Kovian v. Fulton County National Bank & Trust Co.
857 F.Supp. 1032, 1994 WL 374338, 1994 U.S. Dist. LEXIS 9659 (1994)
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Rule of Law:
Summary judgment on the enforceability of a release obtained under alleged economic duress or subsequently ratified is inappropriate when genuine issues of material fact exist regarding the voluntariness of acceptance, the availability of alternatives, the existence of coercive acts, or the intent to ratify.
Facts:
- Stephen Barker and Alfred Cheney founded Hibjay Corporation in February 1982 to rehabilitate and renovate low-income properties.
- Defendant Moyses, a Vice-President at Fulton County National Bank and Trust Company (the Bank), encouraged Barker and Cheney to start Hibjay by promising to find a purchaser for their first renovation project, the 'Hibbard Street building.'
- During Hibjay's construction projects, Moyses obtained signed, blank promissory notes from Barker and Cheney, filling in amounts in excess of what they requested, which plaintiffs later alleged were kickbacks.
- Hibjay borrowed approximately $428,213 from the Bank for its second project, the Masonic Temple building ('Temple project'), relying on representations from Moyses and defendant Pratt, the Bank's President, that the Bank would find a buyer for the property, despite the owner, Kenneth Keith, having reached his lending limit.
- After Temple Associates purchased the Temple Building and evicted Hibjay, Hibjay filed a mechanics lien for $615,703.45 against Temple Associates.
- Moyses and Pratt allegedly coerced Barker and Cheney into assigning the lien to the Bank by promising to cancel Hibjay's debt, refund excess money, finance a new project (Brower Block), and assist Kelly Lumber Company (another plaintiff company owned by Barker and Cheney) financially, while threatening to withhold future loans and call existing ones if Hibjay refused.
- Hibjay, through Barker and Cheney, subsequently assigned the mechanics lien to the Bank.
- The Bank then failed to refund excess money to Hibjay, reneged on its promises to finance future projects or assist Kelly Lumber, and refused to cancel Hibjay's debt unless Barker and Cheney signed a release waiving all claims they might have against the Bank related to the Temple project.
- On October 2, 1984, Barker and Cheney signed the release.
Procedural Posture:
- Plaintiffs Hibjay Corporation, Stephen Barker, Alfred Cheney, and Kelly Lumber Company filed a second amended complaint asserting four claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) against defendants Fulton County National Bank and Trust Company (the Bank), Charles Pratt (Bank President), and Moyses (Bank Vice-President).
- In a prior ruling, Kovian v. Fulton County Nat’l Bank & Trust Co., 647 F.Supp. 830 (N.D.N.Y.1986) (Kovian I), the court provided an in-depth background of the action.
- In a subsequent Memorandum-Decision and Order, filed March 28, 1990 (Kovian II, Doc. 59), the court expressly held that plaintiffs had pleaded fraud with particularity against defendant Pratt regarding the Hibjay scheme, satisfying Federal Rule of Civil Procedure 9(b), and that plaintiff Kelly Lumber had sufficiently pleaded a violation of 18 U.S.C. § 1962.
- Defendant Charles Pratt moved for summary judgment pursuant to Federal Rule of Civil Procedure 56, seeking to dismiss the claims against him by Hibjay, Barker, Cheney, and Kelly Lumber.
- Defendant Pratt also moved for costs and attorney’s fees.
- Plaintiffs cross-moved for sanctions pursuant to Federal Rule of Civil Procedure 11.
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Issue:
Does a genuine issue of material fact exist regarding whether a release was obtained through economic duress or subsequently ratified, thereby precluding summary judgment on the plaintiffs' Racketeer Influenced and Corrupt Organizations Act (RICO) claims?
Opinions:
Majority - MUNSON, Senior District Judge
No, genuine issues of material fact exist regarding whether the release was obtained through economic duress or subsequently ratified, preventing summary judgment. The court found that conflicting evidence created a material question of fact on whether plaintiffs signed the release voluntarily, particularly concerning the Bank's alleged pre-existing duty to cancel Hibjay's debt in exchange for the lien assignment. The court also determined that a jury could reasonably find plaintiffs were unaware of available legal remedies in October 1984, thus precluding a finding of alternatives to signing the release. Furthermore, if the Bank threatened to call a loan it had promised to resolve, the release would arguably be a result of fraud and duress. On the issue of ratification, the court held that if the cancellation of Hibjay's debt was a pre-existing duty, plaintiffs could not be said to have accepted a 'benefit' from the release, leaving their intent to ratify as a question for the jury. The court also upheld its prior ruling in Kovian II that plaintiffs had pleaded fraud with sufficient particularity under Fed.R.Civ.P. 9(b) and that Kelly Lumber had sufficiently pleaded its civil RICO claim, rejecting the defendant's attempts to re-litigate these points or argue estoppel.
Analysis:
This case underscores the high bar for obtaining summary judgment when the validity of a contract, particularly a release, is challenged on grounds of duress and ratification. It highlights that credibility determinations and conflicting versions of events are inherently factual disputes best resolved by a jury, rather than by a court on a summary judgment motion. The ruling also reinforces the 'law of the case' doctrine, discouraging parties from re-litigating issues previously decided in earlier stages of the same litigation without proper procedure. This decision ensures that plaintiffs alleging coercion have their day in court if they can present evidence creating a genuine dispute over the elements of duress and a lack of intent to ratify.
