Gusinsky v Genger
Annotate this CaseDecided on August 12, 2009
Supreme Court, New York County
Vladimir Gusinsky, Plaintiff,
against
Sagi Genger, AG Real Estate Partners, L.P. and AG Holdings Company, Defendants.
600426/2008
Plaintiff was represented by Jason P. Criss, Esq. of Covington & Burling LLP, 620 Eighth Avenue, 42nd Floor, New York, New York 10018, tel. no. 212-841-1000. Defendants Sagi Genger and AG Real Estate Partners, L.P. were represented by Alan Sash, Esq. of McLaughlin & Stern, LLP, 260 Madison Avenue, 18th Floor, New York, New York 10016, tel. no. 212-448-1100. Defendant AG Holdings Company was represented by Shari Braverman, Esq. of Braverman Law Office PC, 50 Charles Lindbergh Blvd., Suite 400, Uniondale, New York 11553, tel. no. 516-365-3838.
Jane S. Solomon, J.
INTRODUCTION
This is an action to recover on an accelerated promissory note. The Note is held by plaintiff
Vladimir Gusinsky ("Gusinsky"). It was made by one of the defendants and secured by a pledge
of another defendant's interest in the maker. The third defendant is the current principal of both
the maker and the pledgor. Gusinsky moves for summary judgment. The motion is granted for
the reasons set forth below.
FACTS and PROCEDURAL HISTORY
A. THE NOTE
Gusinsky loaned $2.5 million to a Canadian entity called A.G. Land No. 1 Company ("AGL") pursuant to a Promissory Note dated July 24, 2001 (the "Note").[FN1] AGL, and related entities, were formed by Arie Genger ("Arie") for the purpose of investing in Canadian real [*2]estate.[FN2] At the time, AGL was wholly owned by AG Real Estate Partners, L.P. ("AGLP" ) and Arie was the sole shareholder of AGLP's general partner.[FN3] AGL now is known as AG Holdings Company ("AGH") and still is owned by AGLP.[FN4]
Under the Note, repayment of the principal was to be made in three annual installments of 10% of the total starting on July 24, 2008 with the balance due on July 24, 2011.[FN5] Interest at 6.5% per annum was payable annually, starting on July 24, 2003. Failure to make payment when due under the Note gives rise to an event of default. The Note provides that it "shall be governed by, construed and interpreted in accordance with the laws of the Province of Nova Scotia, Canada, without giving effect to principles of conflicts of law."[FN6]
Also on July 24, 2001, AGLP executed a "Pledge Agreement" in favor of Gusinsky, which provides that Gusinsky is entitled to receive all distributions received by AGLP from AGH. The Pledge Agreement also gives him a security interest in AGLP's shares in AGH.[FN7] Then, by an agreement dated April 18, 2002 and entitled "Allonge to Promissory Note" (the "Allonge"), the parties converted the principal amount of the Note to C$3,845,750 [FN8] and adjusted the first three principal payments to C$384,575.[FN9] The Allonge, which was executed by Gusinsky and by Arie for AGH, names AGH as the maker of the Note and states that it was made "FOR VALUE RECEIVED."[FN10]
The relationship of this obligation to the acquisition of real estate was as complex as such transactions can be. AGH, the maker of the note, owned 50% of AG Properties Company ("Properties"), which was the sole owner of entities that held title to certain Canadian real [*3]estate.[FN11] In 2004, Arie transferred his interests in AGLP and Properties to Sagi and his sister, Orly. Orly later transferred her interest to Sagi, giving Sagi control of AGH.[FN12] The remaining 50% of Properties at first was owned, beneficially, by Gilad Sharon, son of the late Prime Minister of Israel, Ariel Sharon.[FN13] In August 2004, Sagi wrote an e-mail that contained a valuation of Gilad Sharon's interest.[FN14] AGH then acquired that interest in September 2005 for C$1 million; Sagi executed the stock purchase agreement on AGH's behalf.[FN15] These events led to Sagi's complete control of these entities and the underlying real estate.
In 2005, apparently as a result of the change in control, Sagi wrote a letter to his father, which Arie signed as well, to "memorialize our understanding in connection with the financing of the purchase of certain properties in Montreal, Canada".[FN16] This letter is referred to as the Assurance Agreement (the "Assurance"). In it, Sagi expressly acknowledged that "$2.5 million was borrowed by [AGH] from [Gusinsky], per the terms evidenced by" the Note "in order to finance the acquisition of" certain properties.[FN17] The Assurance then discloses that those properties had been sold and that the proceeds were distributed to Properties, which invested the funds in Riverside Properties (Canada) LP ("Riverside"). Riverside then acquired a new property in Montreal (the "New Property"). Finally, the Assurance states that "all funds received" by Properties or Riverside's general partner, Riverside General Partner LP ("Riverside GP"), "will be set aside for the full repayment of the" Note.[FN18]
Defendants made interest payments on the Note from 2003 to 2007, but Gusinsky alleges that some of them were for less than the required amount.[FN19] Some of the payments were made after Sagi began functioning as the principal of AGH.[FN20] [*4]
Starting with a letter dated in February 2008, Gusinsky
sought payment of past due interest and the July 2008 principal payment. When the demands
were not honored, he called defaults and accelerated the Note.[FN21] This lawsuit then followed. There is no
question that the Note has not been paid in full. Instead, defendants contend that: (1) the Note
and the Allonge are unenforceable because they were part of an illegal scheme to influence
Israeli officials to ensure Gusinsky's safe passage; and (2) the Allonge also is invalid because it
is not supported by consideration.
B. GUSINSKY LEAVES RUSSIA
In connection with the first of defendants' contentions, much information is presented. Gusinsky founded and was Chairman of ZAO Media Most ("Media Most"), a private Russian media company that owned a popular television channel ("NTV"), once the only nationally broadcast non-governmental station.[FN22] He also owned a Russian newspaper and magazine and has been an Israeli citizen since 1993.[FN23] After Vladimir Putin assumed power in 2000, Gusinsky claims that "NTV became a lightning rod for criticism from Kremlin officials, who were displeased with" Media Most's coverage of the actions of the Putin administration in Chechnya.[FN24]
In June 2000, Gusinsky was arrested by Russian authorities on charges of fraud, which were dropped after he signed an agreement transferring ownership of Media Most to a state related entity.[FN25] Gusinsky claims that the criminal case against him was politically motivated and was part of an attack on independent media outlets in Russia.[FN26] This assessment was shared by the Chairman of the United States Congress's Helsinki Commission, who characterized the arrest as "part of an all out assault against the most prominent remaining independent media organization in Russia."[FN27] The United States Department of State also described the government [*5]takeover of Media Most as "politically motivated, given the media company's often outspoken criticism of Russian government policies."[FN28]
Gusinsky left Russia after the charges were dropped, and he and Media Most took the position that the transfer agreement was unenforceable because it was coerced.[FN29] Russian officials then leveled additional charges, issued an international arrest warrant, and unsuccessfully sought his extradition from Spain and Israel.[FN30]
Interpol's Secretary General advised Gusinsky that Interpol would not act on the arrest
warrant because the case against him had "a predominant political character."[FN31] In an August 2003 letter,
Israel's Director of the Department of International Affairs, Ministry of Justice, stated that Israel
had informed Russian officials that Gusinsky would not be extradited based on the information
provided and Interpol's determination.[FN32] The Ministry of Justice also advised Russian
authorities that the file on the Russian arrest warrant would be closed.[FN33]Gusinsky filed a complaint against the
Russian Federation in the European Court of Human Rights, which, in 2004, held that the arrest
was unlawful and awarded him damages.[FN34]
C. GUSINSKY'S LAWSUIT ON THE NOTE
When Gusinsky commenced this action in February 2008 against Sagi and AGLP, they moved to dismiss for forum non conveniens and failure to state a claim. They also sought a stay pending a related action in Nova Scotia. Gusinsky cross-moved to add AGH as a party defendant. In a Decision and Order filed October 29, 2008, the motion to dismiss was denied and the cross-motion to amend was granted. In defendants' answer to Gusinsky's Third Amended [*6]Complaint (the "Complaint"), they admitted "that [Gusinsky] lent US $2.5 million to [AGH]."[FN35]
The first cause of action in the Complaint is for the unpaid principal, and the second is for
interest, in an unspecified amount. The third cause of action is for the loss of security interest
under the Pledge Agreement and the Assurance, and the fourth is for anticipatory breach of
contract. In addition to a monetary award, Gusinsky seeks a permanent injunction enforcing the
Pledge Agreement and the Assurance.[FN36] In January 2009, anticipating a sale of the
New Property, Gusinsky moved for a preliminary injunction, and a temporary restraining order
was issued enjoining defendants from "dissipating, disposing of, or otherwise transferring the net
proceeds after encumbrances and proper closing costs of any sale of any assets of [Riverside] or
[Riverside GP]."[FN37]
Defendants were directed to "hold specially any such proceeds from such sale pending further
court order."[FN38]
While that motion (003) was pending, Gusinsky's motion for summary judgment on his first two
causes of action was submitted (004). This decision addresses both motions.
DISCUSSION
A. NOVA SCOTIA LAW & THE SUMMARY JUDGMENT STANDARD
Pursuant to the terms of the Note and Pledge
Agreement, the substantive law of Nova Scotia, Canada governs. However, New York
procedural law, which in this case involves New York's summary judgment standard, remains
applicable.[FN39]
Summary judgment is appropriately granted when a party makes a prima facie showing
of entitlement to judgment as a matter of law and the opposing party fails to raise a triable issue
of fact in opposition.[FN40]
B. MOTION FOR PARTIAL SUMMARY JUDGMENT & OPPOSITION
Gusinsky contends that the Note, the related agreements, and the undisputed nonpayment establish his claim prima facie.As stated above, defendants argue that the Note and the Allonge are unenforceable and the Allonge is not supported by consideration.
In his Affidavit in Opposition, Sagi asserts that the Note was part of a scheme arranged by Arie to influence Prime Minister Ariel Sharon for Gusinsky's benefit.[FN41] According to Sagi, Gilad Sharon received over one million dollars of the $2.5 million, disguised as a stock purchase, for lobbying his father. Sagi claims that Arie received the remaining money for facilitating the [*7]transaction.[FN42] He asserts that Arie told him of the scheme after it was effectuated.[FN43] Sagi also submits a newspaper article describing an unrelated scandal involving Gilad Sharon to show that a bribery occurred.[FN44]
For the legal significance of these allegations, Sagi submits a memorandum authored by Sheree L. Conlon, a barrister in Nova Scotia, who states that, under the law of Nova Scotia, a contract made in furtherance of an illegal purpose, such as bribery, is unenforceable. She cites cases involving contracts that were entered into in violation of the Canada Temperance Act in support of the proposition.[FN45] Citing a leading treatise on Canadian contract law, Conlon adds that a contract that is illegal in a foreign state would also be unenforceable.[FN46] From this, she concludes that, if the Note and the Allonge were entered into for an illegal purpose (the bribery of a foreign public official), they would be void and unenforceable under Nova Scotia law.
On the validity of the Allonge, Conlon explains that, under Nova Scotia law, an amendment
to a contract must be supported by additional consideration to be valid. She cites cases where
courts have found modifications unenforceable because only one party benefitted.[FN47] Based on Conlon's
explanation, defendants argue that the Allonge was not supported by any consideration, making
it unenforceable.
C. GUSINSKY'S REPLY
In reply, Gusinsky submits a legal memorandum from a Nova Scotia barrister named Alan V. Parish. Parish cites a treatise on contract law, which has been relied upon by Nova Scotia courts, for the proposition that a variation to a contract yields its own consideration when it is capable of benefitting either party.[FN48] The same treatise identifies a change in currency as a kind of variation that "might" benefit either party because "there could be no certainty how the two currencies would move in relation to each other."[FN49] Based on this rationale, Parish takes the [*8]position that the Allonge is not unenforceable due to the currency change.
Gusinsky does not refute Conlon's explanation of the law of Nova Scotia on illegal contracts
and Parish's affidavit is silent on the issue. Instead, Gusinsky argues that Sagi's allegation of
bribery is unsubstantiated and insufficient to bar summary judgment. He points out that the sole
basis for the illegality defense is Sagi's own self-serving affidavit. In addition, he contends that
defendants are precluded from claiming that his money was not a loan because: (1) their answer
admits that the money was "lent by [AGH]"; (2) Sagi acknowledged, in the Assurance, that the
money was "borrowed"; and (3) interest payments were made for years without objection. In the
end, he says that the bribery allegation is a recent fabrication to feign an issue of fact.
D. ANALYSIS
1. Illegality
The Court credits Conlon's description of the law in Nova Scotia on the subject
of illegal contracts. Interestingly, New York law on the subject is similar: "[A] court may refuse
to enforce a contract if it is closely connected with an unlawful act. "[FN50] Applying the rule of law described by
Conlon, Sagi's conclusory allegation of illegality is insufficient to avoid summary judgment.
Gusinky is correct that the bribery claim is flatly contradicted by Sagi's earlier characterization
of the transaction as a loan, defendants' judicial admission, and the making of interest payments
when AGH was controlled by Sagi. Gusinsky's persecution in Russia, Arie's relationship with
Ariel Sharon, and the existence of a scandal involving Gilad Sharon do not defeat Gusinsky's
claim against AGH on the Note.
The circumstances surrounding Gusinsky's persecution actually undermine Sagi's
allegations. Gusinsky's Israeli citizenship, Interpol's determination, the American outcry over
Gusinsky's arrest, and the decision of the European Court of Human Rights all support
Gusinsky's assertion that there was no need to bribe Israel for safe passage. Sagi's allegation that
Arie orchestrated the bribery scheme through Gilad Sharon's interest is belied by Sagi's
execution of the stock purchase agreement for that interest and his valuation of it before the sale.
Moreover, Sagi does not submit any financial records for the entities that he now controls to
support his claim. While he asserts that Gusinsky's $2.5 million was used to effectuate a bribe,
he does not submit any financial documents to show how the money was used after it was
received.
2. Consideration
The Allonge was made almost a year after the Note and before any payments had come due. Not only does it recite that value was exchanged, but Gusinsky describes it as potentially benefitting both parties. Defendants contend that only Gusinsky benefitted from the Allonge, without submitting any evidence on currency conversion rates.
Upon review of the experts' submissions, Parish is more persuasive in describing Nova
Scotia law on consideration, and applying it to the facts here. The cases cited by Conlon are
[*9]distinguishable because, in each of them, only one party
benefitted from a variation to the original agreement. In this case, the Allonge did not
definitively benefit one party at the expense of the other. The change in currency could have
benefitted either party depending on currency fluctuations.
3. Preliminary Injunction
"A preliminary injunction may be granted . . . when the party seeking such
relief demonstrates: (1) a likelihood of ultimate success on the merits; (2) the prospect of
irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the
moving party's favor."[FN51] "The purpose of a preliminary injunction is
to maintain the status quo and prevent the dissipation of property that could render a judgment
ineffectual."[FN52]
Gusinsky has established a likelihood of success on his cause of action to enforce the terms
of the Pledge Agreement and the Assurance. He is a third-party beneficiary of the Assurance
because it was intended to benefit him by ensuring that funds received by Properties or Riverside
GP would be set aside for the repayment of the Note.[FN53] He has also demonstrated the prospect of an
irreparable injury if the New Property is sold and the net proceeds available for distribution are
not applied to the Note. Additionally, the equities weigh in Gusinsky's favor because he is
entitled to be repaid and Sagi expressly assured that specific funds would be used for that
purpose. Given the facts, the injunction is to be directed to all three defendants.
CONCLUSION
Gusinsky has established that AGH is liable to him on the Note. He has not established Sagi's individual liability on it, or that AGLP, not the maker, is liable either. Defendants' liability on the remaining claims are not raised in this motion for partial judgment. In addition, Gusinsky is entitled to a preliminary injunction against all defendants pending the resolution of the remainder of the action. The terms of the temporary restraining order are continued pending entry thereof.
Accordingly, it hereby is
ORDERED that plaintiff's motion for summary judgment on the first and second
causes of action is granted to the extent that he is entitled to judgment against defendant AG
Holdings Company in the principal amount of C$3,845,750, plus interest in an amount to be
determined, provided that entry thereof shall abide the determination of the amount of unpaid
interest; and it further is
ORDERED that plaintiff's motion for a preliminary injunction is granted as
against all defendants, and the temporary restraining order is continued pending entry thereof
and the fixing of the amount of the undertaking; and it further is
ORDERED that the parties shall settle a further order hereon within 10 days of entry [*10]hereof, for which purpose courtesy copies hereof are being sent to counsel.
Dated: August , 2009
ENTER:
________________________J.S.C.Footnotes
Footnote 1:Affidavit of Vladimir Gusisnky,
sworn to May 5, 2009 ("Gusinsky Affidavit"), attached as Exh. 1 to Reply Affirmation of Jason
P. Criss, sworn to May 13, 2009 ("Criss Reply Affirmation"), ¶ 2.
Footnote 2:Affidavit of Arie Genger, sworn
to May 6, 2008 ("Arie Genger Affidavit"), attached as Exh. 4 to Affirmation of Jason P. Criss,
sworn to February 27, 2009 ("Criss Affirmation"), ¶¶ 3, 7.
Footnote 3:Arie Genger Affidavit
¶¶ 6, 15.
Footnote 4:Id. ¶¶ 1, 6.
Footnote 5:Note, attached as Exh. A to
Third Amended Complaint, attached as Exh. 1 to Criss Affirmation.
Footnote 6:Id.
Footnote 7:Pledge Agreement, attached as
Exh. B to Third Amended Complaint, attached as Exh. 1 to Criss Affirmation.
Footnote 8:C$ is a symbol for the Canadian
dollar.
Footnote 9:Allonge, attached as Exh. A to
Third Amended Complaint, attached as Exh. 1 to Criss Affirmation.
Footnote 10:Id. (emphasis in
original).
Footnote 11:Arie Genger Affidavit
¶¶ 6-7.
Footnote 12: Id.
¶¶ 15-16.
Footnote 13:Id. ¶ 6.
Footnote 14:E-mail from Sagi Genger to
Arie Genger (August 27, 2004), attached as Exh. G to Affidavit of Arie Genger, sworn to April
30, 2009, attached as Exh. 4 to Criss Reply Affirmation.
Footnote 15:Stock Purchase Agreement,
attached as Exh. I to Affidavit of Arie Genger, sworn to April 30, 2009, attached as Exh. 4 to
Criss Reply Affirmation.
Footnote 16:Assurance Agreement,
attached as Exh. C to Third Amended Complaint, attached as Exh. 1 to Criss Affirmation.
Footnote 17:Id.
Footnote 18:Id.
Footnote 19: Gusinsky Affidavit
¶ 6.
Footnote 20:Id.
Footnote 21:Letter from Vladimir
Gusinsky to Sagi Genger (November 19, 2007), attached as Exh. G to Third Amended
Complaint, attached as Exh. 1 to Criss Affirmation; Letter from Vladimir Gusinsky to Sagi
Genger (February 5, 2008), attached as Exh. D to Third Amended Complaint, attached as Exh. 1
to Criss Affirmation; Letter from Vladimir Gusinsky to Sagi Genger (March 6, 2008), attached
as Exh. E to Third Amended Complaint, attached as Exh. 1 to Criss Affirmation; Letter from
Vladimir Gusinsky to Sagi Genger (October 31, 2008), attached as Exh. F to Third Amended
Complaint, attached as Exh. 1 to Criss Affirmation.
Footnote 22:Gusinsky Affidavit ¶
11.
Footnote 23:Id. ¶¶ 11,
18.
Footnote 24:Id. ¶ 12.
Footnote 25:Id. ¶¶
13-14.
Footnote 26:Id. ¶¶
12-13.
Footnote 27: Press Release,
Helsinki Commission on Security and Cooperation in Europe, Helsinki Commission
Chairman Decries Russian Media Figure's Arrest (June 13, 2000), attached as Exh. 6 to
Gusinsky Affidavit.
Footnote 28:Press Release, United States
Department of State, Closure of Independent Media in Russia Politically Motivated
(April 18, 2001), attached as Exh. 8 to Gusinsky Affidavit.
Footnote 29:Gusinsky Affidavit ¶
15.
Footnote 30:Id. ¶¶
15-16; Gusinsky v. Russia, Application No. 70276/01 (Strasbourg, May 19, 2004),
attached as Exh. 11 to Gusinsky Affidavit.
Footnote 31:Letter from Ronald K.
Noble, Secretary General, Interpol, to Vladimir Gusinsky (July 3, 2001), attached as Exh. 9 to
Gusinsky Affidavit.
Footnote 32:Letter from Irit Kohn,
Director of the Department of International Affairs, State of Israel, Ministry of Justice, to
Vladimir Gusinsky (August 24, 2003), attached as Exh. 10 to Gusinsky Affidavit.
Footnote 33:Id.
Footnote 34:Gusinsky v. Russia,
Application No. 70276/01 (Strasbourg, May 19, 2004), attached as Exh. 11 to Gusinsky
Affidavit.
Footnote 35:Answer to Third Amended
Complaint, attached as Exh. 2 to Criss Affirmation, ¶ 3.
Footnote 36:Complaint, attached as Exh.
1 to Criss Affirmation.
Footnote 37:Order to Show Cause, dated
January 26, 2009.
Footnote 38:Id.
Footnote 39:Portfolio Recovery Assocs., LLC v.
King, 55 AD3d 1074 (3rd Dept. 2008); Sunbridge Capital Inc. v. G Bon Funding
Corp., NYLJ, July 3, 2008, at 29, col. 3 (Sup. Ct., Nassau Co.).
Footnote 40:Zuckerman v. City of
New York, 49 NY2d 557, 562 (1980).
Footnote 41:Affidavit of Sagi Genger,
sworn to March 24, 2009 ("Sagi Genger Affidavit"), ¶¶ 12-16.
Footnote 42:Id. ¶¶
14-18.
Footnote 43:Id. ¶ 18.
Footnote 44:Ross Dunn, Sharon
Could Face Bribery Charges in Land Deal, Israel Faxx, January 22, 2004, attached as Exh. C
to Sagi Genger Affidavit.
Footnote 45:See The Queen v.
McNutt, [1900] 4 C.C.C. 392 (C.A.); Ernest v. Christian, [1929] 1 D.L.R. 207
(N.S.C.A.).
Footnote 46: G.H.L. Fridman,
Q.C., The Law of Contract in Canada, 5th ed., 373-74 (Toronto: Thomson Carswell,
2006).
Footnote 47:See Besta International
Corp. v. Watercraft Offshore Canada Ltd., 1994 CarswellBC 602 (S.C.); Nickerson v.
McDermaid Agencies Ltd., 1992 CarswellNS 279 (T.D.).
Footnote 48:G.H. Treitel, The Law of
Contract, 7th ed., 80-81 (London: Stevens & Sons, 1987).
Footnote 49:Id.
Footnote 50:China Trust Bank
(U.S.A.) v. Pinter, No. 04 CV 5331, 2007 WL 922421, at *5 (E.D.NY Mar. 26, 2007).
Footnote 51:Doe v. Axelrod, 73
NY2d 748, 750 (1988).
Footnote 52:See Ying Fung Moy v. Hohi Umeki,
10 AD3d 604, 604 (2nd Dept. 2004).
Footnote 53: See Roosevelt
Islanders for Responsible Southtown Dev. v. Roosevelt Island Operating Corp., 291 AD2d
40, 57 (1st Dept. 2001); Lake Placid Club Attached Lodges v. Elizabethtown Builders,
Inc.,131 AD2d 159, 161 (3rd Dept. 1987).
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