company called First Life, that had a pre-existing relationship with AF and had purchased lottery prizes from AF since 2004. , As of December 31, 2008, Trinity inherited 26 lottery' prize investments with an approximate value of $4.2 million. Trinity then proceeded to enter into its own agreements directly with AF for the next ten years, and with other companies. As of December 31, 2019. Trinity owned over 330 lottery stream investments worth approximately $71.8 million., Since October 2009, Trinity purchased 29 lottery assignments from AF, without issue. Trinity received the Assignment of Sale Agreement which was dated September 27, 2016, in favor of Trinity in the Martinez matter, on December 8, 2016. Trinity also received the Amended Order signed by Judge Kramer, and Martinez's photo identification and signature confirmation Trinity asserts it did not fund the transaction until December 12, 2016, when it received proof of payment to Martinez in the form of a confirmation of a wire transfer of $335,000.00, and a check dated September 12, 2016, for $140,000.00 Trinity details it also received a CUSIP Global Services confirmation of no issues with the lottery payment. Trinity reviewed all documents and purported payments and funded the transaction with payment of $552,000.00 on December 13, 2016.
Trinity. Ex. P.
Trinity, Ex. P, ¶3.
However, AF was not actually organized until February 7, 2021. Cevallos Aff ¶6.
Trinity, Ex. P. *4.
Trinity, Ex. P. ¶¶4-8.
Clearly,Trinity was a sophisticated investor and should have known about its obligations under the.assignment, the potential for fraud involving wire transfers, and that Martinez was supposedly represented by counsel.
Trinity, Ex. P, ¶9.
Trinity, Ex. P. ¶12.
Trinity, Ex. P, ¶14.
Trinity. Ex. P. ¶16.
Id.
Trinity, Ex. P. ¶¶ 17-19.
The Court scheduled an evidentiary hearing to resolve the factual issues involved in the application.
HEARING (NOVEMBER 24, 2020)
A. Testimony of Margaret Clemons
Margaret Clemons is a private investigator who was hired to conduct an investigation into Dan Cevallos and to determine the level of difficulty of obtaining information about him. Clemons found that Cevallos had a felony fraud conviction in the U.S District Court in New York, that resulted in an 18-month prison sentence and approximately $235,000.00 plus in fines.
Tr. 12:8-22.
Tr. 12: 25-13:6.
Cevallos served his time and was released in January 2004. Cevallos was previously a registered securities broker, but was barred from working in the financial sector in December 1997 for fraudulent practices. Clemons detailed that all of this information is public, and took less than an hour to find. She issued a report dated July 8, 2020, that is attached to the record as Exhibit 1, and details many tax liens, judgments, and civil lawsuits filed against Cevallos. Martinez introduced this evidence to rebut Trinity's claim that it was a bona fide purchaser for value and to demonstrate that Trinity could have easily determined that Cevallos was not a credible businessman.
Tr. 12:15-13:12.
Tr. 13:13-17.
Tr. 13: 13-14:3.
B. Testimony of Ruben Martinez
Martinez testified that he did not sign the documents submitted to the Court to obtain the December 16, 2020 assignment. Martinez testified that he signed a document dated April 15, 2008 [sic], to obtain a prior payout, but did not sign the one dated August 31, 2016. Martinez detailed that in the summer of 2016, he spoke with a Columbian gentleman, whose name may be Santiago, who worked for AF. Martinez asked if AF could do a second transaction with him. This time lending him $220,000.00 so that he could buy his house. Santiago agreed that this could be done as a loan. Martinez explained that AF loaned him the money and he gave Santiago $20,000.00 in a check made out to AF.
Tr. 24:8-25.
Tr. 26:21-27:5.
Tr. 28:6-22: Tr. 34:23-35:23.
Id.
Id.
Id.
Id: Tr. 40:21-25.
Martinez informed the Court that he signed loan documents, that he had, but that were not entered into evidence. The documents stated AF was loaning him $240,000.00, and he would receive two separate payments for $120.000.00. He did not consult with an attorney about the agreement. Martinez received a check for $120,000.00 from AF. that bounced for insufficient funds He believes he was also given a check for $140,000.00 at some time. Martinez also believes he received a wire transfer of $20,000.00 from what he had given Santiago on September 9, 2016.
Tr. 36:5-37:14.
Id: Tr. 44:5-7.
Id.
Tr. 30:1-5; 31: 8-14: 36:13.
Tr. 38:25-39:2.
Tr 39 3-15.
Santiago told Martinez that he was going to get him a lawyer, but he never received any call from a lawyer He does not know the name Robert Schacht, and never called a lawyer by that name, nor was he ever in Schacht's office. Martinez also never spoke to any lawyer that was representing AF Martinez is unable to speak to an attorney in English.
Tr. 44: 5-24.
Tr. 44: 25-45:1: Tr. 243:4-14.
Tr. 45: 9-11.
Tr. 243:4-14.
Martinez remembers agreeing to accept the $482,500.00 from Advance, less the amount that he received, to settle this case. However, AF never paid him.
Tr. 34:16-24.
Id.
C. Testimony of Susanne Gennusa
1- Background
Gennusa began representing AF in 2011. She first represented a company affiliated with AF beginning in 2009, or 2010. She did not know anything about Cevallos' history at that time. Her job was limited to reviewing the documents, making sure that everything was assembled correctly, that it was accurate, and submitting the paperwork to the Court for approval. She would also correspond with the lottery winner's counsel The documents would come to her, already signed, sworn and notarized She reviewed them, and would then affix an ex parte application on top and submit it to the Court for filing and approval. She believes that she has previously drafted a lottery winners affidavit, but not in this case. From what she understands, lists of attorneys were provided to lottery' winners so they could obtain effective counsel familiar with these transactions.
Tr. 54: 3-9.
Tr. 54: 3-9; Tr. 67:9-14.
Tr 54: 17-21.
Tr. 54: 22-55:2.
Tr 55:15-25.
Id.
id.
Tr. 56: 1-9.
Tr. 56: 24-57:6.
Gennusa believes she did 30-40 transactions with AF. She sometimes represented AF, and sometimes represented the lottery winner. She did not obtain conflict waivers. She was paid by AF by check. Most of them were flat fees, of $1,500.00. There were several checks from AF for what Gennusa indicated were transactions other than lottery cases, or were for multiple lottery cases, including checks for $3,181.00, $7,386.18, $3,161.00, $4,810.00, $5,415.00, $217,500.00, $525,000.00, and $6,470.00. If the lottery transaction did not go through, she did not get paid.
Tr. 65: 22- 66:5.
Tr. 68:2-14.
Tr. 69:17-19.
Tr. 69:23-25.
Tr 70:11-12.
Tr. 70: 13-74:16.
Tr 75: 14-17.
Many of the e-mails relating to this assignment transaction were generated by Monica Ray, also known as Monica Ray, who was a paralegal at AF. Many of the emails containing documents were sent directly from Monica Ray to Schacht. Gennusa explained that Monica Ray performed a lot of the work on behalf of AF and worked directly with opposing counsel without her.
Tr. 76: 4-8.
Tr. 76: 23-77:4.
Id.
Gennusa noticed an issue with Martinez's application in that his divorce judgment was in Spanish. She informed AF that the court would want an affidavit or a translation, but she never spoke to Schacht about this even though he was the attorney of record for Martinez.
Tr. 59: 4-22.
Id.; Tr. 60:3-5.
Gennusa admits having a conversation with Schacht in which she learned he was representing Martinez in this transaction. She has not had any conversations with Schacht in years, but when McHugh first filed an OSC and the parties entered into the Stipulation, she had conversations with Schacht about it.
Tr. 56: 19-21; Tr. 60: 9-18.
Tr. 64: 2-24.
2. Issues With The Court Submissions
The LPAA submitted to Schacht for review provided that Martinez was to receive a lump sum payment of $300,000.00 in exchange for 16 of his quarterly lottery payments, but the later version of the LPAA, the one submitted to the Court, states that 32 quarterly lottery prize payments were being assigned by Martinez for a lump sum of $465,000.00. Gennusa attempted to assert that she did not know whether the LPAA attached to an e-mail, on which she was copied and which provided for the transfer of 16 lottery prize payments, was sent to Schacht. She agrees the documents are inconsistent. Gennusa further testified that the lottery winners were often given advances that were not identified in the agreements. She attempted to assert that the advances need not be disclosed in the LPAA, Disclosure Statement or AF's Summary of Contacts with the Lottery Winners. Gennusa was not aware of whether Martinez was advanced funds. Gennusa did not understand that advancing part of the lump sum payment is a violation of Tax Law Section 1613 when it is not disclosed Also, she admits neither the disclosure statement, nor the LPAA, says that fees for the Lottery Winner's counsel will be deducted from the amounts due to the lottery winner.
Tr. 78: Tr. 15-23: Ex. I, GEN00003, GEN00009.
Tr. 78: 24-79:3.
Tr. 79 7-9.
Tr. 79:18-80:4.
Tr. 80:10-15.
Tr. 80:10-81:14.
Tr. 79:10-19.
On August 31, 2016, AF purportedly sent correspondence to Martinez that indicates it was sent via federal express. The letter includes a list of documents enclosed, including a LPAA that instructs him to sign where indicated. If Martinez had received the documents via overnight mail on September 1, 2016, he could not have signed them on August 31, 2016, as the submitted documents purport. Item G on the list of documents is titled: "[s]secured promissory note and security agreement." Gennusa testified that she did not receive a copy of this document. However she testified that a promissory note is a promise to repay, as they are calling it, an advance. Gennusa states that she does not know whether this was a loan, or an advance, because she does not recall ever seeing this letter. The application that she submitted to the Court, as the attorney of record for AF, was purportedly signed by Martinez on August 31, 2016. As the attorney of record, she accepts her responsibility for the work of any paralegals on the case. She never instructed anyone at AF to prepare any of the documents in Spanish, because she was unaware that Martinez only spoke Spanish (despite the divorce decree).
Tr. 124:11-126:22; Ex. 1. 00179.
Id.
Id.
Tr. 126: 23- 127:12.
Id.
Id.
Id.
Tr. 128:12-21.
Tr. 129:8-17.
Tr.131: 22-23.
Gennusa assumes that Monica Ray, or someone at AF, drafted Martinez's affidavit in support of the ex parte application, but she does not know specifically. The affidavit, signed August 31, 2016, but sent to Martinez's attorney on September 14, 2016, reads: "I have been advised regarding the voluntary assignment of my lottery prize payments to AF by my own independent local counsel." In her testimony, Gennusa attempted to put all responsibility on the inconsistency with the dates on Schacht as "independent counsel." As explained, Schacht approved the contract and sent his signed affirmation the very same day he received it, September 14, 2016, within approximately one-half an hour of having it sent to him. Therefore, Gennusa knowingly submitted a false affidavit since the attorney assigned by AF did not speak with the alleged Martinez prior to September 14, 2016. Paragraph 20 of the affidavit of Cevallos, Gennusa's client, contains a similarly false statement since it was sworn August 31, 2016, fourteen days prior to Schacht's affirmation.
Tr. 132:15-21.
Tr. 133:6-134:22.
Id.
Tr. 134:23-135:9.
On September 14, 2016, Monica Ray asked Schacht to sign the affirmation and waiver and consent form to be submitted with the ex parte application and to return the scanned copy via email and originals via fed ex, if they met with his approval. Gennusa testified that this is standard procedure.
Tr. 81:17-25; Ex. 1. 00002.
Id.
On September 20, 2016, an email from Elise Mary, a different paralegal at AF, states:
"Please find the attached [the] contract for this matter as this was the second option Mr. Martinez executed and he has since advised with these terms instead. Assuming you have no objection, we will use the previously executed affirmation."
Tr. 83: 15-84:17; Ex. I, 00042, 00043.
This document, with new contract terms, was not a part of Gennusa's file that she submitted to the Court, suggesting she never had a copy. Schacht responds to the email within 3 minutes that it will be fine with him to use his previously executed affirmation and consent to the proposed order. Gennusa was aware that she would be submitting an affirmation from Schacht, dated September 14, 2016, saying he reviewed the lottery sale agreement with Martinez and that everyone agrees to the terms, even though Schacht was advised of new terms on September 20, 2016. Despite this knowledge, she took no steps to confirm that Schacht reviewed the revised terms with Martinez. The Court noted that Schacht signed an affirmation dated September 14, 2016, when the terms were changed on September 20, 2016. Gennusa testified that she had no recollection of any of these transactions.
Tr. 84: 24-85:8.
Id.
Tr. 85:17-22.
Tr. 85:23- 86:1.
Tr. 86:3-7.
Tr. 86:3-12.
On September 20, 2016, an email from Heather Ray to Gennusa states: "[p]lease be sure to use the proposed order from this e-mail and do not use anything you received from Mr. Schacht but for his consent page and affirmation." Gennusa initially testified that she did not have a specific recollection of whether she switched out pages on Schacht's affirmation, but then said she did not.
Tr. 87:16-20; Ex. 1, 00046.
Tr. 88:9-16.
On September 22, 2016, at 1:32 p.m., an email from Gennusa to Monica Ray details: "[t]he order refers to the date of Dan's affidavit sworn to as of August 31s1, but the affidavit is notarized on September 15, so I'm going to change it." Gennusa testified that she does not know what it is that she was going to change, but then said that it isn't her practice to switch dates and notaries and "things like that." The evidence suggests Gennusa was considering changing the proposed order to match the affidavit. Monica Ray then says, "[b]y statute, Dan's affidavit must be dated before the contract. We will have to get you another one." Gennusa explained that she did not think they were going to get her an affidavit that was dated on or before August 31, because the Affidavit is notarized in September, but she does not know exactly what happened.
Tr. 89:24- 90:14; Ex. I, 00055.
Id.
Tr. 90:15-91:4.
Tr. 91:5-13.
Id.
The Court noted from its record that the Cevallos' Affidavit that was submitted to the Court for consideration indicated that it was notarized on August 31, 20 1 6. On September 30, 2016, an email from Monica Ray says: "[t]he dates are confusing but I think we decided that the day for Dan's affidavit should be August 31st." Gennusa testified that she cannot identify whether Cevallos signed and swore to an affidavit that was backdated. Gennusa could not explain how the original affidavit that she had was notarized September 15, but then she received a second affidavit that was now notarized on August 31. Gennusa then tried to say that she did not think that she had an affidavit that was notarized September 15, but she sent the email to the clients saying that the Affidavit was dated September 15. She stated that she doesn't have the affidavit in her file, and so she cannot say that it actually existed.
Tr. 92:8-13.
Tr. 92:7-22; Ex. 1, 00091.
Tr. 93:9-13.
Tr. 93:9-21.
Tr. 94:4-23.
Id.
On September 29, 2016, Monica Ray states in an email: "[p]lease use the attached proposed order consent page only signed by the lottery winner's counsel. Gennusa testified that it was not typical to use the consent pages from the lottery winner's counsel without communicating with them about it. She believes she spoke to Schacht about this. The email also states: "[a]s well as the necessary replacement page of the Cevallos affidavit that you will need to swap out because it lists NECF as the assignee." In lieu of obtaining new affidavits AF was instructing her to simply swap out the page with one containing different statements regarding the terms of the agreement than those purportedly sworn to.
Tr. 97:4-98:5: Ex. I. 00058.
Id.
Id.
Id.
Id.
On October 11, 2016, an email from Monica Ray to Gennusa states: "Dan asked that we not submit the divorce decree as it may lead to additional questions." Monica Ray then states: "I'm going to generate an affidavit for execution by the lottery winner. I'll get it to you as soon as I get it back signed." The concern was that the divorce decree was in Spanish, which could have raised questions about Martinez's English language proficiency..
Tr. 98:13-19: Ex I, 00172.
Tr. 98:20-99:5.
On October 18, 2016, an email from AF to Schacht says:
"We must change the assignee for the above-referenced lottery assignment. I have prepared the attached proposed order to facilitate the same. Please advise if you approve of the change of the assignee only, and, if so, you will permit our local counsel, Susanne Gennusa, to sign for you on the consent page to avoid the delay of waiting for a newly signed original via overnight. Thank you."
Tr. 105:13-106:13: Ex. 1. 0266.
Notably, there was no email in Gennusa's file asking Schacht to approve the change of deal terms.
Id.
On October 18, 2016, an email from Monica Ray to Gennusa and Cevallos reads: "[p]lease find the attached proposed letter for you to copy and paste onto your letterhead, sign and submit with the attachments." AF generally prepared the correspondence and Gennusa would copy and paste them onto her letterhead. The email also says: "[o]bviously, you will see an email to Robert Schacht, which should permit you to place a big R on his consent page when he responds." Gennusa said that she called and asked Schacht's permission to sign his name, and that she asked for an email confirming it. She was told at the time that Schacht was away and for expediency purposes she should sign them. But, if she had called and spoken to him, as she testified, she should have known where he was. On October 18, 2016, at 4:31 p.m., in an email Schacht replies, "I've reviewed and consent to it being signed and submitted."
Tr. 107:22-108:11; Ex. 1. 00274-286.
Id.
Tr. 108:19-109:3; Ex. I. 00274-286.
Id.
Tr. 101:4-8.
Tr. 110:9-20; Ex. I, 00291.
On October 20, 2016, an e-mail exchange occurred between the Gaming Commission and Gennusa regarding Martinez's delinquent taxes. Gennusa says that it is not customary for AF to pay the debts of a lottery winner, but also that this is the first that she is looking at this, despite being copied on the email.
Tr. 111:3-11; Ex. 1. 00378-00381.
Id.
On December 2, 2016, an email from Monica Ray to Schacht details:
"You've already reviewed and approved the attached form of order to Trinity Life Insurance. The only thing that I changed was the title to it, amended the order, and referred to it throughout the document as such and to add the RJI. To save time, we would really appreciate you giving authority to our local counsel to sign your big R signature on the consent page so that we could submit the amended order to the Court immediately."
Tr. 112:11-22; 6, 00406.
Schacht immediately responded (approximately 43 minutes later): "[p]ermission granted. May the force be with you." This is the second instance of Schacht authorizing Gennusa to sign documents for him. Nothing on the documents indicates that they were signed by anyone other than Schacht.
Tr. 112:23-113:8.
Id.
Gennusa testified that she does not see why any assignee would be relying upon the documentation submitted to the Court as being true and accurate.
Tr. 141:13-16.
This Court finds Gennusa's testimony, in many respects, not credible and further finds her testimony, in these matters, an attempt to obfuscate as the e-mails reviewed with her in court were ones she produced under subpoena. The evidence demonstrates that Gennusa participated in 44 LPAA court proceedings between January 2010 and April 2017. She first appeared as counsel for a lottery winner in January 2010, then she appeared as counsel for AF and its predecessor, Empire Advance Funding, in. 23 transactions from 2010 until mid-year 2012. In 10 of those 23 transactions, the lottery winner was represented by now debarred attorney Luigi Rosabianca ("Rosabianca"). Then, in AF cases filed in the second half of 2012 and in 2013, Rosabianca's firm, Rosabianca &Associates represented AF in six cases. In 4 of the 6 cases, Gennusa appeared as attorney for the lottery winner. In 2014, Gennusa again resumed representation of AF. In 9 of the 13 cases she handled from 2014 through 2017, Schacht was the attorney for the lottery winner. Despite her longstanding relationship with AF and her representation of AF at times overlapping with her representation of lottery winners where AF was the petitioner, she never obtained conflict waivers in apparent violation of the Rules of Professional Conduct.
To further complicate matters, Gennusa admitted to representing Cevallos, the President of AF on personal matters from at least April 2012 to March 2016. On November 5, 2015, Cevallos issued a wire transfer of $217,500.00 from the AF bank account to Gennusa and on March 4, 2016, the same day AF received a wire transfer from Trinity in the amount of $555,378.66, Cevallos wired $525,000.00 to Gennusa from the same AF business account. Gennusa testified that these funds were used for a personal real estate transaction she was handling for Cevallos. Gennusa apparently did not appreciate the conflict of interest between her clients (Cevallos as an individual and AF as a separate legal entity) in this transaction either.
Gennusa's testimony that she understood that lists of attorneys were provided to lottery winners so that they could obtain "effective counsel who was familiar with these types of transactions" is beyond incredible since she served in both roles. It is also incredible in light of the testimony of Schacht who frequently acted as counsel to lottery winners in cases she handled for AF. who admitted not being familiar with Tax Law §1613, which governs these transactions.
Further, Gennusa testified that she knew that lottery winners were being paid advances on their assignments without disclosure. Apparently, Gennusa did not understand that the LPAA in this case, like all others submitted to the Court by Advance Funding, contains a paragraph 18 -Entire Agreement, stating, in applicable part, "(tjhis Assignment constitutes the entire agreement and understanding of the parties with respect to the matters and transactions contemplated hereby and supersedes any and all prior agreements and understandings with respect thereto." Gennusa also fails to understand why the advance of $260,000.00 in this case represents a failure to disclose a material fact to the Court; one that should have been recited in Assignment Agreement, Cevallos' affidavit, the lottery winner's affidavit, the financial Disclosure Statement, and AFs summary of contacts with the lottery winner.
Additionally, Gennusa's claim that counsel fees for the lottery winner's counsel were paid by AF, on behalf of the lottery winner, appears to be nothing more than a feigned attempt to shield unethical behavior. She readily admits that she received payments from AF when she acted as attorney for lottery winners; thus, she must have known that the other attorneys recommended by AF to lottery winners were paid likewise. Schacht also admitted that he received payments directly from AF while representing lottery winners. Neither could point to any document that indicated that attorneys' fees were to be deducted from the lottery winner's lump sum payment. Both had to acknowledge that the Disclosure Statement submitted in this case indicated, "[t]he amount of origination or closing fees to be charged to Ruben Martinez is: NONE.", thereby placing them both on actual notice that no attorneys' fees were going to be deducted at the closing of this transaction. Both counsel appeared ignorant of Rule of Professional Conduct, Rule 1.8 (f).
As stated elsewhere in this decision, Gennusa agreed to sign documents submitted to the Court on behalf of attorney Schacht without disclosing to the Court that she had done so. Additionally, Gennusa instructed her client to submit an affidavit to the Court regarding Mr. Martinez's actual divorce papers in order to avoid "raising a red flag."
Further, Gennusa submitted two letters to the Court with almost identical language, one dated October 19, 2016 and the other, December 2, 2016, claiming that AF advised her that it has become "economically unfeasible" for her client to assign to the originally proposed assignee. In fact, neither letter was truthful as is evidenced by the fact that the final assignee was the first assignee, with no change in terms and no change in the original September 27, 2016 Assignment of Sale Agreement.
Critical to this case, Gennusa admitted to receiving an e-mail from AF stating that Martinez opted to go for a second option, with substantial and materially revised terms and stating that AF proposed to submit the previously issued affirmation of counsel (Schacht) and further admitted to receiving Schacht's e-mail response three minutes later, agreeing. Despite this notice of changed terms on September 20, 2016, Gennusa submitted to the Court Schacht's September 14, 2016 affirmation knowing that Schacht did not have the revised terms at the time of his affirmation and thereby representing to the Court that Schacht's affirmation evidenced his approval of the changed terms submitted.
The evidence also strongly suggests that Gennusa knowingly submitted a backdated or falsely notarized affidavit of Dan Cevallos, claimed to be sworn August 31. 2016 when it didn't exist as of September 22, 2016.
To the extent that Gennusa claims no responsibility for the work of AF's paralegal and support staff, the Court notes that she was the attorney of record in this case and there was no other attorney supervising the activities of these nonlawyers. It was her duty to supervise and direct their activities with respect to the affidavits and affirmations submitted to the Court in this proceeding pursuant to Rule 5.3 of the Professional Conduct Rules. To hold otherwise, would mean that Gennusa was aiding nonlawyers in the unauthorized practice of law in violation of Rule 5.5 (h).
3. Stipulation to Settle DSC
Per an email dated May 25, 2017, Gennusa requested that Schacht sign the Stipulation to adjourn the Order to Show Cause and return it. Schacht's response says that he consents to the adjournment and that Gennusa has his permission to sign the Stipulation for him, which she did. This marks the third time that Gennusa signed documents for Schacht. Again, nothing in this document indicates that it was signed by anyone other than Schacht. Gennusa admitted that AF never made the payments to Martinez under the settlement agreement.
Tr. 113:9-114:19; Ex. 6. 00495.
Id.
Tr 116:19-25.
D. Il mimow of Robert Schacht
Schacht has been practicing law for 20 years. He testified that he does not personally know Cevallos. He is also not aware that Cevallos has a criminal record. He detailed that he has acted as counsel to lottery winners in a number of proceedings where AF was the petitioner. He never took any steps to determine what kind of company AF was. Schacht informed the Court that he only became involved in these assignments through a lawyer, Luigi Rosabianca, a law school classmate, who asked him whether he had any interest in representing clients in lottery cases. Rosabianca later went to jail for stealing money, forging other people's names, and had his license to practice law revoked. He had an office in the same building as AF. Schacht testified that the only contact he had with AF was with Monica Ray.
Tr. 152:16-20.
Tr. i53. 23-153.
Tr. 53:14-16.
Tr. 154: 6-15.
Tr. 155:18-22.
Tr. 156:6-16.
Tr. 191:13- 192:4; 193:4-24.
Id.
Tr. 154: 23-155:5.
Schacht stated that once AF secures the lottery winner's agreement to enter into an assignment, then the lottery winner contacts him. Schacht never received a retainer from any of his lottery clients. AF then paid Schacht $500.00 for a limited representation of a lottery client. AF actually wrote the check, but it was his understanding that this was by agreement with the lottery winner. Schacht testified that he is unaware of whether this understanding was incorporated into any of the documentation. (Notably, Gennusa previously testified that it was not). Schacht also testified that he is unaware of whether there is a legal requirement that the agreements specify all costs to the lottery winner within the documents submitted. Notably, in his affirmation submitted with the assignment request, Schacht states: "I am unrelated to and I am not being compensated by the assignee." Schacht argues that this is true because he is paid by the lottery winner through AF,
Tr. 156: 17-23.
Id.
Tr. 157: 15-25.
Id.
Tr. 158:1-7.
Tr. 158:15-24.
Tr. 201:7-25; Ex. 1. 00034.
Tr. 202:1-3.
Schacht never checked the financial terms in one of these agreements to determine that the lump sum to be paid complied with the law as to how much money had to be paid in order to meet the "minimum." It was Schacht's understanding that the arrangement was already made, the amounts were already agreed to, and his job was to give the lottery winners the last opportunity to back out of the deal. Schacht did not seem aware that the restriction is on the maximum discount rate that could be applied which is then used to calculate the present value of the stream of future periodic lottery prize payments that would be paid as a lump sum to the lottery prize winner.
Tr. 161:9-17.
Tr 161:9-17.
Schacht cannot say when Martinez purportedly called him. But an individual claiming to be Martinez called him, and Schacht verified it was him by asking who it was (he did not ask for any identification to be sent). Schacht does not speak Spanish and indicated that if it's the man he's thinking he spoke with, that man spoke broken English.
Tr. 161:21-162:2,.
Tr. 162:3-8.
Tr. 162:19-163:5.
Schacht detailed that generally AF would Fed Ex him a package of documents that were already signed. He would review the papers to determine what the terms are and then wait for the lottery winner to contact him. In this case, the September 14, 2016 email correspondence establishes that Schacht received the Fed Ex of documents purportedly signed by Martinez at 4:38 p.m. and he responded at 5:04 p.m. that everything was all set and AF would have the documents back shortly.
Tr. 166:13-20; Ex. 1, 00020.
Tr. 168:1-5.
Tr. 168:16-19, Tr. 171:19-23; Ex: 1, 00020.
When questioned about how he could have communicated in that amount of time with Martinez, Schacht responded that he doesn't recall the specifics of the transaction, but he could have spoken to him before he received the documents. In the email, Monica Ray is acknowledging that he has now been retained by Martinez. Schacht claims that he discussed with Martinez whether he understood what the terms were and whether he agreed to them. Schacht admitted that he never read the tax law and does not know what is required to make a lottery transaction of this type, as he does not practice tax law. Schacht further testified that was not his job in this situation. Rather, his job was to ensure that the lottery winner understood the terms that they were agreeing to and that they had already signed. The Court noted that paragraph 2, of Schacht's Affirmation states: "I submit this affidavit in support of the application of Advance Funding for a judicial order pursuant to New York Tax Law 1613 (a) and (d). In response, Schacht told the Court that he "probably" looked it up.
Tr. 168:20-169:2.
Tr. 170:4-8.
Tr. 176:9-15.
Tr. 180:5-17.
id.
id.
Tr. 236:2-25.
Schacht was specifically asked about the statement in his Affirmation submitted with the assignment request: "I have thoroughly reviewed the terms and conditions of the LPAA and have extensively discussed such terms with Mr. Martinez." Schacht responded that he extensively discussed the lottery prize sale with Martinez in that half an hour. He states that his inquiry is limited to just ensure that the lottery winners understand what they're signing, if they have any questions, and that they're not being forced to do anything. He would ask the lottery winner:
Tr. 204:3-25: Ex. I. 00035.
Id.
Id.
"Did you sign this document? Yes. Did you read through this document? Yes. Do you have any questions regarding this document that you've already signed before a notary public? Yes. Do you want to make any changes to that document or to this arrangement or agreement?"
Tr. 206:15-207:4.
Schacht was asked about the pages, and whether there were changes made to the terms, and he responded that he always had a conversation with Martinez before submitting documents. When asked about the email that requests that his prior signature be used with permission, and that he responded within three minutes of receiving the email, Schacht told the Court that he could have had a conversation with Martinez in that three-minute time period.
Tr. 208: 1-209:14: Tr. 210:16-24; Ex. 1, 00042.
Tr. 211:1-25.
When asked about the differing terms of the agreement (32 payments for $465,000.00 or 16 payments for $300,000.00), Schacht commented that the document speaks for itself. He further asserted that the documents are all verified and notarized by other parties before it even reaches him.
Tr. 213: 20- 214.24; Ex. I. 0002-0003.
Tr. 216:11-20.
A October 18, 2016, 2:54 p.m. email from Monica Ray to Schacht and Gennusa states: "Robert, please be advised that we must change the assignee for the above-referenced lottery assignment." The email asks whether it is fine for Gennusa to sign the consent page for him to avoid delay. While testifying that this is not something that he typically did, Schacht admitted that he authorized Gennusa to sign his name. Schacht also authorized Gennusa to sign his name a second time on additional documents, within 45 minutes of the request. The documents also reflect a third instance in which Schacht agreed that the attorney for the adverse party sign his name, despite previously testifying that it was not his practice to have others sign his name.
Tr. 221:5-222:20; Ex. 1. 00266.
Id.
Id.
Tr. 222:2-224:20; Ex. I. 00291-00292; Ex. 6. 00406-00407.
Tr. 225:24- 227:5.
The Court reviewed the document entitled: "Lottery Prize Assignment Agreement" with Schacht and noted that neither that document nor any of the documents, other than the affidavits, that Schacht received were notarized. The certificate of residence address is also not signed.
Tr 233:12-17; Tr. 234:5-9; Ex. 1. 00003.
Tr. 234:17-21.
Notably, Schacht testified that he never maintained a file on this case, nor any copies of any of the documents he purportedly reviewed. Although Schacht testified that he spoke with Martinez about the various changes to the documents submitted to the Court, he also testified that he has no record of Martinez's phone number, and he never contacted him by email, text message, or letter.
Tr. 185:6-18.
Tr. 241:8-18.
The Court finds Robert Schacht's testimony not credible. Throughout his testimony, Schacht was evasive in not directly answering questions posed by counsel, claiming not to understand questions, and questioning the plain meaning of documents in the record.
Most critical to this case, Schacht admitted that he never met Martinez and he could not confirm that he has ever spoken to Martinez. He claims only to have spoken to someone who identified himself as Martinez, that person having been given his telephone number by AF. And as to the person who contacted him, Schacht created and kept no records: none of the documents submitted to him for review in the underlying transaction, not even basic contact information for his ''client." Schacht admits he had no written retainer agreement or engagement letter and that his lee was paid by AF. Further, none of the documents in the record supports Schacht's assumption that AF was acting on Martinez's behalf in making payment to him. In contrast to Schacht's testimony, Martinez was unequivocal in his testimony that he had never met or spoken to Schacht. The Court can only conclude that there was no attorney-client relationship between Schacht and Martinez. Without such a relationship, Schacht had no authority to act on Martinez's behalf. Therefore, his waiver of appearance and consent to the ex parte application for approval of the LPAA Order was a nullity, requiring, at the least, that the Court vacate the Order.
Were we to assume that Schacht had initially been consulted by Martinez, it would appear that he had only reviewed a proposed agreement by Martinez to assign 16 payments of $26,000.00 each in exchange for a lump sum payment of $300,000.00 as those were the terms submitted to Schacht prior to his September 14, 2016 affirmation. Schacht's testimony about subsequent conversations with the person he believed to be Martinez, regarding the change of terms and changes to other documents, is simply incredible. The testimony appears to be invented and manipulated, on the witness stand, as Schacht did not even so much as obtain or retain contact information for Martinez.
On November 23, 2020, Trinity submitted a memorandum in support of its' motion to dismiss made at the conclusion of the hearing. Trinity states that the instant application is barred by the doctrine of res judicata due to the Stipulation entered into between AF and Martinez on May 25, 2017. Trinity claims Martinez withdrew all of his claims for payment of the remaining $482,500.00 (minus $280,000.00), with prejudice. Despite the fact that the $202,500.00 was never paid. Trinity reiterated its request for dismissal at hearing on November 24, 2020, and in its PostTrial Closing Argument submitted on December 1, 2020. In addition to res judicata, Trinity also argued that it was a good faith purchaser for value (asserting that it paid AF $552,000.00). Trinity alternatively argues, on the ground of equity, that Martinez would be unjustly enriched at 1 rinity's expense, if he were able to keep his lottery proceedings and the $280,000.00 he already collected from AF.
Tr. 32:23-33:6.
On December 8, 2020, Martinez submitted a Post-Hearing Memorandum of Law to the Court, in which, among other things, he requests the Court invalidate the December 16, 2016 assignment due to the fraudulent misrepresentations made by AF.
Although it had a full and fair opportunity to do so, Trinity produced none of its employees or agents with knowledge of this transaction as witnesses during the evidentiary hearing.
THE LAW AND DISCUSSION
A. The Court Has The Discretion To Vacate A Prior Order Under CPLR 5015.
The Court has the ability to vacate a prior default judgment or order, in the interest of substantial justice, subject to reversal only where there has been a clear abuse of discretion. CPLR §5015: Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 68 (2003). On review, the court considers both facts and equities affecting litigants. Nash v. Auth. of New York and New Jersey, 22 N.Y.3d 220, 226 (2013). The Court may relieve a party from a prior order, upon noticed motion, on grounds that include newly discovered evidence; or fraud, misrepresentation, or other misconduct of an adverse party. CPLR 5015 (a). The Third Department has also found vacatur appropriate where a party did not receive actual notice of the pending action, and was able to adequately demonstrate a meritorious defense. CPLR 317; Gardner v. Another Phyllis's, Inc., 216 A.D.2d 620, 627 (3d Dept. 1995). The law in New York also clearly instructs that "[t]he remedy for fraud allegedly committed during the course of a legal proceeding must be exercised in that lawsuit by moving to vacate the civil judgment." Marshall v. Grant, 521 F.Supp.2d 240 (E.D.N.Y. 2007).
AF originally initiated this proceeding via ex parte application for approval of the assignment of Martinez's lottery payments to AF. The court's Order dated November 9, 2016, and entered November 10, 2016, (Hon. Barry D. Kramer, J.S.C.) was granted based upon the application of AF submitted by Gennusa. The Amended Order of December 8, 2016 was also granted to AF based upon papers and documents submitted by Gennusa. It is apparent from the testimonial and documentary evidence that those Orders were obtained based upon the representation that Schacht represented Martinez, who had consented to the relief sought and authorized Schacht to submit a waiver and consent, and other fraud, misrepresentations, and misconduct on the part of AF, AF's attorney and the purported attorney for Martinez. The fraud, misrepresentations, and misconduct permeate the entire submission to the Court by AF to such a degree that the "consent/default" Orders taken against Martinez must be set aside and Martinez must be relieved of the substantial injustice these Orders impose upon him.
B. SINCE THE COURT LACKED JURISDICTION OVER MARTINEZ ON THE INITIAL EX PARTE APPLICATION, THE RESULTING ORDER OR JUDGMENT IS A NULLITY AND MUST BE SET ASIDE,
The Court must initially make a determination under CPLR 5015 (a)(4) whether the Court lacked jurisdiction over Martinez. If it did, the order or judgment is a nullity and this Court has no discretion, and it must set aside the Order, unconditionally. Gager v. White, et al., 53 N.Y.2d 475 (1981); Shaw v. Shaw, 97 A.D.2d 403 (2d Dept 1983). Here, there is no reliable evidence that Martinez retained Schacht to represent him in the initial transaction. Schacht's only purported contact was a telephone conversation he claims to have had with a person identifying himself as Martinez. Schacht asked for no proof of identity, took no contact information, did not obtain a retainer or letter agreement with his "client", and was not paid a fee by the "client." Martinez emphatically testified that he never met, spoke with, or retained Schact. Simply put, an unauthorized appearance by an attorney is insufficient to confer personal jurisdiction over a party and a judgment, predicated upon jurisdiction based upon an unauthorized appearance, is void. Skyline Agency, Inc. v. Coppotelli, et al., 117 A.D.2d 135 (2d Dept 1986); Wickham v. Liberty Mut. Ins. Co. et al., 73 A.D.2d 742 (3d Dept. 1979).
C. Tax Law 1613 (d) Requires That A Lottery Prize Assignment Agreement Be Approved By An Order Of The Supreme Court,
In order for lottery prize payments to be validly assigned in New York, the parties to the assignment agreement must first obtain "an appropriate judicial order" which directs the LotteryCommission to make prize payments, in whole or in part, to the designated assignee, approving the transaction. New York Tax Law §1613 (a); 21 NYCRR §2803.11; see also, In re Cabrera, 196 Misc.2d 329 (Kings Cty. Sup. Ct. 2003); Matter of Guri, 247 A.D.2d 388 (2d Dept 1998). Periodic lottery prize payments may not be assigned in exchange for a lump sum payoff by a pro forma judicial order upon an ex parte application, but only upon examination of relevant statutory factors, and after notice to all affected parties. Cabrera, supra, 196 Misc.2d. at 209.
To succeed on a petition for approval of a lottery prize payment assignment, the petitioner must establish that all of the conditions within Tax Law 1613 (d) have been met.
(i) The assignment is in writing, is executed by the assignor, and is, by its terms, subject to the laws of this state. (ii) The purchase price being paid for the payments being assigned represents a present value of the payments being assigned, discounted at an annua] rate that docs not exceed ten percentage points over the Wall Street Journal prime rate published on the business day prior to the date of execution of the contract. (iii) The contract of assignment expressly states that the assignor has three business days after the contract was signed to cancel the assignment, (iv) The assignor provides a sworn affidavit attesting that he or she:
(A) Is of sound mind, is in full command of his or her faculties, and is not acting under duress; (B) lias been advised regarding the assignment by his or her own independent legal counsel, who is unrelated to and is not being compensated by the assignee or any of the assignee's affiliates, and has received independent financial or tax advice concerning the effects of the assignment from a lawyer or other professional who is unrelated to and is not being compensated by the assignee or any of the assignee's affiliates; (c) Understands that he or she will not receive the prize payments or portions thereof for the years assigned, (D) Understands and agrees that, with regard to the assigned payments, the division and its officials and employees will have no further liability or responsibility to make the assigned payments to him or her: (E) Has been provided with a one-page written disclosure statement setting forth, in bold type of not less than fourteen points, the payments being assigned, by amounts and payment dates; the purchase price being paid; the rate of discount to present value, assuming daily compounding and funding on the contract date, and the amount, if any, of any origination or closing fees that will be charged to him or her; and (F) Was advised in writing, at the time he or she signed the assignment contract that he or she had the right to cancel the contract, without any further obligation, within three business days following the date on which the contract was signed. (v) Written notice of the proposed assignment and any court hearing concerning the proposed assignment is provided to the division's counsel at least thirty days prior to any court hearing. The division is not .required to appear in or be named as a party to any such action seeking judicial confirmation of an assignment under this subdivision, but may intervene as of right in any such proceeding Tax Law 1613 (d).
The first condition listed is that the assignment is in writing and signed by the assignor. In this case, a written LPAA dated August 31, 2016 was submitted to the Court with a signature on the line above the printed name Ruben Martinez, Assignor. The signature was not notarized or otherwise witnessed. In his testimony at the hearing before this Court on November 9, 2020, Martinez denied signing the LPAA on August 31, 2016. He did acknowledge that he had signed a similar agreement as part of an assignment with AF in 2008.
Tr. 26 -27.
The Court accepts Martinez's testimony on this issue as credible. Martinez further testified that he did not receive a package of documents to sign purportedly sent to him by AF via Federal Express, with an unsigned letter dated August 31, 2016. The letter instructed him to sign the documents and to "return them at his earliest convenience." If the documents were sent as the letter indicates, they would not have been received by Martinez until September 1, 2016, at the earliest and thus could not have been signed on August 31, 2016. The letter also stated that a Promissory Note and Security Agreement and an Instruction Letter stating that AF should be repaid in advance were enclosed. However, neither the LPAA nor the Disclosure Statement submitted to the Court makes reference to a loan or advance or of any repayment to be made from the lump sum due Martinez. Additionally, in the electronic closing binder, submitted via an e-mail dated December 8, 2016, from Monica Ray to Gregg Zahn, Jeff Wood and Starlaa Williams of Trinity, there is no mention of an AF loan or advance to Martinez. However, the submission of a Promissory Note and Security Agreement by AF supports Martinez's claim that he thought he was getting a loan. Further support of Martinez's position is his payment of $20,000.00 as a fee for securing the loan. Additionally, the testimony demonstrates that AF freely altered documents submitted to the Court. Whether AF used documents acquired from Martinez in its prior transaction with him or signed by him in support of a loan, this Court cannot discern. However, neither Trinity, Gennusa, or Schacht produced any evidence to rebut Martinez's claim that he did not sign the August 31, 2016 LPAA. And AF, which would be in a position to rebut the claim, has not appeared or answered in this proceeding. The evidence clearly demonstrates that AF engaged in a scheme to defraud Martinez, Trinity, and the Court making Martinez's claim plausible. The fraud went so far as to substitute materially changed terms of the LPAA, which were approved by Schacht without the possibility of discussing them with Martinez, or the person purporting to be Martinez. Here, it cannot be ascertained which terms, the parties agreed to, if any. Therefore, there was no "meeting of the minds" essential to the formation of a binding contract. Instead, we have Martinez's credible claims that his signature was forged. Such conduct would result in the agreement be deemed void ab initio. Orlosky v. Empire Sec. Systems, Inc., 230 A.D.2d 401, 403 (3d Dept 1997). The substitution of material terms without Martinez's knowledge amounts to fraud in the execution which requires a finding that there was no meeting of the minds, and that the contract would be void from inception. Red Fort Capital, Inc. Guardhouse Productions, LLC, 162 F.Supp.3d 456, (S.D.N.Y. 2019). Therefore, the Court must find, by a preponderance of the evidence, that Martinez did not sign the August 31, 2016 LPAA, nor did he agree to a change of material terms and therefore, there was never a valid agreement, signed by the assignor, to be approved by the Court.
The second condition required for court approval of a LPAA is that the Assignor be "advised regarding the assignment by his or her own independent legal counsel, who is unrelated to and is not being compensated by the assignee or any of the assignee's affiliates, and has received independent financial or tax advice concerning the effects of the assignment from a lawyer or other professional who is unrelated to and is not being compensated by the assignee or any of the assignee's affiliates." As outlined in detail above, the testimony of Martinez and Schacht clearly demonstrate that Martinez was not represented during the course of the ex parte application for assignment of his lottery rights. Martinez denied knowing, retaining, or maintaining any sort of attorney client relationship with Schacht. Schacht also could not provide a retainer agreement, letter of engagement or any evidence to support the contention that represented Martinez. At best, Schacht claims someone who claimed to be Martinez called his office and that he had a telephone conversation with the individual in which he fulfilled his limited representation of that "client." Despite at first claiming his representation was limited to the telephone call advice, Schacht acted as Martinez's attorney by approving all paperwork submitted to him by AF within minutes of receipt, without enough time to properly advise Martinez of what the documents contained, and waived Martinez's right of appearance and consented to Orders contrary to Martinez's interests each and every' time it was requested of him by AF. It is apparent to this Court that Martinez did not engage attorney Schacht, did not authorize Schacht to act on his behalf, did not have proper notice of the proceedings, and that fraud was perpetrated upon him in obtaining the Orders assigning his lottery winnings. Accordingly, a motion to vacate the prior Order of December 16. 2016 is hereby granted, and the Commission shall now make all payments to Martinez.
D. Res Judicata Does Not Compel Enforcement of the Unfiled Settlement Agreement
A stipulation of settlement with prejudice has res judicata effect and bars re-litigation of a discontinued claim. Chiantella v. Vishnick, 84 A.D.3d 797, 798 (2d Dept. 2011), Iv. denied, 17 N.Y.3d 710 (2011); see also, Biggs v. O'Neill, 41 A.D.3d 1067, 1068 (3d Dept. 2007); Matter of State of N.Y. v. Seaport Manor A.C.D., 19 A.D.3d 609, 610 (2d Dept. 2005). However. CPLR Section 2104, states:
An agreement between parties or their attorneys relating to any matter in an action, other than one made between counsel in open court, is not binding upon a party unless it is in a writing subscribed by him or his attorney or reduced to the form of an order and entered. With respect to stipulations of settlement and notwithstanding the form of the stipulation of settlement, the terms of such stipulation shall be filed by the defendant with the county clerk.CPLR §2104 [Emphasis added]. The "power of a trial court to exercise supervisory control over all phases of pending actions and proceedings has long been recognized." Teitelbaum Holdings, Ltd. v. David C. Gold, 48 N.Y.2d 51 (1979). This includes the "discretionary' power to relieve parlies from the consequences of a stipulation effected during litigation." Id. Accordingly, a Stipulation of Settlement that has not been filed cannot be deemed to have res judicata effect, and this Court retains jurisdiction. Erdogan v. Simone, 415 N.Y.S.2d 301 (3d Dept. 1979); DiBella et al. v. Brian Martz, 58 A.D.3d 935 (3d Dept. 2009).
The Court's goal is to maintain a privately contracted agreement unless it clearly violates public policy. 159 MP Corp., et al. v. Redbridge Bedford, 128 N.E. 3d 128 (2019). Here the waiver of all claims with prejudice is not on its own violative of the public right, or public welfare. If the contracting parties had held up the agreement to properly pay the amounts owed under the agreement, the waiver would be proper and fair. However, the Court in 159 MP Corp., noted:
Decision s voiding agreements that involve illegal activity are not based on a search for the equitable outcome of a particular case, or on a calculation of which result will most contribute, in an immediate and practical way, to the enforcement of a particular statute or public policy rather, they are based on the sound premise that courts show insufficient respect for themselves and the law when they help a party to benefit from illegal activity.159 MP Corp., supra, 128 N.E. 3d, at 128 [emphasis added.]. Accordingly, this Court cannot, in the interests of justice, allow this settlement agreement to withstand scrutiny. A party simply cannot knowingly and fraudulently induce another party to enter into a settlement agreement to avoid a legal proceeding and promise consideration they have no intention of ever paying, while simultaneously adding a provision that prevents the induced party from seeking judicial relief when they fail to pay. To the extent that AF ever had acquired rights to Martinez's lottery payments, it assigned those rights to Trinity. AF no longer had any right to enter into a settlement agreement which purported to modify the LPAA. Trinity, which had defaulted in appearing in the proceeding, cannot now assert privity to enforce the bar to judicial relief, leaving a party, like Martinez, defrauded, defenseless and a victim of Trinity's lack of due diligence.
Trinity argues that it is in privity with AF in the LPAA. However, Trinity by assignment from AF dated September 27, 2016, accepted "all right, title and interest in and to (i) that certain LPAA dated August 31, 2016." While the assignment also provided, "[t]his Assignment is not enforceable without court approval, may be revoked by AF at any time prior to closing, and subject to the satisfaction of all terms and conditions set forth in the Sale Agreement and submission of an acceptable closing binder." The closing occurred on December 13, 2016 when Trinity accepted the closing binder and paid AF $552,000.00 to acquire the LPAA. The transfer from AF to Trinity was approved by the Court's Amended Order of December 8, 2016. Indeed, it is a result of the assignment and court approval that Trinity has standing in this proceeding. Tax Law §1613 (d) requires court approval of any payment of lottery prize payments to a person or entity other than the prize winner. AF obtained a court order directing payments of the LPAA to its assignee, Trinity, by providing the Court with the Assignment Agreement and by identifying Trinity as its assignee in the Court Order. Since Trinity owned all right, title and interest in the LPAA as of December 13, 2016, AF could not amend the contract (the LPAA) that it did not own. Therefore, AF's Stipulation of September 17, 2017 stating "paragraph 2 of the Lottery Prize Agreement dated August 31, 2016, is hereby amended and restated..is a nullity as AF had no legal right to amend it.
Affidavit of Jeffrey J. Wood. sworn June 29, 2020. rJ9.
An assignment must be a perfected transaction between the assignor and the assignee in which: (1) the assignor intends to vest in the assignee a present right in the thing assigned; and (2) the assignor divests itself of all right or control over that thing.Zeman v. Falconer Electronics, Inc.. 55 A.D.3d 1240, (4th Dep't 2008).
Unless qualified, an assignment conveys the assignor's entire interest in the thing or right being assigned. De Sole v. Knoedler Gallery, LLC, et al, 974 F.Supp.2d 274 (S.D.N.Y. 2013). A complete assignment extinguishes any rights the assignor had under the contract. In re Motors Liquidation Company, 533 B.R. 46 (Bankr. Ct. S.D.N.Y. 2015), order affd, 2016 WL 3461359 (S.D. N.Y. 2016); AIU Ins. Co. v. Deajess Medical Imaging, P.C., 24 Misc.3d 161 (Nassau Cty. Sup. Ct. 2009).
Here, it is clear that AF made a full, unqualified assignment of the LPAA, in writing, thereby extinguishing its rights under the LPAA, including the right to modify the terms of the LPAA. In addition, the terms of the LPAA (paragraph 20) would have required Trinity to sign any amendment. Therefore, Trinity's argument fails.
E. Trinity's Bona Purchaser Argument Fails As It Did Not Comply With Its Duty to Make Reasonable Inquiry
Trinity asserts that it is a "buyer in the ordinary course of business" that purchased the rights to Martinez's lottery assignment in "good faith" without any knowledge of the detriment to Martinez's rights. See, Porter v. Wetz, 68 A.D.2d 141, 145 (1st Dept. 1979) (citing UCC §1-201 (9)); Citizens Nat. v. Conger, et al, 29 N.Y.S.2d 65, 67 (1941). Trinity further argues that AF had the authority to enter into the agreement with Trinity. Id. And, that pursuant to UCC §2-403: "a person with voidable title has power to transfer a good title to a good faith purchaser for value." UCC §2-403. In Citizens, the Court found that a good faith purchaser takes title free and clear even where the title was taken as a result of fraud. Citizens, supra, 29 N.Y.S.2d, at 67. However, unless otherwise agreed by the parties, upon assignment, the assignee receives all of the assignor's rights under the contract. 230 Park Ave. Associates v. Penn Cent. Corp., 178 A.D.2d 185 (1st Dept. 1991). In stepping into the shoes of the assignor, the assignee also takes these rights subject to any pre-existing liabilities. Septembertide Pub., B. V. v. Stein and Day, Inc., 884 F.2d 675, 682 (2d Cir. 1989), citing, Seibert v. Dunn, 216 N.Y. 237 (1915) and Int'l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 36 N.Y.2d 121, (1975). The assignee takes its rights subject to those liabilities of its assignor that existed prior to the assignment. Id. The assignee takes his position with all the equities and burdens which attach to the right assigned. Int'l, supra, 36 N.Y.2d, at 126; see also, Septembertide, supra, 884 F.2d, at 682. Trinity accepted the assignment of the LPAA with actual knowledge that it contained provisions: at ¶2, to pay Martinez a lump sum of $465,000.00; at ¶4, the payment was to be made after the approval of the Court Order; at ¶11, that any assignee of AF must specifically agree to be bound by the terms of the LPAA; and at ¶18, that the LPAA constituted the entire agreement of the parties. Before Trinity paid AF, it knew or with reasonable inquiry should have known: (1) Martinez was not paid a lump sum of $465,000.00; (2) that the purported payments to Martinez were not made after the approval of the Court Order; (3) that the LPAA and Disclosure Agreement did not contain any provision regarding the repayment of loans (or advances), therefore making them unenforceable; and (4) that if there were any other loan or advance agreements they were not part of the entirety of the written agreement. Additionally, Trinity knew that Martinez was supposedly represented by counsel, and they had Martinez's and his attorney's contact information. Despite all this knowledge, Trinity took no steps to verify actual payment of the lump sum or full payment to Martinez, other than a review of an unsigned, unofficial, false computer 'screen shot" of a "Completed Wires" image submitted by AF, a party with interests adverse to Martinez. These facts were clearly sufficient to invoke inquiry as to why the LPAA terms were not complied with. Where there is a duty of finding out and knowing, negligent ignorance has the same effect in law as actual knowledge. Greenspan v. Joseph E. Seagram & Sons, 186 F.2d 616 (2d Cir, 1951); Acer v. Wescott, 46 N.Y. 384 (1871). Trinity was not merely a prudent person, but a sophisticated investor, according to its officers. Anyone who has participated in the closing of a real estate transaction, could appreciate that the documentation submitted by AF was insufficient.
"[W]here a purchaser has knowledge of any fact, sufficient to put him on inquiry as to the existence of some right or title in conflict with that he is about to purchase, he is presumed either to have made the inquiry, and ascertained the extent of such prior right, or to have been guilty of a degree of negligence equally fatal to his claim, to be considered as a bona fide purchaser."Maiorano v. Garson, et al., 65 A.D.3d 1300, 1303 (2009); citing. Williamson v Brown, 15 N.Y. 354, 362 (1857); see, Phelan v Brady, 119 N.Y. 587, 591-592 (1890); see also, Fleming-Jackson v. Fleming, 41 A.D.3d 175 (2007).
Here, Trinity failed to offer evidence that it lacked knowledge of facts that would lead a reasonable, prudent lender or investor to make inquiry as to the payments to Martinez. See, Anderson v. Blood, 152 N.Y. 285 (1897); Royce v. Rymkevitch, 29 A.D.2d 1029, 1030 (3d Dept. 168). Due to Trinity's evidentiary failure in light of the known or knowable facts, the Court must conclude that Trinity failed to make inquiry and cannot claim to be a good faith purchaser.
Since Trinity made its payment to AF on December 12, 2016, before acquiring reasonable proof that AF paid Martinez, Trinity cannot establish it was an innocent purchaser. Chen v. Geranium Development Corp., 243 A.D.2d 708, 709 (2d Dept. 1997).
F. The $280,000.00 Paid To Martinez Bv AF, Must Be Credited To Trinity
The record reflects that Martinez received three payments from AF totaling $280,000.00. Martinez argues that he paid two separate payments to AF of $20,000.00, including one to Santiago that should be credited against the amount he received. This Court rejects Martinez's claim to reduce the amount received by $40,000.00. This Court also finds that if Martinez were able to keep his lottery winnings, and the $280,000.00, he would be unjustly enriched. It is apparent that Martinez and Trinity were both defrauded by AF and Trinity should have reimbursement of funds paid by AF to Martinez. Therefore, the Court awards the $280,000.00 that Martinez received from AF to Trinity in order to balance the equities and mitigate the damages it suffered from the fraudulent conduct of AF.
The Court's prior stay on the release of Martinez's lottery prize payments is lifted and the Gaming Commission is now directed to resume payments to Martinez, effective with the February 15, 2023 payment. The payments due for the period of August 15, 2019 through November 15, 2022, shall be paid by the Gaming Commission, Division of the Lottery $280,000.00 to Trinity and $84,000.00 to Martinez.
G. Martinez Is Entitled To Attorney's Fees And Costs, But Not Treble Damages.
A Court may award attorney's fees to a prevailing party, where the losing party was found to have engaged in frivolous, or willful and egregious conduct, where such malicious acts have caused the successful party to incur legal fees. 22 N.Y.C.R.R. 130-1.1- 130-1.5; 24C Carmody-Wait 2d §148:48 (detailing that conduct is frivolous if it asserts material, factual statements that are false); Wisell v. Indo-Med Commodities, Inc., 11 Misc.3d 1089 (A) (Nassau Cty. Sup. Ct. 2006); Burger King Corp. v. Pilgrim's Pride Corp., 15 F.3d 166 (11th Cir. 1994); Badger Meter, Inc. v. Grinnell Corp., 13 F.3d 1145 (7th Cir. 1994); Dieter v. B&H Industries of S.W. Fla., 880 F.2d 322 (11th Cir. 1989), cert, den., 498 U.S. 111 (1990). Judiciary Law Section 487 (I) provides for treble damages where an attorney or counselor is guilty of deceit or collusion. In this matter, Martinez is awarded attorney's fees against AF due to its willful and egregious conduct and fraudulent acts in attempting to obtain control over his lottery winnings through a proceeding based upon materially false and fraudulent sworn statements and intentionally misleading acts or omissions. Martinez is not awarded treble damages under Judiciary Law Section 487 (1) against the attorneys or counselors at law that assisted in the perpetuation of the fraud because they were not named as a party to the action or otherwise put on notice that such a claim would be made against them.
THE COURT S RULING
Based upon the foregoing, it is hereby
ORDERED that the New York State Lottery Commission shall be directed to make all future lottery payments, commencing with the February 15, 2023 payment to Martinez; and it is further
ORDERED that from the lottery prize installment payments held by Court Order, for the period from August 15, 2019 to November 15, 2022, the Gaming Commission shall pay the sum of $280,000.00 to Trinity Life Insurance and the balance of $84,000.00 to Ruben Martinez, subject to any applicable withholding; and it is further
ORDERED that Ruben Martinez is awarded costs and attorney's fees against Advance Funding, LLC and shall submit an affirmation of counsel, itemizing the attorney's fees incurred, a Bill of Costs and a proposed Judgment to the Court within thirty (30) days.
Dated: March 31, 2023 at Schenectady, New York
This Decision and Order is being reissued at the request of Counsel, John McHugh, Esq., as he has indicated the Original dated December 15, 2022, was lost and cannot be entered with the Schenectady County Clerk's Office. This newly reissued Order shall be filed and entered in its place.
Papers Considered:
AF Motion Papers
Affidavit of Jeffrey J. Wood in Opposition to Petitioner's Summary Judgment (June 29. 2020)
Affirmation of George Gibbs, Esq. in Opposition to Respondents Request for Summary Judgment (undated)
Martinez Motion Papers
Ruben Martinez's Memorandum of Law in Opposition to Trinity Life Insurance Company's Motion and in Support of Summary Judgment in Favor of Martinez (February 7, 2020)
Affirmation of John F. McHugh dated July 8, 2020 without exhibits as they are not properly authenticated.
Affirmation of John F, McHugh dated April 12, 2019 without exhibits as they are not properly authenticated.
Memorandum of Law in Further Support of Judgment for Respondent (July 8, 2020)
Affirmation in Opposition to Trinity Life Insurance Company's Motion and in Support of Summary Judgment for Rubin Martinez, dated February 7, 2020
Supplemental Response to Motion for Summary Judgment (March 6, 2020)
Trial Documents:
Martinez Exhibits
1 Report of Margaret Clemons
2 Trinity responses
3 Text messages with Usquiano
Trinity Exhibits
A Assignment of Sale Agreement
B Lottery Prize Assignment
C Amended Order 12/6/16
D E-mail 12/8-12/13/16
E Bank Records re AF payments
F Ruben Martinez Driver's license
G AF Closing Binder documents
H CUSIP Private Placement PPN
I AF bank documents
J Signed 11/9/16 Order
K Approval of wire transfer
L Ex parte application M Martinez deposition excerpts
N Martinez deposition transcript
O Martinez Responses to discovery
P Affidavit of Jeffrey J. Wood
Q Trinity transactions with AF
R Stipulation
Joint Exhibit
1 Gennusa documents 2 Schacht documents 3 Citibank AF records 4 Citibank documents 5 Chase bank Martinez records 6 Gennusa file documents