Opinion
Index No. 654911/2016
06-30-2023
JACK ESTERSON, PAMELA JEROME Plaintiffs-Counterclaim Defendants, v. HARRY SPRING, HARRY SPRING CONSULTING LLC, Defendants-Counterclaim Plaintiffs.
Unpublished Opinion
PRESENT: HON. JOEL M. COHEN Justice
DECISION AFTER NON-JURY TRIAL
Joel M. Cohen Judge
This case involves a dispute among the final three partners of the now defunct architectural and engineering firm Wank Adams Slavin Associates LLP ("WASA"). After a series of lean years, the partners agreed to guarantee a loan and credit facility from Citibank that permitted WASA to refinance an existing loan in a last-ditch attempt to remain in business.
Ultimately, however, the two minority-share partners, Plaintiffs-Counterclaim Defendants Jack Esterson and Pamela Jerome, decided to leave WASA and transferred their partnership shares to the majority partner, Defendant-Counterclaim Plaintiff Harry Spring. They contend Spring reneged on an agreement under which the parties were to focus on collecting outstanding receivables to pay off the Citibank loan and wind down the business. Spring, they claim, instead embarked on an expensive and ill-fated effort to resuscitate WASA which ultimately led to bankruptcy and default under the Citibank loan.
Upon WASA's bankruptcy, Citibank sued all three former partners under their respective guarantees of the WASA loan (Citibank N.A. v. Esterson et. al, New York County Index No. 650400/2016 ["Citi Action"]). Spring contends that he arranged (through his entity, Harry Spring Consulting LLC) to pay off the outstanding loan balance, and then (standing in Citibank's shoes as substituted plaintiff) Harry Spring Consulting ("HSC") sued Esterson and Jerome based on their respective personal guarantees [Citi Action NYSCEF 22]). In response, Esterson and Jerome filed this action, and Spring and HSC asserted counterclaims.
Spring's legal gambit to shift the Citibank liability to Esterson and Jerome failed. This Court dismissed Spring's claim to enforce the guarantees and held that Spring's only viable claim was for contribution (Citi Action NYSCEF 237). The First Department affirmed, holding that: "Spring, as a co-guarantor, may recover against the co-obligor partners only by means of a cause of action for contribution. As a result, Spring will be able to recover from the co-obligor partners only to the extent he can show he paid in excess of his proportionate share of the debt" (Harry Spring Consulting LLC v Esterson, 199 A.D.3d 567, 568 [1st Dept 2021] [citations omitted]). Spring's contribution claim was then pursued as a counterclaim in this action, with Plaintiffs direct claims serving essentially as defenses to having to pay Spring.
Following a four-day non-jury trial, the Court finds in favor of Esterson and Jerome.
As an initial matter, Spring failed to produce persuasive evidence that he used his own funds to pay the Citibank debt. Although it should have been a simple matter to prove through bank statements, checks, or wire transfers, such proof was not provided. Spring's belated attempt to introduce at trial an incomplete bank statement that was not produced during discoveiy was both inappropriate and unpersuasive. Further, given the paucity of WASA business records that survived Spring's period of sole control over the business, and the admission at trial that such records could and should have been retained by Spring as the sole manager of WASA, the Court is left unsure whether the Citibank loan was repaid from Spring's own funds (as he contends) or by WASA funds to which Esterson and Jerome contributed, or some combination thereof.
Even if Spring did make some or all of the Citibank payment from his own funds, the Court finds that he would not be entitled to the 66.67% contribution he seeks from Esterson and Jerome as "equal" co-obligors. Instead, at most he would have been entitled to 26.99% from Esterson and 3.39% from Jerome, representing their respective ownership shares of WASA at the time of the Citibank loan. And based on the evidence at trial, he would not have been entitled even to that amount. Well before WASA defaulted on its debt to Citibank, Spring had taken sole ownership and control of WASA. The Court finds that Spring accepted Esterson's and Jerome's consensual withdrawal and relinquishment of their WASA partnership shares while there were sufficient WASA receivables to repay Citibank and avoid bankruptcy. Having charted his own course to resuscitate WASA rather than simply wind down the business and collect outstanding receivables to pay the Citibank debt as the partners had agreed, Spring stood to receive 100% of the upside of that gamble. The flip side was that he assumed 100% of the risk. As it turned out, the evidence strongly suggests that had Spring followed the partners' plan to focus on collecting receivables rather than attempting to revive WASA, the partnership would have been able to pay back the loan and avoid bankruptcy. Instead, WASA failed.
In those circumstances, the Court finds that Spring is not entitled to contribution from Esterson and Jerome. Accordingly, Spring's counterclaims for contribution are DISMISSED WITH PREJUDICE and the case is disposed.
Esterson's and Jerome's affirmative claims for relief raised at trial (breach of contract and breach of fiduciary duty) are essentially affirmative defenses to Spring's counterclaim for contribution (Defendants' Post-Trial Brief at 28-30 [NYSCEF 172]). Given the Court's resolution of the latter, the Plaintiffs' claims are moot and therefore dismissed.
EVIDENCE PRESENTED AT TRIAL
The parties submitted a Joint Statement of Undisputed Material Facts ("JSUMF" [NYSCEF 162]) prior to trial. Trial was held from October 25 to October 28, 2022 (NYSCEF 167-169, 175 [Transcripts]). Live testimony was received from the following witnesses:
1. Pamela Jerome (Tr. 20-125, 224-351, 498-530)
2. WASA Chief Financial Officer, Daniel Mulcair (Tr. 126-220)
3. WASA bankruptcy counsel, Sanford Rosen, Esq. (Tr. 352-399)
4. WASA Information Technology ("IT") Director, Pasquale Tedesco (Tr. 400-44)
5. G.C. Eng IT Consultant, Marino Delzotto (Tr. 446-497)
6. Jack Esterson (Tr. 532-628, 745-770)
7. Harry Spring (Tr. 630-744)
FINDINGS OF FACT
A. Spring's Majority Interest Provided Total Control Over WASA
WASA was governed by a Partnership Agreement (PX. 14, 15; DX. A). As of January 1, 2015, WASA's three partners were (i) Esterson, an engineer, with a 26.99% interest, (ii) Jerome, an architect, with a 3.39% interest and (iii) Spring, an architect, with a 66.62% interest (JSUMF ¶2). Spring's majority interest provided him with the right to make all of WASA's management and day-to-day decisions (Partnership Agreement ¶5[c]).
Plaintiffs' exhibits admitted at trial are denominated "PX" and Defendants' exhibits admitted at trial are denominated "DX"
B. WASA Secures The Citibank Loan In 2014
Starting in 2005, non-party TD Bank provided a revolving line of credit to WASA which was personally guaranteed by Spring, Esterson and Jerome (JSUMF ¶¶4-6). Beginning in 2010, WASA began experiencing severe financial distress (DX. RR [Bankruptcy Petition]). In December 2014, a Citibank loan ("Loan") was obtained by WASA and Spring, Esterson and Jerome signed guarantees of repayment ("Guarantees") (JSUMF ¶¶8-9; DX. B-D, J). The Loan was used, in part, to pay off the TD Bank debt and to provide a line of credit for WASA to continue its business (DX. F, G).
Following the closing of the Loan, in early February of 2015, WASA's Chief Financial Officer ("CFO"), Daniel Mulcair, determined that WASA had $3.3 million of accounts receivable, $1.4 million of which was "collectible in the ordinary course" which was sufficient to pay back the Loan in its entirety (Tr. 130-135, 146; PX. 16). However, WASA continued to experience difficulties. Esterson and Jerome were receiving no or minimal distributions, and Jerome anticipated owing money if the Loan went into default (Tr. 314 15-22, 535:18-19; DX. L). They became legitimately concerned that any effort to continue the WASA business was an imprudent exercise of throwing good money after bad. The Court found Esterson and Jerome to be consistently credible witnesses throughout the trial.
C. WASA's Members Develop A "Business Plan" To Pursue Accounts Receivable Rather Than File For Bankruptcy
In light of WASA's ongoing financial woes, on February 28, 2015, Spring, Esterson and Jerome met with bankruptcy attorney Sandy Rosen, Esq. resulting in an agreement to keep WASA open mainly (if not entirely) to pursue recovery of accounts receivable to repay the Citibank loan (JSUMF ¶¶10-11; Tr. 48:8-15, 130:11-12, 358-362, 662:5-663:4). Mr. Rosen testified that the goal was "getting Citibank paid" and that he advised against "peremptorily filing a bankruptcy petition" (Tr. 358-362). Mr. Rosen "advised them to essentially stay the course, maintain the status quo, collect as many of their assets as they could, and pay down the bank loan so that no one would have exposure to the bank on the guarantees. ..." (Tr. 357:18-22). Mr. Rosen testified, "I would have told them to avoid it, because filing bankruptcy peremptorily would be adverse to the firm's interests in collecting any outstanding accounts, because if a bankruptcy were to ensue, my experience tells me - and I shared with them the fact that account receivable debtors come up with all sorts of reasons as to why they should not pay.. ." (Tr. 358:3-11).
Following the meeting with Mr. Rosen, the members of WASA and CFO Mulcair discussed their options at a nearby coffee shop and agreed to follow Mr. Rosen's advice (the agreement is referred to as the "Coffee Shop" agreement (Tr. 56:2-5, 548:46, 134:2-4). The agreement was summarized in a draft "business plan" prepared by Spring on March 1, 2015 and distributed to Esterson and Jerome by email (DX. N; PX. 17, PX. 4 [Spring Depo. Tr. 120:2-123:2]).
As summarized in the business plan, the "Partners agreed" that WASA would "be kept in place as a collection and debt seivice operation as long as both collections are possible and debts exist." It was understood that Esterson and Jerome planned to leave WASA "to start new business as quickly as possible" while continuing to support WASA's collection efforts. Spring was to remain at WASA to "work on all unfinished projects and help to collect [accounts receivable]" and attempt to sell of the "mechanical, electrical, plumbing and fire protection (MEP/S)" portion of WASA. Consistent with the Coffee Shop agreement, the proposed business plan provided that "[t]he ultimate goal is to reduce firm operations to minimal costs so as to have cash flow to repay debt." Spring's efforts to disassociate himself from the Coffee Shop agreement, as well as from the meeting at which it was discussed, was not persuasive.
Per the plan, Spring marked up a February 26, 2015 WASA "Project List" to identify which WASA projects were attributable to each WASA partner along with spaces to identify the accounts receivable on each project (PX. 13). Notably, the plan provided that: "All debt payments shall be credited in a prorated manner to the percentage ownership of each partner's prorated ownership percentage in WASA LLP. Any remaining capital after debt settlement shall be distributed to the partners based on each partner's prorated ownership percentage in WASA LLP."
D. Spring Unilaterally Attempts To Resuscitate WASA and Esterson and Jerome Depart
Despite the "business plan" and subsequent efforts to identify accounts receivable, Spring "decided to continue operating, to continue going with this firm. . .to make sure that the firm continue to operate and succeed" including by potentially merging WASA with another company (Tr. 664:13-668:7; 689:2-3). Spring made a "unilateral decision. . .to continue WASA" resulting in Esterson and Jerome's resignation as partners and transfer of their interests, including accounts receivable recovery, to Spring (Tr. 58:9-13, 536:2-19, 550:23-552:8).
Spring was aware of Esterson and Jerome's intentions to start new businesses and did not object (Tr.668:9-669:1). Indeed, the parties worked cooperatively on certain projects and Esterson and Jerome continue to assist in recovering WASA accounts receivable. On March 17, 2015, Spring asked WASA's IT director, Pasquale Tedesco, to "find 3 spare computers for Jack to take with him" (PX. 27). On March 24, 2015, Hany Spring advised Jerome that she could also take computers and that any other equipment would be dealt with in a "separation agreement" (DX. O). Spring authorized Mr. Tedesco to provide Jerome with electronic copies of WASA's "architectural and preservation data. . .Nothing else" from the WASA computer servers (Tr. 422:6-12).
On or about March 31, 2015, Esterson and Jerome voluntarily resigned from WASA and transferred their partnership interests to Spring for no cash consideration (JSUMF ¶12; Defendants' Ex. NN; Tr. 716:13-15). Esterson and Jerome left any accounts receivable attributable to them (as set forth in Spring's list) with WASA upon their departure and continued to assist with collection efforts thereafter (Tr. 549:9-550:22, 666:8-668:8; PX. 13).
E. Despite Collecting Sufficient Accounts Receivable To Pay The Loan, WASA Declares Bankruptcy and Spring Retains Control of WASA's Financial Records
Following Esterson and Jerome's departure, Spring testified that he collected the $1.4 million in accounts receivable identified by Mulcair, which should have been sufficient to pay off the Loan (Tr. 691:8-697:2). Nevertheless, on July 27, 2015 - a mere four months after Esterson and Jerome's departure - WASA filed for bankiuptcy ("Bankruptcy" [S.D.N.Y. 15-BK-11952]) and terminated all employees except CFO Dan Mulcair and administrative assistant Arlene Pikser (JSUMF ¶13). Spring took a new position with G.C. Eng and brought certain WASA work with him (Tr. 692:7-8). WASA's electronic document servers were transferred to G.C. Eng (Tr. 409)
WASA's bank records after Esterson and Jerome's resignation show that Spring caused WASA to pay approximately one million dollars ($1,000,000) in expenses not related to collecting accounts receivable, including on advertising, parking, subconsultants and new employees in the less than four months between Spring becoming WASA's sole partner and WASA's bankruptcy (PX. 7, 23-25; Tr. 348:1-350:7). Among other expenses, WASA's bankruptcy counsel, Mr. Rosen, was paid more than $400,000 (PX 4, Spring Depo. Tr. 217:16-17).
On August 18, 2015, Spring, Esterson and Jerome signed Consents of Guarantor reaffirming the Guarantees in connection with a Cash Collateral Order in the Bankruptcy which enabled WASA to continue its day-to-day operations (JSUMF ¶15; DX. T-V, Y).
F. Citibank Sues On The Guarantees, Assigns The Claim To Harry Spring Consulting
The Bankruptcy constituted a default under the Loan. On January 25, 2016, Citibank filed an action for summary judgment in lieu of a complaint on the Guarantees against Esterson, Jerome and Spring (Citi Action NYSCEF 1-3).
However, before either Esterson or Jerome appeared, on March 11, 2016, Hany Spring as Managing Member of HSC executed a TRANSFER OF CLAIM OTHER THAN FOR SECURITY BEFORE PROOF FILED which was approved by Citibank. In turn, on March 15, 2016, Citibank executed an EVIDENCE OF TRANSFER OF LOAN DOCUMENTS AND SECURED CLAIM indicating that it transfeixed its claims to HSC (Def. Ex. CC). Citibank formally assigned the Loan and related claims to HSC on that same day for $783,729.00 (Def. Ex. DD).
On March 21, 2016, still before Esterson and Jerome appeared, a stipulation was fded and subsequently "So Ordered" by the Court (Bransten, J.) substituting HSC as Plaintiffin the Citi Action (Citi Action NYSCEF 24).
In response, on September 15, 2016, Esterson and Jerome commenced this action against Defendants. Plaintiffs' operative Second Amended Verified Complaint (NYSCEF 76; DX. UU) was filed on August 8, 2018 and asserts claims for (1) breach of contract; (2) fraudulent inducement; (3) breach of fiduciary duties; (4) contribution; (5) accounting. Defendants filed a Joint Verified Answer, Answer, Affirmative Defenses and Counterclaims (NYSCEF 77; DX. VV) on September 14, 2018. The Counterclaims are (1) breach of fiduciary duty; (2) contribution and (3) unjust enrichment. Plaintiffs filed a Reply to Counterclaims on October 4, 2018 (NYSCEF 78). This action and the Citi Action were consolidated (NYSCEF 84).
G. Spring Fails To Safeguard WASA's Financial Records During the Pendency of the Litigation and Fails to Disclose the Existence of Copies of WASA's Hard Drives
While these actions were pending, in October of 2016, a computer "ransomware virus" infected WASA's servers (located at G.C. Eng), which ultimately failed (Tr. 338:20-39:6, 448:15-453:5; 469:3-482:2; DX. NNN-QQQ). On November 1, 2016, Hany Spring wrote an email to WASA's bankruptcy counsel asking: "Should there be need for discovery when the partnership goes to trial will copies be adequate or we need to keep this machine going?" (DX. PP).
A September 22, 2017, letter from Spring's expert (and consultant to G.C. Eng) Delzotto Consulting, confirms that a virus infected the WASA servers and that "copies existed of all data files; not including financials. . ." because "the financial system, DelTek, was unaffected" (DX. TT). Mr. Tedesco confirmed that the DelTek system containing WASA's financial records was functioning when the Bankruptcy was filed (Tr. 407-408). The DelTek system could only be accessed through WASA's SQL server, which ultimately failed as well (Tr. 460:14-20) though not (it turns out) before a copy was sent to WASA's counsel in another action (see below).
As stated above, at no point did Esterson or Jerome have access to WASA' accounting or financial information stored on WASA's servers (Tr. 413:20-414:16, 422:13-15; 704:6-19). Following the failure of the WASA servers, Spring ceased efforts to collect accounts receivable and made no attempts to retrieve the ESI that was lost (Tr. 691:8-699:22; PX. 4 Spring Depo. Tr. 161:11-175:2). At trial, it was revealed by Mr. Delzotto that a copy of WASA's SQL server was made and sent to WASA's counsel in another matter (Tr. 455:7-456:4). This had not been previously acknowledged or provided to Jerome and Esterson (Tr. 450:25-459:24; PX. QQQ). Instead, counsel for Spring volunteered that he had made an informal (and unsuccessful) request from WASA's counsel for the cop a mere two weeks before trial (Tr. 457:3-16).
This was a troubling admission. The absence of WASA's financial records was significant. Spring, for his part, cited the absence of the records as inhibiting WASA's ability to collect its accounts receivable to pay the Citibank Loan. But the absence of that information also significantly handicapped Esterson and Jerome in this litigation, making it essentially impossible to track the flow of funds into and out of WASA during the period after their departure, and the impact of Spring's activities on WASA's ability to repay the Citibank Loan and avoid bankruptcy. It also obscures the flow of funds that might have contributed to Spring's ultimate ability to pay off the Citibank Loan, which he claims (albeit without direct proof, see infra) to have come from his own financial sources.
H. Spring Fails To Produce Evidence That He Paid The Loan
Among several evidentiary disputes addressed at trial was Defendants' attempt to substantiate that Spring used personal funds to cause HSC to pay off the Loan. Spring sought to introduce Exhibit GG, one page of a two page HSC March 2016 TD Bank statement reflecting a $784,000 deposit on March 11, 2016 from an unspecified depositor and a March 16, 2016 wire out to an unspecified recipient. Exhibit GG was excluded as, among other things, incomplete and not produced during discovery (Tr. 678:1-684:21). The Court observed that HSC's bank records were "withheld for reasons that I can't fathom" (Tr. 683:24 - 684:1) and held "[t]his is not an incidental kind of a document, and if it was not produced for six years and there is no reason for it, and I don't see what the possible objection could be, I'm going to exclude it" (Tr. 684:16-20).
Essentially, the only evidence that Spring was the original source of funds for HSC's payment to Citibank are the Bankruptcy records pursuant to which Citibank acknowledged payment and assigned its claim to HSC (PX. CC-DD). While Spring testified that "I opened this account, this particular account, to pay back the debt, and I deposited it and wired it directly to them" (Tr. 688), HSC's bank statement (PX. GG) was excluded. Spring's post-trial brief does not cite to anything other than the foregoing testimony to support Spring's otherwise unsubstantiated claim that he was the source of funds used to repay the Loan (NYSCEF 171 at 11).
CONCLUSIONS OF LAW
A. Spring's Claims Are Limited to Contribution
On March 12, 2021, the Court dismissed Spring's claim (standing in Citibank's shoes) to recover against Esterson and Jerome on the Guarantees and denied without prejudice Plaintiff s motion to strike Spring's claims based on spoliation, including the loss of ESI (Citi Action NYSCEF 260). The First Department affirmed and held that Spring's claim was limited to contribution (Harry Spring Consulting LLC v Esterson, 199 A.D.3d 567 [1st Dept 2021]); (Spring Post-Trial Brief at 1-4 [NYSCEF 171]). The First Department also held that Esterson and Jerome could raise spoliation arguments at trial (Id.).
B. Spring Has Failed To Demonstrate An Entitlement To Contribution a. The Law of Contribution
The default rule under New York law is that "where one joint obligor pays more than his proportionate share of the common liability, he is entitled to contribution from the other joint obligors" (Falb v Frankel, 73 A.D.2d 930 [2d Dept 1980]). The presumption is that co-obligors are equally liable for a common debt absent an agreement to the contrary (Nimkoff v Drabinsky, 17-CV-4458 (PKC), 2022 WL 2467591, at *4 [EDNY Mar. 14, 2022] [citing Slutsky v Leftt, 160 Mise 2d 959, 960 [Civ Ct New York County 1993] [other citations omitted]).
However, "where there is an inequality of benefits as between co-obligors, it may destroy the equality of contribution among them" (Leo v Levi, 304 A.D.2d 621, 623 [2d Dept 2003] citing Reliance Group Holdings, Inc. v Natl. Union Fire Ins. Co. of Pittsburgh. Pa., 188 A.D.2d 47, 57-58 [1st Dept 1993]). "Since the right to contribution is inherently equitable . . .where co-obligors have received unequal benefits from the common obligation, the portion of the contribution that each must bear is according to the benefit that each has received" (Reliance Group Holdings, Inc. supra, [quoting 18 Am Jur 2d, Contribution, § 23]).
Spring's claim for contribution fails for two independent reasons:
First, the evidence at trial was insufficient to establish that Spring used his own independent funds to pay the Citibank debt. An incomplete bank record (DX. GG) purporting to evidence the payment by Hany Spring Consulting was withheld from discoveiy and was therefore excluded at trial. And even if that record were considered, it still did not establish the source from which Hany Spring Consulting obtained the funds. If the source had been Spring, as he contends, presumably that could have been easily shown with bank records, but none were offered at trial. When combined with the inexplicable failure of Spring to maintain a copy of the WASA financial records that ultimately were conupted and inetrievable, there is no way to determine whether the funds used to pay Citibank were sourced from Spring's own funds or instead (as had been planned from the outset) from WASA's funds (including accounts receivable payments to which Esterson and Jerome contributed).
Second, even assuming Spring did source the payment of the Citibank debt, the evidence shows that at the time of default Spring was the 100% owner of WASA, with Esterson and Jerome having relinquished their share of the business and their share of all remaining accounts receivable to Spring. Based on the evidence presented at trial, the Court finds that Spring's proportionate share of the Citibank debt at the time of default was 100%.
b. Spring Failed To Prove He Paid The Loan With Non-WASA Funds
Spring argued that, in addition to his testimony that he paid the Loan with his personal funds, that records from the Bankruptcy establish his payment (Tr. 9:22 - 10:25). Plaintiffs argued extensively that there is no proof that Spring personally paid off the Loan and that the best evidence rule bars Spring's claims to the contrary (Tr. 4:18 - 9:21). While the Bankruptcy records were admitted (PX. CC-DD), they do not, as Spring contends, prove that Harry Spring paid the Loan. They only show that Citibank was paid and assigned its claim to HSC (Tr. 682:23-683:4).
As set forth above, a guarantor can recover against co-guarantors under a theory of contribution based upon a showing that it paid more than its equitable share (Mediclaim, Inc. v Groothuis, 38 A.D.3d 730, 731 [2d Dept 2007]). In Mediclaim, a co-guarantor purchased a note and attempted to enforce a related guarantee through a special puipose vehicle. The Second Department held that a co-guarantor could not assume the underlying debt and seek to enforce it against their fellow co-guarantors (id.). The Second Department also held that the special puipose vehicle could not recover under a contribution theory because it was not a co-guarantor (id. citing Panish v Rudolph, 282 A.D.2d 233 [1st Dept 2001]). In Panish, the First Department held that it was "essential for plaintiff to allege that she had paid in excess of her own proportionate share of the common liability" (282 A.D.2d 233).
This case is the inverse of Mediclaim and Panish because Spring asserts a claim for contribution based upon a payment made by his entity, HSC. The evidence at trial indicates that Citibank received $783,729 pursuant to which it transferred its claims under the Loan to HSC (Def. Ex. EE). However, Hany Spring has not established, as required, that he (directly or indirectly) paid Citibank.
Although Spring contends that "the mechanics of Spring's $783,729 payment to Citibank are not in dispute," (NYSCEF 121 at 23-24), that is incorrect. Spring claims that he withdrew the money needed to pay Citibank out of a savings account that he and his wife personally maintained at TD Bank (Tr. at 685-86) and deposited the money into a bank account maintained by his single member entity, HSC, "which he set up specifically to make the payment to Citibank", and that "Spring caused Spring Consulting to wire the $783,729 to Citibank, which acknowledged receipt of the $783,729" (NYSCEF 121 at 23-24).
Spring's heavy reliance on uncorroborated testimony rather than bank statements showing the flow of funds is revealing, as is his belated attempt to introduce Defendants' Exhibit GG, one page of a two-page bank statement that does not specify the source of the funds allegedly used to pay the Loan. Spring's argument that the Bankruptcy documents - which simply acknowledge that HSC made the payment to Citibank - are "better" than a bank record is unavailing because Citibank's acknowledgement (assuming it is admissible at all) does not go to the critical question of whether the ultimate source of the funds was Spring or WASA (or some other source). The Court finds that there is no credible testimony or evidence to sustain a finding that Spring used his personal funds to pay the Loan directly or indirectly.
In sum, there is no persuasive evidence that Harry Spring directly or indirectly paid the Loan. The record does show that WASA recovered sufficient accounts receivable to pay the Loan and that WASA's financial records were not produced to Plaintiffs. In these circumstances, the Court finds that Spring has not satisfied his burden of proving by a preponderance of the evidence that he paid more than his proportionate share of the Citibank Loan.
c. Even Assuming Spring Repaid The Loan, Spring Did Not Pay More Than His Proportionate Share of the Debt
Even assuming Spring indirectly paid 100% of the Citibank loan, the Court finds that he did not pay more than his proportionate share of any joint obligation with Esterson and Jerome.
Although Citibank would have been able to pursue either Esterson or Jerome, as coguarantors, for the full amount of their respective guarantees, the same is not true of Spring in an equitable claim for contribution. As noted above, "where there is an inequality of benefits as between co-obligors, it may destroy the equality of contribution among them" (Leo v Levi, 304 A.D.2d 621, 623 [2d Dept 2003] citing Reliance Group Holdings, Inc. v Natl. Union Fire Ins. Co. of Pittsburgh. Pa., 188 A.D.2d 47, 57-58 [1st Dept 1993]). "Since the right to contribution is inherently equitable . . .where co-obligors have received unequal benefits from the common obligation, the portion of the contribution that each must bear is according to the benefit that each has received" (Reliance Group Holdings, Inc. supra, [quoting 18 Am Jur 2d, Contribution, § 23]).
This case presents a clear example of unequal benefits. Even before considering the events that occurred during 2015, Esterson and Jerome had comparatively small equity stakes in WASA, 26.99% and 3.39%, respectively, at the time the Citibank obligation arose. And thereafter, the evidence showed that Spring reneged upon a reasonable plan among the partners in 2015 to monetize accounts receivable to repay the Citibank Loan. By the time Spring embarked on an ill-fated and expensive effort to revive WASA, Esterson and Jerome had relinquished their shares of the enterprise to Spring. Based on the evidence adduced at trial, the Court concludes that Spring's unilateral and quixotic actions to revive WASA for his own economic benefit, in contravention of his agreement with Esterson and Jerome, undermined WASA's ability to repay the Citibank Loan. In those circumstances, it would be inequitable to permit him to recover in contribution from Esterson and Jerome.
CONCLUSION
It is therefore, ORDERED AND ADJUDGED that all counterclaims asserted by Defendants/Counterclaim Plaintiffs Harry Spring and Harry Spring Consulting, LLC are DISMISSED WITH PREJUDICE; it is further
ORDERED AND ADJUDGED that all claims asserted by Plaintiffs Esterson and Jerome are DISMISSED AS MOOT in view of the dismissal of the foregoing counterclaims.
The Clerk is directed to enter judgment accordingly, with taxable costs (not including attorneys' fees) as calculated by the Clerk in favor of Plaintiffs as the prevailing party upon submission by Plaintiffs of an appropriate bill of costs.