Opinion
3696-06.
August 30, 2007.
Justin A. Heller, Esq., Nolan Heller, LLP.
Robert E. Ganz, Esq., Ganz Wolkenbreit Friedman, LLP.
This is a motion by plaintiff seeking partial summary judgment and related relief. The action is one brought on behalf of an estate to collect debts allegedly owed to plaintiff's decedent. While the essential facts of this case are relatively straightforward, the intricacy of certain transactions between the parties coupled with the lack of complete records render the determination of the present applications somewhat complex.
There is no dispute about the following facts:
Plaintiff is the administrator of the estate of Neal Hirsh, who was plaintiff's son. Decedent was also the first cousin of defendant Jennifer L. Brunenkant. Ms. Brunenkant is a businesswoman with three post-graduate degrees and twenty-six (26) years of experience in the field of commercial lending. On December 15, 1994, Ms. Brunenkant executed a promissory note by which she agreed to pay decedent the sum of $250,000.00. Ms. Brunenkant admits having received this amount from decedent and does not deny the validity of the note. By its terms, the note accrued no interest for the first five years; after that, the note accrued interest at the prime rate plus one percent, with a cap on the rate at nine percent simple interest. The note matured on December 15, 2004. At no time did Ms. Brunenkant ever tender to decedent any money from her personal resources toward the payment of either interest or principal on this note.
At some time in 1995, Ms. Brunenkant formed defendant Construction Lending Corporation (CLC), a Delaware entity created for the purpose of making short-term construction loans and then converting them to long-term debt through other lenders. Beginning in 1998 and continuing over the years until nearly the time of his death in 2004, decedent lent over $2,000,000.00 to CLC. The company regularly paid interest on these loans. These interest payments are reflected on the records of the company, in 1099's submitted to decedent and on decedent's and his estate's tax returns. In addition, CLC paid down a portion of the principal balance on its total outstanding debts to decedent.
Ms. Brunenkant's own affidavit in opposition to the present motion (at ¶ 5) is the source of this date, despite her counsel's unsworn inconsistent allegation that the company was formed in 1994 (Defendants' Memorandum of Law at p 1). Inasmuch as Ms. Brunenkant's affidavit is a sworn statement made upon personal knowledge while her counsel's statement is not, the only admissible evidence in the record puts the year of the corporation's inception at 1995.
By letter dated November 23, 2004 (Exhibit N to plaintiff's supporting affidavit), Ms. Brunenkant, writing in her capacity as president of CLC, admitted to the Illinois attorney for decedent's estate "that as of May, 2004 the outstanding principal balance of Neal Hirsh's loan to Contruction Lending Corporation was $1,210,212.19." The letter went on to state that this balance included some $5,180.00 then on deposit in an account in decedent's name. Thus, the net amount of debt owed by CLC to decedent as of late 2004, according to the corporation's president, was $1,205,032.19. While the interest rate on the loans from decedent to CLC varied greatly, at no time did any outstanding balance accrue less than four percent interest per annum. Therefore, the total debt has increased by at least this rate up to the present time.
According to Ms. Brunenkant, CLC had a "negative net worth" as of 2004. As a result, she "shuttered" the business (Affidavit in Opposition at para 8). Decedent's estate has received no payments of any kind from CLC subsequent to the date of Ms. Brunenkant's November, 2004 letter.
Plaintiff moves for summary judgment on her first cause of action, which seeks payment from Ms. Brunenkant of $250,000.00 on the promissory note, with interest from January, 2005. On any motion such as this, it is the moving party that bears the burden of going forward in the first instance with admissible evidence to demonstrate entitlement to judgment as a matter of law ( Zuckerman v City of New York, 49 NY2d 557, 562). Here, plaintiff has produced the note; Ms. Brunenkant's deposition testimony (as well as her answer to the complaint) admitting to having executed the note; and her further testimony as to her receipt of full consideration for the note. Further, plaintiff has proven that she, as administrator of decedent's estate, made a demand for payment on the note and that payment has not been made. It is thus clear that plaintiff has made out a prima facie case.
The burden now shifts to the party opposing summary judgment to provide admissible evidence demonstrating the existence of a triable issue of material fact ( Id.). Here, defendants attempt to show that Ms. Brunenkant's debt to decedent was paid in full by CLC. These efforts, however, fail to create a triable issue.
Defendants have produced proof, conceded by plaintiff, that CLC did in fact make payments to decedent that were greater than the amounts owed in interest on CLC's obligations to decedent. Indeed, defendants show that CLC made payments in excess of interest in a total amount considerably exceeding a quarter of a million dollars. Defendants correctly assert that such payments should be applied as reductions in the total principal balance due. The flaw in defendants' reasoning, however, lies in their conclusion that, since Ms. Brunenkant's debt to decedent predated CLC's debts to him, the principal reduction owing to CLC's overpayments of interest should be credited to Ms. Brunenkant's personal obligation under the 1994 promissory note.
Defendants' argument ignores two salient facts: first, that the promissory note was executed by Ms. Brunenkant before CLC had ever existed, and second, that Ms. Brunenkant and CLC are legally distinct individuals. That the note predated the existence of the corporation proves conclusively that CLC was under no legal obligation to satisfy this personal debt of its president and shareholder, as the corporation cannot have incurred a debt before the corporation came into being; that the two defendants are separate legal entities vitiates the argument that CLC's reduction in the principal amount due on its obligations to decedent should somehow be credited against the balance owed by Ms. Brunenkant on the promissory note.
Defendants are correct in their assertion (at p 5 of their Memorandum of Law) that "the general rule in New York is that a debtor has the right to make the appropriation of payments to particular obligation[s] in the first instance" ( see e.g. Snyde v Larrow, 62 NY2d 633). The pertinent question here is, "Who is the debtor?" In this case, there are two separate debtors with two distinct debts to the same creditor. Ms. Brunenkant has a debt, evidenced by the promissory note to decedent, while CLC has its obligations from various loans extended to it by decedent. Ms. Brunenkant has no payments to appropriate, however, since she never made any payments. CLC can appropriate its various payments to any of its obligations, and plaintiff does not dispute this fact. Yet the promissory note is not one of CLC's obligations. Thus, CLC (through its president and co-defendant) cannot now ex post facto choose to appropriate payments made on its own obligations to a debt that it never owed ( i.e., Ms. Brunenkant's debt on the promissory note).
Pivotally, the undisputed evidence shows that CLC began borrowing money from decedent at least as far back as 1998. In a handwritten note offered by defendants as Exhibit 1 to their opposition papers, (which note Ms. Brunenkant herself dates to 2001), decedent outlines to Ms. Brunenkant the method for calculating the interest due on various obligations, including what he refers to as "the first 250K," as well as to a separate debt which he calls "the CLC loan." This document, created by decedent in his own hand, corroborates all the other evidence in the record that points to: 1) the existence of a $250,000.00 debt owed by Ms. Brunenkant that remained unpaid in whole or in part at least as recently as 2001; 2) the existence of an independent debt owed by CLC to decedent at the same time; and 3) the separate treatment given by decedent to these two obligations.
Perhaps the most telling proof of the lack of evidence of a triable issue of fact relative to the promissory note lies in what defendants have not produced. If CLC had indeed paid off a personal obligation of its president, it would have been required to provide her with a 1099 reflecting the transaction as income to Ms. Brunenkant. Likewise, had CLC paid decedent on the promissory note, Ms. Brunenkant would have been required to declare the payment of her personal debt by the corporation as income to her. Defendants, however, have come forward with no such documentation.
Defendants have thus failed to establish the existence of a triable issue of fact relative to Ms. Brunenkant's unpaid debt to decedent. Plaintiff is therefore entitled to summary judgment on her first cause of action, as Ms. Brunenkant owes decedent's estate $250,000.00 plus simple interest of 6.75% (prime plus 1% as per the note) from January 1, 2005.
Plaintiff also moves for summary judgment on the second cause of action, which involves CLC's debts to decedent. Here, plaintiff concedes that she does not possess all the documentary evidence necessary to prove each transfer of funds from decedent to CLC. Plaintiff does, however, produce the undisputed admission by CLC's president that, as of November of 2004, CLC owed decedent's estate the sum of $1,205,032.19. There is also no dispute that CLC did not make any payments on this obligation between the date of this admission and the present. Thus, plaintiff has made a prima facie showing of entitlement to judgment as a matter of law.
Defendants have, however, shown the existence of a triable issue of material fact relative to this cause of action. Ms. Brunenkant asserts that, since the original $250,000.00 she borrowed from decedent was used in the formation of CLC, she treated this as though it were a corporate debt. While, as shown supra, the promissory note is strictly a personal obligation of Ms. Brunenkant's, this does not negate the possibility that when she wrote to plaintiff's estate attorney and admitted that the corporation owed decedent's estate $1,205,032.19, Ms. Brunenkant was counting in this figure the $250,000.00 owed by her on the promissory note. Indeed, none of documents produced by either party on this motion directly contradicts this assertion of defendants. As a result, plaintiff is entitled only to partial summary judgment on the second cause of action: the debt owed by CLC to decedent's estate is certainly no less than the difference between $1,205,032.19 and $250,000.00, or $955,032.19, plus interest from January, 2005. The question of whether CLC owes an additional $250,000.00 must be decided at trial.
The interest rates charged by decedent on the various loans to CLC varied widely. Fortunately, however, plaintiff has limited her demand for interest in this cause of action to four percent, the lowest rate charged on any of the various obligations, thereby avoiding what could have amounted to a difficult and contested accounting.
CLC's total indebtedness as of November, 2004 cannot be reduced further by any accrued interest on the $250,000.00 debt. Defendants have consistently argued that CLC paid decedent more than the interest due on all of defendants' obligations to decedent and have thus reduced the outstanding principal balance by the amount of this "extra interest," to use their phrase. Thus, by defendants' own theory, CLC's books should reflect interest payments made on the promissory note as well as on CLC's corporate debts. As a result, it would be unnecessary (and erroneous) to calculate the accrued interest on the promissory note as of November, 2004 and then subtract this additional amount (as well as the original principal sum) from defendants' computation of the total due from CLC, as the accrued interest on the note would have already been paid to decedent and thus would not be a component of the company's extant obligation to the estate as of late 2004. Of course, since plaintiff (in her first cause of action) is only seeking interest on the promissory note as of January, 2005, there is no risk of double-counting accrued interest on this obligation.
Plaintiff seeks to amend her request for relief to conform to the proof adduced. The verified complaint seeks $960,212.16 plus interest, while the record as developed to this point could support an award on this cause of action as high as $1,205,032.19 plus interest. In the absence of prejudice to the defendant, a motion to amend the dollar amount of damages sought should be granted ( Loomis v Civetta Corinno Construction Corp., 54 NY2d 18). Here, the difference between the amount currently sought and that originally demanded is relatively slight; plaintiff's theory of recovery has not changed; and defendants have demonstrated no potential prejudice. Thus, this application is granted.
Plaintiff also seeks an Order severing the third cause of action, which deals with a disputed exchange of an equity interest in CLC for a partial forgiveness of debt. The evidence needed by both sides to prove their respective cases on this cause of action, however, is virtually the same as that required to prove the remaining issues in the second cause of action. Inasmuch as the remaining factual issues relative to the second cause of action are inextricably interwoven into the fabric of the proof necessary to the third cause of action, the application for severance is denied ( see CPLR 603; Giblin v Pine Ridge Log Homes, Inc., ___ AD3d ___ [3d Dept July 12, 2007]).
Finally, defendants raise a host of complaints that do not rise to the level of defenses to the present motion. For example, they contend that plaintiff is not properly discharging her obligations as administrator of decedent's estate because, inter alia, she has allegedly "picked solely on" Ms. Brunenkant (Affidavit in Opposition at para 3) while other relatives of decedent are claimed to have borrowed money from him as well, yet are not being sued for collection on their debts. If this contention is true, the beneficiaries of the estate and other interested persons may well have a remedy before the Massachusetts Court presiding over decedent's estate; in any event, the failure to pursue other debtors is no defense to the prosecution of a legitimate obligation. While certain narrow circumstances not present here can preclude the selective prosecution of claims by government officials ( see e.g. People v Blount, 90 NY2d 998), there is no support for the claim that a private cause of action is subject to dismissal simply because other parties who may be liable for other claims have not been pursued.
Defendants also claim that plaintiff has not responded to their second notice to produce with material satisfactory to defendants. Yet plaintiff's responses were provided more than a month before defendants raised this issue in their opposition to the present motion, and to this day defendants have made no application relative to this purported failure of discovery. Moreover, nowhere in defendants' papers is there any claim that they made a good faith effort to resolve this discovery issue without court involvement ( see 22 NYCRR 202.7[a][2]; Amherst Synagogue v Schuele Paint Co., Inc. , 30 AD3d 1055 [4th Dept 2006]). Defendants, therefore, cannot now be heard to claim that this issue precludes summary judgment.
Accordingly, it is plaintiff's motion for summary judgment as to the first cause of action is granted; plaintiff may enter judgment against defendant Jennifer L. Brunenkant in the amount of $250,000.00, plus simple interest at the rate of six and three-quarters percent (6.75%) per annum from January 1, 2005 through the date of entry of judgment, after which any unsatisfied portion of the judgment shall accrue interest at the statutory rate; plaintiff's motion for summary judgment as to the second cause of action is granted to the limited extent that plaintiff may enter judgment against defendant Construction Lending Corporation in the amount of $955,032.19, plus simple interest at the rate of four percent per annum from January 1, 2005 through the date of entry of judgment, after which any unsatisfied portion of the judgment shall accrue interest at the statutory rate; and the issue of whether defendant Construction Lending Corporation owes to plaintiff any amount in excess of the above sum shall abide a determination at trial, and therefore plaintiff's motion for summary judgment on the second cause of action is denied to this extent; and it is further plaintiff's motion for an Order allowing the amount demanded of defendant Construction Lending Corporation in the second cause of action to be amended to conform to the proof is granted; and plaintiff's motion to sever the third cause of action is denied. All papers including this Decision and Order are returned to plaintiff's attorney. The signing of this Decision and Order shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the applicable provisions of this rule with regard to filing, entry and Notice of Entry.