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Frenkel v. Klein

United States District Court, E.D. Pennsylvania

December 22, 2016

LEON FRENKEL, Plaintiff,
v.
BRUCE K. KLEIN, et al., Defendants.

          MEMORANDUM

          Schiller, J.

         Leon Frenkel sued Defendants Bruce Klein and Victory Partners LLC (“VPLLC”) for breach of contract arising from two promissory notes, each secured by a pledge agreement. After a protracted procedural battle, Defendants filed a Motion for Partial Summary Judgment on Counts I and II, which allege breach of a May 2010 promissory note and its pledge agreement, respectively. Pursuant to Federal Rule of Civil Procedure 56(f), the Court notified the parties of its intent to grant summary judgment on Count I in favor of Frenkel. Because it is undisputed that VPLLC has failed to repay the money borrowed in the promissory note, the Court grants Frenkel summary judgment on Count I as against VPLLC. But because there remains a factual dispute about whether VPLLC is the alter ego of Klein, the Court denies summary judgment on Count I as against Klein.

         I. BACKGROUND

         A. Factual History

         The parties do not dispute the existence of the four contracts at the heart of this case: two promissory notes, each secured by a pledge agreement.

         On May 7, 2010, VPLLC executed a promissory note in favor of Frenkel for a principal amount of $153, 000 (the “VPLLC Note”). (Def.'s Mot. Partial Summ. J. Ex. A, ECF No. 57.) Klein signed the note on behalf of VPLLC, identifying himself as “Manager.” (Id.) The promissory note was payable on demand and listed a fifteen percent annual interest rate in the event of default. (Id.) The note also provided that VPLLC would pay all costs of collection, including reasonable attorney's fees. (Id.) That same day, as collateral security for the VPLLC Note, VPLLC pledged “400, 000 shares of unrestricted and freely tradable common stock of New Media Plus, Inc.” (the “VPLLC Pledge Agreement”). (Id. Ex. B.) Klein signed the pledge agreement twice, once on behalf of VPLLC as the pledgor, again identifying himself as “Manager, ” and once on behalf of himself as guarantor. (Id.) The VPLLC Note and the VPLLC Pledge Agreement each contained an integration clause, which stated that the contract formed the entire agreement between the parties. (Id.; id. Ex. A.) One month later, New Media issued Frenkel 450, 000 shares of its common stock. (Id. Exs. E-G.)

         A year later, Klein executed a promissory note in favor of Frenkel for a principal amount of $25, 000, due on October 17, 2011 (the “Klein Note”). (Compl. Ex. D, ECF No. 1.) Klein pledged an additional “100, 000 shares of common stock of New Media Plus, Inc.” as collateral security for the second note (the “Klein Pledge Agreement”). (Id. Ex. E.) Each contract also contained an integration clause. (Id.; id. Ex. D.)

         Frenkel's attorney, JBF, [1] first followed up with Klein by email about repayment of the VPLLC Note on August 30, 2011. (Pl.'s Resp. Opp'n Ex. E [“Frankel Aff.”] at Ex. 1, ECF No. 58.) JBF followed up with Klein repeatedly over the next two years about both notes, but Frenkel never received repayment on either. (Id.; Answer ¶¶ 10, 27, ECF No. 52; Def.'s Mot. Partial Summ. J. Ex. I ¶¶ 23-24; Pl.'s Resp. Opp'n 2.) Frenkel also claimed that he never received the pledged collateral for either promissory note. (Pl.'s Resp. Opp'n 9; Compl. ¶¶ 34-35.)

         B. Procedural History

         In April 2014, Frenkel filed a complaint alleging four counts of breach of contract: Counts I and II for the VPLLC Note and Pledge Agreement, and Counts III and IV for the Klein Note and Pledge Agreement, respectively. Four months later, the Court entered default judgment against Klein and VPLLC under Rule 55(b)(2). A year passed before Defendants entered an appearance and moved to set aside the default. (Def.'s Mot. Set Aside Default, ECF No. 28.) After thorough briefing and an evidentiary hearing, the Court set aside the default judgment in March 2016.

         In its motion for partial summary judgment on Counts I and II, Defendants argued that Frenkel had received the 450, 000 shares of New Media stock in satisfaction of the VPLLC Pledge Agreement, and ultimately in satisfaction of the VPLLC Note. (Def.'s Mot. Partial Summ. J. 1-2, 4.) Frenkel countered that the 450, 000 shares were not “unrestricted and freely tradable, ” as required by the VPLLC Pledge Agreement. (Pl.'s Resp. Opp'n 13.) Neither party alleged that VPLLC had in any other way repaid the $153, 000 required by the VPLLC Note.

         The Court denied summary judgment on Count II. The Court clarified that “unrestricted and freely tradable” means shares that “can be sold freely in public or private sale under registration with the Securities Act or pursuant to an exemption in the Securities Act, and [that] are not subject to any external condition.” The Court decided that a genuine issue of material fact remains as to whether the 450, 000 shares of New Media stock are “unrestricted and freely tradable.” The Court also notified the parties, pursuant to Rule 56(f), of its intention to grant partial summary judgment on Count I to Frenkel.[2]

         II. STANDARD OF REVIEW

         Summary judgment is appropriate when the admissible evidence fails to demonstrate a genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In reviewing the record, a court “must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor.” Prowel v. Wise Bus. Forms, Inc., 579 F.3d 285, 286 (3d Cir. 2009). The court may not, however, make credibility determinations or weigh the evidence in considering motions ...


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