Opposition Brief — Heady v. Barclays Bank of New York

No. eat spray Cong, U.S ore

IN THE DEC 23 1996

Supreme Court of the United States

October Term, 1996

BRIAN T. HEADY, et ux., aka HEADY ELECTRIC CO.,

Petitioner,

against

BARCLAYS BANK OF NEW YORK, N.A..,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO COURT OF APPEALS,

STATE OF NEW YORK

RESPONDENT'S BRIEF IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

GELLERT & CUTLER, P.C.

Attorneys for Respondent

Barclays Bank of New York, N.A.

75 Washington Street

Poughkeepsie, NY 12601

(914) 454-3250

LILLIAN S. WEIGERT

Counsel of Record

THE REPORTER CO., INC.- Walton, NY 13856 - 800-252-7181

Syracuse Office, University Suilding. Syracuse, NY 13202 - 315-426-1235

NYC Office - 30 Vesey St.. New York, NY 10007 - 212-732-6978 - 800-800-4264

(2764 — 1996) j

Printed on Recycled Paper , \

.

*

-

’

¢

/

.

eo?

—

«= -

» ‘

2

—

Jt

a. ‘ i.

i

Question Presented

1. Whether this Court has jurisdiction to consider Petitioner's

arguments and whether the writ of certiorari should be denied

since:

(i) No federal question is presented and there is no decision

on the merits by New York State's highest Court; this is

a properly decided state law case of default and collec-

tion of a bank loan;

(ii) Appellant lacks standing to assert and represent the

claims of other necessary parties;

(iii) Appellant did not comply with this Court's letter direc-

tive, dated October 10, 1996; and

(iv) Appellant omitted and misstated pertinent record facts,

prior proceedings and governing state law statutes and

cases in the petition?

——

Statement Pursuant to Rule 29.6

A listing of parent companies or non-wholly owned subsid-

iary companies of respondent, Barclays Bank of New York,

N.A. is set forth below:

Barclays PLC

Barclays Bank PLC

Barclays Corp.

Fenchurch Corp.

Baroreo I Corp.

Baroreo II Corp.

Barclays New Jersey Corporation

Baroreo Lloyd Corp.

Table of Contents

Page

Cemstians FOGG... cscs ccncveccesscsssiemeene i

Statement Pursuant To Rule 29.6 ...........cceecceecces i

TORO CE CS oo cserccvcccedvaseseaveciiawies ii

TMC CUMMNNE «0. ecu: sncsieacccsicneeseeneie iv

Dees GE FUN oo ic i cavaccteasevcapanrauass Vv

Diaheas OE Tae CASS se ccc iccsacdeesteeueeesavesin ]

A. Decisions And Opinions Below............... |

B. Course Of Proceedings And Disposition Of The Case

DOW vcccncinvatsievisbeneselt ieee 3

C. Correction Of Misstatements In The Petition .... 5

Reasons For Dettying The Writ ......cccccssscccsceees 9

I. This Court Has No Jurisdiction To Consider

PORRGR'S ARMNED ccxncaécccecacassnends 9

-- Il. In Any Event, New York State Law Was Correctly

PEG vccscvecsedcenadevesesss heehee 10

CIE oc vn ccccdeunes tocaenb exseencreusiseeees 11

iii

Respondent's Appendix

A. Barclays Bank Of New York, N.A., v. Heady Electric

Company, Inc., ef al., 174 AD 2d 963 (3d Dept.),

appeal dismissed, 78 NY 2d 1072 (1991) ....... Al

B. Statement Of Questions Presented To The Appellate

Division By The Heady Defendants On Appeal From

Judgment, Resulting In February 27, 1995 Decision

And Order (See A. App. 3) ....cccccccscccees A7

C. Uniform Commercial Code 9-503 ............. A9

iv

Table of Citations

Page

Cases Cited:

Adams v. Southern California First Nat'l. Bank, 492 F.2d 324

(9th Cir. 1973), cert. den., 19 U.S. 1006 ............ 10

Barclays Bank of New York, N.A. v. Heady Electric Co., et

al., 174 A.D.2d 963 (3d Dept.), appeal dismissed, 78

DE Fie SORRANOUER oc ccicavescucucesiburensseess 2

Carden v. Arkoma Associates, 494 U.S. 185 (1990) ........ 9

‘ Flagg Brothers, Inc. v. Brooks, 436 U.S. 149 (1978) ....... 10

Rowland v. California Men's Colony, 506 U.S. 194

CUO oc ccducpecduxedeaesssvauedecssesateunin 9

Winfield v. Society Nat'l. Bank, 845 F.2d 328 (6th Cir.

POD 6 ci cnncvcvcntesucencucuceceweesstaerees 10

Yee v. City of Escondido, 503 U.S. 519 (1992) .......... 10

Statutes Cited:

DUBE BAAD bocce vavevcccsesescestesesdéusuees v

Uniform Commercial Code 9-503 ...........0000 000: 6, 10

Vv

Statement of Jurisdiction

This Court does not have jurisdiction over this matter, 28

U.S.C. §1257(a). No federal question is presented, and in any

event, the purported federal questions were neither presented nor

passed upon during the state court trial and appeals on the

merits.

RESPONDENT'S BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

Respondent Barclays Bank of New York, N.A. ("Barclays")

respectfully requests the Court to dismiss or deny the petition for

writ of certiorari to review an order dated March 26, 1996,

which dismissed a motion for leave to appeai to the New York

Court of Appeals against Heady Electric Co., Inc. ("HEC") and

Coral A. Heady and otherwise denied the motion as to the

remaining appellant, Brian T. Heady, as well as the June 28,

1996 order denying reargument of such motion.

STATEMENT OF THE CASE

A. Decisions and Opinions Below

The order of the New York Court of Appeals, dated March

26, 1996, dismissed a motion for leave to appeal as to HEC and

Coral A. Heady on the grounds that Brian T. Heady is not an

attorney and was not their authorized legal representative and

upon the further ground that HEC, a New York corporation,

must appear by attorney. As to Brian T. Heady, without reaching

the merits, leave to appeal was summarily denied (A. App. 4).

The order of June 28, 1996 (A. App. 5) denied a motion for

reargument of leave to appeal and likewise did not address the

merits.

The decision and order of New York's Appellate Division,

(Second Judicial Department), which the Heady appellants

attempted to bring on appeal to the New York Court of Appeals,

is dated February 27, 1995 (A. App. 3-4). It is a unanimous

affirmance of a judgment against HEC, the borrower, and Brian

T. Heady and Carol A. Heady, guarantors, entered after a non-

jury trial to recover on promissory notes. No federal constitu-

tional issue was raised by the Heady defendants in the six

2

questions submitted on the appeal to the Appellate Division.

(See the Heady defendants’ Statement of Questions, Respon-

dents A-7.)

The decision following trial, dated August 13, 1992, is

reproduced at A. App. 1-2. As can be seen, no constitutional

question was raised or decided at trial.

Further, before trial, there was an interim appeal with respect

to the issue of waiver of jury trial, among other things. This

decision is reported at Barclays Bank of New York, N.A. v.

Heady Electric Co., et al., 174 A.D.2d 963 (3d Dept.), appeal

dismissed, 78 N.Y.2d 1072 (1991). No constitutional questions

were raised on this appeal; rather, the issue was whether the

borrower and guarantors had knowingly waived the right to jury

trial by contract.

In particular, the Appellate Division examined each of

Heady’s contentions as to the enforceability of the jury waiver

(none of them constitutional) and ruled that:

Between December 1983 and July 1985, Heady executed

six secured notes and two personal guarantees in con-

nection with the funds and line of credit extended to his

company by plaintiff. Each of these documents con-

tained a clause waiving the right to a jury trial in any

litigation where plaintiff was an adverse party. In

opposing plaintiff's motion to strike, however, [the

Heady] defendants argued that Heady was allegedly

unaware of the waiver provisions in the documents and,

therefore, should not be bound by them. Supreme Court

denied plaintiffs motion, ruling that the waiver provi-

sions in the various notes and agreements were ineffec-

tive. We disagree. As a general proposition, contract

3

provisions waiving a jury trial are valid and enforceable,

unless adequate basis io deny enforcement is set forth by

the challenging party . . . The right to a jury trial may

even be waived in an instrument other than that. . .

representing the agreement upon which the action is

founded. Here, defendants have set forth no adequate

basis to set aside the waivers.

The court continued:

Heady testified that either he or his attorney read all

documents to be signed. Moreover, even if Heady had

neglected to read the documents containing the waiver

provisions, this alone would not affect their validity . . .

Although defendants contend that the waivers were

actually buried in the small print of lengthy documents,

a review of these papers reveals that each of these

documents is only one page long and the waiver clause,

printed in the same size type as the rest of the document

(see supra), appears only a few lines above Heady’s

signature. Accordingly, defendants’ claim that the

waiver provision was hidden in the various agreements

lacks merit . . . (citations omitted), Id. at 965 (Respon-

dent's A-1).

As can be seen, no state court below was presented with nor

passed on a federal question.

B. Course of Proceedings and Disposition of the Case

Below

Petitioner, Brian T. Heady, seeks to prolong this torturous

eleven year state court contract litigation by, at this late date,

attempting to interpose constitutional claims that were never

4

timely or properly presented or passed upon, and which are

without foundation, rest on obviously false assumptions, and

have been explicitly foreclosed by previous decisions of holding

self-help repossession to be constitutionally valid.

This was a suit to collect on two promissory notes, brought by

Barclays against HEC and the two individual guarantors, Brian

T. Heady and Coral A. Heady, for the remaining principal

balance due of approximately $169,000.00, plus interest and

attorneys’ fees pursuant to the terms of the notes and guarantees.

Between December 1983 and July 1985, the Heady defen-

dants executed six secured notes and two personal guarantees in

connection with the funds extended by Barclays. Ail of these

transactions expressly provided that Barclays was allowed to

declare a default and accelerate repayment of the loan upon

failure of either monetary or non-monetary provisions of the

parties’ agreements, or in the event Barclays deemed itself

insecure. Mr. and Mrs. Heady and HEC were represented by

counsel in their transactions with Barclays; indeed that attorney

testified at trial.

In December, 1985, Barclays declared a default and acceler-

ated the notes because of HEC's failure to comply with non-

monetary terms of the notes and because Barclays deemed itself

insecure. Significantly in November, 1985, the bank had

learned that HEC's real estate collateral to Barclays was in

foreclosure by another party. Although Carol A. Heady owned

other real estate and multiple closings were scheduled, Brian T.

Heady would not permit replacement of real estate collateral to

take place. A promised equity infusion of $100,000 into HEC

had not been made. HEC had lost its primary source of busi-

ness, International Business Machines Corp. ("IBM"). A

substantial judgment of $48,830.11 had been entered against Mr.

5

Heady by his brother in late Novernber 1985. Pertinent business

and financial information had been withheld from Barclays. At

trial, these facts were confirmed, not only by a bank officer, but

by non-party witnesses and the Headys' own accountant, lawyer

and previous major customer, IBM.

When Barclays, on at least three occasions, offered to

continue financing HEC so long as, at a minimum, it provided

adequate replacement real estate collateral (which Carol A.

Heady owned), defendants did not accept such offers--determin-

ing instead to simply let the business go. The Headys' attorney

stated at trial that he had understood the risks and explained

them to Mr. Heady. Barclays reduced the indebtedness by

setting off HEC's accounts maintained at Barclays and repos-

sessing and selling at auction HEC property pursuant to the

parties’ agreements.

The trial judge and appellate court relied on the ample

documentary evidence and credible testimony to establish that

the Heady defendants were in default of their notes and guaran-

tees and that the repossession and sale of collateral conformed

to the parties' agreements and applicable state law, the points

raised and passed upon below.

C. Correction of Misstatements in the Petition

Decisions of the trial court and the Appellate Divisions

correctly set forth the pertinent facts of this case.

Pursuant to United States Supreme Court Rule 15.1, respon-

dents bring the following misstatements of facts contained in the

petition to the Court's attention. These points are addressed to

set the record straight—none of these points, even as misstated

in the petition, confer jurisdiction.

6

Petitioner misrepresents that the self-help commercial

repossession was conducted under a falsified court order. Mr.

Heady raised this wild claim at trial and on appeal to the

Appellate Division as a matter of state law. His contention was

rejected. The private document of seizure states on its face that

the repossessor is acting at the request of the lender to repossess

the collateral pursuant to agreement. It further states that:

1. the seizure is authorized by Uniform Commercial Code

("UCC") 9-503;

2. the seizure is pursuant to self-help repossession (not court

directed); and

3. that the party is contractually bound to surrender the

property.

The repossessor also handed Brian T. Heady copies of the

underlying security documents and did not say it was a court

order. He advised Mr. Heady to call an attorney, which Mr.

Heady did several times.

Mr. Heady also misrepresents that the police participated in

the repossession or were somehow tricked by Barclays. To the

contrary, a private repossession service performed the reposses-

sion as an independent contractor for Barclays. There was no

testimony by any police officer at trial, let alone that a police

department was "tricked" into permitting the repossession.

There was no testimony that the police ever mistook the

repossession document for a court order. The repossessor did

advise local police that a self-help repossession was scheduled.

In this regard, the transcript of a purported conversation

between one Thatcher and Heady, attached as Exhibit A to the

7

affidavit of Brian T. Heady, April 20, 1996 (Appellants'

Appendix) was neither proffered nor admitted in evidence.

Thatcher was not called as a witness. In any event, in the

transcript, Thatcher does not state that the document was signed

by a judge, or that he was "tricked".

Indeed, when Mr. Heady called the police to ask the reposses-

sion service to leave, that is exactly what happened—they ieft.

The trial judge noted this. Further, Mr. Heady as his own

testimony showed at trial, helpfully pointed out to the reposses-

sion service what collateral was covered by Barclays’ security

agreements and participated in the process.

It is true that the head of the repossession company was

licensed to and did carry a firearm. There was no false showing

of authority, such as a badge, in connection with the weapon.

Indeed when asked, he explained it was regular procedure to

protect the collateral. No criminal! charges were brought against

the repossession company or Barclays.

Defendants asserted below, as matters of state law, that the

repossession service's use of a piece of paper prepared by the

repossession service and authorizing it, as recovery agent to

conduct the seizure, constituted a crime, violated the UCC and

along with other alleged (but not proven) conduct, constituted a

breach of the peace.

In dismissing such claims on the facts under New York law,

the trial judge held there was no breach of the peace and

specifically noted:

The fact that [the repossessor] had a piece of paper that

said order of seizure, the fact that he had a gun—the gun

wasn't used to threaten anybody, Mr. Heady did have

access to his attorney, he couldn't get, certainly he could

have got him by the next day or even the day after

because this took place over three days, and it was by the

third day Mr. Heady then closed down and asked Mr.

Simoniette to leave, and what did Mr, Simoniette do?

He left. There wasn't any trouble. When Mr. Heady

said get out, he went. So, I don't understand and do not

feel that these four counterclaims can survive when they

all are dependent upon whether or not illegal means

were used to repossess the items. The court determines

as an issue of fact these items were not repossessed

illegally, and therefore, counterclaims seven, eight, nine

and ten are dismissed, and you have an exception to the

court's ruling [emphasis added].

The petition also misrepresents the facts as to the lack of

adequate collateral. Indeed, critical to defendants’ uncontra-

dicted default and Barclays’ decision to accelerate and setoff was

defendants’ failure to provide adequate collateral. Meetings and

phone calls took place in the Fall of 1985 due to Barclays’

concerns about the status of the loan. Certain property, which

was to have secured this loan, was in foreclosure and the loss of

real estate collateral was not resolved by the Heady defendants.

A prior lien on property had not been released. No closing of

replacement security occurred. The July 31, 1985 note matured

on March 31, 1986; Barclays was not paid by the borrower.

Indeed, no tender of payment was made. In addition, contrary

to the assertions in the petition, no order of attachment was

sought or required, and all state courts had the required and

complete evidentiary records before them.

9

REASONS FOR DENYING THE WRIT

I

This Court Has No Jurisdiction to Consider

Petitioner's Arguments

No federal question was raised in the pleadings, at trial, or in

the two appeals to New York's Appellate Divisions, which were

the only state appeals to decide issues on the merits. When the

Heady defendants attempted to reach the New York Court of

Appeals, their requests to do so were declined. That Court has

never ruled on the merits of the case.

There is only one petitioner here, Brian T. Heady as explained

at page ii of the petition. Carol A. Heady does not appear pro se

within the text of the petition and does not have counsel of

record. Petitioner Brian T. Heady is not an attorney and cannot

represent another purported party. Likewise Heady Electric Co..,

Inc., a New York corporation, may not appear in federal court

other than through a licensed attorney, Rowland v. California

Men's Colony, 506 U.S. 194 (1993) (corporations may not

appear in federal court other than through a licensed attorney);

Carden v. Arkoma Associates, 494 U.S. 185 (1990) (persons

represented by a corporate name can appear only by an attorney

—they are not really parties to the suit).

Further, when the New York Court of Appeals dismissed the

Heady defendants motion for leave to appeal, insofar as Brian T.

Heady purported to bring the motion on behalf of Carol A.

Heady and HEC, it grounded its decision on the fact that HEC,

as a corporation, did not have counsel as required under New

York law and that Mr. Heady, who is not an attorney, could not

represent Mrs. Heady.

10

Here, of course, Mr. Heady also cannot assert the purported

legal rights of other necessary parties. In this regard, by letter

dated October 10, 1996, the Office of the Clerk of this Court

reminded Mr. Heady that "it does not appear as though you are

a member of the bar of this court, therefore you may not

represent a company or corporation in this Court".

No federal question was either raised or decided on the merits

in any court below. Nowhere in appellant's papers does he

specify the portions of the record, in the court of first instance or

on appellate review, where the purported federal questions

sought to be reviewed were raised, the method or manner of

raising them and the way in which they were passed on by those

courts. This is because such review did take place, Indeed,

questions 5, 6 and 7 of the petition only serve to confirm this,

namely, that as stated by petitioner, only state law questions are

raised.

Therefore, the petition should be dismissed, Yee v. City of

Escondido, 503 U.S. 519, 523-33 (1992) (in reviewing state

court judgments, the court refuses to consider claims that were

not raised or addressed below).

Further, private self-help repossession under UCC 9-503 has

consistently been held to be constitutionally sound, Winfield v.

Society Nat'l Bank, 845 F.2d 328 (6th Cir. 1988); Adams v.

Southern California First Nat'l. Bank, 492 F.2d 324 (9th Cir.

1973), cert. den., 419 U.S. 1006; cf, Flagg Brothers, Inc. v.

Brooks, 436 U.S. 149 (1978).

1]

II

In Any Event, New York State Law Was Correctly Applied

As the trial court found upon review of the credible evidence

and the Appellate Division unanimously affirmed, the notes and

guarantees were in default and the repossession and public

auction sale fully complied with the contracts and state law

requirements.

The New York courts correctly applied New York commer-

cial law, on the facts of this case, as shown in the decisions

below.

Conclusion

For all of the foregoing reasons, the petition should be

dismissed, or the writ of certiorari denied.

Respectfully submitted,

LILLIAN S. WEIGERT

Counsel of Record for Respondent

Barclays Bank of New York, N.A.

GELLERT & CUTLER, P.C.

75 Washington Street

Poughkeepsie, NY 12601

(914) 454-3250

Al

Appendix A—Barclays Bank of New York, N.A. v. Heady

Electric Company, Inc., et al., 174 AD 2d 963 (3d Dept.),

appeal dismissed, 78 NY 2d 1072 (1991

(963) 17 Barclays Bank of New York, N.A., Appellant, v

Heady Electric Company, Inc., et al., Respondents.—Harvey, J.

Appeal (transferred to this court by order of the Appellate

Division, Second Department) from an order of the Supreme

Court (Jiudice, J.), entered September 5, 1990 in Dutchess

County, which inter alia, partially granted plaintiff's motion for

summary judgment.

On December 30, 1983, defendant Heady Electric Company,

Inc., by its president, defendant Brian T. Heady (hereinafter

Heady), executed a secured note in favor of plaintiff in the

amount of $150,000. Heady and his wife, defendant Coral A.

Heady, also executed a guarantee agreement in conjunction with

this transaction. The proceeds of this note and the others that

followed were rolled over and eventually consolidated in a note

executed on July 31, 1985 in the amount of $340,130. Under the

terms of the note and the accompanying commitment letter,

plaintiff was allowed to declare default and accelerate repay-

ment of the loan upon the happening of certain specified events.

In December 1985, although interest payments were timely and

the notes had not matured, plaintiff deemed itself insecure due

to the financial condition and conduct of Heady and his com-

pany, declared default and (964) accelerated repayment of the

loan. In an attempt to reduce the outstanding principal balance

due on the notes, plaintiff set off certain accounts and repos-

sessed and sold at auction the collateral belonging to Heady's

company. ”

Plaintiff commenced this action in January 1986 seeking to

recover the outstanding balance due on the loans, amounting to

approximately $185,000. Defendants answered and asserted 11

counterclaims and three affirmative defenses. These counter-

A2

claims and defenses chiefly concerned allegations by defendants

that plaintiff acted improperly in seizing and disposing of

defendants’ collateral and assets following plaintiff's declaration

of default. Defendants also sought $1,487,000 in actual damages

and $50,000,000 in punitive damages. In November 1989,

plaintiff moved for summary judgment dismissing defendants’

affirmative defenses, counterclaims and claims for punitive

damages, and, further, brought a separate motion to strike

defendants’ demand for a jury trial on the basis that defendants

had allegedly waived that right. Supreme Court denied plaintiff's

motions in all respects except that the court dismissed the

individual claims for punitive damages. Supreme Court did,

however, leave the request for punitive damages in the ad

damnum clause. This appeal by plaintiff followed.

Initially, plaintiff contends that Supreme Court erred in

denying its motion to strike defendants' demand for a jury trial.

Between December 1983 and July 1985, Heady executed six

secured notes and two personal guarantees in connection with

the funds and line of credit extended to his company by plaintiff.

Each of these documents contained a clause waiving the right to

a jury trial in any litigation where plaintiff was an adverse party.

In opposing plaintiff's motion to strike, however, defendants

argued that Heady was allegedly unaware of the waiver provi-

sions in the documents and, therefore, should not be bound by

them. Supreme Court denied plaintiff's motion, ruling that the

waiver provisions in the various notes and agreements were

ineffective.

We disagree. As a general proposition, contract provisions

waiving a jury trial "are valid and enforceable, unless adequate

basis to deny enforcement is set forth by the challenging party"

(Fordham Univ. v Manufacturers Hanover Trust Co., 145 AD2d

332, 333; see Armstrong Co. v Nechamkin,5S AD2d 520). The

right to a jury trial may even be waived "in an instrument cther

than that representing the agreement upon which the action is

A3

founded" (Franklin Natl. Bank v. Capobianco,25 AD2d 445).

Here, defendants have set forth no (965) adequate basis to set

aside the waivers. Heady testified that either he or his attorney

read all documents to be signed. Moreover, even if Heady had

neglected to read the documents containing the waiver provi-

sions, this alone would not affect their validity (see, James

Talcott, Inc. v Wilson Hosiery Co., 32 AD2d 524, 525). Al-

though defendants contend that the waivers were actually buried

in the small print of lengthy documents, a review of these papers

reveals that each of these documents is only one page long and

the waiver clause, printed in the same size type as the rest of the

document (see, supra), appears only a few lines above Heady's

signature. Accordingly, defendants' claim that the waiver

provision was hidden in the various agreements lacks merit (see,

Kimi Jewelers v Advance Burglary Alarm Sys., 161 AD2d 273).

As for defendants' contention that they should not be bound by

the waivers because their counterclaims largely sound in

intentional tort, as opposed to breach of contract, this argument

must fail because, unlike the situation presented in Cohn v.

Adler (139 AD2d 481, 482), the claims contained in defendants'

various counterclaims are actually based on plaintiff's alleged

violation of various provisions of the underlying agreements.

Inasmuch as the ciaims asserted are tied to the loan agreements,

Supreme Court erred in denying plaintiff's motion to strike the

jury demand. |

Next, the parties dispute the validity of provisions contained

in the various agreements providing for the waiver of defen-

dants' right to interpose setoffs and counterclaims. Plaintiff

contends that Supreme Court erred in not strictly enforcing these

waivers and dismissing all of defendants’ affirmative defenses

and counterclaims. This argument has some merit. It must be

remembered, however, that although "[a] waiver of the right to

assert a setoff or counterclaim is not against public policy", the

enforceability of such provisions depends on the nature of the

A4

claims involved (Federal Deposit Ins. Corp. v Marino Corp., 74

AD2d 620; see, European Am. Bank v Mr. Wemmick, Ltd., 160

AD2d 905, 906; Marine Midland Bank v CMR Indus., 159

AD2d 94, 104; Bayside Fuel Oil Depot Corp. v Savino Oil &

Heating Co., 133 AD2d 658, 659).

For example, a waiver provision will not be enforced to bar

a viable setoff or counterclaim sounding in fraud or one which

is based upon the creditor's negligence in failing to liquidate

collateral upon the guarantor’s demand (see, European Am. Bank

v Mr. Wemmick, Ltd., supra, at 906-907; Marine Midland Bank

v CMR Indus., supra, at 104; Federal Deposit Ins. Corp. v

Marino Corp., supra, at 620-621). Further, although a (966)

waiver limiting a creditor's responsibility as to collateral may

not be enforceable, the creditor may not use such a provision to

shield itself from liability if it breaches "the secured party's duty

to use reasonable care in the custody and preservation of

collateral" (Marine Midland Bank v CMR Indus., supra, at 104)...

It is beyond cavil that "[a] secured party's duty to act with due

diligence, reasonableness and care may not be disclaimed by

agreement" (supra).

Applying these principles to the matter at hand, it is our view

that only defendants’ first and second affirmative defenses

alleging violations of UCC 9-503 and 9-207, respectively, and

defendants’ fifth, seventh, eighth, ninth and tenth counterclaims,

also alleging UCC violations anc, sounding in fraud, survive

enforcement of the waiver clause. Supreme Court erred in not

dismissing the remaining counterclaims and affirmative defense.

As for plaintiffs contention that any surviving counterclaims

should be dismissed on summary judgment grounds, we cannot

agree. Defendants’ motion papers raise triable issues of fact

concerning, among other things, whether plaintiff and its agents

utilized reasonable care in the custody, preservation and disposal

of the seized collateral (see, UCC 9-207) and whether these

entities violated the self-help provision contained in UCC 9-503.

AS

Because these and other issues raised cannot be resolved on the

papers as a matter of law, their resolution must await trial. (see,

CPLR 3212{b)).

Nevertheless, although we agree with Supreme Court that

certain of the counterclaims interposed by defendants should

stand, we find no basis for the denial of plaintiff's motion to

strike defendants’ request for punitive damages from the ad

damnum clause. Although it is true that punitive damages can be

recovered in fraud claims (see, Chase Manhattan Bank v Perla,

65 AD2d 207, 211), here, even assuming that plaintiff did

indeed act in a wanton, willful or malicious manner as defen-

dants allege, defendants allege only private wrongs; they " ‘[do]

not seek to vindicate a public right or deter morally culpable

conduct’ " (Quail Ridge Assocs. v Chemical Bank, 162 AD2d

917, 921, lv dismissed 76 NY2d 936, quoting Halpin v Pruden-

tial Ins. Co., 48 NY2d 906, 907). Accordingly, Supreme Court

erred in failing to grant plaintiff's motion in this respect in its

entirety.

The remaining arguments raised by the parties have been

examined and found to be unpersuasive. In our view, Supreme

Court properly denied plaintiff's motion for summary judgment

with respect to defendants’ liability in the main action. (967)

Defendants’ opposition papers and the exhibits attached thereto

adequately assert defendants’ position that there was no reason-

able basis on which plaintiff could have deemed itself "insecure"

or concluded that defendants’ financial responsibility had

"become impaired". Because this proof sufficiently raised

questions of fact concerning the reasonableness of plaintiff's

declaration of default, a trial is necessary (see, Canterbury

Realty & Equip. Corp. v Poughkeepsie Sav. Bank, 135 AD2d

102, 109).

Mahoney, P. J., Levine, Mercure and Crew III, JJ., concur.

Ordered that the order modified, on the law, without costs, by

reversing so much thereof as denied plaintiffs motion for

A6

summary judgment dismissing defendants’ third affirmative

defense, first through fourth, sixth and eleventh counterclaims

and the claim for punitive damages, and denied plaintiff's

motion to strike defendants’ jury demand; said motions granted

to that extent, said defense and claims dismissed, and jury

demand stricken; and, as so modified, affirmed.

A7

Appendix B—Statement of Questions Presented to the

Appellate Division By The Heady Defendants On Appeal

From Judgment, Resulting In February 27, 1995 Decision

And Order (See A. App. 3)

STATEMENT OF QUESTIONS

1. Did the plaintiff use a false and fraudulent document (i.e.

an "Order of Seizure") which purported to be judicial process in

order to convince the defendants and police that the repossession

was court ordered in violation of Penal Law 190.50, and did the

plaintiff offer "Order Of Seizure” for filing in violation of Penal

Law 175.30, and in violation of the Uniform Commercial Code?

2. Did plaintiff convert property of defendants not covered by

security agreements with defendants while displaying a weapon

which acts constitute criminal larceny pursuant to Penal Law

160.10 and / or 155.30, and 155.55 and / or 155.45 and in

violation of the Uniform Commercial Code?

3. Did plaintiff breach the peace because it trespassed upon

another's real property in violation of Penal Law 140.05, and

break and enter the field office of defendant seizing it and its

furniture and equipment contents even though it did not have a

security interest in this property, all in violation of the Uniform

Commercial Code?

4. Did the plaintiff damage defendants property during and

after the repossession, and generally conduct itself in a way that

the value of the collateral was diminished due to abusive

conduct, or gross disregard, or mishandling, or outside storage

of electrical equipment, all in violation of the Uniform Commer-

cial Code?

5. Did plaintiff fail to hold, protect and dispose of the

collateral in a commercially reasonable manner as required by

the Uniform Commercial Code, performing its obligations to the

parties mutual best advantage?

A8

6. Was plaintiff justified in declaring the defendant in default

on December 31, 1985 as alleged, and did the lower court

improperly restrict testimony thus impeding defendants defense

by not allowing testimony and witnesses which if allowed would

have concluded that Barclays did not conduct itself in a manner

consistent with what a reasonable and prudent person would

have done in the same circumstances?

A9

Appendix C—Uniform Commercial Code 9-503

UCC 9-503 "Unless otherwise agreed a secured party has on

default the right to take possession of the collateral. In taking

possession a secured party may proceed without judicial process

if this can be done without breach of the peace or may proceed

by action. If the security agreement so provides the secured party

may require the debtor to assemble the collateral and make it

available to the secured party at a place to be designated by the

secured party which is reasonably convenient to both parties.

Without removal a secured party may render equipment unus-

able, and may dispose of collateral on the debtor's premises

under Section 9-504."