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Constitution Bank v. Tubbs

October 13, 1995

CONSTITUTION BANK

v.

STEVEN R. TUBBS, ELLIOTT A. WEINBERG AND WEINBERG TUBBS & CO., APPELLANTS IN NO. 93-1295, STEVEN R. TUBBS, APPELLANT IN 94-1489 ELLIOTT A. WEINBERG, APPELLANT



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil Action 91-06988)

Before: STAPLETON, ROTH and LEWIS, Circuit Judges

ROTH, Circuit Judge

Argued on December 5, 1994

Filed October 13, 1995)

OPINION OF THE COURT

I. INTRODUCTION

These consolidated appeals present a confusing mosaic of bankruptcy petitions, motions for relief from the automatic stay, and nunc pro tunc rulings. We must piece together what effect the rulings on relief have had as judgments were entered, as retroactive relief was granted, and as appeals were filed. The appeals all arise from an action for fraud and fraudulent conveyance brought by Constitution Bank ("ConBank") against defendants, Elliott A. Weinberg ("Weinberg"), Steven R. Tubbs ("Tubbs"), and Weinberg Tubbs & Co. ("WTC"). In Appeal No. 93-1295, all three defendants have appealed the district court's order of February 26, 1993, which entered judgment against WTC for compensatory damages and against Weinberg and Tubbs for punitive damages. In Appeal No. 94-1411, Weinberg has appealed the district court's order of March 24, 1994, which modified its February 26 judgment order by holding Weinberg and Tubbs to be jointly and severally liable with WTC for ConBank's compensatory damages, and in Appeal No. 94-1489, Tubbs has also appealed the district court's March 24 order.

II. BACKGROUND AND PROCEDURAL HISTORY

On September 2, 1987, Grossman Weinberg and Associates, P.A. ("GWA"), a professional accounting corporation, borrowed $27,450 from ConBank in order to purchase computer and office equipment. GWA executed a promissory note in favor of ConBank for $27,450. The officers and directors of GWA, professional accountants Weinberg, Tubbs, Steven B. Grossman, William A. Cadmus and Doreen A. Gentile, personally guaranteed the loan. These guarantees provided that the accountants:

intending to be legally bound, unconditionally, absolutely and irrevocably guarantee(s) and become(s) surety to Bank for the prompt payment of all sums now or hereafter due to Bank from Borrower . . ..

* * *

The Obligation of Guarantor hereunder shall continue in full force and effect until thirty (30) days after Bank shall have actually received written notice of Guarantor's intention to terminate this Guaranty sent by certified or registered mail, return receipt requested. This Guaranty shall nevertheless continue in effect and Guarantor shall remain liable for any Obligation which was incurred by Borrower prior to such date of termination, and which is the result of any renewal, extension, or modification of any such Obligation . . .. App. A-1055-59 *fn1 (emphasis added). In support of their personal guarantees, each of the accountants submitted a financial statement to ConBank.

GWA then obtained a line of credit with ConBank and over the next two years borrowed an additional $250,000. During the course of their dealing, GWA was represented to ConBank as being a single accounting firm with offices in both New Jersey and Florida. In actuality, however, GWA's two "offices" were separate corporations having the same name and, for the most part, the same officers and directors. *fn2

In July 1990, unbeknownst to ConBank, defendants Weinberg and Tubbs resigned from GWA and formed WTC, a competing accounting firm. At the same time, Weinberg and Tubbs transferred roughly $1 million in assets from GWA to WTC.

Sometime between October 1990 and March 1991, GWA defaulted on its loans. In June 1991, the Court of Common Pleas for Philadelphia County entered judgment in favor of ConBank and against defendants Weinberg and Tubbs on their personal guarantees.

On November 8, 1991, ConBank filed an action in the United States District Court for the Eastern District of Pennsylvania, seeking to recover compensatory and punitive damages caused by defendants' allegedly fraudulent conduct in guaranteeing $277,450 in loans for GWA and then conveying away assets so that ConBank would be unable to collect from GWA. *fn3 In March 1992, the court held a bifurcated jury trial on the defendants' liability for fraud and fraudulent conveyance. The jury returned a bifurcated verdict in favor of ConBank as to liability only. On March 13, 1992, the district court entered judgment on liability against the defendants.

Shortly thereafter, on March 31, 1992, the district court dismissed ConBank's complaint with prejudice on the basis of a purported settlement agreement between the parties. When the settlement fell through, ConBank sought to vacate the dismissal. On August 6, 1992, the court entered an order denying ConBank's motion to vacate, without prejudice to renew, but permitting ConBank to show cause why the court should not give full force and effect to the judgment ConBank had obtained in the Court of Common Pleas in June 1991. After a hearing, the court, on November 30, 1992, vacated its prior dismissal order and directed that the case be reassigned to another judge for trial on the issue of damages.

On January 27, 1993, a new judge empaneled two juries to hear the case -- one to decide damages only and the other to decide both liability and damages in the event that the first judgment of liability obtained on March 12, 1992, would be reversed. On February 3, both juries returned verdicts in favor of ConBank and against the defendants. The court then molded ...


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