FILED: NEW YORK COUNTY CLERK 02/13/2015 05:02 PM INDEX NO. 653564/2014 NYSCEF DOC. NO. 49 RECEIVED NYSCEF: 02/13/2015 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------------------------------------- X 8430985 CANADA INC., -against- Plaintiff, Index No. 653564/2014 IAS Part 54 (Justice Kornreich) Motion Seq. No. 0001 UNITED REALTY ADVISORS LP, ELI VERSCHLEISER and JACOB FRYDMAN, Defendants ------------------------------------------------------------------- X REPLY MEMORANDUM OF PLAINTIFF IN RESPONSE TO DEFENDANT UNITED REALTY ADVISORS LP AND JACOB FRYDMAN S OPPOSITION TO PLAINTIFF S MOTION FOR SUMMARY JUDGMENT IN LIEU OF COMPLAINT Plaintiff 8430485 Canada Inc. ( Plaintiff ) respectfully submits this Reply Memorandum in further support of its motion for summary judgment in lieu of complaint pursuant to New York Civil Practice Law & Rules ( CPLR ) 3213 (the Motion ). 1 The Opposition ( Opposition ) of United Realty Advisors LP ( URA ) and Jacob Frydman ( Mr. Frydman ) is a masterpiece of deflection, diversion and selective quotation in an attempt to create a factual issue that would preclude a determination of liability against URA and Mr. Frydman. The Opposition presents a complex tale that is predicated (in part) on the notion that the Promissory Note executed by URA on October 25, 2013 in favor of Plaintiff (the Note ) and the Guaranty executed by Mr. Frydman on 1 Plaintiff also submits herewith the Declaration of Hershey Friedman dated February 12, 2015 and the exhibit thereto (the Friedman Decl. ) and the Declaration of William Gryzwacz dated February 12, 2015 (the Gryzwacz Decl. ). Plaintiff also refers to the Affidavit of William Gryzwacz, sworn to November 14, 2014, submitted with plaintiff s initial motion (the Initial Gryzwacz Aff. )
October 25, 2013 in favor of Plaintiff (the Guaranty ) are superseded by a heter iska that was executed on October 25, 2103 - the very same day as the Note and Guaranty (the Heter Iska ). Thus, the Opposition does not contest the prima facie case established by Plaintiff in the Motion - that the Note and the Guaranties were executed, that Plaintiff loaned the money to URA, and that URA did not repay the loan on the maturity date. Instead, the Opposition first incorrectly argues that Plaintiff lacks the capacity to sue in New York because Plaintiff is not registered with the Secretary of State but is doing business in New York as defined by New York Business Corporation Law 1312, although Plaintiff has no offices, no employees, and no operations in New York. Second, the Opposition claims that a heter iska agreement effects the terms of the Note so that it is not an instrument for the payment of money only as required by CPLR 3213, an argument that has been previously rejected by the First Department. Third, in a truly desperate attempt to avoid liability, the Opposition claims that the Guaranties, despite their plain language, are Guaranties of collection (and not of payment) that cannot yet be enforced. This Reply will address the points raised pertinent to Plaintiff in the same order as addressed in the Opposition. For the reasons set forth below, Plaintiff s Motion should be granted. 2
I. Defendants Capacity Argument is a Reflexive Effort To Create a Factual Argument To Forestall an Adverse Determination of Liability The last sentence of URA s and Mr. Frydman s capacity argument neatly summarizes their motives in challenging Plaintiff s right to bring an action in New York: A section 1312 (a) defense is a defense that can be most effectively asserted only after discovery because information concerning Plaintiffs business activities within the state are generally within the exclusive control of the Plaintiff. (Opposition at 17). This argument is all about delaying a liability determination. URA and Mr. Frydman simply assume in making their argument that Plaintiff is doing business in the State of New York and they attempt to buttress their assumption with intentionally sloppy conflating of details regarding discussions of a proposed investment by Azorim Investment Dev. & Const. Ltd. ( Azorim ) in URA (Opposition 3-6) with the discussions related to the Note, Guaranty and Heter Iska. As set forth in the accompanying Gryzwacz Declaration, the true facts are that Plaintiff s only business in New York in the last decade has been the making of loans to two borrowers, one of which was URA. Plaintiff is based in Montreal, Canada and is in the business of making opportunistic, financial investments in various locations throughout the world from time to time. It is undisputed that Plaintiff does not maintain an office or a bank account in New York. See Gryzwacz Decl. 2. Not one of the various individuals cited in the Opposition (Ira Sax, Hershey Friedman, Issac Braun, Jack Klein and Menachem Weiss) are employed by Plaintiff. See Gryzwacz Decl. 6. Plaintiff has no employees in New York. The principle officer of Plaintiff is Mr. William Gryzwacz who resides in 3
Montreal, Canada. The Note, the Guaranty and the Heter Iska were drafted by Mr. Frydman. See Friedman Decl. 5. To the extent any of these were negotiated at all, they were discussed telephonically by Mr. Hershey Friedman in Montreal on behalf of his friend, Mr. Gryzwacz, and Mr. Frydman in New York. See Friedman Decl. 3. One of the Appellate Division decisions cited by URA and Mr. Frydman succinctly summarizes the law on qualification to do business in New York as a bar to prosecuting a litigation in New York (see Opposition at 16): Business Corporation Law 1312 (a) constitutes a bar to the maintenance of an action by a foreign corporation in New York if that corporation is found to be doing business here without having obtained the requisite authorization to do so. Airline Exch. v Bag, 266 AD 2d 414, 415, 698 NYS 2d 694 (1999). The question of whether a foreign corporation is doing business in New York must be approached on a case by case basis with inquiry made into the type of business being conducted Alicanto, S.A. v Woolverton, 129 AD 2d 601, 602, 514 NYS 2d 96 (1987). In order for a court to find that a foreign corporation is doing business in New York within the meaning of Business Corporation Law 1312 (a) the corporation must be engaged in a regular and continuous course of conduct in the State. Commodity Ocean Transp. Corp. of N.Y. v Royce, 221 AD 2d 406, 407, 633 NYS 2d 541 (1995). A defendant relying upon Business Corporation Law 1312 (a) as a statutory barrier to a plaintiff s lawsuit bears the burden of proving that the [plaintiff-corporation s] business activities in New York were not just casual or occasional, but so systematic and regular as to manifest continuity of activity in the jurisdiction. S&T Bank v Spectrum Cabinet Sales, 247 AD 2d 373, 668 NYS 2d 641 (1998) quoting Peter Mathews, LTD v Robert Mabey, Inc. 117 AD 2d 943, 944, 499 NYS 2d 254 (1986). Absent sufficient evidence to establish that a plaintiff is doing business in this State, the presumption is that plaintiff is doing business in its state of incorporation and not in New York. Cadle Co. v Hoffman, 237 AD 2d 555, 655 NYS 2d 633 (1997). Highfill, Inc. v Bruce & Iris, Inc., 50 A.D. 3d 742 (2d Dep t 2008) (emphasis added). 4
URA and Mr. Friedman have failed to meet their burden of demonstrating that Plaintiff is engaged in a regular and continuous course of business conduct in New York. As the Declarations of Mr. Friedman and Mr. Gryzwacz demonstrate, this loan was nothing more than a one time, opportunistic, short term investment by a Canadian company made because the prospective return was attractive. URA s and Mr. Friedman s efforts to conflate the Azorim discussions with this loan bespeak a desperate attempt to avoid the obligations of the Note and Guaranty. II. The Promissory Note and the Guaranty Are Instruments for the Payment of Money Only Within the Meaning of CPLR 3213 URA s and Mr. Friedman s next angle to avoid the unambiguous obligations of the Note and Guaranty is to assert that the Heter Iska created a partnership which novated the obligations of URA under the Note and of Mr. Friedman under the Guaranty. (Opposition at 8). The gist of URA s and Mr. Frydman s position is that the Heter Iska signed the same day as the Note and Guaranty somehow superseded the Note and Guaranty (Mr. Frydman s Affidavit ( Frydman Aff. ) at 10) and negated the obligation of URA to make payment on the Note ( Frydman Aff. At 10) and of Mr. Frydman to make payment on the Guaranty (Frydman Aff. at 10, 11) The New York Appellate Division has previously addressed this sort of heter iska as a partnership/joint venture purportedly negating a debt instrument argument. In Barclay s Commerce Corp v. Finkelstein, 11 A.D.2d 327, 205 N.Y.S. 2d 551 (1 st Dept. 1960), lv. to appeal denied, 11 A.D.2d 1019, 207 N.Y.S.2d 995 (1960), the Appellate Division found a heter iska to be merely a compliance in form with Hebraic Law 5
and went on to find that the defendant s counterclaim of a joint venture raised what was at best a phantom issue [which was] clearly without merit. Id. at 328. See also Arnav Industries, Inc. Employee Retirement Trust v Westside Realty Associates, 180 A.D. 2d 463, 579 N.Y.S. 2d 382 (1 st Dept. 1992). In this case, the notion that the Heter Iska created a partnership which superseded the Note and Guaranty is belied by Mr. Frydman s 2 own email (Ex. A to Friedman Decl.) sent October 21, 2014 which was four days prior to the stated one year maturity date of the Note as follows: Hershey In furtherance of our discussion, and based on the fact that United Realty advisors has lost approximately $1.7 million in the past year it is impossible to make a payment at this time either of profits or against the note. I think there are several options which I would like to propose. One option would be to formalize the arrangement by converting the obligation to an equity stake in United Realty Advisors at par based on the total capital contributed to the company. On that basis I believe it would represent slightly over 10% of the capital of the company. Another alternative would be to keep the arrangement as is and extend out the payment date for six months. I would hope that we will be able to solve some issues and get to profitability within that time period. Please let me know if either option works for you. Alternatively, I am also happy to explore other ideas you may have. I look forward to hearing from you soon. Thank you, Jacob Frydman Chairman, CEO UNITED REALTY GROUP OF COMPANIES 2 Mr. Frydman is the Chairman and Chief Executive Officer of URA as indicated on the email. Mr. Frydman appears in this action Pro Se but on information and belief is a lawyer. 6
This email sent just prior to stated maturity of the Note by Mr. Frydman, URA s Chairman and CEO, conclusively demonstrates that the notion of the Heter Iska as creating an equity partnership is a litigation fabrication. Mr. Frydman is asking on October 21, 2014 to convert the Note to equity. Alternatively he is asking for a six month period of forbearance on the Note. This email makes a mockery of the arguments set forth in URA s and Mr. Frydman s Opposition. URA and Mr. Friedman then selectively quotes language from the Heter Iska to purportedly bolster their notion that the Heter Iska was intended to supersede the Note and Guaranty. URA and Mr. Friedman claim that the the Partnership Agreement expressly provides that United Realty Advisor, LP, or Jacob Frydman or Eli Verschleiser, as guarantors under the guaranties given in connection therewith, will not be required to make payment under the note and guaranties. (Opp. at 19). In fact, the language being selectively quoted is the critical portion of the Heter Iska that confirms that the Note and Guaranty actually are enforceable: It is agreed that if the undersigned returns the above-mentioned [$2 million] principal to the Investing Partner, together with other amounts owed pursuant to the Promissory Note dated as of the date hereof, as payment for his share of the profits which are generated, then United Realty Advisor, LP, or Jacob Frydman or Eli Verschleiser, as guarantors under the quantities given in connection therewith, will not be required to make payment under the note or the guaranties, nor will they be required to make an oath. URA and Mr. Friedman conveniently omitted the language that says in effect that if Plaintiff is paid the $2 million plus all the other amounts due under the Note, then the Note and Guaranty are not to be enforced. 7
Plaintiff has established a prima facie entitlement to judgment as a matter of law with respect to the clear language of the Note and Guaranty executed respectively by URA and Mr. Frydman and has demonstrated a failure to pay the Note in accordance with its terms. See Korea First Bank of N.Y. v. Noah Enters., 12 A.D.3d 321, 322 (1st Dep't 2004) (affirming grant of summary judgment under CPLR 3213 - The bank made out a prima facie case under CPLR 3213 for recovery on the 1998 note and guaranties and the borrowers failed to raise an issue of fact with respect to their claimed defenses. ) citing Interman Indus. Prods. v R. S. M. Electron Power, 37 N.Y.2d 151, 154-155, 371 N.Y.S.2d 675 (1975). The only defense asserted that the Heter Iska created a partnership negated the unequivocal and unconditional obligation to pay is debunked by Mr. Frydman s own contemporaneous email of October 21, 2014. Moreover the express language of the Heter Iska confirms that the Note and Guaranty are enforceable. III. Contrary to Mr. Frydman s Assertion, the Guaranty is Plainly a Payment Guaranty Mr. Frydman s next claim is that the Guaranty is merely a guaranty of collection and not of payment. A simple reading of the clear language of the Guaranty disproves this argument: 3. Subject to the limitations set forth herein, Guarantor hereby guarantees to Lender payment of one half the unpaid principal of the Note up to One Million Dollars ($1,000,000), and one half of the accrued and unpaid interest on the unpaid principal under the Note, whether due upon or after the Maturity date, due and payable by Borrower to Lender pursuant to the Note. See Initial Gryzwacz Aff., Ex. B. The clear language of the Note reflects a payment guaranty. "Whether a surety is a guarantor of payment or a guarantor of collection depends upon the intention 8
of the parties as expressed in the surety contract. If he binds himself to pay immediately upon default of the debtor, he becomes a guarantor of payment; if he binds himself to pay only after all attempts to obtain payment from the debtor have failed, he becomes a guarantor of collection." General Phoenix Corp. v Cabot, 300 NY 87, 92 (1949) ". See Federal Deposit Ins. Corp. v. Schwartz, 78 A.D.2d 867, 868 (2d Dep't 1980), affirmed, 55 N.Y. 2d 702 (1981) ( A reading of the agreement herein demonstrates unequivocally that the guarantee was intended to be one of payment, and not of collection, as evidenced by the following language: "the undersigned * * * hereby absolutely and unconditionally guarantees to Bank the prompt payment of claims of every nature and description of Bank against Borrower * * * This guarantee shall be a continuing absolute and unconditional guarantee of payment. ) The Guaranty in this case is on its face a payment guaranty and URA and Mr. Frydman submit no evidence to support any other intention, because there is none. 9
CONCLUSION Accordingly, the undersigned respectfully requests that this Court grant Plaintiff s Motion for Summary Judgment in Lieu of a Complaint, and such other and further relief as this Court deems just and proper. Dated: New York, New York February 13, 2015 Respectfully submitted, The Ryan Law Group LLP By: /s/ Andrew J. Ryan Andrew J. Ryan George B. Schwab 14 E. 4 th Street Suite 406 New York, New York 10012 Email: ar@trlg-llp.com Attorney for 8430985 Canada, Inc. 10