Bank of America, N.A. v. New York Merchants Protective Co., Inc. et al

Filing 40

ORDER re Receiver's 27 request re the termination of Wayne Wahrsager, and 29 Motion for a temporary restraining order, preliminary injunction and relief pursuant to Fed. R. Civ. P. 60. See attached Order. Ordered by Senior Judge Denis R. Hurley on 5/2/2011. (Malley, Sean)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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BANK OF AMERICA, N.A., individually
and a successor to LaSalle Bank,
National Association, a national
banking association,

MEMORANDUM AND ORDER
11-CV-0038 (DRH)(ARL)

Plaintiff,
-againstNEW YORK MERCHANTS PROTECTIVE CO.,
INC., a New York Corporation, NEW
YORK MERCHANTS ALARM RESPONSE, INC.,
a Delaware Corporation, and NY MERCH
PROT CO., INC., a Delaware
Corporation,
Defendants.
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A P P E A R A N C E S:
Jean Marie Lucien Atamian, Esq.
Attorney for Plaintiff
Mayer Brown LLP
1675 Broadway
New York, New York 10019-5820
Robert J. Ansell, Esq.
Attorney for the Receiver Ronald J. Friedman
Silverman Acampora LLP
100 Jericho Quadrangle, Suite 300
Jericho, New York 11753
Gary Fischoff, Esq.
Attorney for Wayne M. Wahrsager
Steinberg, Fineo, Berger & Fischoff, P.C.
40 Crossways Park Drive
Woodbury, New York 11797
HURLEY, Senior District Judge
This Memorandum and Order will address two of the
motions which are presently before the Court.

The first is the

letter application of Robert J. Ansell ("Ansell"), counsel for
the Receiver Ronald J. Friedman, Esq. (the "Receiver" or

"Friedman") for the Court to "so order" Friedman's decision to
"terminate[] Wayne M. Wahrsager ["Wahrsager"] from his employment
position with New York Merchants Protective Company, Inc.
['NYMP']." (Ansell's Apr. 15, 2011 Letter at 1.)

The second

motion is the converse of the first, consisting of Wahrsager's
application for "a preliminary injunction restraining the
Receiver from terminating Wayne Wahrsager."

(Wahrsager's Apr.

18, 2011 Mem. in Supp., Table of Contents at i (all letters in
upper case in the original)).
BACKGROUND
By complaint filed on January 5, 2011, the plaintiff,
Bank of America, N.A. ("BOA") sued the captioned defendants for a
sum in excess of $19,000,000.00 allegedly due under a promissory
note and loan agreement entered into between a predecessor
corporation of BOA and NYMP.

In that pleading, as well as in

BOA's application bearing the same date seeking the appointment
of a receiver for NYMP, plaintiff contends that the debtor
corporation and others committed fraud - via the kiting of checks
and overstating NYMP's monthly revenue - so that "an aggregate
principal balance on the Revolving Loans [to NYMP mushroomed to]
more than twice the lending limit set by the loan agreement."
(Compl., ¶ 5.)
Based on, inter alia, NYMP's deteriorating financial
condition, coupled with the defaulted multi-million dollar

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indebtedness, and purported concomitant fraud, the Court - after
hearing oral argument on behalf of the applicant and on behalf of
the defendant corporations - granted BOA's application on January
5, 2011 by appointing Friedman as the Receiver for NYMP pending a
full hearing scheduled on January 18, 2011.

However, after the

Court orally listed Friedman's interim authority on the record
and entered a written order in conformity therewith, (Docket #
12), I received a letter dated January 14, 2011 from defendants
informing me that they consented to the appointment of the
receiver without any admission of wrongdoing.

I thereupon

cancelled the hearing scheduled for January 18th and ordered the
parties to submit a proposed order based on their agreement.
They did so, which order provided that Friedman's status as
Receiver would continue "until [Defendants' businesses were] sold
or further Order of the Court" and also set forth the parties'
stipulation as to the nature and breadth of his powers. (See
Docket # 11, electronically So Ordered by the Court on January
19, 2011.)

That consent Order, i.e. the one bearing Docket # 11,

is the Order currently in effect.

It provides in pertinent part

as follows:
6.
The Receiver is hereby authorized to operate
and manage Defendants' businesses until sold or
until further order of the Court.
7.
The Receiver is hereby authorized in his
discretion to remove Defendants' current management
(including, but no limited to, Wayne M. Wahrsager,
Mark Fischer and Bert Wasserman) from their
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management and/or other employment positions with
Defendants and, in the Receiver's sole discretion,
to retain or remove any other employee, manager or
agent of Defendants from his or her positions.
DISCUSSION
Following receipt of Ansell's letter of April 15, 2011
pertaining to Friedman's firing of Wahrsager, Gary C. Fischoff,
Esq. ("Fischoff") filed an April 18th letter-response at 9:41
a.m. opining that his client could not be removed as an officer
of NYMP absent a vote of the Board of Directors, citing New York
State Business Corporation Law ("BCL") § 716.

The issue thus

joined, the Court, later on the morning of April 18th, set the
matter down for a hearing on April 20, 2011, with the subject
being the propriety of Friedman's terminating Wahrsager's
employment with NYMP.1

Immediately prior to taking testimony at

1

Thereafter, viz. late in the afternoon of April 18th,
defendants presented, and I signed an Order to Show Cause which
sought (a) a curtailment of the Receiver's powers, (b) injunctive
relief, as previously noted, preventing the Receiver from firing
Wahrsager, and (c) "an Order ordering the Receiver to seek an
application before this Court approving his compensation and the
compensation of his law firm and agent TRG Associates." See
Defs.' Apr. 18, 2011 O/T/S/C/ at 2. That Order to Show Cause was
returnable on April 27, 2011. On that latter date, item (a) was
denied, while item (c) was granted in part, both from the bench
and for reasons reflected in the transcript of the April 27, 2011
proceeding.
With respect to the Receiver's firing of Wahrsager - and
given the overlap between the request in the Receiver's April
15th letter and item (b) in defendants' Order to Show Cause - I
asked the parties on April 27th whether either cared to add
testimony to the April 20th hearing record. Neither side elected
to do so and, accordingly, the testimonial component of the
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the hearing, the Court ruled that BCL § 716 did not preclude the
subject firing. (Apr. 20, 2011 Tr. at 8); see generally Graselli
Chemical Co. v. Aetna Explosives Co., Inc., 252 F. 456, 459 (2d
Cir. 1918).
At the April 20th hearing two witnesses testified, viz.
Friedman called by Ansell and Wahrsager called by Fishoff.
Friedman testified that Wahrsager was a disruptive influence at
the work site to the extent that his presence interfered with the
Receiver's ability to discharge his responsibilities.

Along

those lines, Friedman testified that Wahrsager provided the
person handling the accounts payable ledger with "invoices that
are not properly payable by New York Merchants." (Tr. at 16.)

On

other occasions, he "encouraged certain employees to quit and
look for another job." (Id. at 12.)

Friedman also complained

that Wahrsager refused to take direction from him, or from his
consultant, TRG, acting instead as if he, Wahrsager, was still in
charge of NYMP.

By way of example, Friedman said that Wahrsager

spoke to him about a prior NYMP employee who was reportedly
defrauding the corporation via the unauthorized use of a gasoline
credit card, and of his intention to report that individual to
the police.

In response, Friedman indicated that before

parties' respective positions concerning Wahrsager's employment
with NYMP consists solely of that elicited during the April 20,
2011 hearing.
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Wahrsager did so he should provide the pertinent documentation to
him for his review.

That directive was ignored by Wahrsager who

filed the criminal complaint, minus pre-clearance from Friedman.
By way of another example, Friedman reports that Wahrsager sent
billing invoices to NYMP customers in the beginning of April,
even though TRG previously told him that "we didn't want to
process the bills on the very first day of the month because we
still had some internal updating to do to the books of accounts
so that certain customer's accounts would be appropriately
credited." (Id. at 13-14.)
Immediately following the conclusion of Friedman's
testimony, Wahrsager was called to the stand by Fischoff.

Mr.

Wahrsager testified he had run NYMP since he purchased the
company in 1988.

He complained that Friedman spent "less than an

hour a week" at NYMP, placing the operation of the company in the
hands of "TRG" which he characterized as "basically ruin[ing] my
company." (Id. at 64.)

For many of the disruptive incidents

cited by the Receiver during his testimony, Wahrsager provided an
alternate interpretation or a different rendition regarding the
subject events.

Thus, for instance, as to the April billing

episode, Wahrsager testified that, Brady, i.e. the on-site
principal of TRG, asked him if he would "be so kind as to run
them for [him]" and that, after he did so, and so advised
Friedman, Friedman thanked him for his efforts. (Id. at 67-68.)

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Mr. Wahrsager also explained that Senior Care 911 LLC,
("Senior Care"), which "provides personal emergency response
systems to . . . elderly people . . . .," maintains a phone on
his desk in the same building as houses NYMP's operations to
receive "sales related [and] billing related" inquiries. (Id. at
71.)

Moreover, Senior Care's computer records are integrated

with NYMP's, thus generating problems for Wahrsager in operating
Senior Care should he be banned from the shared premises absent
some type of temporary, problem-specific accommodation being
provided.
I found Friedman's testimony to be credible, even
though in some instances his information was derived from third
parties, primarily Brady.

Mr. Wahrsager's testimony was credible

on peripheral matters, such as his testimony about not using
ethnic slurs in referring to a NYMP Hispanic employee.

But as to

the central issue concerning the caliber of the Receiver's
performance, his condemning perceptions are out-of-sync with
reality for numerous reasons, including his inability to accept
the Receiver as now being at the helm of NYMP.

And beyond that,

it is clear from the testimony of Friedman and Wahrsager that
considerable friction exists between them to the detriment of the
corporation and the receivership, which friction is attributable
to Wahrsager's disruptive conduct at the work site.
Much of the friction emanates from what I perceive to

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be obvious, i.e. that Wahrsager not only believes he should still
be in charge of NYMP, but also that Friedman is a dilettante
interloper who, acting in cahoots with TRG, is running NYMP into
the ground.

That position is problematic at best in that, on the

information that has thus far surfaced, NYMP, with Wahrsager in
charge, had essentially lethal financial, and other problems
before Friedman arrived on the scene. (See, e.g., Exhs. E and F
to Atamian Decl., submitted in Opp'n to Defs.' Motion.)

More

importantly, it is evident from the hearing testimony that
Wahrsager will not take directions from the Receiver or from the
Receiver's consultant, TRG, in those instances where he harbors a
different view than theirs.

Simply put, Friedman's ability to

discharge his obligations as Receiver is being significantly
undermined by Wahrsager's presence at NYMP.
That being said, I note that under the Order
delineating the powers of the Receiver, more particularly
paragraphs 6 and 7 previously quoted, the Receiver had the right
to terminate Wahrsager's employment at NYMP notwithstanding his
status as an officer and director of the corporation.

That

Wahrsager now disagrees with the initially consented-to powers
vested in the Receiver is not germane given that defendants'
efforts to have those powers reduced was rejected by the Court in

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its April 27, 2011 bench decision for a failure of proof.2

Such

being the case, Wahrsager was, and remains required to abide by
the directions issued by the Receiver.

In that regard, Wahrsager

shall "vacate himself from the premises [i.e. 75 W. Merrick Road
in Freeport] and . . . to turn over his keys and access card to
the building" [subject to the limited exception provided infra]
as directed by the Receiver on April 15th.

(Tr. at 10.)

To the

extent he, upon the advice of counsel, has declined to follow
that direction absent a Court order (see id. at 12, and the last
paragraph of Fishoff's Apr. 15, 2011 Letter to Ansell), this
decision provides that order.

Additionally, Wahrsager is hereby

ordered, effective immediately, not to interfere, directly or
indirectly, in the Receiver's operation of the business.
The above referenced exception to the vacatur order has
to do with the fact that Senior Care, a small business apparently
owned by Wahrsager and "Mr. Fisher," (Tr. at 32), maintains the
previously described phone line in the building in which NYMP is
located, plus its "books and records and computerized systems . .
. are all intertwined . . . with New York Merchants,"3 (id. at
32).

Additionally, the Receiver is under the impression that

2

For that reason, viewed in conjunction with the breadth
of the Receiver's powers, both as amplified during the course of
the Court's April 27, 2011 bench decision, defendants' motion for
a preliminary injunction preventing the Receiver from firing
Wahrsager is denied.
3

"New York Merchants" and NYMP are one and the same.
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Senior Care utilizes NYMP's employees to run its operation.
(Id.)

The parties are directed, acting through counsel, to take

the steps necessary on or before May 13, 2011 to separate the two
entities consistent with the Receiver's April 15th direction that
Wahrsager "vacate . . . the premises." (Id. at 10.)

Wahrsager

shall be permitted, notwithstanding that directive, to be present
at currently shared premises, to assist in the accomplishment of
the above task but solely for that purpose.

Upon the completion

of that task, or by 5:00 p.m. on May 13, 2011, whichever first
occurs, Wahrsager shall leave the premises at 75 W. Merrick Road,
Freeport, New York not to return absent prior written permission
being granted by the Receiver or this Court.
CONCLUSION
In sum, the Receiver had the right on April 15th to
terminate Wahrsager's employment with NYMP.

Additionally, I find

that the Receiver will be significantly impeded in doing his job
unless Wahrsager is directed to remain away from the work site
during the pendency of the receivership.

Accordingly, Wahrsager

shall vacate, and remain away from the premises as detailed
above.
SO ORDERED.
Dated:

May 2, 2011
Central Islip, New York
/s/
DENIS R. HURLEY
United States District Judge
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