     07-4029-cv
     SCR v. Warshawsky

1                           UNITED STATES COURT OF APPEALS

2                               FOR THE SECOND CIRCUIT

3                                 August Term, 2008

4    (Argued: November 21, 2008                   Decided: March 12, 2009)

5                               Docket No. 07-4029-cv

6                    -------------------------------------

7                              SCR JOINT VENTURE L.P.,

8                                Plaintiff-Appellee,

9                                       - v -

10                       ARI WARSHAWSKY and JEROME WARSHAWSKY

11                              Defendants-Appellants.

12                   -------------------------------------

13      Before: SACK and WESLEY, Circuit Judges, and KAHN, District
14                                Judge.*

15               Appeal from a judgment of the United States District

16   Court for the Eastern District of New York (Arthur D. Spatt,

17   Judge).   The district court granted summary judgment for

18   plaintiff-appellee SCR Joint Venture L.P. in its action to

19   collect an allegedly unpaid debt from defendants-appellants

20   Jerome and Ari Warshawsky, and denied the Warshawskys' motion to

21   reconsider that decision.

22               We conclude, contrary to the decision of the district

23   court, that, in the circumstances presented, a statement in an



           *
            The Honorable Lawrence E. Kahn, of the United States
     District Court for the Northern District of New York, sitting by
     designation.
1    affidavit opposing the motion for summary judgment made "to my

2    knowledge" was made with sufficient personal knowledge to create

3    a genuine issue of material fact as to whether the senior debt

4    had not been repaid, a fact that, if established, would preclude

5    suit based on certain guarantees made by the defendants.   To that

6    extent we vacate the judgment of the district court.   We agree

7    with the district court and affirm, however, insofar as it

8    dismissed on summary judgment the Warshawskys' claim that SCR

9    acquired its interest with a champertous purpose in violation of

10   section 489 of New York's Judiciary Law, and insofar as it

11   granted summary judgment on SCR's claim for payment of debt on

12   the so-called "Carve-Out Note."

13                Affirmed in part, vacated in part, and remanded.


14                            RICHARD GABRIELE, Westerman, Ball,
15                            Ederer, Miller & Sharfsten, LLP,
16                            Mineola, NY, for Appellants.

17                            STEVEN GIORDANO, Vlock & Associates,
18                            P.C., New York, NY, for Appellees.

19   SACK, Circuit Judge:

20             Defendants-Appellants Jerome and Ari Warshawsky (the

21   "Warshawskys"), father and son, appeal from an order of the

22   United States District Court for the Eastern District of New York

23   (Arthur D. Spatt, Judge) filed August 17, 2007, denying a motion

24   to reconsider an order of the court filed June 6, 2007.    In the

25   June 6 order, the district court granted summary judgment in

26   favor of Plaintiff-Appellee, SCR Joint Venture L.P. ("SCR"),

27   based on the Warshawskys' guarantees to SCR of notes that had

                                       2
1    been issued by their business, I.W. Industries Inc. ("IW"), in

2    connection with an ultimately unsuccessful reorganization in

3    bankruptcy of the business.

4              The district court concluded that the relevant

5    agreement between the parties required the senior IW debt to be

6    repaid before SCR could seek to collect on the guarantees.    It

7    further held that the Warshawskys had the burden of establishing

8    that the senior debt has not been repaid, and that they had not

9    raised a triable issue of fact on that issue because their

10   evidence as to it consisted only of hearsay deposition testimony

11   and an affidavit of Jerome Warshawsky stating that "[t]o my

12   knowledge, [the Senior Creditor] has not been paid in full."

13             We conclude that in this context, a statement made "to

14   my knowledge," unlike a statement made "upon information and

15   belief," is sufficient to assert personal knowledge and thus

16   created a genuine issue of material fact as to the repayment.      We

17   therefore vacate the district court's judgment in that respect

18   and remand as to that claim.   We affirm the district court's

19   grant of summary judgment against the Warshawskys, however, on

20   their claim that SCR acquired its interest in the debt with a

21   champertous purpose in violation of section 489 of New York's

22   Judiciary Law, and on SCR's claim for repayment of one of the

23   notes, which the parties refer to as the "Carve-Out Note."




                                      3
1                                BACKGROUND

2              On March 3, 2004, in connection with IW's ultimately

3    unsuccessful Chapter 11 bankruptcy reorganization proceedings,1 IW

4    and SCR's predecessor in interest, Summitbridge National

5    Investments, LLC ("Summitbridge"), executed three notes: (1) a

6    "Carve-Out Note" in the sum of $79,971.77; (2) a "New

7    Subordinated A Note" in the sum of $429,300; and (3) a "New

8    Subordinated B Note" in the sum of $2,075,505.74 (collectively

9    the "Notes").   On the same day, the Warshawskys each individually

10   executed personal guarantees for payment of the Notes in the

11   aggregate sum of $2,584,777.51 (the "Guarantees").

12             The next day, the Warshawskys, Summitbridge, Citibank

13   N.A., and FCC, LLC, doing business as First Capital ("First

14   Capital"), executed another agreement with IW called the Debt

15   Subordination and Intercreditor Agreement (the "Subordination

16   Agreement"), which, among other things, subordinated the debt of

17   Summitbridge and Citibank, the "Junior Creditors," to that of

18   First Capital, the "Senior Creditor."    About four months later,

19   on July 12, 2005, Summitbridge assigned and transferred its

20   interest in the Notes and Guarantees to SCR.

21             According to SCR, the Warshawskys defaulted with

22   respect to their obligation under the Notes and Guarantees by

23   failing to pay any of the principal of or interest on them.    This

24   appeal arises out of an action by SCR brought in the district


          1
             The company later underwent a consensual liquidation by
     its secured creditors.

                                      4
1    court to collect this allegedly unpaid debt.      The court granted

2    summary judgment for SCR on three grounds relevant to this

3    appeal.   Memorandum and Order Granting Summary Judgment 21, SCR

4    Joint Ventures, L.P. v. Warshawsky, No. 06 Civ. 3532 (E.D.N.Y

5    Sept. 18, 2007) (Docket No. 47).       First, the court rejected the

6    Warshawskys' argument that SCR could not collect its debt because

7    the senior debt had not been repaid, concluding that the

8    Warshawskys had submitted no admissible evidence to show that the

9    senior creditor had not been paid in full.      Id. at 10-13.

10   Second, the court rejected the Warshawskys' argument that SCR

11   acquired the debt with a champertous purpose in violation of

12   section 489 of New York's Judiciary Law, concluding that this

13   argument was waived, and, even were it not, that there was no

14   evidence establishing a triable issue of fact to support it.      Id.

15   at 13-18.    Third, the court rejected the Warshawskys' argument

16   that more discovery was needed prior to summary judgment in light

17   of SCR's refusal to cooperate, concluding that the Warshawskys

18   could have obtained the requested information previously.       Id. at

19   18-21.    The Warshawskys filed a motion to reconsider the grant of

20   summary judgment, which the district court denied.      The

21   Warshawskys appeal.

22                                 DISCUSSION

23               I.   Reviewability of the Summary Judgment Order

24               The Warshawskys' notice of appeal, while referring to

25   the grant of summary judgment, explicitly appeals only from the



                                        5
1    denial of their motion to reconsider.2    SCR argues that we

2    therefore have jurisdiction to review only that order, not the

3    underlying grant of summary judgment.

4                Our recent decision in "R" Best Produce, Inc. v.

5    DiSapio, 540 F.3d 115 (2d Cir. 2008) counsels otherwise.       In "R"

6    Best Produce, we decided that we had jurisdiction to review an

7    underlying district court order -- in that case denying a motion

8    to vacate a default judgment -- where the notice of appeal

9    referred to an order denying reconsideration, but not the

10   underlying order itself.    We endorsed a "straightforward

11   approach" to resolving the issue of which orders, not referred to

12   in a notice of appeal, are reviewable, concluding that "a notice

13   of appeal from denial of a motion to reconsider, filed within ten

14   days of the order or judgment sought to be considered, suffices

15   to bring up for review the underlying order or judgment, at least

16   where the motion renews arguments previously made."       Id. at 121.

17   The motion to reconsider in the instant case similarly "renews



          2
              The Notice of Appeal states that the appeal is

                 from the Memorandum Decision and Order of the
                 Honorable Arthur D. Spatt, United States
                 District Judge, denying Defendant's Motion
                 for Reconsideration, entered on the 20th day
                 of August, 2007, which Order denied
                 reconsideration of the Memorandum Decision
                 and Order granting Plaintiff's Motion for
                 Summary Judgment, denying Defendants' Cross-
                 Motion for Summary Judgment and granting
                 related relief, entered on the 21st day of
                 June, 2007.

     Notice of Appeal, SCR Joint Ventures, L.P. v. Warshawsky, No. 06
     Civ. 3532 (E.D.N.Y Sept. 18, 2007) (Docket No. 59).
                                     6
1    arguments previously made," and, therefore, we may review the

2    underlying order granting summary judgment.

3                II.    Standard of Review

4                "We review a district court's grant of summary judgment

5    de novo, construing the evidence in the light most favorable to

6    the non-moving party and drawing all reasonable inferences in its

7    favor."    Allianz Ins. Co. v. Lerner, 416 F.3d 109, 113 (2d Cir.

8    2005).    Summary judgment must be granted to the movant "if the

9    pleadings, the discovery and disclosure materials on file, and

10   any affidavits show that there is no genuine issue as to any

11   material fact and that the movant is entitled to judgment as a

12   matter of law."      Fed. R. Civ. P. 56(c); see also Roe v. City of

13   Waterbury, 542 F.3d 31, 35 (2d Cir. 2008).       "An issue of fact is

14   genuine if the evidence is such that a reasonable jury could

15   return a verdict for the nonmoving party.        A fact is material if

16   it might affect the outcome of the suit under the governing law."

17   Id. (citation and internal quotation marks omitted).

18               III.    Payment of the Senior Debt

19               Section 2.4(a) of the Subordination Agreement provides:

20               Until the Senior Creditor Repayment, no
21               Junior Creditor shall be entitled to exercise
22               any rights or remedies with respect to . . .
23               any Guarantor or any Junior Creditor
24               Guaranty, including without limitation to the
25               right to . . . make demand under, sue under
26               or otherwise seek payment under any Junior
27               Creditor Guaranty. . . .
28   Subordination Agreement, § 2.4(a).      Under the terms of the

29   Subordination Agreement, then, until full repayment has been made

30   to the Senior Creditor, Junior Creditors, such as Summitbridge
                                         7
1    and its successor in interest SCR, cannot bring suit against the

2    Guarantors, the Warshawskys, for the Junior Creditor Guaranty,

3    i.e., the debt owed to the Junior Creditor by the Warshawskys.

4                This lawsuit was brought for precisely that purpose: to

5    collect on the debt allegedly owed to SCR by the Warshawskys.

6    The Warshawskys assert that the Senior Creditor had not been paid

7    in full at the time this action was begun, and that, therefore,

8    this lawsuit is barred.

9    A. SCR's Arguments Based on Contractual Language

10               SCR argues that the remainder of section 2.4(a)3

11   nonetheless permits it to bring this suit.    But the proviso

12   contained in that section applies only to "the Citibank Carve-Out

13   Note, the Summitbridge Carve-Out Note or the Citibank Short Fall

14   Note," not the New Subordinated A Note or the New Subordinated B

15   Note at issue.




          3
              The remainder of Section 2.4(a) reads:
                 Notwithstanding the foregoing, if a Junior Creditor
                 Note Default occurs with respect to the Citibank Carve-
                 Out Note, the Summitbridge Carve-Out Note or the
                 Citibank Short Fall Note, other than a default based
                 solely upon the fact that a Junior Creditor Note
                 Default under the Citibank Sub A Note, the Summitbridge
                 Sub A Note, the Citibank Sub B Note or the Summitbridge
                 Sub A Note has occurred, the applicable Junior Creditor
                 may demand, sue for, take or receive from any Guarantor
                 (but not from Borrower), by set off or in any other
                 manner, the whole or any part of the amount due to such
                 Junior Creditor in respect of the Citibank Carve-Out
                 Note, the Summitbridge Carve-Out Note and/or the
                 Citibank Short-Fall Note.

     Subordination Agreement, § 2.4(a).
                                     8
1              Section 2.6(b) of the Subordination Agreement provides

2    that the "rights and interests . . . hereunder . . . shall remain

3    in full force and effect irrespective of . . . any . . . defense

4    available to . . . Borrower."   Subordination Agreement, § 2.6(b)

5    (emphasis added).   SCR argues that this section permits it to

6    assert its claim under the subordinated notes because it

7    establishes that the Subordination Agreement does not "provide a

8    defense" for the Warshawskys or "limit the rights" of SCR.

9    Appellee Br. 20.    But the provision refers only to the rights and

10   interests under the Subordination Agreement.   The Warshawskys are

11   not asserting that the rights thereunder are not "in full force

12   and effect."   They insist only that these rights not be expanded

13   to permit collection of the junior debt before the senior debt

14   has fully been paid.4

15   B. The Warshawkys' Arguments Based on Nonpayment of the Senior
16   Debt
17            The district court found that while the Senior Creditor

18   had to be repaid before SCR could bring suit for its debt, the

19   Warshawskys had not submitted admissible evidence to establish

20   that the Senior Creditor had not been paid in full.   In their

21   motion to reconsider, the Warshawskys pointed out that prior to

22   the court's ruling on the summary judgment motion, they had


          4
            SCR also insists that it is entitled to relief on the
     basis of principles established in Minority Equity Capital Co. v.
     Jackson, 798 F. Supp. 200 (S.D.N.Y. 1992). But even were Jackson
     binding on the district court or on us, SCR's reliance is
     misplaced. The subordination agreement there contained an
     exception whereby the clause barring the right to bring suit
     before the senior debt was paid was not applicable if the debtor
     missed three consecutive payments. Id. at 202. There is no
     similar exception here.
                                      9
1    submitted an affidavit by Jerome Warshawsky.     It stated in

2    pertinent part:    "To my knowledge, First Capital has not been

3    paid in full."    Affidavit of Jerome Warshawsky, dated February 9,

4    2007 ("Warshawsky Aff.") ¶ 7.    The district court nonetheless

5    denied the motion to reconsider because it concluded that

6    "statements made 'to my knowledge,' or similar statements made

7    upon information and belief or upon speculation are generally

8    insufficient to raise a triable issue of fact sufficient to

9    defeat summary judgment."     Order Denying Motion To Reconsider 6,

10   SCR Joint Venture, L.P. v. Warshawsky, No. 06 Civ. 3532 (E.D.N.Y.

11   Aug. 17, 2007) (Docket No. 52).

12               We disagree.   To be sure, for summary judgment

13   purposes, "[a] supporting or opposing affidavit must be made on

14   personal knowledge."    Fed. R. Civ. P. 56(e)(1). "The Rule's

15   requirement that affidavits be made on personal knowledge is not

16   satisfied by assertions made 'on information and belief.'"

17   Patterson v. County of Oneida, N.Y., 375 F.3d 206, 219 (2d Cir.

18   2004).   An affidavit making allegations on the basis of a party's

19   personal knowledge, and not merely on information and belief,

20   however, may be relied upon to oppose summary judgment.       See id.

21               Jerome Warshawsky's affidavit satisfies the

22   requirements of Rule 56(e).     He stated that he was a former Vice

23   President of IW and "fully familiar with the facts and

24   circumstances set forth" in the affidavit.     Warshawsky Aff. ¶ 1.

25   He testified, "To my knowledge, First Capital has not been paid

26   in full."    Id. ¶ 7.
                                       10
1              It is perhaps unfortunate that the drafter of the

2    affidavit, likely not Mr. Warshawsky himself, used the phrase

3    "[t]o my knowledge" before asserting that First Capital had not

4    been paid in full.   He could have simply said, "First Capital has

5    not been paid in full," and thereby avoided the issue of the

6    significance of the phrase "[t]o my knowledge."   In this context,

7    though, we think that the phrase "to my knowledge" was redundant

8    -- it clearly meant "I know that . . . ."    It does not mean that

9    the asserted fact was made only "upon information and belief,"

10   the ordinary suggestion of which is: "I have reason to believe

11   this fact but do not have personal knowledge of it."5

12             Insofar as there is confusion, it likely arises because

13   the phrase "to my knowledge" is similar to the common expression

14   "to the best of my knowledge," which seems to inject a level of

15   uncertainty into just how sure the declarer is of the truth of

16   the asserted fact.   We need not decide today, and therefore do

17   not address, the extent to which a statement "to the best" of an

18   affiant's knowledge is, in a particular context, made with

19   personal knowledge sufficient to raise a genuine issue of

20   material fact when opposing a motion for summary judgment.

21             We conclude that Jerome Warshawsky's statement, based

22   on his personal knowledge, that the Senior Creditor had not been


          5
            Several of the cases on which the district court relied to
     conclude that Jerome Warshawsky's statement did not raise a
     triable issue of fact dealt with statements made "on information
     and belief," or grounded on suspicion or hearsay. The cases that
     specifically involved the phrase "to my knowledge," in addition
     to not being binding on this court, were cases, unlike this one,
     where the affidavit made no claim of personal knowledge.
                                     11
1    paid raised a "genuine issue" as to whether the Senior Creditor

2    has been paid in full, a fact, which, if established, would

3    certainly be "material."   The district court therefore erred in

4    granting summary judgment for SCR on this ground.

5              IV.   The Defense of Champerty

6              The Warshawskys also argue that SCR may not maintain a

7    lawsuit against them based on its interest in the Notes and

8    Guarantees because that interest was obtained with a champertous

9    purpose in violation of Section 489 of New York's Judiciary Law.

10   Section 489 renders it unlawful for a "corporation or

11   association . . . [to] solicit, buy or take an assignment

12   of . . . a bond, promissory note . . . or any claim or demand,

13   with the intent and for the purpose of bringing an action or

14   proceeding thereon."   N.Y. Jud. L. § 489.   "[A]n assignment made

15   in violation of [this] statute is void and may not be sued upon."

16   Semi-Tech Litig., LLC v. Bankers Trust Co., 272 F. Supp. 2d 319,

17   331 (S.D.N.Y. 2003), aff'd and adopted in relevant part, 450 F.3d

18   121, 123 (2d Cir. 2006) (per curiam).   The statute is violated if

19   the "'primary purpose . . . , if not the sole motivation behind[]

20   entering into the transaction'" was bringing suit.   Id. (quoting

21   Bluebird Partners, L.P. v. First Fid. Bank, N.A., 94 N.Y.2d 726,

22   736, 709 N.Y.S.2d 865, 871, 731 N.E.2d 581, 587 (2000)) (ellipsis

23   in original).   But if "the accused party's primary goal is found

24   to be satisfaction of a valid debt," and the party only intends

25   to bring suit absent full performance of the valid debt, the

26   statute is not violated.   Elliot Assoc., L.P. v. Banco De La

                                     12
1    Nacion, 194 F.3d 363, 381 (2d Cir. 1999) (internal quotation

2    marks omitted).   The district court concluded that the

3    Warshawskys had waived the champerty defense by failing to raise

4    it in their answer and found that, in any event, the claim failed

5    on the merits.

6               SCR offered proof, by affidavit, that it attempted to

7    collect the debt without litigation, and that only after the

8    Warshawskys failed to satisfy the debt did SCR decide to bring

9    suit.   Unrebutted as it is, we think this is sufficient evidence

10   to support the district court's conclusion as a matter of law

11   that SCR's primary goal was satisfaction of the debt, and,

12   therefore, it did not violate section 489 in obtaining its

13   interest in the Notes and Guarantees and bringing suit thereon.

14   While the Warshawskys point to evidence of the denial of a

15   license in Massachusetts to a company related to SCR because of

16   the company's predatory collection practices, this raises no

17   issue of triable fact as to SCR's intent in acquiring its

18   interest in the Notes and Guarantees.   The district court

19   therefore correctly granted summary judgment to SCR with respect

20   to the Warshawskys' claim that SCR's interest in the Notes and

21   Guarantees is not valid because it was acquired in violation of

22   section 489.   Because the district court correctly granted

23   summary judgment on the merits, we need not decide whether the

24   court correctly found the argument to have been waived.

25              The Warshawskys had sought to determine the amount of

26   consideration SCR had paid Summitbridge for its interest in the

                                     13
1    Notes in hopes of demonstrating that it was nominal -- an

2    indication of a champertous purpose in obtaining them.     See,

3    e.g., Aubrey Equities, Inc. v. SMZH 73rd Assocs., 212 A.D.2d 397,

4    398, 622 N.Y.S.2d 276, 278 (1st Dep't 1995) (finding issue of

5    triable fact where "the transfer was for what appears to be a

6    token consideration").   But the district court concluded, rightly

7    in our view, that further discovery regarding the amount of

8    consideration SCR paid for the Notes and Guarantees was not

9    warranted.   The Warshawskys had adequate opportunity to obtain

10   that information, through discovery and otherwise, and failed to

11   do so.

12             V.   The "Carve-Out" Agreement

13             Finally, the Warshawskys conceded at oral argument that

14   Section 2.4 of the Subordination Agreement does not bar suit on

15   their debt under the "Carve-Out Note."     It is thus not contested

16   that summary judgment was properly granted for SCR with respect

17   to SCR's suit for repayment on the Carve-Out Note.

18                               CONCLUSION

19             For the foregoing reasons, we affirm the district

20   court's grant of summary judgment dismissing the Warshawskys'

21   claim that SCR violated section 489 of New York's Judiciary Law.

22   We also affirm the district court's grant of summary judgment for

23   SCR with respect to the Carve-Out Note.     But we vacate the

24   judgment insofar as it was based on the absence of a genuine

25   issue of material fact as to whether First Capital, the Senior

26   Creditor, had been paid in full.     The judgment of the District

                                     14
1   Court is affirmed in part, vacated in part, and the case is

2   remanded for further proceedings.




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