Appendix — Green v. Foley
Supreme Court brief1989
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IN THE oe
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1988
_ Gary GREEN, :
Petitioner,
MAURICE P. FOLEY,
Respondent.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
Puitip L. CHABOT, JR.
GRAD, TOOTHMAN, LOGAN
& CHABOT, P.C.
Suite 800
1990 M Street, N.W.
Washington, D.C. 20036
(202) 737-5046
J 11, 1989 Counsel of Record
anuary 11,
Adee
(:)
Page
TABLE OF CONTENTS
Appendix A — Order of the United States Court of Appeals
for the Fourth Circuit, denying Petition for Rehearing
and Suggestions for Rehearing In Banc, dated October
i ti, Seer re Vena Re rane ere a ee la
Appendix B — Opinion and Order of the United States Court
of Appeals for the Fourth Circuit, dated September 13,
Appendix C — Order of the United States District Court for
the Eastern District of Virginia, denying Defendant’s mo-
tion for relief from judgment, dated October 30,
Appendix D — Transcript of hearing on Defendant’s motion
for relief from judgment, before the United States Dis-
trict Court for the Eastern District of Virginia, on October
DO, BE 6a + pO 055 ep wae we ce Vdd es 2 oe 39a
Appendix E — Order of the United States District Court for
the Eastern District of Virginia, denying Defendant’s
motion to vacate summary judgment, dated July 31,
Appendix F — Order of the United States District Court for
the Eastern District of Virginia, granting, in part, Plain-
tiff’s motion for summary judgment and dismissing Plain-
tiff’s remaining claim, dated July 22, 1987......... 69a
Appendix G — Transcript of hearing on cross-motions for sum-
mary judgment before the United States District Court for
the Eastern District of Virginia, on July 2,1987..... 7la
Appendix H — Order of the United States District Court for
the District of Maryland, granting Defendant’s motion for
a change of venue, dated March 5, 1987.......... 100a
Appendix I — Letter dated October 12, 1988 from the Hon-
orable Francis D. Murnaghan, Jr., to the office of Dis-
ciplinary Counsel of the Disciplinary Board of the Sup-
reme Court of Pennsylvania, dated October 12, 1988
(it)
Appendix J — Affidavit of Gary Green, dated June 4,
Serer CREE Git fUw er oe te ek ee 104a
Appendix K — Affidavit of David L. Gunn, dated June 9
a Raa a area. aie abl dude fet ,ehvas 106a
Appendix L — Excerpts from the Deposition of_Alan Sil-
verstein, dated May 9, 1988...... cateak Cees 108a
Appendix M — Excerpts from the Deposition of David L.
Gunn, dated June 6, 1988............e.0000% ll5a
Appendix N — Affidavit of Gary Green, dated November
By SOOO oo ts eee se 6 bed ee eee 130a
Appendix O — Transcript of Hearing on Defendant’s Mo-
tion for Rule 11 Sanctions before the United States
District Court for the Eastern District of Virginia,
om DUN 4; SROs og v8 td te eee Oh ee keke 177a
Appendix P — Order of the United States District Court for
the Eastern District of Virginia, granting Defendant’s
motion for Rule 11 Sanctions, dated December 2,
MTP Erre iit... (eer se ee 238a
Appendix Q — Plaintiff’s Notice of Appeal, dated Decem-
ge a een ee Be ee 240a
Appendix R — Defendant’s Notice of Cross-Appeal, dated
OCT PG BOGS ae ek cea ee eee we eee 244a
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 87-2639
No. 87-2685
Gary Green, :
Plaintiff - Appellee,
Vv.
Maurice P. Foley,
Defendant - Appellant.
On Petition for Rehearing with Suggestion
for Rehearing In Banc
The appellee’s petition for rehearing
and suggestion for rehearing in banc were
submitted to this Court. As no member of
this Court or the panel requested a poll
on the suggestion for rehearing in banc,
and
As the panel considered the petition
for rehearing and is of the opinion that
it should be denied,
2a
IT IS ORDERED that the petition for
rehearing and suggestion for rehearing in
banc are denied.
Upon consideration of the motion to
supplement the appellate record,
IT IS ORDERED that the motion is
denied.
Entered at the direction of Judge
Murnaghan, with the concurrence of Chief
Judge Winter and Judge Sprouse.
For the Court
/s/ John M. Greacen,
Clerk
3a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 87-2639
GARY GREEN,
Plaintiff-Appellee,
versus
MAURICE P. FOLEY,
Defendant-Appellant.
No. 87-2685
GARY GREEN,
Plaintiff-Appellee,
versus
MAURICE P. FOLEY,
Defendant-Appellant.
Appeal from the United States District
Court for the Eastern District of
4a
Virginia, at Alexandria. Albert V. Bryan,
Jr., Chief Judge. (CA-87-350).
Argued: July 5, 1988
Decided: September 13, 1988
Before WINTER, Chief Judge, and MURNAGHAN
and SPROUSE, Circuit Judges.
John Raymond Hartnett (BRINCEFIELD &
ASSOCIATES, P.C. on brief) for Appellant.
Lawrence Eliot Freedman for Appellee.
MURNAGHAN, Circuit Judge:
The appellee, Gary Green, tries to
portray the case as involving an ordinary
commercial transaction in which a guaran-
tor (appellant Maurice P. Foley) is simply
trying to duck liability on a note. The
attempted characterization is far from ac-
curate. In fact, Green has been part of a
5a
scheme with two of Foley’s business part-
ners (Alan Silverstein and Stephen M.
Zimpel), in which the two partners have
paid off $291,647.81 in partnership in-
debtedness and caused the uncancelled
notes to be given te Green. Green subse-
quently has tried to collect the face
value of the notes from Foley, the third
partner in the partnership, who signed the
partnership notes as a guarantor.
Green repeatedly has stated in his
court pleadings and arguments that he was
a bona fide purchaser of the notes for
value. Green claims he took the notes for
value because Silverstein and Zimpel owed
him $10,000 in legal fees for services un-
related to the partnership. Green has
further claimed that the notes were prop-
erly discounted from their face value of
nearly $300,000 because Green assumed the
risk that Foley would be unable to make
6a
good on the guaranty.
Green is, in fact, far from a inno-
cent holder of the notes, however. Foley
discovered the true nature of the transac-
tion between his partners and Green only
after the hearing on the cross-motions for
summary judgment. Foley’s lawyer re-
ceived, as part of discovery, the letter
outlining the arrangement between Green
and Foley’s partners only on the morning
the motion for summary judgment was being
argued (he received the material after ar-
riving in the courtroom and did not read
the papers until after the hearing); he
then examined Zimpel in a deposition and
discovered the true nature and extent of
the transaction. Until Foley obtained the
letter outlining the actual agreement be-
tween Green and Foley’s partners, Foley
had no-way of knowing that the money used
to "purchase" the notes from the banks was
7a
actually money supplied by Zimpel and Sil-
verstein. And until Foley’s attorney
questioned Zimpel in a deposition, he had
no way of knowing that the money used was
first put into the partnership bank ac-
count in order to retire the notes and was
then withdrawn.
Meanwhile, summary judgment had been
granted to Green on his clain. Foley
sought relief under Fed. R. Civ. P.
60(b) (3), but the district judge ruled
that the letter was "neither newly discov-
ered evidence or fraud that would warrant
any relief from the judgement."1 We
1 "Newly discovered evidence" is, of
course, a separate reason contained in
Fed. R. Civ. P. 60(b)(2) for granting
relief from judgment when the discovery is
not made, despite due diligence, in time
to move for a new trial under Fed. R. Civ.
P. 59(b). Foley sought relief only under
Rule 60(b)(3), which requires’ instead
fraud, misrepresentation, or other
misconduct of an adverse party. However,
we note that the fact that evidence
exposing misconduct by an adverse party
was newly discovered after judgment
8a
disagree.
The new evidence about Green’s rela-
tionship with Foley’s partners reveals the
silk purse and sow’s ear characteristic of
transaction. The belated disclosure that
Foley’s partners supplied the money (via
the partnership account) to pay Sovran
Bank gives Foley a meritorious defense to
Green’s claim. As discussed more fully
below, under Virginia law, the note held
by Sovran Bank was extinguished because it
was paid with partnership funds. See Va.
Code Ann. § 50-8 (1986). Even if the
money had not gone through the partnership
account, the note would have been extin-
guished because it was paid by its makers
(Zimpel and Silverstein). Whitehead v.
Planters Bank & Trust Co., 180 Va. 76, 21
despite due diligence obviously should
have a significant impact on the court’s
evaluation of whether relief from judgment
under Rule 60(b)(3) is warranted.
9a
S.E.2d 724 (1942).
Because the newly discovered evidence
corrects material misrepresentations in
Green’s pleadings and gives Foley an iron-
clad defense of payment, we conclude that
the district court abused its discretion
in denying relief from summary judgment
under Fed. R. Civ. P. 60(b)(3). We there-
fore reverse the remand in order that sum-
mary judgment may be entered for Foley, as
there are no material disputed facts re-
maining.
Foley, Zimpel, and Silverstein were
partners in Fairfax Associates, Ltd. ("the
partnership"). Zimpel and Foley were gen-
eral partners, each with a 40% interest,
and Silverstein was a limited partners
with a 20% interest. Zimpel was Managing
General Partner.
The partnership executed notes with
10a
two banks. In 1982, Foley and Zimpel
Signed a note on behalf of the partnership
for $7,800,000.00 to secure a loan from
Mount Vernon Savings & Loan Association.
Mount Vernon’s successor is Crossland
Savings Bank ("Crossland"). Foley,
Zimpel, and their spouses executed a guar-
anty agreement promising to make good on
the Crossland note.
On January 28, 1983, Foley and his
wife executed a guaranty agreement with
Virginia National Bank (successor: Sovran
Bank) promising to make good on any loan
made to the partnership up to $221,500.
On September 4, 1984, Zimpel executed a
note on behalf of the partnership to
Virginia National Bank to secure a loan
for $260,000, with payment due December 3,
1984. An additional $40,000 loan seems to
have been made by Sovran Bank to the part-
nership; that loan was guaranteed by
lla
Zimpel and Silverstein but not by Foley.
Gary Green provided legal counsel to
Zimpel and Silverstein in matters ener
lated to the partnership. For that repre-
sentation, Zimpel and Silverstein owed
Green $10,000. On December 14, 1984,
Green sent a letter to Silverstein and
Zimpel detailing their agreement regarding
satisfaction of the $10,000 debt through
assignment or purchase in Green’s name of
negotiable partnership notes that had been
guaranteed by Foley. In the letter (re-
produced as an appendix to this opinion),
Green noted that Silverstein and Zimpel
"offered to buy the notes and guarantees
from the banks in my name in order to free
up your lines of credit on the one hand,
and to pay your debt to me on the other."
Outlining their agreement, the letter pro-
vided that Zimpel and Silverstein would
"purchase in or have assigned to [Green’s}
12a
name" certain notes guaranteed by Foley
with a net amount due in excess of
$275,000. The notes and guarantees were
not to be marked cancelled, and Zimpel and
Silverstein were to pay the "costs of ac-
quiring the notes and guarantees and of
enforcing them," unless Green elected to
assume the costs of enforcement. Green
was to receive anything collected on the
notes and guarantees without regard to
whether Foley could successfully pursue
Zimpel and Silverstein for contribution or
other claims involving the partnership or
the notes: "In other words," Green con-
cluded, "I will retain whatever I recover
from Foley without regard to what occurs
between you and Foley."2
On December 31, 1984, Zimpel depos-
2 Green thus left is’ erstwhile
clients exposed to double liability on the
notes, a highly questionable act by an
attorney whether or not Zimpel = and
Silverstein fully perceived their peril.
13a
ited $219,256.42 of his own funds into the
partnership bank account. The same day,
Silverstein deposited $93,967.05 of his
own funds into the partnership account.
Zimpel testified in his deposition,?
"Alan Silverstein and I deposited the
money from our personal accounts’ into
Fairfax Associates account in preparation
for retiring debts of Fairfax Associates.
We subsequently had discussions with our
counsel in Philadelphia*... Mr. Green...
And subsequently took the money back out
of the Fairfax Associates and proceeded in
3 Zimpel’s deposition was taken
October 6, 1987 (three months after the
summary judgment hearing in the present
case), in connection with Green v. Stephen
Zimpel, Marilyn Zimpel, & Fairfax
Associates, Ltd. (Law No. 76682), a
related case in the Fairfax County Circuit
Court in Virginia. See infra at 11.
4 The deserved reputation of
Philadelphia lawyers for astuteness has
hardly manifested itself here. The
activities have been sharp rather than
astute.
14a
another manner."
The same day, December 31, 1984,
Zimpel and Silverstein took the money
(totalling $313,223.47) out of the part-
nership account, put it back in their per-
sonal accounts, and then purchased a cash-
ier’s check for that amount in Gary
Green’s name. Green used the $313,223.47
cashier’s check to purchase the partner-
ship’s notes from Sovran Bank. In his
complaint in the instant case, however,
Green merely asserted:
Plaintiff stands in the shoes of
the bank.- Plaintiff was a bona
fide purchaser of the notes for
value from the payees and hold-
ers of the notes. Defendant
Maurice P. Foley owes to Plain-
tiff the amount of said note and
interest
In the memorandum supporting his motion
for summary judgment, Green said,
In January, 1985 and February,
1985, Plaintiff Gary Green pur-
chased the MOUNT VERNON NOTE
+ os enliven wlll
15a
from Crossland Savings’ Bank...by
paying $31,647.81....
In February, 1985,
Plaintiff purchased the SOVRAN
NOTE for a purchase price of
$260,000.
In a sworn affidavit on June 4, 1987,
Green stated that he had “acquired all of
the rights" to the Crossland and Sovran
notes, "upon the payment" of $31,647.81
and $260,000 respectively. Thus, until he
received a copy of the December 14 letter
and took Zimpel’s deposition, Foley did
not know that the funds used by Green to
"purchase" the notes from the two banks
had been provided by Foley’s partners, and
that at least some of the money (the money
used to purchase the Sovran notes) had
passed through the partnership account. >
° The source of the funds used to
purchase the Crossland note and the fate
of the second Sovran note (for $40,000)
are not clear from the record. It appears
that Zimpel and Silverstein were the
source of all monies used to pay the
partnership’s notes, and it appears likely
16a
Foley knew nothing of the December 14
letter until after the July 2, 1987 dis-
trict court hearing on the parties’ cross-
motions for summary judgment. Foley’s
counsel received the discovery material
after he arrived in the courtroom for the
hearing, and did not read the letter until
after the hearing. In his brief to this
Court, Green asserts thet Foley's counsel
"was served with a timely Response to
Foley’s Request for Production of Docu-
ments." Green’s assertion that the letter
was produced in a timely fashion is seri-
ously undermined by the statement made by
his attorney: ®
that one of them took custody of the
smaller Sovran note (which had not been
guaranteed by Foley). We need not be
concerned with such factual uncertainties,
however, because the two notes are not at
issue in the present appeal.
6 The attorney’s statement was made
during the Zimpel deposition, which was
taken in connection with a related case in
Fairfax County Circuit Court. See supra
so eh ot ae (
17a
I’1l tell you frankly that the
reason the letter was produced
was because I in error allowed
it to be produced, and having
let the cat out of the bag it
was gone and there was nothing
else I could do about it. I’ve
had to live with it ever since.
It is thus apparent that Green had no in-
tention of disclosing the true manner in
which he obtained the notes and correcting
the misrepresentations in his pleadings.
On October 6, 1987, Foley’s counsel
took Zimpel’s deposition and questioned
him about the transaction with Green and
the December 14, 1984 letter. The deposi-
tion for the first time revealed the full
nature of the transaction between Green
and Foley’s partners. In his deposition,
Zimpel testified in part:
note 3. This portion of the deposition
transcript was not part of the original
record on appeal. It was, however,
attached to a letter sent by counsel after
oral argument. We have treated the letter
as a motion to supplement the record and
hereby grant the motion.
ny
18a
A. The transaction of depos-
iting the money into Fairfax As-
sociates was in preparation for
curtailing that debt... Alan and
myself were feeling very wrong
that we were curtailing, the two
of us were curtailing debts of
the partnership that were the
responsibility of all three
partners and not just two part-
ners. It was in a discussion of
that particular feeling of Mr.
Foley’s lack of participation
and responsibility for the debts
of Fairfax Associates that we
were discussing with Mr. Green,
our Philadelphia attorney, when
he reminded us of a --
[interruption by counsel, who
noted that substance of conver-
sation was privileged]
Q. Why does Gary Green’s name
appear on the cashier’s check?
A. Mr. Green was retiring the
debt... Mr. Green was receiving the
note in return for fees and services
that we owed to him, our feeling
being that at the time that Mr. Foley
was not going to participate, that he
probably didn’t have any assets, and
for us to pursue Mr. Foley would be
an expense on top of already tremen-
dous expenses, and by being able to
curtail the debt with the payoff of
that note we felt like at that time
we were coming out of a bad situation
a little bit better allowing Mr. ’
19a
Green to pursue that note.
[conferred with counsel]
A. The cashier’s check for the
$313,223.47 represents the retirement
of the debt of Fairfax Associates
with Sovran Bank. The note for that
debt was used to retire our debt with
Mr. Green.
[lawyers discussed use of word "re-
tire"; Zimpel was asked what he meant
in context; Zimpel conferred with
counsel and stated: ]
A. I mean the paying off of the
debt, not the cancelling of the note.
Q. Well, the note in fact was never
cancelled, was it?
A. No.
Q. And one of the reasons it was not
cancelled was because you instructed
Sovran Bank specifically not to can-
cel the note; isn’t that correct?
[question repeated]
A. Yes, that’s correct.
On August 22, 1986, Green sued the
Foleys’ in the District Court of Maryland
7 Mrs. Foley was dropped from the
suit at an early stage.
20a
on their guaranties on the $260,000 Sovran
note ($221,500 guaranteed by the Foleys)
and the $31,647.81 Crossland note (fully
guaranteed by the Foleys and the Zimpels).
The claim-was- for the full amount guar-
anteed, not merely the 40% obligation of
Foley as a partner. Foley’s motion for a
change of venue to the Eastern District of
Virginia was granted. In October, 1986,
Foley demanded that Green institute suit
against the partnership, as the principal
debtor, for collection of the two notes.
Pursuant to Va. Code Ann. § § 49-25 & 49-
26 (1986), Green filed suit against the
partnership and the other guarantors in
Fairfax County Circuit Court. Green v.
Stephen Zimpel, Marilyn Zimpel, & Fairfax
Associates, Ltd. (Law No. 76682). Al-
though he was a necessary party, Foley was
neither named in the Fairfax suit nor no-
tified of its existence.
21a
Foley argued below that he was en-
titled to summary judgment on both counts
because Green did not diligently pursue
the suit in the Fairfax court, as required
by Virginia law. See Va. Code Ann. § 49-
26 (1986) (after demand by surety, if
creditor does not institute suit against
solvent parties to contract "and prosecute
the same with due diligence," creditor
forfeits right to demand payment from
surety). The district court dismissed the
Crossland note claim because Green had
failed to prosecute the Fairfax suit with
diligence (no discovery had yet _ been
taken, for example). Green has not ap-
pealed that ruling. However, the district
court found that Foley had specifically
waived that statutory right in the guar-
anty he signed on the Sovran note. The
district court then granted Green summary
judgment on the Sovran note clain.
22a
Foley filed a Motion for Reconsidera-
tion/Motion to Vacate pursuant to Fed. R.
Civ. P.59fe) based on unfair prejudice due
to Green’s untimely filing and service of
his Response to Foley’s Motion for Summary
Judgment; the motion was denied. Foley
then filed a Motion for Relief from Judg-
ment under Fed. R. Civ. P. 60(b)(3), al-
leging that material misrepresentations
contained in Green’s pleadings and motions
prevented Foley from presenting a meri-
torious defense of payment before the
entry of summary judgment. After a
hearing, that motion was also denied.
Foley now appeals the denial of both
motions. ‘
il.
To obtain relief under Fed. R. Civ.
P. 60(b) (3), the movant must (1) have a
meritorious dntuneae, (2) that he was pre-
vented from fully presenting before judg-
23a
ment, (3) because of the adverse party’s
fraud, misrepresentation, or misconduct.
Square Construction Co. v. Washington
Metropolitan Area Transit Auth., 657 F.2d
68, 71 (4tb Cir. 1981). In considering
those requirements, "the court must bal-
ance the competing policies favoring the
finality of judgments and justice being
done in view of all the facts." Id.
The standard of review for denial of
relief under Rule 60(b) is abuse of dis-
cretion by the district judge. United
States v. Williams, 674 F.2d 310, 312 (4th
Cir. 1982); Central Operation Co. v. Uti-
lity Workers of America, 491 F.2d 245, 252
(4th Cir. 1974); 11 Wright & Miller, Fed-
eral Practice and Procedures §2872 (1973).
The district judge concluded here that the
letter and deposition were "neither newly
discovered evidence or fraud that would
warrant any relief from the judgment that
24a
is requested. This is evidence that was
known or could easily have been determined
with due diligence at the time of the ori-
ginal hearing." We disagree.
A.
Armed with the Green letter and the
Zimpel deposition, Foley had a meritorious
defense of payment. The Virginia Supreme
Court has stated: -
"The transfer of a note to the
maker or a bill to the acceptor,
at or after maturity, extin-
guishes the instrument; like-
wise, the payment of a note by
the maker...at or after matu-
rity, extinguishes the instru-
ment; after such transfer or
payment, the instrument cannot
be reissued so as to confer any
rights upon the transferee as
against a party who had nothing
to do with the reissuance. One
who thereafter takes the instru-
ment takes subject to the de-
fense of payment. There can be
no recovery against an accommo-
dation maker or a surety. The
maker cannot reissue the note so
as to render an endorser liable
to a subsequent holder. Even
though the maker has the note
endorsed by the payee and trans-
ferred to a third person, such
calli
25a
person cannot recover of an
accommodation maker. * * *"
Whitehead v. Planters Bank & Trust Co.,
180 Va. 76, 81-82, 21 8S.E.2d 724, 727
(1942) (emphasis added) (quoting a commen-
tator). See Grizzle v. Fletcher, 127 Va.
663, 667, i105 &.E. 457, 458 (1920) ("A
person cannot buy his own debt without ex-
tinguishing it. Of course, the creditor
may sell the judgment to a third person,
but not to one of the judgment debtors so
as to keep it alive at law.").
The Sovran note has been retired,
releasing Foley from his role as guar-
antor, because partnership money was used
to pay off the bank. Zimpel and Silver-
stein put the $313,000 into the partner-
ship account and then withdrew it to pur-
chase the cashier’s check in Green’s name.
Under Virginia law, "All property origi-
nally brought into the partnership stock
or subsequently acquired, by purchase or
26a
otherwise, on account of the partnership
is partnership property." Va. Code Ann.
50-8 (1986). By the terms of the stat-
ute, any money intentionally deposited in
the partnership account becomes partner-
ship property.
In his Brief to this Court, Green
claims that Zimpel and Silverstein made a
"mistake" when they put the money into the
partnership account, and argues that the
money never became partnership property
because Zimpel and Silverstein intended
"to specifically not extinguish the part-
nership debt (as would occur if the part-
nership had the money to pay off its own
debt) and to have the entire partnership
debt, including the guarantees, assigned
to Green." Appellee’s Brief at 17 (emph-
asis original). However, Zimpel testified
in his deposition that he and Silverstein
put their money into the partnership ac-
27a
count "in preparation for retiring debts
of Fairfax Associates":
A. The transaction of depositing the
money into Fairfax Associates was in
preparation for curtailing that debt
[the Sovran notes].
Q. Meaning it was going to pay the
debt off, correct?
A. Yes.
It is thus clear that Zimpel and Silver-
stein deposited the money with the intent
to retire the partnership’s debts. The
funds, once deposited, therefore became
partnership property. Green’s assertion
that the money was deposited by "mistake"
may be correct in that he and his erst-
while clients subsequently regretted the
action, but it is clear that inadvertence
was not involved at the time the deposit
was made.
Even if the funds used to pay Sovran
are not deemed by law to be partnership
funds, Green acted as an agent for Zimpel
28a
and Silverstein, and retired the debt when
he paid the banks for the partnership’s
notes. Green is correct in arguing that
the intention of the party making the pay-
ment is controlling, but only where the
payor is a third party to the debt. ee
Union Trust Corp. v. Fugate, 172 Va. 82,
89, 200 S.E. 624, 627 (1939) ("Whether
payment by a third person operates as a
discharge of the instrument, or as a pur-
chase vesting title in the payor, depends
on the payor’s intention."). Here, the
payment was made by the makers of the
note. As partners, Zimpel and Silverstein
and Foley are jointly liable for all debts
and obligations of the partnership. Va.
Code Ann. §50-15(b) (1986).
In addition, when one partner acts
within his authority, his actions are ac-
tions of the partnership and bind the
partnership. Va. Code Ann. §50-9 (1986)
PMLA IN. ate PING gh te
29a
(*([e]very partner is an agent of the part-
nership for the purpose of its business") ;
Holloway v. Smith, 197 Va. 334, 88 S.E.2d
909 (1955). Even though the cashier’s
check was in Green’s name, Zimpel and Sil-
verstein controlled the transaction and
instructed the bank with regard to dis-
posing of the notes. Zimpel testified in
his deposition that he had _ instructed
Sovran Bank not to cancel the $260,000
note. And, it appears that Zimpel or Sil-
verstein took possession of the smaller
Sovran note, even though it had ostensibly
been "purchase" from Sovran by Green. See
Supra note 5. It all adds up to the type
of sham transaction that releases’ the
surety under Whitehead v. Planters Bank &
Trust Co., supra.
It is patently obvious from the rec-
ord that the misrepresentations in Green’s
pleadings and the fact that Foley received
30a
the December 14 letter the morning of the
summary judgment hearing combined to pre-
vent Foley from presenting the meritorious
defense of payment to the district court
in a timely fashion. In his pleadings
Green consistently and materially misrep-
resented his status as a holder of the
notes, claiming that he was a "bona fide
purchaser of the notes for value." Green
thus asserted that he had bought the notes
from the banks, when in fact the money was
supplied by Foley’s partners via the part-
nership account. Until Foley got the
December 14 letter he had no way of
knowing that Green had obtained the notes
in anything other than an ordinary arms-
length transaction with the banks.
If Green had simply purchased the
notes from the banks himself, the district
court’s conclusion that Foley was liable,
as a guarantor, to Green as a holder in
wo Ch Ua colt
earch De Ms ts
31a
due course of the Sovran note would have
been entirely correct once the district
judge ruled that Foley had waived his
right to require Green to pursue the prin-
Cipals on the Sovran note. In fact, how-
ever, it is now clear that the notes were
retired with partnership funds or, at a
minimum, that Green was merely an agent
for Zimpel and Silverstein, whose payments
retired the notes.
Faced with the clear and uncontro-
verted record, we are forced to conclude
that the district court’s finding that no
fraud was present is clearly erroneous,
and that the district court abused its
discretion in denying Foley relief under
Fed. R. Civ. P. 60(b)(3). Green’s failure
to disclose the true nature of the trans-
action between himself and Foley’s part-
ners and the banks holding the notes
"struck at the very heart of the fact
32a
finding process" that is entrusted to the
district court. ° j oO.
Auth., 657 F.2d 68, 72 (4th Cir. 1981).
As we concluded in Square Construction, we
conclude here that "the policy of de-
terring misconduct which threatens the
fairness and integrity of the fact finding
process must outweigh considerations of
finality." Id. (citing Rozier v. Ford
Motor Co., 573 F.2d 1332, 1346 (5th Cir.
1978)). Any other result would reward
Green’s wrongful acts by permitting him to
retain the benefit of those acts, at
Foley’s expense and in derogation of the
proper function of the federal courts.
Iii.
Foley also appeals the denial of re-
lief under Fed. R. Civ. P. 59(e), com-
plaining that he was unfairly prejudiced
by Green’s late filing of a response to
33a
Foley’s motion for summary judgment. Be-
cause of our conclusion that Foley is en-
titled to relief from judgment under Fed.
R. Civ. P. 60(b)(3), we deem it unneces-
sary to reach the issue.
IV. 7
The question not being before us, we
are not required to investigate any claims
that Zimpel and Silverstein may have
against Foley for his share as a partner
of the partnership’s indebtedness’ to
Sovran Bank.
V.
The order of the district court de-
nying Foley relief under Fed. R. Civ. P.
60(b) (3) is vacated. We remand the case
to the district court with instructions to
enter summary judgment for Foley on the
Sovran note claim, as there are no mate-
rial facts in dispute and Foley is en-
titled to judgment as a matter of law.
34a
VACATED AND REMANDED.
APPENDIX TO OPINION
TEXT OF LETTER REFERRED TO AT PAGE 5
- December 14, 1984
Mr. Alan M. Silverstein
Mr. Stephen M. Zimpel
7297 Lee Highway
Falls Church, VA 22042
Re: Silverstein and Zimpel
Dear Alan and Stephen:
I represented the two of you in con-
nection with your acquisition of an inter-
est in DEG. When I met with you in April,
we agreed that in addition to my hourly
rate, which DEG was to pay, if the deal
was consummated [sic], the two of you
would pay me or my firm ae fee of
$10,000.00 for acting as a finder and for
collateral services.
On November 28, 1984 I met with you
again at your office. During our discus-
sion I raised the question of the
$10,000.00, which still had not been paid.
You both acknowledged the debt and offered
me an alternative payment based on negoti-
able notes and guarantees signed by a gen-
eral partner (Foley) in one of your real
estate deals. You offered to buy the
notes and guarantees from the .banks in my
name in order to free up your lines of
credit on the one hand, and to pay your
debt to me on the other. Subject to your
He, 6a aan al les Aes Ril datos tak. cea
i» ts Ato
an wale An.
35a
completion of all of the conditions set
forth below, I agree to accept the alter-
native payment.
The conditions are as follows:
1. You will purchase in or have as-
signed to my name (or the name of my law
firm) notes and guarantees signed by Foley
(and his wife) from certain banks, in-
cluding Mount Vernon Savings and Loan as
well as Sovran Bank.
2. The notes and guarantees will
have a purchase price and a net amount due
in a sum in excess of $275,000.
3. The notes and guarantees will not
be marked cancelled.
4. The costs of acquiring the notes
and guarantees and enforcing them (unless
I elect to assume the costs of enforce-
ment) will be paid by you.
5. Anything that is collected on the
notes and guarantees will belong to me (or
my firm if I so elect).
6. You have represented that the
notes and guarantees are valid -but that
you believe Foley may not have sufficient
assets to pay same; therefore, you do not
guarantee collection, and that is a risk I
will assume.
7. You also represented that Foley
had breached his agreements with you and
that you have set offs and counterclaims
against him. I advised you that you will
not be given credit for the payments made
to acquire the notes and guarantees be-
36a
cause I will be the legal purchaser. You
stated that you would assume the risk of
any lawsuit by Foley for contribution and
that whatever I recovered from Foley
(and/or his wife) would not be subject to
a reduction or payment by me to you for
any sum Foley might be awarded from a
cross claim, lawsuit or other action again
you. In other words, I will retain what-
ever I recover from Foiey without regard
to what occurs between you and Foley.
8. If you are unable to acquire the
notes and guarantees mentioned above by
April 1, 1985, or if you do not satisfy
the conditions, I will have the option of
terminating this agreement, in which
event, the said $10,000.00 fee will be
paid by you.
If there is anything in this letter
which does not accurately describe our
agreement, please advise me promptly.
I am grateful for the opportunity you
have offered in this innovative fee pay-
ment arrangement.
Sincerely,
/s/ Gary Green
GARY GREEN
37a
APPENDIX C
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
GARY GREEN,
Plaintiff,
Vv. CIVIL ACTION
NO. 87-350-A
MAURICE P. FOLEY,
meee ee ee ee ee ee ee
Defendant.
ORDER
The court concluding that the matters
set forth in the defendant’s motion for
relief from judgment do not constitute
newly discovered evidence nor fraud within
the meaning of F. R. Civ. P. 60(b)(2) or
60(b) (3), it is hereby
ORDERED that the motion of the de-
fendant for relief from judgment entered
38a
in this action on July 22 and July 31,
1987 is denied.
/s/United States District Judge
Alexandria, Virginia
October 30th, 1987
;
:
39a
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
GARY GREEN,
Plaintiff,
-vs- “CIVIL ACTION
5 NO. 87-350-A
MAURICE P. FOLEY, et. al.,
Defendants.
Friday, October 30, 1987
Alexandria, Virginia
Transcript of motion for summary
judgment in the above-captioned matter.
BEFORE:
The Honorable ALBERT V. BRYAN, JR.,
Judge, United States District
Court
APPEARANCES:
FOR THE PLAINTIFF:
LAWRENCE FREEDMAN, ESQUIRE
10560 Main Street
Fairfax, Virginia 22030
FOR THE DEFENDANTS:
JOHN HARTNETT, ESQUIRE
BRINCEFIELD ASSOCIATES
526 King Street, Suite 423
40a
Alexandria, Virginia 22313
kk &
DON McCOY, RPR
OFFICIAL COURT REPORTER
683-3668 :
THE CLERK: Civil Action No. 87-350-
A, Gary Green versus Maurice P. Foley, et
al.
THE COURT: This comes on on the de-
fendants’ motion for relief -- this case
is on appeal. Do I have any jurisdiction
to hear this?
MR. HARTNETT: I believe you do, Your
Honor. I think that what the cases show,
60(b)3, is that you have the right to hear
this matter, and I think in fact the cases
suggest that the Court of original juris-
diction should in the first instance hear
the matter. If you are inclined to grant
the motion, however, you have to indicate
that you are so inclined. fThen it would
i
3
;
;
;
KJ
4
i
4la
be --
THE COURT: I have jurisdiction to
deny it but not to grant it?
MR. HARTNETT: I believe that is the
case ironically, Your Honor, and the way
that the methodology -- Your Honor is
quite accurate. The methodology employed
across the jurisdictions and throughout
the circuits is that if you are inclined
to grant it, you indicate so on the record
and that allows us to make a remand and a
remand indian those circumstances is pretty
automatic.
And then the Court can enter an order
in keeping with the expression that’s made
on the record.
Your Honor, I think that --
THE COURT: Well, let me tell you, I
am not inclined to grant it. I think the
thing to do is to deny it without preju-
dice to your right to renew it should the
42a
case be affirmed on appeal. You have met
then your time constraints as far as the
time within which a 60(b)3 motion should
be made. But it seems to me an exercise
to go through this in light of what is
going on in the future and the pendency.
What is the status of the case in
Court of Appeals?
MR. HARTNETT: Your Honor, we have
obtained a stay of all proceedings from
the Court of Appeals pending this hearing
and the results of this hearing. The
Court of Appeals has indicated that de-
pending on your ruling here, they obvi-
ously, if you deny the ruling, we have an
opportunity to appeal that ruling and we
would for purposes of including in the
record on appeal the Zipple (phonetic)
deposition, which was not a part of the
original record.
If on the other hand, you agree with
j 43a
us that this motion ought to be granted,
you express that inclination and by virtue
of the remand, by virtue of the stay we
. are allowed to move for a remand, and the
| Court of Appeals would do so, giving you
the ability to enter an order in accord-
ance with the expression.
| But if you are inclined to simply
deny the motion based on jurisdictional
grounds, I would like to make a proffer.
THE COURT: No. I think I have jur-
isdiction to deny it. I don’t think I
have jurisdiction to grant it. I am not
inclined to grant it. But -- part of that
is that I think the resolution by the
Court of Appeals may assist me --
MR. HARTNETT: Unfortunately, the
cases go the other way as far as what is
supposed to be done in a 60(b)3 when there
is an appeal pending. I would point out
that this Zipple deposition is very re-
ila
44a
cent. Had we been aware of iit at a point
in time prior to filing the notice of ap-
peal we certainly would have let the Court
know.
However, Your Honor, in all the cases
that I researched, the proper procedure
for the 60(b)3 and I think I have quoted
several cases in the memorandum, that in-
dicate that in the first instance, in a
Situation~ where there is an _- appeal
pending, the procedure that we are today
following is the proper one. We agree
with you that you don’t have jurisdiction
today to grant an order. And the proce-
dure is that the expression be put on the
record.
If I might, Your Honor, I think I see
where you are going. If I could make a
proffer here simply for the record. I
think that the facts themselves are really
not in dispute. What we have subsequent
: 45a
to the judgment in this case, there was a
; summary judgment entered by you, Your
Honor. What we have learned is that part-
“nership funds and not Mr. Green’s funds
were used to pay off the note that is sued
upon in this case. The background gener-
ally is that my client Foley was partners
with two other individuals, Mr. Zipple and
Silverstein (phonetic). They had a part-
nership known as Fairfax Associates Lim-
ited.
A point in time comes when the part-
ners themselves have a falling out. Foley
had guaranteed a couple of loans to the
partnership, promissory notes where the
partnership was the principal debtor. At
the point in time when the partners have
this falling out and pursuant to the part-
nership agreement, Mr. Zipple is the man-
aging general partner. Mr. Zipple is a
resident of Virginia. The other partner,
46a
Mr. Silverstein and Mr. Zipple have numer-
ous transactions together. They brought
Foley into the partnership basically so
they would be able to obtain loans using
Foley’s credit.
Foley was the other general partner.
He is a resident of Maryland.
They concocted a plan whereby, and
they meaning the partners, concocted a
plan whereby they are going to attempt to
create the appearance of a purchase of one
of the notes, a Sovran note, in the amount
of some $260,000 plus a second note,
Sovran note, for some $40,000.
The second note was not guaranteed by
my client, Your Honor. It was guaranteed
by Zipple and Silverstein only. The way
they do that is they come up with Gary
Green, a stranger to the partnership, but
he is personal counsel for Zipple and Sil-
verstein. As the exhibit in our memoran-
SO bal an He OMe tine ts Aran
aie
sltiicletel aenitied
ee ee ei a oe la arnt Fiat th Deel 5 ean
47a
dum indicates, that’s the letter from
Green to Zipple and Silverstein, the plan
was that Zipple and Silverstein would ob-
tain a cashier’s check, use Gary Green’s
name, and create the appearance of a pur-
chase rather than a payoff so that Green
could obtain the $260,000, the Sovran note
and then pursue Foley only. Mind you,
Foley was only a guarantor on that note.
Now, I have prepared, Your Honor, a
chart of transactions which again for rec-
ord purposes I would like to hand up to
the Court. I think that it kind of ex-
plains the complicated fact pattern, where
the money moved to and -- here’s a copy
for counsel.
MR. FREEDMAN: Just for the record, I
would object to the use of this. It is a
mischaracterization, but I will get to
that in argument.
MR. HARTNETT: This conforms, I be-
~ 48a
lieve, with the testimony of Mr. Zipple at
his recent deposition. I have in alpha-
betical order lettered the way that money
moved here. If you will see in transac-
tion A on the right-hand side of the
chart, Zipple testified that he and Sil-
verstein put together $313,000 into the
partnership account, two separate checks.
Your Honor, I would also like to hand up
to you copies of the Fairfax Associates’
checking account that indicates those
deposits. That’s transaction -- that’s
the only copy I have.
Your Honor, what you have now is a
copy of the Fairfax Associates’ bank ac-
count. That indicated in the first of
those pages a deposit of $313,000 into the
Fairfax Associates account in late
December, December 31st, to be exact, of
1984.
According to Zipple, those funds came
ee te ow,
A A tein Nah ASN cis bet
Or tink
49a
from himself and Silverstein. I have at-
tached a copy of the Zipple deposition
where he says that that money was put into
the partnership account to retire the
debts owed to Sovran. Retired is his
word, not mine.
After consulting with Mr. Green,
their personal counsel, you will notice
that on the next page, the next page of
the bank account information, there are
two checks coming out of the partnership
account, one in the amount of $219,000 and
some hundreds and $93,000. I have under-
lined those, I believe, Your Honor.
That money went into the personal
accounts respectively of Messrs. Zipple
and Silverstein. Those funds then were
used to purchase a cashier’s check in the
amount of $313,000 in the name of Gary
Green. We have obtained from Sovran Bank
the confirmatory data for that. I would
50a
like to hand that up to the Court. It’s a
copy of the transactions involved. You
will note there that what you have are two
checks, one from the private account of
Alan Silverstein for $93,000 and _ some
change and another from the private ac-
count of Mr. Zipple for $219,000 and some
change, which together | purchased the
cashier’s check. It’s on that page. The ©
cashier’s check has on it the name of Gary
Green. It was the cashier’s check -- and
referring again to the chart, Your Honor,
we are now at level C, where Zipple and
Silverstein use the money which they have
taken out of the partnership account to
purchase the cashier’s check in the name
of Green.
They direct, and this again is in
Zipple’s deposition -- Zipple and Silver-
stein direct Sovran Bank not to cancel the
note. Instead they tell Sovran Bank to
5la
transfer the note without recourse to Gary
Green. That’s exactly what happened here
in Section D. Once the cashier’s check is
used, Green takes the note and in further-
ance of this plan which is first mentioned
in the letter from Green to Zipple and
Silverstein, he sues Foley and tries to
make Foley bound in debt to the partner-
ship on the $260,000 note, the problem
being, Your Honor, these are partnership
funds, a further problem being Mr. Green
doesn’t say that in his pleadings. Mr.
Green says he paid it. He did no such
thing.
Once that money went into the part-
nership account, it was partnership funds,
and neither Messrs. Silverstein or Zipple
had any right to take those funds out of
the partnership account for any purpose
other than a partnership purpose. Clearly
that was not the situation here. The
_ used_ these moneys that they took out of
situation was to get Foley. There is only
52a
really one of four ways to view this
transaction. And again these facts I
don’t think are disputed. I don’t think |
that counsel for Mr. Green is going to |
gainsay the facts. It’s just a question
of the interpretation put on these facts.
it*s either a situation where
us ied an intel eta a MPR aN NN Be et
partnership funds were used to pay a part-
nership debt, and that’s what we argue
happened here, when you shake everything
else out, that is what happened. Because
of that, Foley was discharged, and Green
never had a right to sue in this case.
That’s why the 60(b)3 is brought now.
If it’s not that, then partnership
funds were used to pay off a private debt.
In other words, Zipple and Silverstein
the partnership to pay Gary Green off for
a ar ace a personal legal fee,
53a
which Zipple and Silverstein owed Green
related to a transaction that had abso-
lutely nothing to do with the partnership.
Well, if that’s the case, that trans-
action is void, and the partnership title
does not divest. The law across the board
in all the circuits and for a very long
time says that if partners use partnership
property to pay off personal debts, part-
nership title is not divested. In that
case, Green doesn’t have any rights under
the second scenario either.
The idea that these were somehow per-
sonal funds is just preposterous. Looking
at Zipple’s deposition, he talks about the
very intention when the money was put into
the partnership account. He makes it very
clear that the intent was to retire the
partnership debts. It’s only after they
talked to Green that they come up with
this plan to create the appearance of a
54a
purchase by Green rather than the reality
which was a payoff of the partnership debt
with partnership funds.
Moreover, Your Honor, it wasn’t the
individual funds for another reason. I
mentioned the second promissory note, the
note for $40,000. Green didn’t get that. -
In other words, the components of the
$313,000 going to the bank, there was a
$260,000 note that Green got. There was a
$40,00 note. Green doesn’t have it, be-
cause -- and that was also a partnership
note, the difference being that Zipple and
Silverstein guaranteed it, not Foley.
Zipple and Silverstein as far as I am
aware and as far as the bank is aware they
have that note, and that was a partnership
note so they always meant to pay off debts
and that is in fact what they did.
For those reasons, Your Honor, we
think that the 60(b)3 is one that is
55a
highly appropriate here and just again re-
newing the substance of the cases on
60(b)3. When a judgment is obtained
through misconduct or misrepresentation of
a party which at the time of the miscon-
duct prevents the defendant or the party
prejudiced from advancing a meritorious
defense, the 60(b)3 motion should be
granted, whether it should be granted in
this Court or whether in the Court of Ap-
peals. We think it’s clear that in this
point, when we have representations and
Mr. Green’s motion for summary judgment, a
motion that was granted on summary judg-
ment, that he purchased the notes from the
bank. That’s just false.
When we have representations in Mr.
Green’s complaint that he purchased the
note for value from the bank and was the
holder from the payee, was the holder from
the payee on the note. That’s just false.
56a
That prejudiced Foley from advancing the
clearly meritorious defense of payment and
discharge. If the allegations had been
true in Green’s complaint, if the real
facts had been known, this case would have
been dismissed up in Baltimore where it
was originally brought. But again, Foley
was prejudiced by the misrepresentations
in his -- complained of here.
Thank you, Your Honor.
MR. FREEDMAN: I would first state I
do not agree with either the facts or the
characterization of the facts stated by
counsel. It just ien’t se. What he
nicely omits here is that Mr. Silverstein
contributed a substantial sum of money as
he describes. He was not a general part-
ner. This partnership was not a guarantor
of the notes. He is not a signatory of the
notes and had no obligation to the part-
nership.
On pees trang
57a
Admittedly, as the deposition of
Zipple shows, the deposition taken in an
action out of a suit in Fairfax Circuit
Court, one of two actions ongoing between
Zipple, Silverstein and Foley, involving
the partnership relationship,“ these notes
and everything else, one of them involves
Green’s suit against the partnership and
the general partner of the partnership on
the notes that was referred to in Your
Honor’s ruling when you dismissed one of
the counts on one of the notes owned by
Green which somehow is not owned by Green.
I don’t understand that.
But you dismissed that count, granted
their summary judgment on the basis that
we had not proceeded diligently in the
Fairfax Circuit Court, which we now are in
the process of doing.
All the parties -- he has intervened
on behalf of Foley. All of the parties
58a
are there in Court.
Now, if I may, what is before the
Court is the question of whether or not
they knew what was going on while this
matter was presently pending before this
Court, and whether there were any misrep-
resentations made. I would point out to
Your Honor in their original answers, the
suit was brought in the United States Dis-
trict Court in Baltimore. At their re-
quest on their motion, venue was changed
and brought here. It was brought in
Maryland because that’s where Foley re-
Sided in Maryland. He was sued in the
Federal District Court because there was
diversity of citizenship and the appropri-
ate amount of money involved. They re-
quested it be brought here. They did so
on the pretext that they wanted to be able
to join in all the parties to it, Zipple,
the other general partner and the partner-
Shs a lh AORN I BA i ie. ke nti
59a
ship. But they never did that here. They
never brought what amounts to be a compul-
sory counterclaim if you look at yt 4
closely in this Court. Instead they
sought to intervene in a suit that was on-
going in Fairfax against the partnership
on the note in question.
They have intervened and they have
raised all of this issues including coun-
terclaims and cross claims in the Fairfax
Circuit Court. It’s still ongoing.
In bringing the matter here they have
filed a set of interrogatories and request
for discovery, production of documents.
In their motion for summary judgment and
in their response to our motion for sum-
mary judgment, they make the same allega-
tions that they did here. They call Mr.
Green, my client, a straw man. They say
that he didn’t really own the notes and so
forth. In fact, in answers to the deposi-
60a
tion and in these interrogatories and in
the answers to responses to production of
documents, we provided a letter which was
the letter of representing the agreement
between Zipple, Silverstein and Green, as
to the acquisition of these notes, the
forgiveness of a large legal fee that was
owed to Mr. Green in response as part of
all this, they had all of that here in the
U.S. District Court.
In fact, Your Honor, if you will look
at the motion for reconsideration, after
you had granted the motion for summary
judgmert, they include that letter as a
specific exhibit and say that this is the
transaction that occurred. Your Honor
granted or rather ruled as follows as it
relates to their motion to reconsider.
Now this has all been before your
Honor before. They had all these facts
here before they ever took Zipple’s depo-
ne Shh i an Neale he
6la
sition. Your Honor said upon considera-
tion of the motion to vacate summary
judgment and after consideration of the
brief in support thereof, including those
arguments not previously made, which was
the matter of the letter, it is hereby or-
dered the motion to vacate summary judg-
ment is denied. You ruled on it already.
It was here before this Court already.
Now in addition to that, Your Honor,
they took Mr. Zipple’s deposition in the
Fairfax suit. Mr. Zipple went right down
case and verse and said yes, just as that
letter was presented is exactly how this
entire transaction took place. And the
way it took place was that the funds were
put up, is spelled right out in a letter
and what was forgiven and what was not.
It’s no surprise to anybody. There
was no variance, not one iota or as it
says in the Bible, not one jot and not one
62a -
tittle was changed in the letter of agree-
ment between these parties and in fact
what happened. There was nothing new
there. He knew about it beforehand. The
fact that Zipple got up and said in the
deposition, yes, that’s how it occurred,
doesn’t change the fact that we answered
in interrogatories and gave them a copy of
the letter and said yes, that’s how it oc-
curred. So this is not new.
THE COURT: All right.
MR. FREEDMAN: Finally, Your Honor,
what they did was deposit some funds into
the partnership account and took them back
out again and put them back into their own
account. _ Mr. Zipple went through in his
deposition and described in detail how and
why that happened.
Foley had said I am not going to pay
any money. I don’t have any money. These
notes are going to be in default. That’s
63a
just too bad. I don’t have any money. I
am not going to contribute anything.
Mr. Zipple and Mr. Silverstein evi-
dently had dealings with this bank on
other projects and couldn’t have two notes
in default sitting out there ruining their
credit so they had to do something so they
were prepared to go ahead and take care of
these notes but to suit their own business
purposes, but they didn’t want any more
dealings with these things.
Then there came the point and oppor-
tunity according to Mr. Zipple to number
one get rid of a legal debt to Mr. Green,
to have Mr. Green be responsible for pur-
sing the note on his own behalf in taking
care of all legal fees that might be in-
curred there and at the same time getting
the notes off the books so they could get
on with their business with Sovran Bank.
That was what Mr. Zipple said and because
64a
of those personal business considerations
to him, this arrangement as spelled out in
the letter from Mr. Green was made and
carried through.
Legitimate business purpose, consid-
eration on all ends as to why and how this
was carried out. It was done that way.
It was before this Court before Your Honor
ruled in the final motion which is on ap-
peal before the Circuit Court now.
I would suggest to the Court that
there is really no reason to even hold
open this 60(b)3 motion because if the
Court of Appeals agrees that for some
reason or other Mr. Green was not the
proper owner of those notes, the Court
will rule and the matter will come back
either on a remand or a dismissal. If
they don’t rule that way, there is nothing
here that is newly discovered or that
wasn’t aware to this Court at the be-
aR Ns mt Ei AP hal Rang Ne a! all
65a
ginning so there is really no reason to
hold it open.
THE COURT: Anything you want to add?
MR. HARTNETT: If I might just add
one thing to the timeliness of this and I
will be very brief, Your Honor. The let-
ter in question we were provided with at
the very moment of the hearing on the sum-
mary judgment, it was handed to me in the
courtroom at that time. Obviously I did
not have an opportunity to look at that
letter at that time. I looked at the let-
ter immediately thereafter and it was in-
cluded in motion to vacate, which Your
Honor denied. After that, we filed the
appeal, and have been proceeding along
track.
The letter was unconfirmed. It
wasn’t until the Zipple deposition that
the facts as portrayed in the letter, ex-
traordinary as they are, were actually
66a
confirmed and we immediately brought this
motion.
I have put together a time table of
the important dates which I would like to
hand up to the Court.
THE COURT: I think we have spent
enough time on the case.
MR. HARTNETT: I understood, Your
Honor.
THE COURT: This is neither newly
discovered evidence or fraud that would
warrant any relief from the judgment that
3
is requested. This is evidence that was
known or could easily have been determined
with due diligence at the time of the ori-
ginal hearing. It constitutes neither
newly discovered evidence nor fraud. The
motion will be denied.
stron a ttahante tha. wer > abt
(a be. Seb a A AS OT 2 om
67a
I will prepare the order.
(Whereupon, the proceedings in the
above-captioned matter were concluded. )
68a
APPENDIX E
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
GARY GREEN,
Plaintiff,
V. CIVIL ACTION
NO. 87-350-A
MAURICE P. FOLEY,
ee ee ee ee ee ee eee ee ee
Defendant.
ORDER
Upon consideration of the Motion to
Vacate Summary Judgment, and after consid-
eration of the brief in support thereof
including those arguments not previously LJ
~
made, it is hereby
ORDERED that the Motion to Vacate
Summary Judgment be denied.
/s/
United States District Judge
ee ne ee
Alexandria, Virginia
July 31st, 1987
69a
APPENDIX F
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DIVISION OF VIRGINIA
ALEXANDRIA DIVISION
GARY GREEN, )
)
Plaintiff, )
)
V. ) CIVIL ACTION
) NO. 87-350-A
MAURICE P. FOLEY, )
)
Defendant. )
ORDER
For the reasons stated from _ the
bench, it is hereby ORDERED that:
2. The motion of the plaintiff for
summary judgment on the January 28, 1983
Guaranty of the defendant Maurice P. Foley
in the amount of $221,500.00 is granted,
and judgment is entered in favor of Gary
Green against Maurice P. Foley in the
amount of $221,500.00, plus costs and at-
torneys’ fees.
2. The motion of the plaintiff for
summary judgment on the August 2, 1982
70a
Guaranty Agreement is denied.
36 The motion of the defendant
Maurice P. Foley for summary judgment is
denied; however, the plaintiff’s claim for
judgment in the amount of $38,244.45 con-
tained in the complaint is dismissed with-
out prejudice to the plaintiff’s right to
pursue collection of that amount in the
Circuit Court of Fairfax County, Virginia.
/S/
United States District Judge
Alexandria, Virginia
July 22, 1987
Jia
APPENDIX G
IN THE UNITED STATES DISTRICT COURT
EASTERN DIVISION OF VIRGINIA
Alexandria Division
GARY GREEN,
Plaintiff, -
-vs- CIVIL ACTION
NO. 87-350-A
MAURICE P. FOLEY, et al.,
Defendants.
Friday, July 2, 1987
Alexandria, Virginia
Transcript of motion for summary
judgment in the above-captioned matter.
BEFORE:
The Honorable ALBERT V. BRYAN, JR.,
Judge, United States District
Court
APPEARANCES:
FOR THE PLAINTIFF:
LAWRENCE FREEDMAN, ESQUIRE
10560 Main Street
Fairfax, Virginia 22030
FOR THE DEFENDANTS:
JOHN HARTNETT, ESQUIRE
OE
72a
BRINCEFIELD ASSOCIATES
526 King Street, Suite 423
Alexandria, Virginia 22313
kx * &
DON McCOY, RPR
OFFICIAL COURT REPORTER
683-3668
PROCEEDINGS
THE CLERK: Civil Action No. 87-350-
A, Gary Green versus Maurice P. Foley, et
al.
MR. FREEDMAN: Good morning, Your
Honor.
THE COURT: Is the Plaintiff’s motion
for summary judgment also on today?
MR. FREEDMAN: Yes. If I may, Your
Honor, I would like to pass up to the
Court two affidavits in support of the
Plaintiff’s request for motion for summary
judgment that I have previously provided
opposing counsel.
THE COURT: All right.
All right.
73a
MR. FREEDMAN: Thank you, Your Honor.
Your Honor, the matter is I think a
fairly simple straightforward case of a
promissory note that is owned by my
client, that he purchased for value from
two banks that were holding those notes.
The notes are in default, have not been
paid. There is a guarantee agreement
signed by the defendant as well as a de-
fendant being a general partner in a part-
nership, which is the principal debtor on
the note.
The admissions that are made in the
pleadings by the defendant are that he is
a general partner and that indeed he did
make the guarantees that are a part of
this suit.
The main defense, and I would sug-
gest, Your Honor, that there is no affida-
vit that has been filed in support of the
defendant’s motion for summary judgment;
74a
and there are no opposition affidavits
filed to our affidavit on our motion for
summary judgment. And so I would suggest
to the Court that the only sworn to state-
ments that there are before the Court to-
day are the statements that the notes are
due, the money is owed --
THE COURT: What have you to say
though about this Virginia Code section
which requires you to sue and pursue the
other guarantors of the principal debtor?
MR. FREEDMAN: Your Honor, there is a
Virginia Code section which says that when
a demand is made by a guarantor on a note
that the holder of the note must pursue
the principal maker of the note and must
do so within a certain time frame.
That provision however may be waived
by the maker of the note. Now, in this
particular case, Your Honor, in all of the
agreements and in all of the notes, that
75a
provision is waived.
THE COURT: Well, it’s waived in one,
but it is waived in the other? The other
motion or the part that you point to as
being a waiver, and that is the larger
note, the original $7,800,000 note, says
the lender may be under no obligation--
may, but "shall be under no obligation to
make a similar demand on any or all other
guarantors."
MR. FREEDMAN: Um hum.
THE COURT: Now, you are not suing a
guarantor here, are you? You are suing--
MR. FREEDMAN: We are. We are suing
in two capacities. The defendant is both
a general partner and therefore liable un-
der the note and a general partner, the
principal maker, Fairfax Associates; and
in a secondary capacity as a guarantor.
He is being sued in both capacities in
this case.
76a
In this instance if I may, Your
Honor, he admits to being a general part-
ner, and indeed he admits that he made the
guarantee but if I may go a step further,
when I received the letter and I looked
and I talked to Mr. Green in Philadelphia,
who also happens to be an attorney, I said
to him, well, I think we should do this.
He said we don’t have to. I said let’s do
it anyway. And we did. We filed the
suit.
THE COURT: Yes, but you let it sit
out there in Fairfax since November,
haven’t you?
MR. FREEDMAN: No. We filed it and
then they filed their actions in January.
It’s all part of the record that you have
before you, Your Honor.
THE COURT: Can you say that is pur-
sing it diligently?
MR. FREEDMAN: Well, in this Court I
77a
would say not. In Fairfax it may be a
different --
THE COURT: Have you asked for it to
be set for trial?
MR. FREEDMAN: No, Your Honor. The
rule out there is until discovery has--
frankly, I haven’t pursued actively any
discovery until I was waiting to see what
was happening with this. But if I may,
there is no obligation that we take--
first of all, putting that aside for a
minute, there is no obligation that—we
take it to judgment out there before we
proceed here.
THE COURT: No but you have to pursue
it diligently and if you haven’t even con-
ducted any discovery, I wonder whether
that can be construed as pursuing it dili-
gently. You say you can’t set it for
trial until you conclude discovery but you
haven’t conducted any discovery.
78a
MR. FREEDMAN: That’s right.
THE COURT: I have a hard time-finding
that to be pursuing anything diligently to
judgment. |
MR. FREEDMAN: Your Honor, if I may,
even if that were the case and even if
somehow or other, Mr. Foley should slip
out as a guarantor, he still is here as a
general partner in this lawsuit here. And
that has been alleged against him; and we
have made a claim for that money and there
has been no defense raised as to his lia-
bility in this Court as a general partner.
The only defense that has been raised --
THE COURT: - (Interposing) You mean
aS a principal debtor?
MR. FREEDMAN: That’s right. Yes,
sir. He is a principal debtor. He has
been sued as such in this Court and has
raised no defense at to that, and is
liable for the full amounts under that
79a
provision. The only matter that has been
addressed by the defendant is claiming
that we have not pursued it in Fairfax
sufficiently so that he should not have a
similar judgment entered against him here
in this Court as a guarantor. I don’t
agree with that. But at the same time,
Your Honor, it doesn’t address the issue
in any way that he is a principal debtor,
a general partner in a partnership and is
liable in that case and Your Honor has --
THE COURT: (Interposing) On both
notes, you say?
MR. FREEDMAN: That’s right. The
same maker is the maker of both notes.
Indeed, if y may, Your Honor, we don’t
even have an affidavit from Mr. Foley
saying I am not liable. Yes, the answers
generally say that they don’t believe the
money is owed; we have provided affidavits
and proof that it is owed and we have no
80a
counter affidavits.
Now, I personally feel and I feel
that we are not under any obligation to
activaly pursue out in Fairfax. But even
if the Court should so rule and hold off
our summary judgment at this time, and
hold off the whole case here, on the basis
of that, as it relates to the guarantee, I
still suggest are entitled to judgment
with him as a maker of the note as a gen-
eral partner. I would point to the de-
fendant’s answer in Answer No. 2. Mr.
Foley admits he was a general partner of
Fairfax Associates Limited. Mr. Foley
admits he executed the guarantee agree-
ment. Those are the first two sentences
in that Answer No. 2.
‘Having admitted that and having not
provided any affidavits to the Court to
Say that the money isn’t due, I suggest to
the Court that we are entitled to summary
8la
judgment against Mr. Foley based upon
that.
I would also represent that we are
entitled to summary judgment on the guar-
antee as well. We have argued that in the
brief, and I don’t know if the Court wants
to hear --
THE COURT: Mrs. Foley is not a
general partner?
MR. FREEDMAN: No.
THE COURT: She is liable if at all
as a guarantor?
MR. FREEDMAN: That’s right, but she
is not in this case.
THE COURT: She is not?
MR. FREEDMAN: No. What happened
there is we filed in the U.S. District in
Baltimore thinking that the two of them
were married together and living in
Maryland. But it turns out after we filed
that she had moved to D.C., they had sep-
82a
arated, so we had to nonsuit here.
THE COURT: So we don’t have to worry
about her?
MR. FREEDMAN: No, sir. Thank you.
THE COURT: All right.
MR. HARTNETT: Good morning, Your
Honor. John Hartnett for the defendant.
Your Honor, this case has been around
probably for too long, originally in
Baltimore and now here. As was mentioned
at the end of Mr. Freedman’s argument, the
selective defendant in this case have been
Mr. and Mrs. Foley only. I think that
it’s disingenuous of plaintiff to state
that he has sued Mr. Foley as a principal
debtor. He has not.
THE COURT: Well, he says he has.
MR. HARTNETT: Well, Mr.Foley --were
Mr. Foley to have been sued properly as a
principal debtor, they would have had to
have sued the partnership as well because
83a
under the Code section that is referenced
in our opposition to motion for summary
judgment, as to contracts liability of the
general partner is joint, not joint and
several. And therefore, all of the part-
ners to the partnership are indispensable
parties in a-suit such as this. Obviously
they haven’t done that. And in fact in
this other suit in Fairfax, they didn’t
sue Mr. Foley. They didn’t sue Mr. Foley
because they didn’t want Mr. Foley to know
there was a suit in Fairfax and in fact
Mr. Foley didn’t learn until I learned
that roughly a month ago when discussing
arranging this present motion before the
Court.
In point of fact, the information we
received at the time we provided Mr. Green
‘with notice under 4925 and 4926, and I
would add at this point that there is no
allegation that that notice was insuffi-
84a
cient. And I don’t think it aie. But at
the time we gave them notice, the informa-
tion we had from Mr. Green was that that
section was wholly inapplicable to the
circumstances, and they weren’t going to
sue and that whatever rights Mr. Foley had
been waived. 29 days later they filed
suit.
THE COURT: Don’t you think maybe he
has waived it in that, insofar as the
bigger note is concerned?
MR. HARTNETT: No, Your Henor, tI:
don’t, and I would refer the Court to a
couple of cases on waiver. I am not fully
prepared to argue waiver today, Your
Honor, because we have not received any
opposition to our summary judgment motion
so we weren’t prepared to argue waiver.
We were prepared to argue whether or not
Mr. Foley is liable on the merits of the
case. I will refer the Court to a couple
85a
of cases on waiver and that is a Georgia
Court of Appeals case, Blacknol Company v.
Brasee, (phonetic), 251 72d, 123. That is
a 1978 case, Your Honor.
More importantly, the 19 --
THE COURT: (Interposing) If you
have got to go to a Georgia Court of
Appeals for precedent, you are in trouble.
MR. HARTNETT: Your Honor, the notice
statute that we have in Virginia is the
oldest one that there is in the United
States. As you probably know it essenti-
ally embodies the rule of Payne v. Packard
(phonetic). It goes back a long, long way
and its policies go back a long, long way,
but there is hardly any law on it, unfor-
tunately. What law there is talks about
the responsibilities of a creditor and
that is the Kasnovsky case (phonetic),
that I believe was decided by someone very
close to you back about 1980. fThat is a
86a
Virginia case. It holds the creditor to a
high degree of diligence in pursuing the
principal obligors, not only the principal
obligors but also the other guarantors
themselves. It in fact extended the im-
pact of the Virginia notice statute.
Unfortunately, in terms of waiver and
questions like that, I haven’t been able
to find any Virginia law. However, in
doing a little bit of research on waiver,
the Kentucky statute, they have a notice
statute as well, and their is virtually
identical to ours. And there is a case
under Kentucky Law that I would refer the
Court to as well, and that is Coone v.
Beneficial Finance Company (phonetic), 549
Southwest 2d 327. That case in particular
is interesting because it talks about the
waiver and it talks about how specifically
a waiver has to be in order to be effec-
tive against a surety and of course they
87a
go into the policy reasons for their no-
tice statute. But what’s interesting
about that case is the quarentes -wgreament
in that case, Your Honor, specifically
states that the creditor doesn’t have to
exhaust his remedies against the principal
debtor but moreover, states that’ the
surety, the guarantor in that instance,
waives all of his remedies under law.
Now certainly, the guarantee agree-
ments in our case, neither one of them and
I think that one is stronger than the
other but I don’t think that either one of
them measure up to the standards that the
Georgia and Kentucky-.case articulates, but
neither one of those agreements are speci-
fic enough to tell Mr. Foley that --
THE COURT: (Interposing) I don’t
know, that guarantee of January 28, 1983
waives any effort of every kind to collect
from the principal debtor or anyone else
3
88a
liable there. That’s pretty specific,
isn’t it?
MR. HARTNETT: It’s specific, Your
Honor, to the extent that it is more
specific than the first, the larger loan,
but --
THE COURT: Well, that guarantee now
guarantees the larger loan, didn’t it? I
mean what’s left of the larger loan?
MR. HARTNETT: On that $7 million
loan, I think there is only about $30,000
or something. ft
THE COURT: But the other is $220,000,
the guarantee that I just read is up to
$220,000.
MR. HARTNETT: That’s correct, Your
Honor. Under the law of that Kentucky
case, essentially what the Kentucky and
Georgia cases are saying, if you want to
have a waiver effective against a surety,
you have got to tell him that they are
89a
waiving a statutory right that they have
got. Neither one of these guarantees do
anything of the kind. That is pretty
much, both of them are pretty much boiler-
plate kinds of guarantee agreements. And
they are seen all the time. But they are
not specific enough to unseat a guarantor
and in this instance Mr. Foley was an ac-
commodation surety only.
THE COURT: That doesn’t help you
much. An accommodation party is not cov-
ered by this statute, is it?
MR. HARTNETT: Yes, Your Honor. The
statute itself refers to guarantors and
sureties. I believe that --
THE COURT: (Interposing) But an
accommodation party on a note is a much
broader liability. I noticed you said
that in your pleadings, and I wondered did
you really mean it, did you want to be
treated as an accommodation --
90a
MR. HARTNETT: (Interposing) Well,
he is not on the note, Your Honor. He is
merely a guarantor.
THE COURT: I don’t think he is an
accommodation maker either, but you said
he was in your brief at one point, and I
wondered about it.
MR. HARTNETT: Well, if there is a
statement that we have said he is an ac-
commodation maker, we certainly did not
mean it.
THE COURT: I don’t know whether you
used the word "maker."
MR. HARTNETT: But he is merely a
guarantor of those notes. The principal
debtor is obviously the partnership. It’s
clear what is going on in this case, Your
Honor. What happened hete is there was a
falling out among the partners and two
partners who recruited Mr. Foley at that
point in time when those notices fell
9la
overdue came up with Mr. Green. Mr. Green
purchased the notes from the two banks so
that they could use Mr. Green to force Mr.
Foley to pay all of the obligations of the
partnership. That is exactly the situa-
tion that 4925 is trying to avéid. And it
goes back to the 1800s, where the Common-
wealth of Virginia took cognizance of this
kind of mischief, and the purpose of codi-
fying the Virginia notice statute and the
rule of Payne v. Packard was to protect a
guarantor in just this situation where
through essentially collusion among the
partners and a strawman creditor, the
partners could force an innocent partner,
who they have duped, to pay all of the
debts of a partnership’ that fas in
trouble. :
That is exactly what’s happened here.
And that is why the Fairfax suit hasn’t
been pursued with vigor. It’s barely been
eo
92a
pursued at all.
THE COURT: Who is the Fairfax suit
against again?
MR. HARTNETT: The defendants in the
Fairfax suit are the other general part-
ner, a fellow by the name of Zimble.
(phonetic)
THE COURT: Is the partnership sued?
MR. HARTNETT: Yes, Your Honor, it
iS. But Mr. Foley interestingly enough
has not been sued because again they
didn’t want Mr. Foley to know about the .
lawsuit.
The circumstances here, Your Honor,
are such and what I believe the plain
reading of 4925 and 4926 really calls for,
and the equities of the case as well, is
that Mr. Green first pursued his remedy
against the principal debtor, the partner-
ship. When he goes over to Fairfax and ac-
tually pursued with diligence, and I might
93a
add here that the statute says due dili-
gence to judgment and execution. That is
a quote from the statute. When he does
that, and this case is dismissed hopefully
or is resolved at trial, but we believe it
ought to be dismissed, Mr. Foley is going
to join in that Fairfax case. He wants to
have a hearing as well as to what his lia-
bilities are in the partnership. What
they are looking to do is to have Mr.
Foley entirely and only liable by using
this Court to do it.
THE COURT: I think I understand it.
MR. HARTNETT: Your Honor, I think
that as far as just another procedural
matter, the fact that there have been no
affidavits filed, I don’t think we needed
to file affidavits here. Take a look at
the affidavits that the plaintiff sub-
mitted. I don’t think that those matters
would be admissible at trial.
94a
THE COURT: Affidavits very rarely
are, but they are appropriate in summary
judgment. I think I understand the
party’s pase.
MR. HARTNETT: And again I would
Simply add, Your. Honor, that there has
been no opposition to our motion filed
whatsoever. We think that it’s within the
Court’s power for that reason simply to
grant our motion and we add that there are
two alternatives the Court can do. You
can dismiss with prejudice or without.
And without prejudice would allow him to
pursue in Fairfax with diligence.
Thank you, Your Honor.
MR. FREEDMAN: May I briefly address
the Court?
THE COURT: Very briefly.
MR. FREEDMAN: We have filed an oppo-
sition. I mailed it to counsel on Monday.
I don’t know why he doesn’t have it.
95a
MR. HARTNETT: I don’t have it. I
haven’t seen it. £
MR. FREEDMAN: I’m sorry about that.
I will be happy to provide him a copy. We
did file it and mailed it to him on Mon-
day. I would simply call the Court’s at-
tention to the complaint as filed origi-
nally. I would ask the Court to look at
paragraph No. 3 in the original complaint,
which states that in paragraph 2, which
assess that Foley himself is a general
partner and the money is owed by him as a
general partner. The same thing is true
in the next count.
Further, Your Honor, if in fact coun-
sel felt the party should be brought in or
indispensable parties, he should have
filed a motion accordingly.
No such motion has been filed in this
case. rm
THE COURT: I don’t think this can be
96a
construed as a suit against Foley as a
principal debtor, even though that is
stated in the complaint. The attachments
indicate that the principal debtor is the
partnership. If the suit is intended as a
suit against Foley as a partner and to im-
pose liability individually as a general
partner, it isn’t appropriately brought.
It isn’t brought against the partnership.
So I think you have got to look to Foley’s
liability if at all as a guarantor.
And I think he has waived his right
to insist on a 49-25 of the Virginia Code
insofar as his liability under the January
28, 1983 guarantee of the $221,500 indebt-
edness. The statement in that guarantee
that he waives all efforts of every kind
to collect from the principal debtor or
anyone else liable therewith, is a waiver,
it seems to me of his right to insist on
compliance with 49-25 of the Virginia
97a
Code.
I therefore think the -- and there is
no question that that indebtedness that is
guaranteed under that guarantee is due and
owing and unpaid, and that Foley is liable
on it. So the plaintiff is entitled in my
view to summary judgment on that note.
That is, the note guaranteed by the
January 28, 1983 guarantee.
The other note originally larger but
the unpaid balance of which is now
$38,000, I think the defendant is entitled
to dismissal of the claim on that note
without prejudice however, so that -- I
mean the defendant is entitled to dismis-
sal of the claim on that note without pre-
judice so that the plaintiff can pursue it
to judgment in the Circuit Court, because
I don’t -- I think the defendant insofar
as that note is concerned has not waived
his right to insist on a compliance with
98a
49-25 of the Virginia Code. And I don’t
think there has been a compliance with
that. Filing suit and letting it drift in
Fairfax is not in my view, not only filing
suit but the requirement that it be
pursued to judgment with diligence, with
the concession that no discovery has been
taken on it. So I will grant the plain-
tiff summary judgment on the $221,000 in-
debtedness. I will deny the plaintiff
summary judgment on the $38,000 indebted-
ness and dismiss that claim on the defend-
ant’s money without prejudice.
I will prepare the order. I will need
the original of those documents, Mr.
Freedman.
MR. FREEDMAN: Original of what, Your
Honor?
THE COURT: Original of the $221,000
note, guarantee. The original of the
guarantee. I will prepare the order.
99a
(Whereupon, the proceedings in the
above-captioned matter were concluded.)
100a
APPENDIX H
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
GARY GREEN,
Plaintiff,
CIVIL ACTION
NO. HAR 86-2639
Vv.
MAURICE P. FOLEY,
Defendant
ORDER
Upon consideration of Defendant’s Mo-
tion for Change of Venue (Forum Non Con-
veniens), and the opposition and reply
filed thereto, it appears that the factors
outlined in Brierwood Shoe Corporation v.
Sears, Roebuck & Co., 479 F. Supp. 563,
565 (S.D.N.Y. 1979), weigh heavily in fa-
vor of transferring this case to the
United States District Court for the
Eastern District of Virginia. The plain-
tiff has suggested that the defendant
should bear the plaintiff’s costs of liti-
gating in the transferee forum. Bacon v.
101a
Jo ncock, 317 F. Supp. 302 (D. Md.
1970). This Court denies this request.
Therefore, IT IS, this 5th day of
March, 1987, ORDERED:
i. That Defendant’s Motion for
Change of Venue BE, and the same hereby
IS, GRANTED. The case is transferred to
the United States District Court for the
Eastern District of Virginia, Alexandria
Division, pursuant to 28 U.S.C. §1404.
Venue is proper in that Court because the
cause of action arose in that district.
28 U.S.C. §1391(a). The parties will bear
their own costs.
2. The Clerk of the Court shall send
copies of this Order to counsel of record.
/s/ John R. Hargrove
United States District Judge
102a
APPENDIX I
UNITED STATES COURT OF APPEALS
FOR THE
FOURTH CIRCUIT
Francis D. Murnaghan, Jr.
United States Circuit Judge
United States Courthouse
101 W. Lombard Street
Baltimore, MD 21201 October 12, 1988
Office of Disciplinary Counsel
The Disciplinary Board of the Supreme
Court of Pennsylvania
3rd Floor, Commerce Building
300 North Second Street
Harrisburg, Pennsylvania 17101
Dear Sir or Madan:
It is with great regret that we bring
to your attention the actions of a member
of the Pennsyivania bar for investigation
and possible disciplinary action. Because
he is not a member of the bar of the
United States Court of Appeals for the
Fourth Circuit, and because he appeared
before us as a party and not as counsel,
we are unable to initiate such action our-
selves.
The attorney in question is Gary
Green, of the law firm Sidkoff, Pincus &
Green, 530 Walnut Street, Twelfth Floor,
Philadelphia, PA 19106. Mr. Green was the
plaintiff-appellee in Green v. Foley, Nos.
87-2639, 87-2685 (4th Cir. Sept. 13,
1988). A copy of our opinion in the case
is enclosed.
In Green v. Foley, we held that re-
103a
lief from judgment under Fed. R. Civ. P.
60(b)(3) was warranted and was improperly
denied by the district court in view of
the material misrepresentations made by
Mr. Green in his pleadings in the district
court. We also call your attention to
footnote 2 of the opinion, where we note
that Mr. Green left his erstwhile clients
exposed to double liability on the notes
involved in the transaction giving rise to
the litigation.
Mr. John M. Greacen, the Clerk of our
Court, is prepared to provide any assis-
tance you may require, including copies of
briefs and other materials filed in this
Court. Thank you for your attention to
this matter.
This letter is written with the con-
currences of Chief Judge Winter and Judge
Sprouse.
Sincerely,
Francis D. Murnaghan, Jr.
Circuit Judge
FDMjr:mam
Enclosure
cc: Circuit Judges
Chief Judge Bryan, E.D. Va. (w/encl)
Mr. John M. Greacen, Clerk
Mr. Gary Green (w/encl)
Mr. John Raymond Hartnett
Mr. Lawrence E. Freedman
104a
APPENDIX J
AFFIDAVIT
Gary Green, being duly sworn ac-
cording to law, deposes and says the
following:
i. On February 1, 1985, I acquired
all of the rights from Crossland Savings
and Loan, FSB to a Deed of Trust Note and
Guaranty Agreement dated August 2, 1982,
in the amount of Seven Million Eight
Hundred Thousand Dollars upon the payment
of $31,647.81. (True and correct copies
of the Deed of Trust Note, Guaranty
Agreement and checks are attached hereto
as Exhibits A, B and C.)
2. On or before February, 1985, I
acquired all of the rights from Sovran
Bank, N.A., to a Note and Guaranty Agree-
ment dated September 4, 1984, in the
amount of Two Hundred Sixty Thousand Dol-
lars upon the payment of $260,000.00.
105a
(True and correct copies of the Note and
Guaranty Agreement are attached hereto as
Exhibits D and E).
Be All of the rights in the Notes
and Guaranty Agreements including all pro-
ceeds derived therefrom helene te me and
the law firm of which I am a principal,
and no other party has any rights in same.
4. The two Notes mentioned above are
in default and the amounts due at the time
when I acquired the Notes are those stated
in the Complaint.
/s/ Gary Green
Sworn to and subscribed before me
this 4th day of June, 1987.
/s/ Eileen R. Januszka
Notary Public, Phila. Co.
My Commission Expires Sept. 3, 1990
106a
APPENDIX K
AFFIDAVIT
David L. Gunn, Senior Vice President
of Sovran Bank, N.A., hereby biipiansle aint
says the following:
Maurice Foley and Judith Foley
are Guarantors pursuant to an agreement
("Guaranty Agreement") on a Note to Sovran
Bank dated September 4, 1984, in the
amount of Two Hundred Sixty Thousand Dol-
lars ("NOTE").
as On about December 31, 1984,
Sovran Bank, N.A., for payment of $260,000
on a check from Gary Green assigned all of
its rights and interests in the NOTE and
GUARANTY AGREEMENT to Gary Green for value
received from hin.
: Sovran Bank, N.A. has no further
interest in the NOTE or the GUARANTY
AGREEMENT.
/s/ David L. Gunn
107a
City of Fairfax
Commonwealth of Virginia
Sworn and subscribed before
me this 9th day of June _,
1987.
/s/ Elizabeth Caron
Notary
My Commission Expires: June 9, 1989
108a
APPENDIX L
VIRGINS ZIA ? 2
IN THE CIRCUIT COURT
OF FAIRFAX COUNTY
GARY GREEN,
Plaintiff,
AT LAW NO. 76682
AT LAW NO. 81020
versus,
ee ef @8 0@08 80 @8
STEPHEN M. ZIMPEL,
AND
ALAN H. SILVERSTEIN,
et al., $
Defendants.
Alexandria, Virginia
Monday, May 9, 1988
Deposition of
ALAN SILVERSTEIN,
a witness,—called for examination by coun-
sel for the defendant, Mr. Foley, pursuant
to notice, in the offices of Brincefield,
Hartnett & Associates, Suite 423, 526 King
Street, Alexandria, Virginia 22314, be-
ginning at 2:30 o’clock p.m., before
Saundra A. Ikenberry, a Verbatim Reporter
and a Notary Public in and for the Common-
wealth of Virginia at large, when there
Eee
ee ee
109a
were present on behalf of the respective
parties:
FINNEY & ASSOCIATES
Court Reporting Service
11417 Meath Drive
Fairfax, Virginia 22030
(703) 278-8923
For the Plaintiff:
LAWRENCE E. FREEDMAN, ESQUIRE
Suite PH-9
10560 Main Street
Fairfax, Virginia 22030
For the Defendant Mr. Foley:
JOHN R. HARTNETT, ESQUIRE
Brincefield, Hartnett &
Associates
Suite 423
526 King Street
Alexandria, Virginia 22314
For the Defendant Mr. Silverstein:
ROBERT J. ZELNICK, ESQUIRE
Szabo, McCarthy, Quinto, Webb
& Zelnick
12610 Lake Ridge Drive
Woodbridge, Virginia 22192
* * *
Whereupon,
ALAN SILVERSTEIN,
a witness, was called for examination by
counsel for the defendant, Mr. Foley, and,
110a
having been first duly sworn by the Notary
Public, was examined and testified as fol-
lows:
* * *
Q. Had he told you whether or not
he had any monies to contribute?
A. On some occasions I remember Mr.
Foley telling me that things were tight
and he really wasn’t in a position to do
anything.
Q. Were you and Zimpel in a posture
at the time of these transactions leading
up to the December 14th letter and agree-
ment with Green, that you knew that the
bank could get its money from you to any-
way?
A. Yes.
Q. And were you in a position that
by entering into this agreement you were
saving yourself at least $10,000 in legal
fees plus any of the other benefits that
lila
were enumerated in the letter?
A. That was the idea, yes.
Q. At that time then when you put
the money into the bank, was the sole pur-
pose of the funds being put into the bank
by yourself, Zimpel, or whoever actually
made the deposit, to carry out the terms
of the agreements as spelled out in the
December 14th agreement?
A. That’s correct.
Q. Subsequent to the funds being
then taken back out again of the padrtas
Associates’ account, were the funds then
utilized for the purpose of carrying out
the terms of the December 14th agreement?
A. Yes.
Q. Was it ever intended that the
monies that were put into the Fairfax As-
sociates’ checking account were intended
to belong to Fairfax Associates?
A. Definitely not.
112a
Q. Were they ever intended to be
used to pay off any indebtedness as
against fulfilling the obligation and with
the agreement which is to purchase and
have assigned to Green or his law firn,
notes?
A. I’m sorry. I didn’t understand
your question.
Q. Was it intended when the monies
were being put up to pay off the notes or
alternatively was it intended to carry out
the terms of the agreement with Green
which says that the notes will be pur-
chased and signed or assigned to Green or
his law firm?
A. The intention was what was em-
bodied in our agreement with Mr. Green.
Q. Would it be accurate to state
then that it was not your intention at any
point in time to actually pay off the
notes with either the funds that were put
113a
in and taken out of the Fairfax Associ-
ates’ account or with any other funds?
A. That’s correct.
Q. A moment ago in response to a
question you were asked as to whether or
not you had any independent recollection
of discussing with Zimpel these transac-
tions, you said, no. -
Now, were you saying, no, that you
don’t have any independent recollection -
what the conversation entailed or whether
you had no independent recollections of
whether it was actually ever discussed?
A. Well, I think I said I’m sure we
had discussions about them but I have no
specific recollection of what we dis-
cussed.
Q. Contents of the discussions,
right?
A. Right.
Q. On Exhibit No. 4, which combines
114a
the two debit slips and the cashier’s
check, the funds were debited in the ap-
propriate amounts out of your account and
Mr. Zimpel’s account and then combined
into one cashier’s check as shown on that
sheet?
A. I would infer that from the
sheet and from the transaction. I don’t
specifically recall.
MR. FREEDMAN: I have no further
questions.
MR. ZELNICK: I have no questions.
115a
APPENDIX M
VIRGINIA:
IN THE CIRCUIT COURT OF FAIRFAX COUNTY
GARY GREEN,
Plaintiff,
vs. At Law No. 76682
STEPHEN M. ZIMPEL, et al.,
Defendants.
Alexandria, Virginia
Monday, June 6, 1988
Deposition of DAVID L. GUNN, called
for examination by counsel for the de-
fendant, pursuant to notice, at the of-
fices of John R. Hartnett, Esq., Brince-
field & Associates, P.C., 526 King Street,
Suite 423, Alexandria, Virginia 22314,
before Glenn R. Neuhaus, a notary public
in and for the State of Virginia, be-
ginning at 10:00 a.m., when were present
on behalf of the respective parties:
FOR THE PLAINTIFF:
LAWRENCE E. FREEDMAN, Esq.
116a
Penthouse, 10560 Main Street,
Fairfax, Virginia 22030
FOR THE DEFENDANT:
JOHN R. HARTNETT, Esq.,
Brincefield & Associates,
P.C., 526 King Street,
Suite 423, Alexandria,
Virginia 22314
Whereupon,
DAVID L. GUNN,
was called for examination by counsel for
the defendant, and after having been first
duly sworn, was examined and testified as
follows:
EXAMINATION BY COUNSEL FOR THE DEFENDANT
BY MR. HARTNETT:
Q Would you please state your
name, sir.
A My name is David Gunn.
Q And what is your address?
A 5607 Hampton Forest Way,
Fairfax, Virginia 22030
Q And where do you work?
117a
A I presently work for Madison
National Bank of Virginia.
Q How long have you worked for
Madison National?
A About four months.
Q Prior to working for Madison
National, by whom were you employed?
A I was employed by Sovran Bank.
Q How long did you work for Sovran
Bank?
A By Sovran and its predecessors,
about 17 1/2 years.
Q And in what capacity were you
employed by Sovran that period?
A Yes.
(Deposition Exhibit No. 3 was
introduced for identification.)
BY MR. HARTNETT:
Q Let me ask you to look at
Exhibit 3, and there we have three
documents and the top one -- or perhaps
118a
you would describe what the top document
on this sheet is.
A The top document is a debit
which is a charge to a checking account
and in this case it’s a charge to Al
Silverstein’s account.
Q How about the second document?
A The second document is likewise
a debit to a checking account charged to
Steve Zimpel’s account.
Q Are these debit forms’ the
internal document used by the bank to
deduct checks from the checking account?
A To deduct an amount.
Q An amount from?
A From a checking account in this
case, yes.
Q And the third document- on
Exhibit 3 is a cashier’s check made out to
Sovran Bank on which Gary Green’s name
appears.
119a
A Yes.
Q As well as your name.
What, if anything, do you _ recall
about this cashier’s check signed by you
and made payable to the bank?
A Basically my recollection would
be that Mr. Zimpel and Mr. Silverstein
advised me that they wished to have the
note, which we haven’t discussed yet, pur-
chased by one Gary Green and they asked
that I debit their account, which are the
first two items on this page, to pay for
that cashier’s check and to draw the cash-
ier’s check and then to use that to, in
fact, purchase the note payable to the
bank by Fairfax Associates.
Actually, I think there were two
notes.
Q. Do you remember who actually
requested you to do that, whether it was
Mr. Zimpel or Mr. Silverstein?
120a
A No.
Q Were they personally in the bank
that day or was this request by telephone?
A My recollection is they were
personally in the bank.
Q Both of them?
A I believe so.
Q And with that request that their
respective accounts be debited in these
amounts, was there a check drawn or was it
simply the request and then the debit
entered?
A These would be the totals of the
entries that were made that are shown on
the exhibit.
Q Would they have had to have pro-
vided you with a check drawn on --
A No.
Q So the request would have been
sufficient.
Do you recall that the request, in
12la
fact, was sufficient to produce these two
debits?
A Yes.
Q And it was upon the instruction
of one or the other of them.
A Or both. 2
Q Or both Mr. Zimpel and Mr.
Silverstein that you put Gary Green’s name
on this cashier’s check, is that correct?
A Correct.
Q And once the cashier’s check was
produce for Mr. Zimpel and Mr.
Silverstein, what was done with the
cashier’s check?
A They, in fact, delivered the
check to me and asked that the check be
received in purchase of the full amount
that was due on the notes to Fairfax
Associates.
Q You say notes, plural, is that
correct?
122a
rN My recollection is that there
were two different notes, I believe.
Q And prior to this time had they
asked you what the pay-out figure was for
the indebtedness of Fairfax Associates to
the bank?
A ‘cane vee.
Q My question really relates to
the number on the cashier’s check.
Is that something you would have been
readily able to ascertain?
A Sure.
Q Upon their request?
A Absolutely.
Q But you don’t remember whether
the request came prior to the creation of
this check or at the time when they asked
for these debits?
A Not specifically.
Q Let me ask you to look at again
Exhibits 1 and 2 and were you aware that a
P
—
i
123a
deposit totaling the same amount of these
two debits was made into the Fairfax
Associates’ account and shortly thereafter
withdrawn back out of the account of
Fairfax Associates prior to the purchase.
of this cashier’s check?
A No.
(Deposition Exhibit No. 6 was
introduced for identification. )
BY MR. HARNETT:
Q Let me ask you to look at
Exhibit 6, and would you tell me what this
document is the way it’s described by the
bank.
A This instrument basically is for
internal bank use and it’s use to describe
a loan that’s been made.
Q Does it have a name? I notice
at the top corner it says single note
write-up and is that what it would be
called?
124a
Q Did Mr. Zimpel and Mr.
Silverstein have a line of credit with the
bank as of December 5, 1983, the date on
this exhibit?
A My recollection is that they
did. I think they each had individual
lines.
Q I notice at the bottom under
comments this was a draw under Stephen M.
Zimpel’s $300,000 guidance line, approved
10-21-83. Guidance line? Is that a line
of credit?
A I don’t believe so.
Q Have you ever met Mr. Green in -
person?
S I don’t believe so.
Q Have you ever discussed this
—
lawsuit with Mr. Green?
rN I’m quite sure I have.
Q What was the subject
125a
specifically of those conversations?
A I can’t recall.
Q Have you discussed this lawsuit
with Ms. Brass-Corey?
A Yes.
Q Do you recall the specific
subject matter of those discussions?
MR. FREEDMAN: Let me enter an objec-
tion to this whole line of questioning.
THE WITNESS: The answer would be no.
MR. HARTNETT: I think that’s all I
have.
EXAMINATION BY COUNSEL ~ FOR THE
PLAINTIFF BY MR. FREEDMAN:
Q Mr. Gunn, I’m Lawrence Freedman.
I represent Mr. Green and I’d like to ask
you a couple of very direct questions.
A Sure.
Q First, when you indicated before
that you didn’t have any recollection of
the mailing of the notes back to Mr.
126a
Green, am I accurate in gleaning from that
answer you’re saying you don’t recall how
that went down, whether you mailed it or
turned it over to somebody or just how
that happened? yYou’re not saying that you
did not mail then.
A That’s correct.
Q Going back to the 31st of
December, 1984, you indicated to us that
Mr. Zimpel and Mr. Silverstein were at the
bank and at that time you received a di-
rective from them that you were to debit
their account in the amount necessary to
purchase the cashier’s check to purchase
the notes -- for the purchase of the notes
by Mr. Green, is that correct?
A That’s correct.
Q Was there ever any discussion
that day that you should debit to take the
money out oof the Fairfax Associates
accounts or was it your direction from Mr.
127a
Zimpel and Mr. Silverstein that in fact
you should take it out of their personal
accounts, as you did?
A I would say yes. I don’t recall
any conversation about the Fairfax Associ-
ates account at all. gs
Q They came in and told you or you
already knew Mr. Green was purchasing the
notes and they told you to debit their
personal accounts to pay for the cashier’s
check which Mr. Green was to use to pur-
chase the notes.
A That’s correct.
Q And that’s exactly what hap-
A Yes.
Q Is there any doubt in your mind
during the course of that transaction as
described to you by Mr. Zimpel or Mr.
Silverstein that in fact Mr. Green was
purchasing the notes and it was being done
128a
just as you did it?
rN That was certainly my _ under-
standing. -
Q From the parties at that time.
A Yes.
_Q Was there ever any conversation
or were you ever told that in fact these
notes were being paid off rather than
being purchased?
A No.
Q They were always being purchased
by Mr. Green?
A Yes.
Q Was there ever any conversation
that in fact Fairfax Associates was paying
off these notes in any way, shape or form?
A No.
Q It was always a purchase by Mr.
Green utilizing the funds you’d preciously
described.
A Yes.
129a
Q Do you happen to recall or if
anybody has a calendar handy what day of
the week the 31st of December was in 1984.
A No.
Q Have you since the transaction
occurred on the 31st of December, 1984, in
fact, verified it as Mr. Green who pur-
chased these notes, who received these
notes from Sovran Bank.
Ay I’m not sure what you mean by
the word verified but I know subsequently
I honestly have had calls from Mr. Green
and Mr. Green’s office stating he in fact
was now the holder of the note and he
needed information and so on and so forth
so it was certainly my impression, my un-
derstanding that in fact they did come
about.
MR. FREEDMAN: I have no other
questions.
130a
APPENDIX N
IN THE UNITED STATE DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
GARY GREEN,
Plaintiff
Vv.
MAURICE P. FOLEY,
Defendant :
AFFIDAVIT OF GARY GREEN
Gary Green, being duly sworn, deposes
and says:
i. I am the Plaintiff in the above
captioned action.
a I am an attorney licensed to
practice in the Commonwealth of Pennsyl-
vania since September of 1972. My prac-
tice has consisted primarily of trial law,
with a heavy emphasis on civil rights, and
other complex litigation in Federal
Courts. In addition to litigation, I have
on occasion performed services for cor-
porate clients and individuals in the form
131a
of helping them to devise business strate-
gies and drafting contracts.
3. I have never represented any
banks, and do not hold myself out as, nor
regard myself to be an expert in banking
matters or commercial paper; when such
issues have been raised in client matters,
they have been handled generally by other
attorneys in my firm. I believe I am
qualified to handle cases and issues in-
volving the law of Pennsylvania and most
Federal litigation, but I recognize that I
lack the qualifications to handle for
clients matters involving Virginia law,
and except where Virginia law is the same
as Pennsylvania law, I am unfamiliar with
|
4. I met Alan Silverstein in ap-
proximately 1977 when he was a staff at-
torney for the Equal Employment Opportu-
nity Commission, assigned to the Phila-
132a
delphia Regional Office of that agency.
At the time, I was representing a class of
women who were suing Sun Oil Company for
violations of Title VII, and Mr. Silver-
stein was counsel for the EEOC in a com-
panion suit against the same employer. Our
cases were consolidated, and Mr. Silver-
stein and I collaborated in presenting a
joint case against the employer which
achieved a very successful result. Mr.
Silverstein and I became friends as a re-
sult of that case.
5. When Mr. Silverstein left the
EEOC in October of 1981, he joined up with
Stephen Zimpel and went into the building
development business in the northern
Virginia area. I had contact with Mr.
Silverstein on a friendly basis, but as I
had no expertise in the law of building
development or real estate, and was not
familiar with the local law where his
133a
business was being conducted, I performed
no legal services for Mr. Silverstein or
Mr. Zimpel on those matters, but rather,
they employed attorneys in Virginia and
Washington, D.C.
6. The attorneys from Virginia and
Washington, D.C. that Messrs. Zimpel and
Silverstein used and relied on from 1981
through about 1987 included:
(a) William Hanes, Esquire
(Washington, D.C.)
(b) Pohoryles and Greenstein, P.C.
(Washington, D.C.)
(c) Robert Staton, Esquire
(Washington, D.C.)
(d) Metzger, Shadiac and Schwartz
(Annandale, Va.)
(e) Russel Sherman, Esquire
(Annandale, Va.)
(f) Madigan and Scott, Inc.
(Springfield, Va.)
(g) Robert Madigan, Esquire
(Springfield, Va.)
(h) Szabo, McCarthy, Quinto, Webb
and Zelnick, P.C.
(Woodbridge, Va.)
134a
(i) Thomas J. Colucci, Esquire
(Arlington, Va.)
Fe Although my lawfirm and I had
been requested on occasion to perform le-
gal services involving Virginia law for
Messrs. Zimpel and Silverstein, and en-
tities they owned, it was necessary for me
and my firm to decline the assignments. I
made it emphatically clear that my law-
firm’s expertise with Virginia law was too
deficient and we were too ignorant of the
unique provisions of Virginia law to per-
form professional services for them where
Virginia law would be involved. [In short,
I have not advised these or other clients
about Virginia law.
8. In approximately 1982, Messrs.
Silverstein and Zimpel_ became interested
in several business ventures which were
based in and around Philadelphia, and they
asked me to represent them in some of
Nicecaeeeeiieeaammedl
135a
those matters; these business ventures
were not in any way related to their
building development business or what they
were doing in their home state, but rather
were in the nature of loans to and invest-
ments in small commercial companies that
Mr. Silverstein and his usual business
partner, Stephen Zimpel, were making. My
role was generally to form Pennsylvania
corporations for them and/or to prepare
agreements which would protect their in-
vestments or loans in Pennsylvania, and
sometimes, to help negotiate the deals.
This resulted in only infrequent involve-
ment with Messrs. Zimpel and Silverstein
in professional matters although I still
maintain a social relationship with Mr.
Silverstein.
9. In 1983, Mr. Silverstein advised
me that he and Mr. Zimpel wanted to in-
crease the diversification of their in-
136a
vestments as a hedge against the risks of
a down-turn in their local real estate/
building development business. I men-
tioned that I knew of a situation in-
volving the principal shareholders of a
former corporate client ("DEG") that Mr.
Silverstein might wish to explore. DEG
was in the business of asbestos removal,
and the principal shareholders were not
getting along with Wallach Gear Co., a
venture capital shareholder which had
guaranteed DEG’s debt. It was my view
that if Messrs. Zimpel and Silverstein
were willing to invest or loan cash to
replace Wallach Gear Co., and to assume
its guaranty on the loans made by DEG’s
banks, they probably could obtain a mean-
ingful ownership position in DEG. I told
Mr. Silverstein that while I did not rep-
resent DEG, I was willing to talk to the
principal shareholders, and to act as an
_ —
137a
intermediary. Mr. Silverstein told me to
proceed, and stated that he would reward
my efforts with a bonus fee if the trans-
action succeeded. Ultimately, Mr. Silver-
stein promised to pay me a bonus fee of
$10,000.00 for acting as intermediary and
for bringing him the opportunity.
10. In the period March - April of
1984, Messrs. Zimpel and Silverstein did
in fact make loans to DEG, and did replace
Wallach Gear Co. as a 40% shareholder in
DEB. After the initial agreement between
the DEG shareholders and Messrs. Zimpel
and Silverstein had been reached, my firm
was retained by DEG as its attorney, and
it was paid on an hourly rate basis for
the services lawyers in my firm rendered.
11. During 1984, as a result of the
participation by Messrs. Zimpel and
Silverstein in the affairs of DEG (which
was based in Malvern, Pennsylvania, a
138a
suburb of Philadelphia), and due to their
interests in other Pennsylvania based
businesses, I had much more contact with
them. I still did not have any knowledge
of, nor involvement in any of the Virginia
based real estate/building development ac-
tivities engaged in by Messrs. Zimpel and
Silverstein and/or their various business
entities.
12. Throughout most of 1984, discus-
sion of my $10,000 bonus fee with Messrs.
Silverstein and Zimpel was deferred due to
the press of other matters.
13. In November of 1984, I met with
Messrs. Zimpel and Silverstein at their
office in Virginia to review some of the
issues I was handling for them, including
DEG. During the meeting Messrs. Zimpel
and Silverstein were distracted from the
matters I had come to discuss and were
quite distressed by a business transaction
139a
involving the defendant Maurice Foley and
two banks that Messrs. Zimpel and Silver-
stein used regularly for their building
development business.
14. Prior to my November meeting
with Messrs. Zimpel and Silverstein, I had
never heard of Mr. Foley, nor did I know
anything about any business transaction
involving him. I also knew nothing of
Messrs. Zimpel and Silverstein’s relation-
ship with Mr. Foley. As part of the con-
versation, both Messrs, Zimpel and Silver-
stein told me that several years prior,
they had entered into a partnership with
Mr. Foley in connection with the conver-
sion of apartments to condominium units.
They stated that they had paid Mr. Foley
$20,000 and had given him 40% of the part-
nership (Fairfax Associates) to act as a
guarantor on notes of Fairfax Associates
held by two banks; Mr. Zimpel, his wife
140a
and Mr. Silverstein were also guarantors
on the Fairfax Associates notes which,
evidenced money loaned to it.
The project was originally to be
100% financed by the bank loans, and they
related to me that at first, none of the
partners paid any money except ‘for the
$20,000 Messrs. Zimpel and Silverstein
paid to Mr. Foley. The condominiums were
to be converted by Fairfax Associates, a
partnership consisting of Zimpel and Foley
as equal general partners, and Silverstein
as 20% a limited partner. They stated
further that in its first year of opera-
tions, all of the partners had taken from
Fairfax Associates substantial sums of
money as anticipated profits, but that
they had miscalculated and were told by
the banks that they had taken out too much
money, thus requiring immediate repayment
of substantial portions of the bank loans
14la
by the individual guarantors. In the end,
Fairfax Associates showed a big loss and
had no assets.
15. The reason why Messrs. Zimpel
and Silverstein were upset at the November
1984 meeting is that there Was approxi-
mately $275,000 still due to the banks,
Fairfax Associates had no assets, and
their request to Mr. Foley that he contri-
bute to paying off this final debt had
been rejected flatly.
16. Messrs. Zimpel and Silverstein
explained further that they had each made
repayments to the bank out of their per-
sonal funds in the preceding years, but
Mr. Foley, who had received more than
$200,000 in “anticipated profits", had
refused to make any repayment contribu-
tions to the bank loans himself, and in
fact, had paid nothing. They stated fur-
ther that when Fairfax Associates ran out
142a
of money but still had not completed the
conversion of the condominiums, the two of
them had used still additional personal
funds to see contractors, but had received
no reimbursement or contributions from Mr.
Foley. Their present dilemma was that
they needed to maintain good relationships
with the two banks because of their other
building projects which were financed by
these two banks, but the banks were de-
manding that they, as guarantors of the
partnership’s loans, take care of the
outstanding debt.
17. Out of curiosity, I asked why
the banks or they did not consider insti-
tuting suit to collect the balance from
Mt. Foley. They replied that Mr. Foley
had refused to make any contribution, and
in fact had told them that he was "broke",
judgment proof, and not concerned about
any action the banks might take against
143a
him to enforce the notes and his guaran-
tees. At that point, I commiserated with
them, and the discussion moved on to other
topics.
18. Later in the day, during the
course of the meeting, the question of my
$10,000 bonus fee was raised. At that
point, the Foley problem was mentioned
again as Messrs. Zimpel and Silverstein
explained to me that while they had plenty
of cash in the bank, they anticipated that
as part of their year-end business stra-
tegy they might need their cash, and if
they paid off their guarantees on the
$275,000 debt, they would be reluctant to
commit to payment of further cash to me at
that time. Nonetheless, they emphasized
that beyond the payment that they would be
making to the two banks, both were upset
more because Foley would be totally let
off the hook, and would have been the only
144a
partner who would have received "profits"
from the transaction, but who made no cash
contribution whatsoever.
19. During the conversation, Messrs.
Zimpel and Silverstein repeatedly asked
for my advice, and I repeatedly stated
that I was not sufficiently familiar with
Virginia law or the particular conversa-
tionally transaction to give a legal
opinion. I did tell them however, that I
had heard of transactions in Pennsylvania
where obligations were not extinguished
because they had been assigned to a third
party by a hank rather than paid off. I
explained that I had not’ personally
handled such a transaction, but that in
the cases that I knew of, the third party
essentially received a "gift from the
debtor" and used that gift to buy the
debt, thus avoiding the extinguishment of
the debt. I told them that these transac-
145a
tions were discussed openly as a legiti-
mate debtor/creditor strategy, and I was
not aware of any reason under Pennsylvania
law to invalidate such a transaction al-
though I again reminded them I was neither
an expert on commercial paper law or what
would be the result under Virginia law.
20. Messrs. Zimpel and Silverstein
both informed me emphatically that the
Fairfax Associates partnership was de-
funct, insolvent, and had no funds of its
own to pay off the notes. They stated
also that under the Fairfax Associates
partnership agreement, none of the part-
ners was required to invest additional
capital. Furthermore, Mr. Silverstein was
only a limited partner. I did not ask to
see that partnership agreement and they
didn’t offer to show it to me because it
was clear to all that I not conversing
with them about Foley in my capacity as
146a ities
their attorney, but rather, I was merely
acting as their friend while they vented
their anger and frustration.
21. Toward the end of that November
1984 meeting, Messrs. Zimpel and Silver-
stein suggested to me that perhaps I would
be interested in trading the $10,000 bonus
fee that they owed me in exchange for be-
coming a "third party" who would obtain
the notes from the banks. Their reasoning
was that if they could buy my "goodwill"
and at the same time pay off their debt to
me, they would feel better about paying
the banks. When I asked them jokingly why
they thought they would be buying my
"goodwill", they said that Foley might
"get back on his feet" sometime in the fu-
ture, and then I could recover much more
an my $10,000 bonus. I let them know that
I did not consider their proposition to be
a good investment for me or my lawfirm.
i, AE Msi ds Stern dads
147a
22. Nevertheless, recognizing’ the
difficulty I would have in getting them to
pay promptly the $10,000 bonus fee in cash
due to the other plans they said they had
for their cash, but more, to help my
friends and clients overcome’ their dis-
tress of having to make substantial pay-
ments to the banks while Mr. Foley paid
nothing, I agreed reluctantly and tenta-
tively, (subject to my having discussions
with the partners in my law firm) to trade
my fee for the bank notes. I asked Mr.
Silverstein to check with his local attor-
neys and the banks to determine if and how
such a deal could be structured, and I
then left the meeting and returned to
Philadelphia.
23. During the next few days, I did
not give any thought to the matter. How-
ever, on December 14, 1984, Mr. Silver-
stein contacted me by phone and raise the
148a
subject of transferring the notes and
guarantees to me or my firn. He stated
that he had promised Sovran Bank (one of
the banks to which the notes were owed)
the debt would be off its books by year
end. I asked Mr. Silverstein if he had
obtained an opinion about structuring the
transaction, and he said he was working on
it. After I hung up from my conversation
with Mr. Silverstein, I canvassed the
views of the partners in my law firm. The
general consensus was that the real "good-
will" was not what we would feel towards
Messrs. Zimpel and Silverstein, but rather
their good feelings about our firm if we
helped them. The consensus was that we
were skeptical of ever obtaining a recov-
ery, but even if we didn’t, we would be
helping our good friends, and would, in a
quixotic way, serving justice by making
Mr. Foley accountable for a valid debt.
149a
24. Mr. Silverstein called me later
on December 14th, and I related the views
of my law partners. I told him also we
did not want to spend a "fortune" on legal
fees. He responded that he and Mr. Zimpel
would advance the legal costs if my firm
could not find an attorney to take the
case on a contingency fee basis. I told
Mr. Silverstein that I would send him a
letter describing my understanding of the
transaction, and asked him to show my let-
ter to one of his local attorneys and the
banks. If they all approved, he could
count me in; otherwise, I would be per-
fectly happy to forget the deal and wait
for him to pay my $10,000 bonus fee. I
told Mr. Silverstein I would call him back
and read him the letter after it was com-
posed.
25. I conferred with several lawyers
in my firm and we drafted the December 14,
-
_
150a
1984 letter which became an exhibit in
this case. I then called Mr. Silverstein,
and in a conference call with him and Mr.
Zimpel, read the letter. During that the
call I also emphasized certain points.
According to my best recollection, I high-
lighted the following issues in describing
the letter;
(A) I reiterated that I was willing
to forego the entire transaction and to
simply wait for my bonus fee. When they
responded that they preferred to _ go
through with it, I read them the sarcastic
last paragraph of the letter, which
stated,
"IT am grateful for the ‘opportunity
you have offered in this innovative
fee payment arrangement". _
(B) This language was sarcastic be-
cause I had communicated my view re-
peatedly that I thought I was’ doing
Messrs. Zimpel and Silverstein a favor and
15la
that I would much prefer payment of my
$10,000 bonus fee. The know I was not
"grateful at all because I never expected
to collect from Mr. Foley. Moreover, the
word "payment" was used sarcastically be-
cause, for the sake of good client rela-
tions, I was, in my mind, agreeing to an
arrangement which was tantamount to for-
giving payment of the bonus fee.
(C) I told them that I was relying
on them to find out from their local at-
torneys and the banks how the matter was
to be structured. Therefore, in the first
numbered paragraph of the letter I was
purposefully vague about the mechanics of
how the notes would be obtained because I
éidn’t: ew the appropriate way.
(D) To further indicate my lack of
enthusiasm for this deal, in the fourth
numbered paragraph I reiterated that they
would be responsible for obtaining the
152a
notes and if my firm could not find a
Virginia lawyer to enforce the notes pur-
suant to a contingent fee agreement and,
if we therefore asked, Messrs. Zimpel and
Silverstein to help, they agreed they
would be responsible for the costs of en-
forcement. My point was that while I was
willing to take a business risk for my
firm’s $10,000, I was not willing to spend
much additional money. I said my fear was
that if my firm determined that it was not
a good business decision at any point to
continue to pursue collection, I did not
want Messrs. Zimpel and Silverstein to be
urging us on (at the risk of losing their
goodwill) without having any cost or risk
of their own. In my opinion, if they were
forced to contribute to the cost of col-
lection, there would be less of a likeli-
hood that they would press us to "beat a
dead horse" just to spite Foley or get re-
153a
venge.
(E) In connection with numbered
paragraph 5, I emphasized that whatever I
got from Foley would be mine (or my
firm’s) despite what they may have spent
to obtain the notes and guarantees in my
name. I told them that they should look
at this as a real business transaction
with my firm and that if they thought Mr.
Foley would recover soon, or would pay the
notes, they should reconsider the deal. I
urged them to discuss this point with
their local attorney.
(F) We discussed numbered paragraph
5 and they reiterated that the notes were
not subject to any defense. I said that I
would rely on what they said to me, but
that if their local attorney suggested de-
fenses, they should tell me.
(G) In discussing numbered paragraph
7, I told Messrs. Zimpel and Silverstein
154a
that I was in no position to offer them
legal advice about their rights vis-a-vis
Mr. Foley because I had never seen any of
the written documentation, had examined no
records, knew nothing of Virginia’s com-
mercial loan laws, and mainly, was speci-
fically acting as a "businessman" in this
transaction with the intention of being at
arm’s length with them. I stated it would
not be ethical for me to attempt to be
both their lawyer and the person with whom
they were entering into a business deal.
At this point, I reiterated that they
should consult with their own local
attorneys because I ~was assuming that
Messrs. Zimpel and Silverstein knew what
they were talking about when they said
they had defenses and set-offs they could
assert to defeat any claim against them
Mr. Foley might assert. Since Mr. Silver-
stein is himself an attorney, I was sure
155a
che understood what I was saying.
(H) I emphasized also in discussing
numbered paragraph 7 that it was possible
Mr. Foley might sue them if I obtained a
judgment and that if Mr. Foley got an
award of damages against them, they could
not look to me for help. In making this
point clear, I stated that it was possible
they might end up spending more than the
$275,000 needed to acquire the notes be-
cause they might end up having to pay
something to Mr. Foley, and I urged them
to explore this point with their local at-
torneys. They assured me that they were
aware of the risks and would explore the
issue. Again, because Mr. Silverstein is
an attorney, I did not doubt their as-
surances.
(I) In discussing numbered paragraph
8, I stated that I was not asking them to
Sign this letter because it would only be-
156a
come an agreement if they acted on it and
fulfilled the conditions. We all recog-
nized that it was merely an offer. I
stated that if their local attorney or the
bank balked about anything in the letter,
or if they decided not to go through with
the transaction, they could back out at
any time with no hard feelings or penalty.
I stated also that if they couldn’t do the
transaction by April 1, 1985 we should
forget about it and they should simply pay
my bonus fee. They agreed.
26. I ended the conversation by
saying that I would wait to hear from
them. At that point, I knew nothing about
any requirement in Virginia or any other
law that I would be obliged to sue the
partnership or Mr. Zimpel in his capacity
as general partner before obtaining a
judgment against Mr. Foley on his guar-
anty, and therefore, the issue was not
157a
discussed.
27. It was my view that this was a
perfectly legitimate business transaction.
Messrs. Zimpel and Silverstein spent
hundreds of thousands of dollars and Mr.
Foley had taken out hundreds of thousands
of dollars. There was a valid debt that
Mr. Foley had guaranteed. He clearly had
a valid obligation to the banks. I was
paying $10,000 for a highly speculative
claim against hin. The banks would be
getting real dollars for the assignment of
the notes to me.
Between me and Messrs. Zimpel and
Silverstein, I was giving value and they
were getting: (a) payment of what they
owed me; (b) good relations with banks
they dealt with regularly; and (c) the
satisfaction of knowing Mr. Foley was not
getting a free ride. Thus, the transac-
tion seemed a fair and beneficial business
158a
_ deal. Moreover, because the Fairfax As-
sociates had no funds, and no partner had
an obligation to put in more capital, it
was clear that no partnership money would
be or could be claimed to have been used
or that the partnership was satisfying its
debt. As a result, Mr. Foley’s obligation
would be the same to me as it was to the
banks; it would not be increased. Fi-
nally, I could see no legal, ethical or
moral reason why Mr. Foley should enjoy a
benefit from additional personal funds
spent by Messrs. Zimpel and Silverstein
when they did not wish to confer any bene-
fit to hin. The transaction was to be
open and above board, and full disclosure
was to be made to the banks; the transac-
tion was also documented openly in my let-
ter of December 14, 1988. When I consid-
ered whether there was anything improper
or unethical in the arrangement, I con-
159a
cluded there could be no claim of fraud or
"Sharp" practices because the equities
seemed to be all on our side.
28. I did not think about this
transaction any further until sometime
near Christmas of 1984. Mr.* Silverstein
had attended a DEG Christmas party in
Malvern, Pennsylvania and either I at-
tended as well and we spoke there, or he
called me about it. During that conversa-
tion, Mr. Silverstein advised me that he
had made arrangements to purchase a cash-
ier’s bank check in my name from Sovran
Bank and that this bank check would be
used to buy the note guarantees for me.
(Sovran was one of the banks to which the
money was owed.) The discussion about
this subject was quite brief, but I recall
that he said that Sovran Bank thought this-
was the best way to do the transaction and
that it wanted the loan off of its books
160a
before the New Year. I replied that I
would await further developments and that
if Messrs. Zimpel and Silverstein were —
satisfied with the arrangement, I was
willing to proceed.
29. On December 31, 1984, Mr. Zimpel
called to wish me a happy New Year, and in
passing mentioned that he had deposited
his and Mr. Silverstein’s checks in the
Fairfax Associates’ account. I asked him
why he did that and he said that he
thought it was as good a way to buy the
note for me as any other. I asked if he
had conferred with Mr. Silverstein and he
replied that Mr. Silverstein was "running
around" and that he had left a list of
things for Mr. Zimpel to do, including
"buy notes for Gary". I advised him to
check with Mr. Silverstein because he had
advised me of a different arrangement he
had made with Sovran Bank. I speculated
161la
that if a Fairfax Associates’ check was
used, the intended benefit of the transac-
tion (keeping the debt alive so it could
be transferred to me) might be frustrated;
I specifically did not tell or advise Mr.
Zimpel to withdraw funds from the Fairfax
Associates’ account but rather, merely
suggested he confer with Mr. Silverstein.
30. I did not have any discussion
about the notes nor did I think about them
again until sometime in 1985 when the ori-
ginal Sovran note and guaranty was re-
ceived by mail or Federal Express delivery
in my office from Sovran Bank. I assumed
that Sovran Bank would not have issued the
note and guarantees to me if they were in-~
valid and I had no suspicion that a claim
would be made that the Fairfax Associates’
debt had been extinguished. If there was
a cover letter that came with the note and
162a
guarantees, I did not retain it and,
therefore, do not know the exact date. I
put the Sovran note and guarantee in my
firm’s safe. (I do not recall any of the
circumstances involving the Crossland
Savings note and guaranty.)
31. In the Spring of 1985, one of my
law partners came across the notes and
guarantees in our safe and asked me what I
intended to do with then. I responded
that since Mr. Foley appeared to be insol-
vent, I intended to just hold the notes
and guarantees. He then convinced me that
it was important to at least have a judg-
ment entered on the guarantees since if
Mr. Foley filed under the bankruptcy laws
we would then be listed as a creditor, or
if he became solvent we would not have to
wait to collect. I agreed to proceed.
163a a al
32. I contacted Lawrence E. Freed-
man, Esquire because in the mid-1970’s he
had represented a group of Virginia based
defendants in a lawsuit I had filed in the
United States District Court for the
Eastern District of Pennsylvania on behalf
of the plaintiffs. Mr. Freedman impressed
me as a worthy opponent in that case, and
he was the only lawyer I knew personally
in Virginia. I offered Mr. Freedman the
case and he accepted, albeit not on a con-
tingent fee basis.
33. On August 19, 1985, I forwarded
Mr. Freedman the guarantees and notes.
34. On April 7, 1986, Mr Freedman
sent to me by mail a copy of a complaint
he had drafted against both Mr. Foley and
his wife (who had signed a guaranty). I
had no hand in drafting this document. I
164a
glanced through it upon my receipt, and
then handed it to an associate in the
office for the purpose of determining
whether it was appropriate. I had deter-
mined in my own mind that this was a low
priority matter due to my belief (later
confirmed by Mr. Foley’s deposition) that
he had no attachable assets and even ob-
taining a judgment could be a futile ges-
ture.
35. In his cover letter forwarding
the complaint to me, Mr. Freedman had
asked for my comments. I do not recall
making any, nor giving any further thought
to the complaint, other than perhaps to
learn from the associated that the com-
plaint seemed adequate, although some of
the terminology seemed old. {In retro-
spect, on reading the complaint now I see
that if differs markedly from the style I
165a
and my firm uses. For example, we do not
use the work "count" until after we have
described the facts central to all counts;
we have a set formula for pleading juris-
diction and venue in a diversity case
which does not look at alt like Mr.
Freedman’s; I would not have readily used
the words "bona fide purchaser of the
notes" because that term does not seem
appropriate in the context of a commercial
paper case under law I am familiar with;
and I would have referred to the parties
as "citizens" of their states rather than
refer to their "residence". (See, Com-
plaint at Paragraph 1) }
36. I expected Mr. Freedman to be
conversant with the law of Virginia and
thus, for example, when I saw "bona fide
purchaser" used in the complaint he
drafted, I assumed it was a term used in
166a
his jurisdiction that could be equated
with a "holder", which I thought I was.
Similarly, the first notice that I had
there was a law in Virginia (Section 49-26
of the Code of Virginia) that required
that upon demand could be made to sue the
Fairfax Associates partnership and Mr.
Zimpel as the managing general partner,
occurred on October 24, 1986 when Mr.
Freedman forwarded to me a copy of a let-
ter dated October 23, 1986 from a John R.
Hartnet, Esquire, counsel for Mr. Foley.
37. I had no knowledge of Virginia
Code and that is why I retained Mr. Freed-
man. However, because he had never raised
Section 49-26 of the Virginia Code in our
discussions, I had one of the associates
in my firm research the issue. I received
back a research memo which indicated that
Virginia was among a small group of juris-
167a
dictions that had such a law. However, it
appeared that a good case could be made
that Mr. Foley waived the protection of
the law by the language in the guarantees.
Also, other reasons for the non-applica-
tion of the law were more than arguable.
38. Nonetheless, I immediately con-
tacted Mr. Zimpel and advised him that I
might be obliged to sue hin. I stated
that if he objected, I would accept my
$10,000 bonus fee and drop my action
against Mr. Foley, or if he didn’t object
I would proceed as required. I told Mr.
Zimpel I would try to avoid suing him, but
could not assure him that a suite could be
avoided. Mr. Zimpel, after conferring
with Mr. Silverstein, said that in any
suit, he was convinced he would be able to
shift full liability to Mr. Foley and he
said he would assume the risk of my suit.
168a
39. I contacted Mr. Freedman and
told him to start suit against Mr. Zimpel
and Fairtax Associates in state court as a
protection, but to press the waiver argu-
ment in the Federal Court suit. I in-
structed him further to not notify Mr.
Foley until necessary because it might be
possible to drop the suit if the waiver
argument prevailed. Mr. Freedman and I
agreed that Mr. Foley was not a necessary
party in the state court suit because he
had already been sued on the note and
guaranty in Federal Court, and another
suit against him for the same paper would
be redundant and could be deemed har-
assing. Furthermore, I did not want to be
viewed as conceding that such a suit was
necessary absent a ruling from this court.
40. Mr. Freedman suggested that
since my firm had researched the issue, we
169a
might write the first draft of any reply
to a Moticn to Dismiss that Mr. Foley
might file relating to Section 49-26, and
I agreed.
41. I assigned an associated in my
firm the task of monitoring this aspect of
the case and later, when the issue was
raised by Mr. Foley, my firm did write the
first draft of the reply brief. We also
drafted my summary judgment motion.
42. On or about June 7, 1987, I re-
ceived copies of Mr. Foley’s first written
discovery requests. An associate in my
office working on this case was assigned
the task of assembling and preparing an-
swers. It was my intention to provide all
of the information requested and to do so
as soon as possible since I had nothing to
hide.
— 170a
43. With a cover letter dated June
19, 1987, we sent Mr. Freedman complete
answers, responses and documents, in-
cluding a copy of the letter dated
December 14, 1984, which letter became
part of the record which satisfied all of
Mr. Foley’s written discovery requests.
While these responses were not due until
July 7, 1987, it was my goal to have them
produced before the deadline. In fact,
Mr. Freedman delivered them on July 2,
1987. a
44. The Fourth Circuit’s harsh des-
criptions of this transaction shocked me.
I know now and believed in 1984 that no
Fairfax Associates’ money or assets were
ever used to buy the cashier’s check which
was then used to obtain the notes and
guarantees. Moreover, at no time did I
have any reasons to believe that any
171la
Fairfax Associates’ partnership funds or
assets were ever used to buy the notes and
guarantees or that such a defense would be
raised, let alone adopted by the Fourth
Circuit because Fairfax Associates was
totally insolvent and Messrs. Zimpel and
Silverstein had assured me that they were
using their personal money to buy the
cashier’s check for me. They were not
quite wealthy in 1984 and even if they had
given me the cashier’s check it would not
have been a fraud on any of the creditors.
The deposit of funds by Zimpel into the
Fairfax Associates account was to me an
obvious mistake; he would obtain not one
benefit by intentionally depositing money
into the Fairfax Associates’ account and
he could have suffered the detriment of
losing the pay-off of my $10,000 bonus
fee. [I have since learned from reading
David Gunn’s deposition that he, as the
172a
party representing Sovran Bank, had no
knowledge of Zimpel’s mistaken deposit of
funds into the Fairfax Associates’ account
nor did he ever believe that Fairfax Asso-
ciates’ funds were used to buy the cash-
ier’s check. Mr. Gunn always thought that
the personal funds of Messrs. Zimpel and
Silverstein were being used to buy the
cashier’s check in my name. More impor-
tantly, the Gunn deposition shows that the
deposit into the Fairfax Associates’ ac-
count was totally irrelevant because Mr.
Gunn debited the personal accounts of
Messrs. Zimpel and Silverstein to purchase
the cashier’s check in my name which was
used to buy the notes and guarantees. }
45. There was no attempt to hide any
part of the transaction nor to "launder"
money or perpetrate a fraud. The same is
true in the conduct of the litigation.
173a
This entire transaction was open and fully
documented. My December 14th letter set
out the plan and we produced that letter,
willingly, in discovery before it was even
due. [I do not know what Mr. Freedman had
in mind when he stated that my December
14th letter was produced by mistake. This
comment appears in the transcript of the
Zimpel deposition taken in the state court
proceeding. I was not present. However,
the hard evidence shows that no mistake
was made; as my written answers to the re-
quest for documents show, I fully intended
to produce the letter, willingly. |]
46. The cashier’s check was pur-
chased openly, with full disclosure to
Sovran Bank of its intended use and the
purpose of the transaction. The use of
the cashier’s check which was purchased
with funds debited directly from the per-
174a
sonal accounts of Messrs. Zimpel and Sil-
verstein merely documented that’ these
funds were specifically not intended to be
viewed as Fairfax Associates’ assets or a
payment by the guarantors of their debt.
Moreover, Mr. Silverstein was not a gen-
eral partner in Fairfax Associates yet
more than $93,000 was taken from his per-
sonal account to purchase the cashier’s
check.
47. Nothing in the transaction de-
frauded Mr. Foley; his defenses and cross-
Claims, if any, against Messrs. Zimpel and
Silverstein were unaffected. He had no
right to defend on the ground that the
debt was extinguished because it was not.
I paid the bank with a cashier’s check
bought for me, in my name. That check
cost me $10,000. Mr. Foley did not con-
175a
tribute any of the funds used to buy that
check.
48. Nothing in the litigation was
fraudulent or unethical. We provided our
responses and answers to discovery when
asked, and before they were due. Under
Rule 8 of the Federal Rules, we pleaded a
short, plain, truthful statement of our
contentions; we were not obliged or even
allowed to anticipate defenses. In my
view, I was in direct privity with the
banks. Since Messrs. Zimpel and Silver-
stein did not use partnership funds, and
intended to not get any benefit by having
the notes and guarantees assigned to me
(other than the payment of the bonus fee),
I saw the mechanics of the note, at the
complaint stage, as irrelevant.
/S/GARY GREEN
176a
Sworn to and subscribed
before me this 28th day
of , 1988.
/s/ Notary Public
177a
APPENDIX O
IN THE UNITED STATES DISTRICT COURT
EASTERN DIVISION OF VIRGINIA
Alexandria Division
GARY GREEN,
Plaintiff,
-vs- CIVIL ACTION
NO. 87-350-A
MAURICE P. FOLEY, et al.,
Defendants. :
—
Friday, December 2, 1988
Alexandria, Virginia
Transcript of motion proceedings in
the above-captioned matter.
BEFORE:
The Honorable ALBERT V. BRYAN, JR.,
Judge, United States District
Court
178a
APPEARANCES:
FOR THE PLAINTIFF:
JOHN TOOTHMAN, ESQUIRE
ae OF: JOHN D. GRAD & ASSOCIATES
112 N. Columbus Street
P.O. Box 1417-A44
Alexandria, Virginia 22313
OR E NDANTS :
JOHN HARTNETT, ESQUIRE
OF: BRINCEFIELD ASSOCIATES
526 King Street, Suite 423
Alexandria, Virginia 22313
. = <=
DON McCOY, RPR
OFFICIAL COURT REPORTER
683-3668
ALSO _ PRESENT:
LAWRENCE FREEDMAN, ESQUIRE
OF: FREEDMAN & HOPKINS
10560 Main Street
a —Fairfax, Virginia 22030
THE CLERK: Civil Action No. 87-350-
A, Gary Green versus Maurice P. Foley.
THE COURT: This comes on on the de-
fendant’s motion for Rule 11 sanctions,
the plaintiff’s motion for sanctions, an
179a
appeal of this Seagtatrate’s order, and the
plaintiff’s motion for relief from judg-
ment of the Court of Appeals, which
frankly I am not going to entertain argu-
ment on. There isn’t any way I can re-
lieve you from the judgment of the Court
of Appeals.
MR. HARTNETT: John Hartnett for
Maurice Foley. Good morning, Your Honor.
THE COURT: Good morning.
MR. FREEDMAN: Your Honor, I just
mentioned to Mr. Hartnett -- Larry Freed-
man -- I am here at this point repre-
senting my own interests. I’m not repre-
senting Mr. Green. He has separate coun-
sel and has had for some time.
MR. TOOTHMAN: That’s correct, Your
Honor.
MR. FREEDMAN: I did file a written
response, Your Honor.
THE COURT: Has any relief been
180a
sought against you personally?
MR. FREEDMAN: Yes. I believe in the
Rule 11 they are requesting something from
me. I have filed a written response in
the form of an affidavit. I hope it has
reached the Court. It went out early this
week.
THE COURT: I am not sure.
MR. FREEDMAN: It’s in the file, Your
Honor. I have a copy if the Court doesn’t
have it.
THE COURT: I have it.
MR. FREEDMAN: What I said to Mr.
Hartnett was I want to supplement that.
I’‘1l do so under oath if the Court re-
quests. One thing I forgot to put into
that was at the time that I began to rep-
resent Mr. Green and was investigating the
claim that he was giving me to represent
him, I inquired of Mr. Green as to whether
there were any possible defenses that Mr.
181a
Foley might have as to this clain.
Now, first, as the Court is aware,
Mr. Green himself is an attorney in Phila-
delphia and has dealt extensively in com-
mercial matters for many years. His re-
sponse to me was that there was potenti-
ally a cross-claiming situation between
Zimdel, Silverstein and Foley (phonetic)
under a partnership agreement that had
nothing to do with Green, but there were
no defenses that he was aware of at all.
He had purchased the note. That was that.
The note hadn’t been paid. There were no
defenses he was aware of at all to the
claim.
I would just add that to what I put
in my previous motion, because I had for-
gotten at the time I wrote that up of that
inquiry that I did make of Mr. Green back
at the beginning. Thank you.
THE COURT: Let me hear from the
182a
plaintiff. I think frankly that the Court
of Appeals has left this case in a posture
that I have very little choice but to im-
pose sanctions. I am certainly not going
to reexamine the facts underlying this
case. The Court of Appeals has held that
there are no material facts in issue. I
don’t know that I have the authority, and
certainly I don’t have the inclination to
reexamine that. I will let you respond to
that, sir.
MR. TOOTHMAN: John Toothman. I rep-
resent Mr. Green.
Your Honor, the problem is that this
is a very serious situation. The facts,
the Fourth Circuit believes it has found
the facts that show fraud and referred the
matter to a bar disciplinary proceeding.
We are here now today on a Rule 11(a) mo-
tion for over $65,000. Mr. Green, because
of the posture of the case, never got to
183a
tell his side of the story.
THE COURT: Well, but that’s some-
thing that I assume was presented to the
Court of Appeals.
MR. TOOTHMAN: But, Your Honor, we
are saying that it was not,’ because we
followed the procedures, and they were not
presented to the Court of Appeals.
THE COURT: Why weren’t they?
MR. TOOTHMAN: Because the record be-
fore Your Honor was that we decided the
case as a matter of law on the summary mo-
tion. There were then two subsequent at-
tacks by Mr. Foley through reconsideration
and a Rule 60(b) motion to try and shake
Your Honor’s decision, and Your Honor was
not shaken.
THE COURT: Didn’t you also make the
same request for rehearing and so on be-
fore the Court of Appeals?
MR. TOOTHMAN: I didn’t hear the
184a
first part of the question.
THE COURT: Didn’t you also make re-
quests for rehearing and further consid-
eration before the Court of Appeals?
MR. TOOTHMAN: Yes, Your Honor. We
also requested leave to supplement the ap-
pellate record, which was also denied.
I can answer the specific question or
the premise of your question fairly
quickly.
In our brief, in a footnote we pre-
sented the basis upon which this Court
could conclude that it is not bound by the
findings of fact of the Fourth Circuit, if
this Court concludes that it would not be
just to do so.
I am trying to present a basis for
this Court, not to secondguess the Fourth
Circuit but to see that justice is done.
Your Honor, it disturbs me that you
feel that your hands are now bound when
185a
before you ruled in our favor. Before,
you ruled that we had a meritorious clain,
and certainly a meritorious claim --
THE COURT: The Court of Appeals said
I was wrong, and we have to live with
that. You might think that I was right
and the Court of Appeals was wrong. We
don’t have that luxury.
MR. TOOTHMAN: Well, Your Honor, I am
about to discuss why you do have that
luxury or that duty, but my initial prenm-
ise is that it is int: just a matter of
some people win and some people lose.
There are very devastating consequences
flowing from the fact the whole story was
never told and only half of the story has
been told through irregularities in the
proceeding.
At page 10 of our brief in footnote
11, there is a discussion of the exception
to the law-of-the-case doctrine. This
186a
Court does not necessarily have to follow
blindly the mandate of the Fourth Circuit.
Your Honor has a separate duty to do what
is just, and then the Fourth Circuit can
correct Your Honor if it feels that you
have made a mistake. It disturbs me that
the process is now running so fast and
running without any consideration of the
merits anymore that Mr. Green is being |
deemed to have done something that he has
never been heard on and which isn’t the
fact. It isn’t the fact that he did any-
thing fraudulent. It isn’t the fact that
he structured this transaction. It isn’t
the fact that this note was paid off.
But because of the presumptions of
the judicial process, which are designed
in the overwhelming majority of the cases
to insure one full fair hearing but only
one and not belabor the point and have
them dragging on through repeated hear-
187a
ings, that at least you will be heard one.
Mr. Green hasn’t gotten that hearing.
Your Honor, I believe if you reviewed his
affidavit and the excerpts of the deposi-
tions that we have called the Court’s at-
tention to in the brief, this shows what a
travesty of justice has been wrought here.
THE COURT: But the Court of Appeals
didn’t remand it to me with a direction to
entertain a hearing on the merits. They
remanded it to me with a direction to
grant summary judgment to the defendant.
MR. TOOTHMAN: But only that, Your
Honor. There isn’t an express direction
from the Court of Appeals to enter sanc-
tions.
THE COURT: I agree with that.
MR. TOOTHMAN: I am concerned, Your
Honor; we are going to take our licking
here. We are not asking to overturn this
whole situation. We just want to avoid
188a
through the 60(b) motion and through our
opposition to sanctions, all these pre-
sumptions that are now flowing from facts
found by the Appellate Court on half a
record. Your Honor is a trial level
Court. You are accustomed to finding
facts. In this case, we never got to tell
our side of the story. And because we
~ followed the appellate rules we didn’t
throw in these depositions -- in the ap-
pellate record without first seeking
leave. That’s the problen. The other
side did. And so their facts were found
and were said to be contested. Or were
uncontestable.
But they are not uncontested, Your
Honor. We just followed the rules. The
facts that the Appellate Court found were
just not the facts, Your Honor. Mr. Green
is being made -- he is a partner in a
Philadelphia firm. He is now in great
189a
jeopardy of losing not just his livelihood
but his entire professional reputation be-
cause he came into this Court to enforce a
note that he took for some client of his
as a favor. He did them a favor to take
that note in $10,000 in hard fees that he
could have insisted on payment of and now
the man is being told he committed a fraud
in Court. He is a very honest, reputable
attorney, Your Honor. To say that the
wheels of justice are now so greased that
we can’t possibly slow down to find out
what really happened here and to cause all
these things to flow from one decision of
the Fourth Circuit, all I am saying is
that Your Honor really does have discre-
tion to examine the justice of the situa-
tion.
THE COURT: I am sure I do but I am
not willing to reexamine the total merits
of this lawsuit. <
190a
MR. TOOTHMAN: I am not asking for
that specifically, Your Honor. Our 60(b)
motion, Your Honor, is designed to say
that because of all the facts that are
flowing from this decision, of the Fourth
Circuit, that we believe we should be en-
titled to put this information into the
record and that if this Court were to
determine that there is a real factual
dispute, I believe that it would be within
the cCourt’s power under Rule 60(b) to
order the trial take place. We are not
saying you should reverse the Fourth Cir-
cuit but just allow the facts to be heard.
Your Honor, it is a very grave situa-
tion. It’s a scary situation.in many re-
spects because it’s the kind of situation
that if you read particular Mr. Green’s
affidavit, you can see how at every step
of the way, he was doing the logical
thing, the rational thing, the legal
19la
thing, the thing that an attorney ought to
be encouraged to do and yet now all of a
sudden the mousetrap has struck and he is
a gentlemen who is coming out of a Kafka
novel now.
He doesn’t know whether he is ever
going to be able to convince the Court to
pay attention to his plea that he didn’t
do anything wrong. - He is being told in
the Pennsylvania Bar proceeding, we are
not going to make a de novo review either.
They are ae to take all those facts.
The Fourth Circuit did the same thing, and
the Supreme Court undoubtedly, in consid-
ering, which we are planning to file --
THE COURT: I don’t know about that
body but I think I do have to take the
facts that the Court of Appeals found as
true. I don’t think that applies the
sanction which I have in my discretion but
I don’t think I have the luxury of reex-
192a
amining facts the Court of Appeals has
found.
MR. TOOTHMAN: I believe you do, Your
Honor, if justice requires it. What I am
saying is because there is only half a
record hére and if you would look at the
factual submissions we have made to ex-
amine them, you might be convinced that
the factual determinations by the Fourth
| Circuit could have been in error because
of the procedural irregularities and on
that determination, I am not suggesting
that you are supposed to reverse the
Fourth Circuit. But if you find that
there has been injustice, it is incumbent
upon you to at least allow us to make that
record and to suggest perhaps that from
your perspective looking at the facts that
you have looked at you have some question.
If you can do that, then it may be pos-
sible to shake some of these otherwise
193a
intransigent alternatives that are now
befalling Mr. Green and jeopardizing him
when as I said the man never took the
stand. He never was deposed. He never
had his day or couldn’t explain what hap-
pened and now everybody is presuming he is
a fraud.
THE COURT: The Court of Appeals said
it. They said he was clearly guilty of
fraudulent -- I forget what the language
is -- but you will recall it, I’m sure.
MR. TOOTHMAN: Yes, sir.
What it is, Your Honor, was it ap-
plied the Rule 60 standard for reconsid-
eration or relief from the judgment, and
used the prong of a fraud on the Court is
the way I would quickly describe it. A
necessary finding in the course of that
was that they found misrepresentations to
Your Honor specifically. Now, if Your
Honor will recall and certainly our plead-
194a
ings have made it clear at the time that
Your Honor was considering this question
not once but three times before it went to
the Court of Appeals, you have in front of
you all the documentation that the Court
of Appeals then found showed fraud, on
this Court.
Now, the interesting irony is how
could it have been a fraud on this Court
if this Court had in front of it all the
information? Fraud on the Court requires
hiding or misrepresenting to the Court but
the documents used by the Fourth Circuit
were also before this Court.
Another concern of ours, Your Honor,
is that Mr. Green is basically being
hoisted upon his own statement. He is
being accused of committing a fraud on
this Court. Your Honor might say he has
been found to have committed a fraud upon
this Court by the Fourth Circuit. Yet he
Te alla acini Rt 09 Livre thiew Na natin Weide. De alata, hiae eave edadeealid
oii ies apis ve abd sts? esi i Nini eS H Bias
195a
is being hung by his own statement. If
the man were a fraud on the Court, he
would have hidden it. He would have des-
troyed something. But what did he do? He
provided in discovery the very things that
are now being used against him. He pro-
duced them not only in a timely fashion.
He didn’t have to be compelled to answer
these questions. He willingly produced
this information before it was due. He
had at least three or four more days be-
fore the discovery was due to be filed but
he filed it early. How is that evidence
that the man committed a fraud on the
Court? It’s a very scary situation, Your
Honor, because all he did was follow the
rules and now he is being told that be-
cause they delayed taking their discovery,
because they did not make the argument
sooner, he committed a fraud on the Court,
and made misrepresentations to them but he
196a
never did that. He never made any mis-
representations to them.
He wasn’t even deposed. His plead-
ings although they use some phraseology
which doesn’t really apply to the situa-
tion, referring to the phrase "bonafide
purchaser," there is no such thing as a
bonafide purchaser of a note. There is a
holder or holder in due course. Bonafide
purchaser is an Article 2 concept. Holder
and holder in due course are analog in Ar-
ticle 3. But for some reason he is being
told because he claimed to be a bonafide
purchaser, he somehow defrauded the Court
and defrauded the defendant.
But that’s not the case. He gave
$10,000 in value for that note. Your
Honor, for those reasons, not only do we
believe that this Court’s hands are not
tied on the subject of sanctions, particu-
larly in terms of the finding of facts,
197a
but also that this Court could grant the
60(b) motion.
Your Honor, are also aware that we
have requested an evidentiary hearing on
this matter, because we believe that be-
fore $65,000 more in sanction can be
awarded --
THE COURT: Well, I haven’t arrived
at any figure.
MR. TOOTHMAN: I understand.
THE COURT: I understand that’s what
is being requested. All right. ,
MR. TOOTHMAN: Let me -- I would like
to go through the Rule 11 and list from
another thing. Your Honor is aware I con-
tend there is no basis for Rule 11 sanc-
tions on the question of whether Mr. Green
misled the Court about the facts, because
I believe that he didn’t. If he were
allowed to tell his side of the facts in
fact --
198a
THE COURT: I am not going to let you
reexamine the facts that I find the Court
of Appeals has already decided. One of
those is that in his pleadings, Green con-
sistently and materially misrepresented
his status as a holder of the note,
Claiming that he was a quote "bonafide
purchaser of the note for value."
Now, that is a fact that I don’t
think I can reexamine to determine whether
it’s true or not. It’s a finding that I
don’t think I can reach.
MR. TOOTHMAN: Your Honor, would you
consider in the alternative though issuing
some sort of finding that if you were
allowed to consider the fact --
THE COURT: No.
MR. TOOTHMAN: I didn’t think so,
Your Honor.
There is another aspect of the Rule
11 sanction question, not only can one be
199a
sanctioned for misstating the facts, and I
contend we did not although there is some
dispute about that and perhaps none, the
other argument is also whether we were
making allegations that were clearly fri-
volous under the law at the time. The
Fourth Circuit again makes it sound as
though the law was very clear, but yet
they only cite one Virginia Supreme Court
case that is factually distinguishable
from the 1940’s before the Uniform Conm-
mercial Code was even in effect.
Yet in our reconsideration motion to
the Fourth Circuit, we pointed out a 1981
case from the Supreme Court --
THE COURT: Why go through this exer-
cise? I haven’t the authority to reex-
amine whether the Court of Appeals was
right.
MR. TOOTHMAN: Bu
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.