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INSIDE SCOOP, INC. v. CURRY

September 19, 1989

INSIDE SCOOP, INC., Plaintiff,
v.
PAUL CURRY, et al., Defendants


June L. Green, United States District Judge.


The opinion of the court was delivered by: GREEN

Plaintiff seeks to collect monies due on a promissory note. Defendants Paul F. Curry and Philip M. Katz failed to answer the complaint so a default judgment was entered by the Clerk on June 12, 1985, in the amount of $ 189,196.00.

 In its memorandum and order dated July 19, 1988, the Court granted defendant Philip Katz' motion to vacate the default judgment. Defendant Katz, individually, is the only defendant before the Court at this time. A trial to the court followed, with both parties filing their closing arguments. For the reasons stated below, the Court finds in favor of defendant Katz.

 I. Findings of Fact

 Plaintiff, Inside Scoop, Inc., is a corporation organized under the laws of the District of Columbia. Defendant Katz is a citizen of Massachusetts and was one of two trustees of C & K Investment Trust-Washington 1 ("Washington 1") and C & K Management Trust, with Paul Curry as the other trustee. Both trusts were known commonly as "Massachusetts business trusts."

 Defendant Katz was also a trustee of numerous business trusts other than Washington 1 and the Management Trust, located in the District of Columbia, Maryland and Massachusetts, for example:

 
C & K Investment Trust-Harvard Square
 
C & K Investment Trust-Faneuil Hall
 
C & K Investment Trust-Atlantic City
 
C & K Investment Trust-Georgetown
 
C & K Investment Trust-Tremont Street
 
C & K Investment Trust-College Park, Maryland
 
C & K Investment Trust-University City
 
C & K Investment Trust-Dupont Circle Street
 
C & K Investment Trust-Washington Street

 Joint Ex. 7 at 19. The Management Trust provided management and administrative services to all of the separate investment trusts. For these services, each investment trust was to pay 5% of the gross sales proceeds. No other fees were to be incurred. Id. at 16 & 17. Katz and Curry made all of the decisions for each of the trusts. Transcript Vol. III at 110, lines 2-4. They were the sole shareholders as well as trustees for the Management Trust.

 The Declaration of Trust for Washington 1 was filed with the Corporation Division of the Secretary of State in Massachusetts on May 23, 1983. See Joint Ex. 6. Under Article XI of the Declaration of Trust entitled "Recording," the trust provides that the "Trustees shall record this instrument in the Registry of Deeds for Norfolk County, Massachusetts, and shall also file a copy in the office of Secretary of the Commonwealth and Clerk of Wellesley." Id. While filed in the Secretary's office, the instrument was not filed in Norfolk County or in Wellesley. See Plaintiff's Exs. 110 & 111.

 In May 1982, Inside Scoop leased property located at 1134 19th Street, N.W., Washington, D.C. from Giobatta Corrado Bruzzo ("Landlord") *fn1" under a three-year lease with seven and five-year options (the "lease"). See Joint Ex. 2. Inside Scoop operated an ice cream store under the same name at this location in 1982 and 1983. Transcript Vol. I at 69.

 In November 1983, defendant Curry contacted Inside Scoop's officers, Jerrold Klein and Andrew Shapiro. Defendant Curry was interested in opening a "Steve's" ice cream store at the Inside Scoop location. He explained that he and defendant Katz, through the C & K Management Trust, operated several "Steve's" ice cream stores. Transcript Vol. I at 72. While they had an option on the building next door at 1136 19th Street, Curry stated that he would prefer Inside Scoop's location due to lower construction costs. Id. at 78.

 The parties came to a tentative agreement to assign the lease and to sell certain leasehold improvements to Curry and Katz' company. The agreement was put in writing in a letter dated December 2, 1983. Joint Ex. 9. The agreement provided for the assignment of the lease to occur on January 1, 1984. Washington 1 was to:

 1) pay all rent directly to the Landlord;

 2) pay $ 50,000 for the leasehold improvements;

 3) purchase Inside Scoop's leasehold interest for the total sum of $ 335,416.65, to be paid in monthly installments of $ 2,083.33 (which included 9% interest) through May 1, 1997, with the first six installments paid up front; and

 Also included in Paragraph 4 of this letter was an agreement to secure the purchase of the lease:

 
To secure the Trust's obligation to make the payments described in Paragraph 3 above, the Trust will, on December 7, 1983, execute and deliver to [Inside Scoop] a collateral assignment of lease which will provide that in the event the Trust defaults in making such payments or fails to comply with the terms of the lease, [Inside Scoop] will have the right to retake possession of the lease premises and the leasehold improvements and receive immediate payment of the unpaid balance of the Trust's obligation under Paragraph 3.

 Id. This letter was signed by defendant Curry as "Paul F. Curry, Trustee, C & K Investment Trust-Washington 1."

 The transactions between Inside Scoop and Washington 1 closed on or about December 9, 1983. Inside Scoop executed both the seven and five-year options on the lease and, along with the Landlord, agreed to certain amendments to the lease. Joint Ex. 16. Inside Scoop assigned all of its rights under the lease to Washington 1 and Washington 1 assumed all of Inside Scoop's obligations under the lease, including rent payments. Joint Ex. 18.

 In addition to the assignment of the lease, Washington 1 executed a Purchase Money Note (the "Note") which represented the payment for the sale of the lease to it. The Note was executed on December 9, 1983, including the principal amount of $ 194,362.00, together with simple interest at the rate of 9% per annum. A six month advanced payment of $ 12,500 was to be paid on December 9, 1983, with the remaining payments of principal and interest at $ 2,083.33 to be paid on the first of every month beginning on July 1, 1984 and continuing through May 1, 1997. The Note also provided that:

 
overdue payment of interest and/or principal, together with the late charges thereon (whether in due course or after acceleration of maturity as herein provided for) and all sums advanced or expended by the holder for the Maker's account pursuant to the Collateral Agreement shall bear interest at the rate ...

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