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LESAL INTERIORS, INC. v. RESOLUTION TRUST CORP.

October 20, 1993

LESAL INTERIORS, INC., Plaintiff,
v.
RESOLUTION TRUST CORPORATION, as Receiver for CorEast Savings Bank, F.S.B., and COLONIAL DPC CORP. I, Defendants.



The opinion of the court was delivered by: STANLEY S. BROTMAN

 BROTMAN, District Judge:

 I. Introduction

 In this case, tried to the bench on May 24, 1993, plaintiff Lesal Interiors, Inc. ("Lesal") seeks to recover the balance of payments, amounting to $ 780,000, owed for work done in 1989 under a construction contract for the renovation of an apartment complex in Vorhees, New Jersey. Upon the present posture of this case, Lesal attempts to obtain this sum, not from the party that hired it to perform the renovation work, but rather from a bank and its subsidiary.

 In July 1990, Lesal brought suit in New Jersey Superior Court against Echelon Glen Cooperative, the Michael defendants, CorEast, Colonial, and other parties. In the original complaint, Lesal sought recovery only from Echelon Glen Cooperative and the Michael defendants. As against the other defendants in the case, including CorEast and Colonial, Lesal's only claim was to establish the priority of its alleged mechanic's lien over the interests of these defendants.

 On February 1, 1991, the Office of Thrift Supervision declared CorEast insolvent, and appointed the Resolution Trust Corporation ("RTC") as the receiver for CorEast. *fn1" On April 19, 1991, the New Jersey Superior Court substituted the RTC in the action as the receiver for CorEast. On May 9, 1991, the RTC removed the case to federal district court in the District of Columbia. The case was then transferred to the District of New Jersey in June 1991.

 On May 3, 1992, the court granted Lesal leave to file an amended complaint, which was filed on May 14, 1992. In the amended complaint, Lesal added the following claims against CorEast and/or Colonial for recovery of the $ 780,000 due under the renovation contract; count V alleged that Lesal is subrogated to Echotree's rights against Colonial under the Settlement Agreement; count VI alleged that Colonial is liable in quantum meruit to Lesal for the value of Lesal's renovation work; count VII predicated Colonial's liability on a theory of unjust enrichment; count VII alleged that Lesal is the third-party beneficiary of the Settlement Agreement; count IX alleged that Colonial is an alter ego of CorEast, thus making CorEast liable for any debts, obligations, or liabilities owed by Colonial to Lesal; count X alleged that CorEast is liable for the monies due under the renovation contract on a theory of promissory estoppel; and count XI alleged that CorEast, Colonial, and other defendants are liable for fraud.

 On November 25, 1992, the court entered a default judgment in favor of Lesal against the Michaels defendants, jointly and severally, in the amount of $ 778,000, plus costs and interest. *fn2" On March 30, 1993, the court entered an opinion and order granting CorEast's and Colonial's motion for summary judgment with respect to counts V, VI, VII, and X of the amended complaint. The court, however, denied the motions with respect to counts VIII, IX, and XI, thus allowing Lesal's third-party beneficiary, fraud, and alter ego theories to proceed to trial. On April 23, 1993, Lesal filed a motion to compel turnover of funds.

 On May 24, 1993, a one-day trial was held before the bench. After careful consideration of the entire record in this matter, the court enters the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

 I. Findings of Fact

 
A. The Parties and Principal Individuals

 1. Plaintiff Lesal is a New York corporation having its principal place of business located at 212-11 99th Avenue, Queens Village, New York. Lesal is in the business of performing interior renovations, principally for large apartment upgrades and condominium or cooperative conversions. Jt. Final Pretrial Order, Stipulated Facts ("JFPO Stip.") PP 1, 8.

 2. Echelon Glen Cooperative, Inc., is a corporation organized and existing under the New Jersey Cooperative Act, N.J. Stat. Ann. § 46:8D-1, having its principal place of business at 1 Van Buren Road, Voorhees, New Jersey. JFPO Stip. P 2.

 3. Defendant Echotree Associates, L.P. ("Echotree"), is a New Jersey limited partnership. Echotree is no longer an operating business. JFPO Stip. P 3.

 4. Defendant HLM/Echotree, Inc., is the general partner of Echotree and is a New York corporation. HLM/Echotree is no longer an operating business. JFPO Stip. P 4.

 5. Defendant CorEast Savings Bank ("CorEast") is a federally chartered savings bank. CorEast is no longer an operating entity, the Resolution Trust Company ("RTC") having assumed control of CorEast pursuant to 12 U.S.C. §§ 1441a et. seq. in January 1991. JFPO Stip. P 5.

 6. Defendant Colonial DPC Corporation I ("Colonial") is a Virginia corporation formed in May 1990. JFPO Stip. P 6.

 7. Gary Sherwood is president of Lesal. The court finds Sherwood's testimony to be credible, except in regard to the alleged October 1989 oral agreement between Lesal and CorEast. See infra Findings of Fact P 15.

 8. Howard Michaels, during the events giving rise to this litigation, was the managing general partner of Echotree.

 9. Linda Kolachny, from June 1990 through August 1991, was a CorEast Vice President and, for a lesser time within that period, also an officer of Colonial. Kolachny Dep. at 7-8, 45-47, 213.

 
B. The Echelon Glen Conversion Project

 10. Echotree was the owner of a property in Voorhees, New Jersey, located on which are a series of buildings known as the Echelon Glen Apartments. By December 1989, Echotree undertook a project to convert the Echelon Glen apartments to cooperatives. Defendant CorEast, among others, provided the financing for this conversion project. JFPO Stip. PP 7, 9, 18.

 11. As part of the cooperative conversion project, Echotree hired Lesal in December 1989 to renovate 110 apartments at the Echelon Glen complex for a contract price of $ 1,536,000. In addition to the base work, Lesal performed further work under change orders for a price of $ 390,000. Pl.'s Ex. 2. Lesal commenced work in January 1989 and substantially completed its work by October 1989. JFPO Stip. PP 10, 11.

 12. The total amount due for Lesal's work is $ 1,926,000. Echotree has paid Lesal $ 1,148,000, leaving a balance due of $ 778,000. Pl.'s Ex. 2.

 13. On February 3, 1989, Echotree conveyed the underlying fee in the property to Echelon Glen Cooperative, Inc. Echotree retained a beneficial interest in Echelon Glen in the form of proprietary leases in the cooperative units and shares in the cooperative association, Echelon Glen Cooperative. JFPO Stip. P 12.

 14. By October 1989, Lesal had attempted three times to arrange a meeting with Michaels in order to attempt to arrange payment on the monies still due to Lesal. Once these attempts failed, Lesal insisted on a meeting with the construction lender, Coreast. This meeting took place at the CorEast Savings Bank's offices on the east side of Manhattan in New York City. Testimony of Sherwood. At this meeting, HLM Echotree and Lesal reached an agreement of $ 690,000 as the "settlement" amount for Lesal's claim. Pl.'s Exs. 3, 4.

 15. Plaintiff Lesal has failed to prove by a preponderance of the evidence that, at the October 1989 meeting, CorEast assured Lesal that Lesal would be paid, and that officers of CorEast shook Sherwood's hand on this agreement. There are two reasons for this finding. First, none of the documentation memorializing the October 1989 meeting mentions this alleged agreement between Lesal and CorEast. See Pl.'s Exs. 3, 4; see also Testimony of Sherwood (admitting that there was no written confirmation from CorEast). Second, Sherwood testified that he shook hands with Stu Wiener and Linda Kolachny, as representatives of CorEast, on the alleged agreement. However, this raises a serious credibility problem because Kolachny only first became employed by CorEast in mid-June of 1990. Kolachny Dep. at 7. Therefore, Kolachny could not have been at the October 1989 meeting to shake hands with Sherwood as a representative of CorEast.

 
D. The Settlement Agreement

 16. The Echelon Glen conversion project failed in June 1990.

 17. As part of the workout of the loan relationship between Echotree and CorEast, CorEast formed Colonial DPC I Corporation ("Colonial"), a Virginia corporation, in May 1990. JFPO Stip. P 14.

 18. CorEast and Colonial entered into a Settlement Agreement with the Michaels entities on June 25, 1990. See Jt. Ex. 1 ("Settlement Agreement"). The Settlement Agreement provided, inter alia, that Colonial became the owner of the unsold shares and proprietary leasing rights to 515 apartment units then owned by the sponsor. In return, CorEast released the Michaels entities from more than $ 6 million in existing debt. CorEast also capitalized Colonial with $ 6 million in loans.

 19. Lesal was unaware of the Settlement Agreement at the time of its making, and did not participate in its drafting or execution. JFPO Stip. PP 24, 25.

 20. The Recital to the Settlement Agreement provides that "[Colonial] shall agree to . . . pay on behalf of Echotree, or indemnify Echotree against, certain expenses incurred by Echotree with ...


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