# Appendix — Green v. Foley > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0908%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1989 - **Citation:** 490 U.S. 1031 ## Text 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0908%3A2. Public record. Not legal advice.