SHORT FORM ORDER SUPREME COURT OF THE STATE OF NEW YORK. HON. DANIEL MARTIN Acting Supreme Court Justice. Plaintiff. Sequence No.

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1 SHORT FORM ORDER SUPREME COURT OF THE STATE OF NEW YORK wd PRESENT: HON. DANIEL MARTIN Acting Supreme Court Justice WENSLEY AND PARTNERS, LLC. TRIAL/IAS, PART 39 NASSAU COUNTY - against - Plaintiff. Sequence No.: 007,008 & 009 Index No.: /97 VINCENT POLIMENI, POLIMENI GRANTOR TRUST, GARDEN REALTY, INC., SKYLINE MANAGEMENT CORP., 600 REAL ESTATE ASSOCIATES, L.P., OLD COUNTRY REALTY, INC., BENNET GRUTMAN and MILTON KOENIGSBERG. Defendants. VINCENT POLIMENI and POLIMENI GRANTOR TRUST. Third-Party Plaintiffs. - against - SHELDON STREISAND and ERICA STREISAND a/k/a ERICA STREISAND NEEDLES. Third-Party Defendants. The following named papers have been read on this motion: Notice of Motion and Affidavits Annexed Notice of Cross-Motions and Affidavits Annexed Answering Affidavits Papers Numbered X X X Upon reading the papers submitted and due deliberation having been had her&n, the motion by defendants 600 Real Estate Associates, L.P., Old Country Realty, Inc., Bennet

2 Page -2- Grutman and Milton Koenigsberg (hereinafter referred to as the investor defendants) and crossmotion by defendants Vincent Polimeni, Polimeni Grantor Trust, Garden Realty, Inc. and Skyline Management Corp. (hereinafter referred to as the Polimeni defendants) for an order pursuant to CPLR 3212 granting summary judgment dismissing the complaint is granted. Crossmotion by plaintiff Wensley and Partners, LLC pursuant to CPLR 3212 for summary judgment against all defendants is denied. This action is essentially one wherein plaintiff, one of two partners in Shelvin Plaza Associates (thereinafter referred to as Shelvin), seeks damages and equitable relief alleging fraud, breach of fiduciary duty and unjust enrichment by its partners, Vincent Polimeni and the Polimeni Grantor Trust, arising out of a 1996 refinancing of the mortgage on 600 Old Country Road, Garden City, New York, the primary asset of Shelvin. At the core of this case with regard to the Polimeni defendants is the concept of whether the Polimeni defendants, for their own benefit, sold a note of Shelvin on the Old Country Road property for less than adequate consideration. (See complaint, paragraphs 30 & 3 1). There is no dispute that plaintiff Wensley and Partners, LLC is a family trust, the principal of which is Sheldon Streisand, and has a 50% interest in Shelvin. Defendant Vincent Polimeni is the principal of defendant Polimeni Grantor Trust and together they held a 50% interest in Shelvin until Vincent Polimeni transferred his interest to defendant Garden Realty, Inc., a company owned by him. Defendant Skyline Management is another firm owned by Vincent Polimeni which was the managing agent for the property at 600 Old Country Road. Milton Koenigsberg is the sole shareholder of Old Country Realty, Inc., the sole general partner of 600 Real Estate Associates, L.P. and Bennet Grutman is an officer of Old Country Realty. Fantac Corporation is another company in which defendant Polimeni had an interest which owned Motor Parkway in Hauppauge, New York. Plaintiff had no interest in the Motor Parkway property. The Polimeni defendants contend that in 1993 both properties were suffering from a severe slump in the commercial real estate market. They were both heavily mortgaged, in default with respect to both mortgage and tax payments, and Shelvin, the owner of Old Country Road, was in bankruptcy. The holder of the $15,000,000 mortgage on the Motor Parkway property was willing to accept $6,500,000 in full satisfaction of the defaulted loan. Defendant Polimeni found a lender willing to refinance that amount but, presumably in order to avoid a potentially devastating tax impact with respect to cancelled debt, the original mortgage was bifurcated into an A loan and mortgage and a B loan and mortgage. The A loan and mortgage went to the new lender and the B loan and mortgage were to be used to raise additional monies which were necessary to pay off liens on the property, including back taxes, so that the A loan could close. Apparently this was a refinance method which was widely used as a tax savings vehicle and had been used by both plaintiff and defendant before in prior dealings. It should be noted that plaintiff does not seem to take issue anywhere in its papers with the concept of the necessity for bifurcation. At this point enter the investor defendants, Grutman, Koenigsberg and Old Country Realty, Inc. who formed 600 Real Estate Associates. Representing a group of

3 limited partnership investors, they put up $l,ooo,ooo in exchange for a 2/3 participation in the B loan and mortgage for approximately $9,000,000 on the Motor Parkway property with l/3 retained by Polimeni. The investors were to be paid a return of 10% on their investment or $8,333 per month. As a further inducement to the investor defendants, Polimeni agreed that Skyline s management fees would be subordinated to the rights of the investors to receive their return until such time as the investors acquired any B loan to be created on Old Country Road and that Polimeni would use his best efforts to obtain the B note for 600 Real Estate Associates should that B note ever become available with respect to that property. He also gave the investors an option to acquire his interest in Shelvin. In 1994, when the Motor Parkway loan closed, there was as yet no primary lender willing to refinance the Old Country Road property although the holder of that mortgage was willing to take $10,250,000 in full satisfaction of its $26,000,000 mortgage. Therefore, no terms were then agreed to in the above option with respect to such a refinancing including even what amount the investors would have to offer in order to acquire a B loan on the Old Country Road property. While the option agreement to acquire Polimeni s interest in Shelvin recites consideration of $1,OOO,OOO, the participation agreement relative to the Motor Parkway property recites as and for its consideration the same $l,ooo,ooo for which it received the agreed upon return of $8,333 per month. In addition, for a period of time, Skyline was in fact called upon, pursuant to the subordination agreement, to forgo payment of its fees in favor of the claim of the investors to receive their return on the Motor Parkway property. In 1996 a lender was found willing to provide the $10,250,000 needed to refinance the mortgage on Old Country Road. A further amount of money was needed to clear the title of tax and other liens before closing and the mortgage was bifurcated into an A loan and a B loan, similar to the Motor Parkway refinancing. Mr. Polimeni offered Mr. Streisand the opportunity to acquire the B loan with him in the approximate sum of $14,000,000 for $3,000,000, or $1,500,000 each, and avoid outside financing for the B loan. Mr. Streisand refused and the B loan was then offered to the investor defendants who, after further negotiation, agreed to put up $2,000,000 to acquire it. As part of the negotiations, the investors demanded and received the right to continue to have Skyline s fees subordinated to their rights to payment with respect to the Motor Parkway property despite the 1994 agreements which had called for termination of those obligations. In addition, since the new lender would not permit a second mortgage, the mortgage to secure the B loan was spread to cover the Motor Parkway property which still belonged to Polimeni alone. The refinancing of Old Country Road was approved by the Bankruptcy Court and, in light of plaintiffs objections filed thereto, provided that Polimeni s signature alone was sufficient to bind the partnership. Polimeni, in addition to mortgaging his own property, was also required to assume certain personal guarantees to accomplish the refinancing and save the property from bankruptcy and foreclosure. Plaintiff remained a 50% partner in Shelvin which continued to own the property and Polimeni contends that the total indebtedness was reduced from $3 l,ooo,ooo to $26,000,000. With regard to the case as it pertains to the investor defendants, the investor defendants contend and raise the issue, factually, that they entered into an arms length transaction to secure for their benefit and for the benefit of their investors, the best possible deal in purchasing the B Page -3-

4 note on the Old Country Road property. Plaintiff alleges that in arranging the refinancing of the Old Country Road property Polimeni acted improperly in that he obtained for himself and/or entities owned by him alone, the following benefits: One million dollars invested in Fantac to rescue the Motor Parkway property. One third of any unused funds. 3. A forgiveness of Fantac s obligation to repay the one million dollars. 4. A termination of Skyline s obligation to secure repayment of the loan to Fantac through subordination of its right to management fees, and 5. An exorbitant and exclusive management agreement for Skyline. Plaintiff argues that as a result of the above, Polimeni has defrauded plaintiff, breached his fiduciary duty to plaintiff, which he bore as a result of being the managing partner of Shelvin, fraudulently transferred the B note on the Old Country Road property and unjustly enriched himself at the expense of plaintiff by selling the Old Country Road B note for less than adequate consideration and as stated in his motioh papers while [plaintiffs] interest and equity in Shelvin was wiped out or greatly diminished Plaintiff. further alleges that the investor defendants have conspired with and aided and abetted Polimeni in the above and that they have unjustly enriched themselves by acquiring the $14,000,000 B note for only $2,000,000. The court will first address the investor defendants motion for summary judgment. As stated previously they contend that they merely entered into an arms length transaction with another party acting in the best interests of themselves and their investors. A party moving for summary judgment has the burden of making a prima facie showing that it is entitled to judgment as a matter of law. (See Zarr v. Riccio, 180 AD2d 734.) As observed by the Second Department in Balv v. Chrvsler Credit Corn., 94 AD2d 781: In determining a motion for summary judgment, the court must ascertain whether there are any triable issues of fact in the proof laid bare by the parties submissions of affidavits based on personal knowledge and documentary evidence, rather than in conclusory or speculative affidavits (Behar v Ordover, 92 AD2d 557). The opponent of a motion for summary judgment must produce evidentiary proof in admissible form sufficient to require a trial of material questions of fact on which he rests his claim (Zuckerman v City oflvew York, 49 NY2d 557,562, and cases cited therein). Here, the investor defendants are in the difficult position of proving a negative, i.e., that they did not aid and abet the Polimeni defendants. The court finds that they have adequately and properly done so. Thus, the investor defendants then impose the burden on plaintiff of laying forth its proof Page -4-

5 in support of its position that the investor defendants aided and abetted defendant Polimeni in the alleged fraud and breach of fiduciary duty. This the plaintiff has failed to do. In opposition to all the defendants motions for summary judgment, plaintiff, in the affidavit of Mr. Streisand, offers nothing more than conclusory allegations meant to inflame the situation and offers no facts or proof in admissible form that would even tend to support its allegation that the investor defendants acted with the requisite knowledge of the alleged adverse impact of their actions on plaintiff. (See, Zuckerman v. City of New York, 49 N.Y.2d 557). Even assuming arguendo that plaintiff has met its burden of proving that the sale was for less than adequate consideration, it would be incumbent upon the plaintiff to put forth some facts that would show some degree of scienter on the part of the investor defendants. The court simply cannot find.that anywhere in plaintiffs papers. Counsel, in his memorandum of law, suggests the court adopt a position that the investor defendants be charged with the responsibility of investigating the circumstances of a transaction where certain red flags would indicate a question as to a fiduciary s obligation. (See, Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d (2 d Cir. 1992); American Ins. Co. v. Union Fidelity Life, 470 F.2d 820 (gth Cir. 1972); Brock v. Henderschott, 840 F.2d 339 (6 Cir. 1988). Plaintiff posits that the fact that the investor defendants entered into the option on the Old Country Road property when negotiating the Motor Parkway B note acquisition proves not only assistance but inducement. The court finds this argument at best circular and without further proof, plaintiff must be found lacking in its obligation to bring forth facts in rebuttal to the investor defendants position; in this case that the investor defendants had some knowledge of the alleged fraudulent transfer. The investor defendants motion is granted. The court now turns to the Polimeni defendants motion. First, as to plaintiffs claim for fraudulent transfer of the B note without fair consideration as alleged in the thirteenth cause of action that claim is dismissed on the technical grounds hereinafter recited. Plaintiff maintains this cause of action pursuant to the Debtor and Creditor Law $ [Elven if a transfer is made with actual intent to defraud creditors, one must be a creditor in order to complain. Martes v. USLife Cornoration, 927 F. Supp. 146 (S.D.N.Y. 1996). Plaintiff is not a creditor and therefore lacks standing to maintain an action for fraudulent conveyance. Further, there must be an allegation that the defendants made the conveyance with an intent to defraud. Martes v. USLife Corporation, supra. The fact remains that the conveyance of the mortgage was not made by any of the defendants, but was made by a third party who held the mortgage on the property. Plaintiffs claim for fraudulent transfer, as well as the claims for conspiracy relative to and for aiding and abetting the alleged fraudulent transfer are dismissed. Further, the Polimeni defendants argue that, as to a breach of fiduciary duty, while the 1994 agreements do provide for a benefit to Polimeni which could have resulted in a breach of fiduciary duty, namely a termination of the obligation to repay the $l,ooo,ooo loan to Fantac if the B loan on the Old Country Road property were to be obtained by 600 Real Estate Associates, that did not occur. At the time that Polimeni closed the loan in 1996, the loan to Page -5-

6 Fantac was not forgiven and the agreement by which Skyline subordinated its rights to fees to the investors rights to receive a stated return continued and did not terminate. They assert that plaintiff has not offered any proof that Skyline obtained special fees or benefits. Skyline had been the managing agent for the property prior to the refinancing with plaintiffs knowledge and apparent consent and charged standard fees for its services. Plaintiff has not shown that any renewal of this status carried with it any new or special benefit. At the heart of their argument is the position, as the court analyses the papers, that the plaintiff was not damaged. Although they argue that none of the benefits ever accrued to them, the mere fact that those benefits did not after the fact, is of little moment. Their intent at the time of the transaction is more telling than the result. What is important to the court is their argument, couched within their argument that they acted in good faith, that the plaintiff was not damaged. The court must determine first that they had set forth facts to establish that proposition so as to shift the burden to plaintiff to show facts in opposition. They also have the burden of proving a negative. The court finds that they have pleaded sufficient facts to raise the issue and compel the plaintiff to put forth facts to support its position that it was damaged. The Polimeni defendants have, through their affidavits as well as the affidavits of the investor defendants, set forth facts to show that this was an arms length transaction in which Shelvin Plaza Associates received the best deal it could. It then becomes incumbent upon the plaintiff to put forth facts to show that that was not so. Essentially plaintiff states and argues that as the Polimeni defendants sold the property under circumstances where they themselves, independent of the partnership, could benefit and they did so without the knowledge of plaintiff or the bankruptcy court. Plaintiff apparently contends that that fact, in and of itself, shows a violation of the Polimeni defendants duty of good faith as well as fraud. Although that may raise some question of fact in that regard, the court need not reach that issue, because the defendants suggest, along with and in conjunction with their professions of good faith, that the plaintiff was not damaged. Here the plaintiffs rebuttal falls woefully short. At the very essence of this lawsuit is the question of how a member of a partnership which is in bankruptcy and whose sole asset is being foreclosed upon can draw the conclusion that the actions taken by defendants wip[ed]out Wensley s equity in Shelvin, let alone offer facts to support that bold and bare conclusion. In Streisand s reply affidavit at Paragraph (5.), he asserts: The real nroblem was Polimeni giving; that entire $14 million note away for only $2 million. The real nroblem was Polimeni doing so, and thereby wining out Wenslev s eauitv in Shelvin. was the mice Polimeni had agreed to with the other defendants for his secret benefits. The real nroblem was the mice Polimeni paid for his secret benefits was something that didn t Page -6-

7 belong to him and something he had a fiduciary dutv to protect-wenslev and Shelvin uronertv s and eauitv. It should be noted that the court can find no other reference to how plaintiff was damaged in any of the papers submitted. It is not important that a $14 million note was sold for $2 million (plaintiffs position) or that after that sale, that the actual indebtness of the partnership was reduced (defendants position) if the note was worthless and the partnership could not pay its bills even with the reduction. What is important is whether the Polimeni defendants sold the note for less than adequate consideration (see paragraph 30 and 3 1 of the complaint). Such proof would go a long way to proving both bad faith on the part of the Polimeni defendants as well as how plaintiff was damaged. This the plaintiff has failed to do. Whether the defendants, all of them, posit the position that this was an arms length transaction for the purpose of showing a lack of fraud and bad faith or to say that the plaintiff was not damaged, the court must see some proof to rebut that position. As there is none, the Polimeni defendants motion is granted. As above mentioned, plaintiff has not established that Shelvin s equity in the Old Country Road property has in any way been impaired. Plaintiffs real complaint, aside from the fact that he didn t take a position in the B note when offered the opportunity, seems to be the sale of the $14,000,000 B note for the discounted price of $2,000,000. This decision, taken by Polimeni with the approval of the bankruptcy court, will not now be scrutinized by this court, with,or without the benefit of hindsight. (See Stuart Silver Associates v. Baco Develonment Corp.,245 AD2d 96; Levine v. Levine,184 AD2d 53.) The plaintiffs motion for summary judgment is denied as moot. For the foregoing reasons, the defendants motions for summary judgment dismissing the complaint are granted and the complaint is hereby dismissed. Submit judgment on notice. I So Ordered. Dated: October 16,200O Page -7-