Opinion ID: 793863
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 4 Prior to 1985, Briggs was a publicly-held auto-leasing company incorporated in New York. Robert Rosenstock, his father Edward Rosenstock, and Robert Genser (Genser) were officers and directors of Briggs and owned, respectively, approximately 64 percent, 3 percent, and 5 percent of its outstanding stock. In January 1985, Robert Rosenstock and Genser decided to take Briggs private in a freeze-out merger. 1 They incorporated BAC and planned to merge BAC and Briggs, buy out Briggs's minority shareholders, and make Briggs the surviving corporation. Rosenstock and Genser contributed all of their Briggs shares to BAC. Rosenstock purchased his father's shares of Briggs stock and contributed them to BAC. As a result, BAC owned 72 percent of the stock of Briggs, with Rosenstock and Genser owning all of the stock of BAC. 5 Briggs outlined a plan for a merger with BAC in a January 1985 proxy statement to its shareholders. All shareholders would be bought out at $1.50 per share. Eighty-six percent of the minority shareholders, including named plaintiffs, filed notices of election to dissent. A February 1985 special meeting approved the merger based solely on BAC's vote. At the meeting, plaintiffs voted their shares against the merger. The merger was nevertheless consummated on February 26, 1985, when Rosenstock and Genser became the sole holders of Briggs shares, owning approximately 93 percent and 7 percent, respectively. 6 On May 20, 1985, plaintiffs brought an appraisal action against Briggs in the Supreme Court of the State of New York, Nassau County, to fix the fair value of their shares as dissenting shareholders. 2 Briggs answered this action through counsel on July 23, 1985. Plaintiffs also notified the state court of their intention to file a federal action and requested that their appraisal action be held in abeyance pending the final determination of their case in federal court. The state court did so on October 7, 1985. Plaintiffs then commenced a federal action, asserting individual, class, and derivative claims for equitable and other relief, in an amended complaint dated July 1, 1985. They named Robert Rosenstock, Genser, Edward Rosenstock, Briggs, and BAC as defendants. They alleged, inter alia, violations of the Securities Exchange Act of 1934, the New York Business Corporation Law (BCL), and fiduciary duties. They also brought derivative actions on behalf of Briggs against Robert Rosenstock, Genser, and Edward Rosenstock, for allegedly using corporate funds for personal expenses and diverting corporate opportunities to competing companies they owned. They requested that the class action be certified, the merger be set aside, the terms of the merger be reformed, the defendants account for the damages suffered by Briggs and the profits and benefits enjoyed by the individual defendants by reason of [their wrongful conduct], and the court give such other, further, and different relief as may be just, including damages, together with costs, disbursements and a reasonable fee for plaintiffs' attorneys. Defendants Robert Rosenstock, Genser, and Edward Rosenstock answered this complaint on July 22, 1985, and Briggs answered separately, also on July 22, 1985. Briggs and the individual defendants were represented by different attorneys. 7 In an August 14, 1986, memorandum and order, the district court (Costantino, J. ) granted plaintiffs' motion for class certification. Grace v. Rosenstock, No. cv-85-2039 (E.D.N.Y. Aug. 14, 1986) (Grace I). 3 In January 1988, Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey (Finley Kumble), the law firm that represented Briggs, declared bankruptcy, leaving Briggs without legal representation. Michael Rosen, the attorney for the individual defendants, determined that Briggs and his clients had a conflict of interest, and he could therefore not represent Briggs. Briggs did not appear by counsel for the next five years. Meanwhile, on January 19, 1989, an order of discontinuance was entered by the United States District Court for the Eastern District of New York (Costantino, J. ), because the court received a report stating that the action had been settled. Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Jan. 19, 1989) (Grace II). In fact, Halperin v. Rosenstock, No. 85-cv-1258, an action brought by Robert Rosenstock's sister and brother-in-law (also Briggs minority shareholders), had settled. This settlement inadvertently led Judge Costantino to close Grace I. 8 Four years later, on March 1, 1993, plaintiffs moved to set aside the order of discontinuance and reopen Grace I. On March 24, 1993, an order from the United States District Court for the Eastern District of New York (Raggi, J. ) held that Grace I had been closed in error and reopened it. Grace v. Rosenstock, No. cv-85-2354 (E.D.N.Y. Mar. 29, 1993) (Grace III). Plaintiffs then moved for a default judgment against Briggs and BAC on the issue of liability, and for an inquest after discovery to determine the amount of damages to be included in the judgment. Michael Rosen filed a motion to withdraw as counsel for defendants in June 1993. Genser obtained new counsel. Briggs and Rosenstock did not obtain new counsel. In 1993, pursuant to Rule 55 of the Federal Rules of Civil Procedure, default judgments were entered against Briggs and BAC, as neither corporation was represented by counsel. Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. June 8, 1993) (Grace IV). 9 Almost two-and-one-half years later, in January 1996, plaintiffs moved for leave to amend the complaint, which had been filed nearly nine years earlier, to assert additional claims against the defendants and add additional defendants, including non-party movants. Plaintiffs wanted to set aside as void the allegedly fraudulent transfers to Bank Leumi, David Mack, Leo V. Berger, and Apex Marine Corporation. Plaintiffs alleged that Briggs executed promissory notes and mortgages on real property in favor of Berger and Mack, in exchange for loans. Neither party disputed that Berger and Mack paid out and loaned the full amount, but plaintiffs alleged that pursuant to Robert Rosenstock's and Genser's instructions, Berger and Mack disbursed some of the money in the loans to Rosenstock and Genser individually. The district court (Levy, M.J. ) issued a memorandum and order on September 30, 1996, which denied permission to add new defendants and assert new claims. See Grace v. Rosenstock, 169 F.R.D. 473, 480-86 (E.D.N.Y.1996) (Grace V). Judge Levy reasoned that the new claims did not relate back to the original complaint, in part because they set forth a completely new set of operational facts. Id. at 481. Judge Levy also denied plaintiffs' arguments on equitable tolling and equitable estoppel, explaining, although plaintiffs complain that they did not learn of the alleged fraudulent conveyances until late 1995, they clearly could have learned of the note and mortgage transactions earlier had they been more diligent in noticing depositions or seeking court intervention regarding discovery. Id. at 484. 10 Judge Trager affirmed Judge Levy's order in its entirety, Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Nov. 7, 1996) (Grace VI), and on February 28, 1997, plaintiffs were denied leave to take an interlocutory appeal. On July 28, 1997, the parties attended a status conference before the district court (Wolle, J. ). According to plaintiffs, the only parties that were then appearing before Judge Wolle were the party of plaintiffs, plaintiff [ sic ] Rosenstock, pro se and Briggs Leasing by Mr. Rosenstock. Plaintiffs entered into a stipulation of settlement dated July 31, 1997, as to their claims against defendants Robert Rosenstock and Briggs. Rosenstock, who according to plaintiffs was judgment-proof, executed the stipulation on behalf of himself for $6,912,288, and on behalf of Briggs for $4,028,000. Neither Rosenstock nor Briggs had legal representation. Judge Trager entered a judgment for these amounts against both Rosenstock and Briggs. Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Aug. 15, 1997) (Grace VII). The judgment declared as moot the state court proceedings against both Rosenstock and Briggs. Id. 11 After entry of the 1997 judgment, plaintiffs and Genser consented to have all further proceedings, including entry of any judgment, conducted by a magistrate judge. The matter was referred to Magistrate Judge Levy. Following a bench trial, Judge Levy dismissed the claims against Genser in their entirety. See Grace v. Rosenstock, 23 F.Supp.2d 326, 337 (E.D.N.Y. Oct.29, 1998) (Grace VIII). Plaintiffs appealed from the dismissal of their claims and we affirmed the judgment on August 25, 2000. See Grace v. Rosenstock, 228 F.3d 40 (2d Cir.2000) (Grace IX). In that case, we affirmed, inter alia, the order denying leave to add claims and parties, issued by Judge Levy in Grace V; the order dismissing plaintiffs' claims against Genser, issued by Judge Levy in Grace VIII; and Judge Levy's denial of other arguments advanced by plaintiffs, including equitable estoppel and equitable tolling. Id. at 52-55. 4 12 According to plaintiffs, writs of execution against Briggs and Rosenstock were returned unsatisfied. In August 2002, plaintiffs commenced separate actions in the Southern District of New York against Briggs and movants, using the unsatisfied 1997 judgment as a predicate to bringing fraudulent conveyance claims against movants, under Section 273-a of DCL. See N.Y. CLS Dr & Cr § 273 (2006). Plaintiffs alleged that notes, guarantees, and mortgages on real property of Briggs, given to movants between 1986 and 1989, were made without fair consideration. 5 Plaintiffs argued that movants helped Robert Rosenstock loot the corporation by giving the loans directly to Robert Rosenstock and other companies he owned. 13 On February 13, 2004, the first fraudulent conveyance action was transferred from the United Stated District Court for the Southern District of New York (Berman, J. ), to the United Stated District Court for the Eastern District of New York. Grace v. Bank Leumi Trust Co., No. 02-cv-6612(S.D.N.Y. Mar. 30, 2004), 2004 U.S. Dist. LEXIS 5294 at  (Grace X). This had the effect of transferring the second action for fraudulent conveyance. Id. at . Judge Berman reasoned that the proper venue was the Eastern District, the alleged fraudulent conveyances involved real property located in the Eastern District, the transfer promoted efficiency, and plaintiffs' choice of forum was entitled to little weight. He also called the plaintiffs' choice of forum an attempt at judge shopping. Id. at . 14 In October 2002, movants had written to Judge Trager to request a pre-motion conference, explaining that they intended to file a motion to vacate the 1997 judgment. In 2003, movants filed motions to vacate. The district court then issued a memorandum and order, which addressed movants' arguments for vacating the judgment. Grace v. Rosenstock, No. 85-cv-2039 (E.D.N.Y. Oct. 4, 2004) (Grace XI). These reasons included the following: (1) Briggs was not represented by counsel when the settlement was entered; (2) Robert Rosenstock lacked power to confess judgment against Briggs; (3) the amount of the default judgment against Briggs exceeded the relief sought against Briggs in the original complaint; and (4) the class was not notified of the settlement and a fairness hearing was not held. See id. at 9. 15 Judge Trager vacated the 1997 judgment as void under Rule 60(b) of the Federal Rules of Civil Procedure. He explained that it is well-settled law that a corporation may appear in the federal courts only through licensed counsel; damages for a default judgment should not be awarded without a hearing or a demonstration by affidavits establishing the facts; no inquest was held because the stipulation was the basis for entry of judgment against Briggs; rescissory damages are not available for freeze-out mergers; the amount was both excessive and different in kind from that sought in the complaint; and there was evidence of collusion between Rosenstock and plaintiffs to the detriment of movants. Grace XI, at 9-20. Judge Trager concluded, [i]n any event, movants should not be required to suffer further legal costs to bring a summary judgment motion, while plaintiffs press forward with a 19-year-old litigation fraught with procedural errors and excessive, if not completely meritless, claims. 6 Id. at 20. He then dismissed the two fraudulent conveyance actions, because there was no longer a judgment on which to collect. Grace v. Bank Leumi, No. 04-cv-0708 (E.D.N.Y. Oct. 6, 2004) (Grace XII); Grace v. Schwartz, No. 04-cv-1622 (E.D.N.Y. Oct. 14, 2004) (Grace XIII). 16 Plaintiffs filed an appeal to this Court on November 1, 2004.