ZOKAITES PROPERTIES, LP v. LA MESA RACING LLC

Filing 119

MEMORANDUM OF DECISION. Signed by Magistrate Judge Maureen P. Kelly on 5/2/2013. (dgg)

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYL VANIA

ZOKAITES PROPERTIES, LP,
Plaintiff,

v.
LA MESA RACING, LLC,
Defendant.

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Civil Action No. 11-259
Magistrate Judge Maureen P. Kelly

MEMORANDUM OF DECISION
I.

INTRODUCTION
Plaintiff, Zokaites Properties, LP (UZokaites Properties") brought this action against

Defendant, La Mesa Racing, LLC (liLa Mesa"), alleging that La Mesa breached its contractual
obligations under a promissory note that had been executed on March 20, 2002, and assigned to
Zokaites Properties.
Prior to the commencement of this case, La Mesa filed a petition for bankruptcy relief in
the United States Bankruptcy Court for the District of Maryland. Zokaites Properties filed an
original proof of claim -- the same claim at issue in this case -- in La Mesa's bankruptcy case.
Hearings were held before United States Bankruptcy Judge Nancy V. Alquist on April 21, 2010,
July 19, 2010, September 13, 2010 and September 14, 2010. With the express consent of all
parties in attendance at the bankruptcy hearing, Judge Alquist signed an order dated October 1,
2010, dismissing the bankruptcy petition, which effectively terminated the automatic stay that
had been imposed on claims against La Mesa pursuant to 11 U.S.C. § 362(a).! Zokaites
Properties consequently initiated this action on October 1,2010, by filing a Complaint in the

I Although Judge Alquist's order was signed on October I, 2010, it was not entered on the Bankruptcy Court's
docket until October 4, 2010. [ECFNo.ll,pp. 103-40].

Court of Common Pleas of Allegheny County, Pennsylvania. La Mesa removed the case to this
Court on February 25,2011. Zokaites Properties brings a single claim against La Mesa for
breach of contract.
Following the adjudication of various motions, the parties agreed to submit the case for a
non-jury trial based on the transcript and exhibits from the hearing before Bankruptcy Judge
Alquist and any additional evidence the parties wished to submit. The non-jury trial was held
before the undersigned in December 14,2012, at which time Zokaites Properties called Frank
Zokaites ("Zokaites") and Jeffrey Siskind to testifY. La Mesa did not present any additional
testimony but rested on the transcripts of the bankruptcy proceedings before Judge Alquist.
Counsel for both parties made detailed arguments to the Court based on the bankruptcy record.
II.

FINDINGS OF FACT

La Mesa is a New Mexico Limited Liability Company formed in October 1998 for the
purpose of purchasing approximately 213 acres of property located in Raton, New Mexico, that
contains a non-operating horse racetrack. [ECF No. 95, p. 22; ECF No. 97, p. 82; ECF No. 97-1,
p. 99]. The original members of La Mesa were Stephen Vincent and William Siskind
("Siskind"). [ECF No. 98, p. 19]. The value of the racetrack is derived from the possibility of
the racetrack obtaining a license for exclusive gaming to build a casino. [ECF No. 118, pp. 96,
102].
A mechanic's lien was filed against the property by Structures Plus, an architect, in the
amount of $108,500.00. [ECF No. 95, pp. 23-24, 53]. In an effort to prevent Structures Plus
from foreclosing on the property, Siskind and his son, Jeffrey Siskind, approached Zokaites
regarding a loan. [ECF No. 95, p. 55; ECF No. 95-1, pp. 28-56; ECF No. 118, p. 28]. Zokaites,
who had known both Siskind and Jeffrey Siskind for over ten years had had made multiple loans

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to both of them over the years, agreed to make a loan to Siskind in the amount of $151 ,550.00.
[ECF No. 95, p. 22; ECF No. 118, pp. 27,62]. Approximately $108,000.00 was to be used to
pay the Structures Plus mechanic's lien that was filed against the La Mesa property, and
$18,000.00 and $25,000.00 was to be used for an appraisal and a marketing study -- all of which
were to benefit La Mesa. [ECF No. 95, pp. 24, 54-55; ECF No. 118, pp. 28, 61-62]. As a
condition of the loan, Zokaites required that certain documents be executed. [ECF No. 95, pp.
24-25,27-28,54; ECF No. 118, p. 47]. Those documents are as follows:
1.

Promissory Note

Siskind, as borrower, entered into a promissory note on March 20, 2002, with Zokaites,
as lender, for the sum of$151,500.00 ("the Siskind Note"). [ECF No. 95, pp. 24, 27; ECF No.
95-1, pp. 10-12; ECF No. 118, p. 28]. The Siskind Note constituted Siskind's personal guarantee
and was the instrument that funded the loan. [ECF No. 95, p. 24; ECF No. 118, p. 30]. The
original Siskind Note was erroneously dated March 20,2001, and on August 15,2002, a second
note was issued reflecting the correct date that the Siskind Note was signed -- March 20, 2002.
[ECF No. 95, p. 27; ECF No. 95-1, pp. 10-12; ECF No. 118, p. 31].

2.

Guarantee

Zokaites also required a guarantee from La Mesa because it was receiving the benefit of
the loan. [ECF No. 95, pp. 24-25, 55; ECF No. 118, p. 29]. Zokaites prepared the guarantee
("the La Mesa Guarantee"), and sent it to Siskind. Siskind was authorized under La Mesa's
Articles oflncorporation to act on behalf of La Mesa and executed the guarantee on La Mesa's
behalf in March of2002. [ECF No. 95, pp. 25, 55; ECF No. 95-1, p. 13; ECF No. 97, pp. 130­
31; ECF No. 118, pp. 29, 32, 71, 98-99].

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3.

Collateral Agreement

At Zokaites' insistence, Zokaites and Siskind also entered into a Collateral Agreement on
March 20, 2002, as part of the loan package. [ECF No. 95-1, p. 17; ECF No. 118, pp. 28-29, 33­
34]. Under the terms of the Collateral Agreement, Siskind agreed to give Zokaites 2% interest in
La Mesa as additional consideration for the Siskind Note. Id.

4.

Indemnity Mortgage

Siskind's wife, Judith, and their two children, Jeffrey Siskind and Wendy S.
Buckingham, were the beneficiaries of the Enterprise Trust which owned a company called
Transamerican Commercial, LTD ("TCL"). [ECF No. 95, p. 29; ECF No. 118, pp. 40, 88]. TCL
owned, in part, a building in Baltimore, Maryland, known as the Jefferson Building. [ECF No.
95, pp. 25,97; ECF No. 118, pp. 29, 39-40, 88]. As part ofthe loan package, Zokaites also
obtained an indemnity mortgage on the Jefferson Building from Siskind. [ECF No. 95, pp. 25,
99; ECF No. 95-1, pp. 154-57; ECF No. 118, p. 35]. Although the mortgage is dated March 3,
2002, it specifically references the March 20, 2002 Siskind Note. [ECF No. 95, pp. 25, 100;
ECF No. 95-1, pp. 154-57; ECF No. 118, pp. 35, 57-58].
After obtaining all of these assurances, Zokaites financed the loan to Siskind and wired
$151,550.00 to an account called Casino del Caribe in Baltimore, Maryland at Siskind's
direction. La Mesa received and made use of the wired funds. Specifically, Siskind wired
$108,500.00 to an attorney in New Mexico to satisfy the mechanics lien that had been filed
against La Mesa's property. [ECF No. 95, pp. 30,36-37,40-43; ECF No. 95-1, pp. 19-27; ECF
No. 118, pp. 60-62, 65, 68]. The balance of the Zokaites loan proceeds paid for an appraisal and
marketing services for La Mesa. [ECF No. 95, pp. 54-55; ECF No. 118, pp. 28, 61-62].

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Approximately seven months later, Siskind filed for personal bankruptcy in October of
2002, and subsequently sent Zokaites another promissory note that was virtually identical to the
Siskind Note, including being dated March 20,2002, except that TCL was substituted as the
"Borrower" ("the TCL Note"). [ECF No. 95, pp. 87,97-98; ECF No. 95-1, pp. 136-138; ECF
No. 97-1, p. 129: ECF No. 118, pp. 37-38, 56]. Siskind also sent Zokaites another indemnity
mortgage, dated December 2, 2002, which refers to the TCL Note rather than the Siskind Note.
[ECFNo. 95, p. 25; ECF No. 95-1, pp. 146-152; 118, pp. 35-38]. The latter mortgage, however,
is the only one that Siskind recorded. It is undisputed that Siskind did not make any payments
on either the Siskind Note or the TCL Note. [ECF No. 95, pp. 27-28, 90, 100; ECF No. 118, pp.
156-57].
On June 25, 2004, at the request of Jeffrey Siskind who was acting on behalf of his
father, Zokaites, as the Note holder and lender, agreed to extend the initial term of the Siskind
Note for an additional two years and to allow the payments and interest to accrue rather than
making monthly payments. La Mesa was aware of, and consented to, the extension by virtue of
the fact that Jeffrey Siskind was an officer of La Mesa. [ECF No. 95, pp. 31-32, 91-93; ECF No.
95-1, p. 140].
Zokaites purchased a 50% interest in the Jefferson Building from TCL in 2002, and
purchased the remaining 50% interest held by TCL in 2004. During the latter transaction,
Zokaites reduced the purchase price of the building by the amount outstanding on the indemnity
mortgage thereby releasing the lien against the Jefferson Building and effectively satisfying the
loan he made to Siskind. [ECF No. 95, pp. 25-26, 32; ECF No. 118, pp. 39-40,60].
Accordingly, Zokaites marked both the Siskind Note and the TCL Note "paid in full" and mailed

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them to Jeffrey Siskind. [ECF No. 95, p. 33; ECF No. 95-1, pp. 10, 136, 161; ECF No. 118, p.
41].
Jeffrey Siskind subsequently called Zokaites and told him that the Note was not voided
but was now held by TCL because TCL had paid the loan on behalf of La Mesa. [ECF No. 95,
pp. 33, 56; ECF No. 118, pp. 41,44, 89]. Jeffrey Siskind sent Zokaites a letter dated October 6,
2004, memorializing the conversation along with an assignment that he asked Zokaites to sign.
[ECF No. 95, pp. 25-26, 56; ECF No. 95-1, p.15; ECF No. 118, p. 39]. Zokaites executed the
assignment on October 9,2004, thereby assigning his interest in the Siskind Note to TCL.
Zokaites also scratched out the "paid in full" notation on the Siskind Note and returned the
documents to Jeffrey Siskind. [ECF No. 95, p. 33; ECF No. 95-1, p. 10; ECF No. 118, pp. 42,
44]. On April 11, 2005, Zokaites executed a Release of Mortgage indicating that indemnity
mortgage on the Jefferson Building had been satisfied. [ECF No. 95-1, p. 159].
Zokaites therefore did not receive payment on the Siskind Note from either Siskind or La
Mesa, but received payment from TCL arising out of the indemnity mortgage. [ECF No. 95, pp.
27-28,90; ECF No. 118, pp. 39-40].
In mid-2009, Jeffrey Siskind sought financial assistance from Zokaites on TCL's behalf
in order to pursue collection of the Siskind Note from La Mesa, which had filed a petition for
bankruptcy in July of2007. [ECF No. 118, pp. 46-47]. Rather than executing a loan, Zokaites
had TCL assign the Siskind Note to Zokaites Properties with the promise that Zokaites Properties
would prosecute the Note and divide the proceeds amongst the parties. [ECF No. 95, 28-29,56­
57; ECF No. 95-1, p. 8; ECF No. 118, p. 47]. The Assignment was executed on October 12,
2009, by Judith Siskind, Jeffrey Siskind, and Wendy S. Buckingham, thereby conveying the
interest in the Siskind Note to Zokaites Properties. On December 21, 2009, Zokaites Properties

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filed a proof of claim in La Mesa's bankruptcy proceeding in the United States Bankruptcy Court
for the District of Maryland. [ECF No. 95-1, pp. 5-13].
In considering the transcripts and exhibits from the bankruptcy proceeding and the
testimony and evidence presented and argue at trial, this Court finds that this case, as recognized
by counsel for Zokaites in his argument, essentially boils down to a credibility determination.
This Court finds that the testimony of Zokaites and Jeffrey Siskind and the additional evidence
offered by Zokaites substantially more credible than the evidence proffered by La Mesa. At trial,
La Mesa raised a number of defenses to the claim of Zokaites Properties. This Court finds that
the defenses were not supported by the evidence of record, lacked merit or were not relevant to
the claim at issue.

III.

CONCLUSIONS OF LAW
"To successfully maintain a cause of action for breach of contract the plaintiff must

establish: (1) the existence of a contract, including its essential terms, (2) a breach of a duty
imposed by the contract, and (3) resultant damages." Albert v. Erie Ins. Exchange,
A.3d_, 2013 WL 1139207 at *3 (Pa. Super. Mar. 20, 2013), quoting McShea v. City of
Philadelphia, 995 A.2d 334, 340 (Pa. 20 I 0).

Ware v. Rodale Press, Inc., 322 F Jd 218, 226

(3d Cir. 2003).
In the matter at issue, Siskind executed the Siskind Note, which set forth the essential
terms of the $151,550.00 loan made to him by Zokaites, on March 20, 2002. As part of that
same loan package, Siskind, with full authority under La Mesa's Articles of Incorporation,
signed a Guarantee on La Mesa's behalf fully guaranteeing the Siskind Note. It is noted that
Siskind never denied that he signed the Guarantee. Accordingly, La Mesa, which had received
the benefit of the loan made by Zokaites to Siskind, was contractually bound by the Guarantee.

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Zokaites subsequently assigned the Siskind Note to TeL, which had reimbursed Zokaites
for the loan he made to Siskind by deducting the amount of the loan from the purchase price of
the Jefferson Building. The assignment of the Siskind Note to TeL, however, did not relieve La
Mesa, which had received the benefit of the loan, of its obligation under the Guarantee in which
it agreed to guarantee the Siskind Note. Rather, the obligation to guarantee the Siskind Note was
owed to TeL when it became the holder of the Siskind Note.
It is undisputed that no payments were made to Zokaites by either Siskind or TeL under
the terms of the Siskind Note or the TeL Note. As such, La Mesa was obligated under the
Guarantee to repay Siskind's debt -- a debt it listed in its petition for bankruptcy filed on July 31,
2007. Because Zokaites Properties purchased TeL's rights under the Siskind Note on October
12,2009, La Mesa's obligation under the Guarantee reverted to Zokaites Properties. No
payments have been made by La Mesa to Zokaites or Zokaites Properties. La Mesa, therefore, is
in breach of its duty imposed under the Guarantee.
As a result of La Mesa's breach, Zokaites Properties is owed the principal sum of
$151,550.00 as well as interest and fees under the terms of the Siskind Note which it holds and
which La Mesa guaranteed? La Mesa therefore is liable to Zokaites Properties for breach of
contract.
IV.

CONCLUSION

Having found that La Mesa is in breach of contract, judgment is properly entered in favor
of Zokaites Properties and against La Mesa in an amount of $151 ,550.00 plus interest, attorneys'
fees and costs in accordance with the terms of the Siskind Note.

2 The parties agree that the Siskind Note provides for an 8% interest rate until March 20, 2004, and 9% interest rate
thereafter. ECF No. 118, p. 148.

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Accordingly, the following order is entered:
AND NOW, this 2nd day of May, 2013, on or before May 16,2013, the parties are to
submit a joint statement of interest in accordance with the terms of the Siskind Note, i. e. the
principle sum of $151 ,550.00 plus 8% interest from March 20, 2002 until March 20, 2004, and
9% interest rate from March 21, 2004 to date. Zokaites Properties may submit a petition for
attorneys' fees and costs as provided for in the Siskind Note by May 20,2013. Any response in
opposition to the petition for attorneys' fees must be filed by May 28, 2013.

cc:

All counsel of record via CM/ECF

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