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DE KORWIN v. FIRST NATIONAL BANK OF CHICAGO

November 12, 1958

MARGARET DE KORWIN, ETC., PLAINTIFF,
v.
FIRST NATIONAL BANK OF CHICAGO, ETC., ET AL., DEFENDANTS. FIRST NATIONAL BANK OF CHICAGO, ETC., PETITIONER, V. GRAVERAET YOUNG KAUFMAN, HENRY N. RAPAPORT, ET AL., RESPONDENTS.



The opinion of the court was delivered by: Igoe, District Judge.

    This cause now comes before the Court upon motions for summary judgment requiring disposition of another aspect of these proceedings.

The questions to be determined in this branch of the long and complex litigation relating to the Otto Young testamentary trust estate*fn1 arise out of certain dollar assignments made by Graveraet Young Kaufman, the settlor's oldest living grandchild. In earlier rulings of this court, Graveraet, as one of Otto Young's eighteen grandchildren, became vested under his grandfather's will with a one-eighteenth remainder interest in the corpus of the trust estate, subject to divestiture only in favor of his issue in the event he died before termination of the trust.*fn2 Time for distribution arrived when Graveraet's mother, Marie Julia Young Kaufman Pratt, the last life tenant, died on August 17, 1956. Were it not for the large number of claims that his assignees and subassignees had served upon the trustee, the First National Bank of Chicago,*fn3 Graveraet would have been entitled to the distribution in due course of his share in all of the trust estate then remaining in the hands of the Trustee.

Upon the death of Mrs. Pratt, the Trustee petitioned this court for instructions with respect to the many questions necessarily presented for determination in winding up the fifty-year old trust. Among other things, the Trustee asked to file its accounts since the death of Otto Young's widow, in 1916;*fn4 it also requested the court to determine what procedure it should follow in resolving the numerous conflicting claims to Graveraet's share. Until the Trustee's accounts had been stated and approved and unless the parties entitled to participate in Graveraet's share were judicially determined, the Trustee represented it would be impossible to carry out its obligation to divide and distribute the trust estate in equal shares among the testator's grandchildren*fn5 and thus terminate the trust.

As an essential step in the orderly division, distribution and termination of the trust, this court directed the Trustee to set up a special segregated account for Graveraet and for all claimants to his share, to be held subject to the further order of court. The Trustee has made distributions of the corpus into this segregated account from time to time, and the Trustee has, therefore, been able to divide the bulk of the trust estate remaining in its hands at the death of Mrs. Pratt, in consequence of which Graveraet's share and the shares of his three sisters (who also attempted assignments) have continued under this court's control and supervision until the conflicting claims against them might be adjudicated.

A number of the assignees and subassignees asserting claims against Graveraet's share in the hands of the Trustee sought and were granted leave to intervene and press their claims in this cause. Among these was one Henry N. Rapaport, who affirmatively has asked this court to order the Trustee to distribute $247,750 to him in cash from Graveraet's share. Other claimants were brought in pursuant to this court's instructions to the Trustee;*fn6 such claimants have filed pleadings (as have the Trustee and Graveraet), thus delineating the factual and legal issues necessary to be determined before disposition can be made of Graveraet's segregated share.

The claims of Rapaport are derived from five assignments, made by Graveraet in 1951 and 1952, the dollar amount of which is $321,500. In addition to Rapaport, other persons claiming portions of these five assignments, and the amounts they claim, are as follows: Abraham Silberman, $12,000; Selma Lashine, $12,000; Maurice Kreis, $5,000; Alex Cohen, $4,000; Henry Legum,

$15,750; and, Donald B. Jones, $25,000. All of these claimants, other than Legum (who has filed an appearance pro se but has not pleaded), have abandoned contentions originally asserted that the court was lacking in jurisdiction. Rapaport at no time raised a question with respect to jurisdiction.

In October of 1957, shortly after being given leave to intervene and plead, Rapaport filed a motion for summary judgment accompanied by affidavit asking the court to order that he be paid by the Trustee and the Liquidation Trustees*fn7 "'the sum of $247,750, together with the income which has accrued thereon since August 17, 1956." By his motion Rapaport brought before the court for determination the validity and legal effect of the five assignments by Graveraet under which Rapaport took his dollar-amount subassignments. The original assignments were dated April 4, 1951, July 13, 1951, November 8, 1951, December 5, 1951, and April 4, 1952, and, as set out in the Trustees' petition of December 7, 1956, have been designated as GRAV-C, GRAV-E, GRAV-G, GRAV-H, and GRAV-I, respectively.

Thereafter, Graveraet filed his answer conceding many facts set forth in Rapaport's motion, an affidavit controverting certain facts, and a countermotion for summary judgment in his favor; Graveraet's countermotion seeks judgment not only against Rapaport but against the six other claimants mentioned. Certain matters set out in Graveraet's countermotion and supporting affidavit are the subject of counteraffidavits filed by Rapaport and other claimants.*fn8 In addition to these motions and affidavits, the court also has before it rather elaborate pleadings and supporting documents, and a deposition given by Graveraet at the instance of Rapaport and other claimants.

The court has had the benefit of extensive written briefs as well as full oral argument. The parties concede there are sufficient uncontroverted facts to permit a summary judgment for Rapaport if his claim be lawful. Graveraet's counsel, in addition to urging the denial of Rapaport's motion for summary judgment as a matter of law (rather than on the ground that essential facts are controverted in good faith), has moved the court to find certain facts and to set down for trial limited factual issues in connection with Graveraet's contention that the assignment transactions are void as usurious loans, under Rule 56(d) of the Federal Rules of Civil Procedure, 28 U.S.C.A.*fn9 Quite apart from these issues, which might require proof, it is conceded that the court may properly determine on the motion and countermotion whether the spendthrift provisions in the will of Otto Young would bar the enforcement of Graveraet's assignments.

By reason of the voluminous record and the important issues to be decided, it is essential that the material facts which appear without substantial controversy be specified fully.

On April 4, 1951, July 13, 1951, November 8, 1951, December 5, 1951, and April 4, 1952, Graveraet signed writings, designated "assignments," in which he purported to grant, bargain, sell, assign, transfer, and set over to one Philip S. Rosen all of his right, title, and interest in and to the principal of the estate of Otto Young, deceased, to the extent of $62,500, $42,000, $42,000, $87,500, and $87,500, respectively. Copies of these documents are filed herein as Trustee's Exhibits GRAV-C, GRAV-E, GRAV-G, GRAV-H, and GRAV-I, respectively.

In each of these assignments, Graveraet warranted that his mother, Marie Julia Young Kaufman Pratt, was then 74 years of age, that upon his survival of her death he would become entitled to an interest in the principal of the Otto Young trust in excess of $1,000,000, and that his "assignment is intended as an outright sale and transfer absolutely and in fee simple of [his] interest in and to the principal of the trust estate herein assigned, and there shall be no obligation on [his] part personally to pay any sum beyond the application of [his] interest therein * * * that this sale and assignment are not made as collateral security for any price or amount, but that said sale and assignment are absolute and unqualified, and not subject to rescission and/or redemption * * * that [he has] not executed any promissory note or other indicia of personal liability, but that the recourse of Philip S. Rosen shall be against [his] interest in the aforesaid estate only." In each of the assignments Graveraet also warranted the number and amount of prior assignments made by him. The assignment dated April 4, 1951, warranted that he had made prior assignment in the sum of $187,500. The assignment dated April 4, 1952, the last involved in the motion and countermotion, warranted that he had made prior assignments in the sum of $515,250.

Contemporaneously with the execution of the assignment dated April 4, 1951, Graveraet executed and delivered to Philip S. Rosen an affidavit stating that Graveraet had a specified interest in the testamentary trust established under the will of Otto Young, deceased; that he had executed an assignment to the extent of $62,500 to Rosen; that he had made certain specified prior assignments; that no judgment existed against him in Illinois in amounts in excess of $2,000, and that no suits or actions were pending against him, no receiver of his property had been appointed, and no proceedings in bankruptcy affecting his property had been commenced; and that he had "carefully" read the assignment of $62,500 to Rosen, knew its contents and knew that the only recourse of the assignee was against the trust. The affidavit also set out the facts of Graveraet's past and present employment as a banker, and asserted that the "assignment was negotiated for and executed pursuant to [his] request and of [his] own free will"; it stated that the affidavit was made to induce Rosen to "purchase" a portion of Graveraet's interest in the trust and to part with valuable consideration therefor and that the consideration paid in Graveraet's opinion was "fair and adequate in view of the hazards inherent in the transaction." With the other assignments, those dated July 31, 1951, November 8, 1951, December 5, 1951, and April 4, 1952, Graveraet executed and delivered to Rosen affidavits relating to such assignments identical with his affidavit of April 4, 1951.

For his assignment of $62,500, dated April 4, 1951, Graveraet received $15,000; for his assignment of $42,000, dated July 13, 1951, he received $10,075; for his assignment of $42,000, dated November 8, 1951, he received $10,000; for his assignment of $87,500, dated December 5, 1951, he received $20,000; and for his assignment of $87,500, dated April 4, 1952, he received $20,000. Thus, Graveraet received a total of $75,075 for his assignments aggregating $321,500.

All negotiations for these assignments took place in New York, and the assignments and the accompanying affidavits were executed in New York.

In connection with each of these assignments, applications for insurance on Graveraet's life were made; Philip S. Rosen acted and signed the applications as soliciting agent. All the insurance policies were issued for the benefit of Rosen; the original premiums were paid by Rosen; and all of the policies were immediately on their issuance assigned to Rosen by Graveraet. The amount of insurance taken out in connection with these five assignments ($159,000 in coverage) was determined by Rosen. Other than the amounts paid Graveraet and the insurance premiums, Rosen's only expense in obtaining the five assignments was a fee of $2,000 to his agent Edmund W. Bokat for legal services.

Philip S. Rosen made subassignments to one Eliot Hyman of his interest in the five assignments, as follows: On May 21, 1951, an undivided $29,500 in the assignment of $62,500, dated April 4, 1951; on July 23, 1951, all interest in the assignment of $42,000 dated July 13, 1951; on November 19, 1951, an undivided $26,250 in the assignment of $42,000 dated November 8, 1951; on December 19, 1951, all interest in the assignment of $87,500 dated December 5, 1951; and, on April 21, 1952, all interest in the assignment of $87,500 dated April 4, 1952. Copies of these subassignments have been filed herein as Trustee's Exhibits GRAV-C-5, GRAV-E-1, GRAV-G-1, GRAV-H-1, and GRAV-I-1, respectively. With these subassignments Hyman received, by way of assignment from Rosen, fourteen insurance policies on Graveraet's life, totalling $124,000 in coverage, which had been issued in connection with the original assignments.

Eliot Hyman assigned to Henry N. Rapaport all of his interest in the subassignments from Rosen with the exception of an undivided $25,000 in the subassignment of $87,500 dated December 19, 1951, by five separate sub-subassignments, executed December 6, 1954, copies of which have been identified and filed herein as Trustee's Exhibits GRAV-C-5-a, GRAV-E-1-a, Grav-G-1-a, Grav-H-1-b, and GRAV-I-1-a, respectively. The total face amount of interests thereby transferred from Hyman to Rapaport was $247,750. In connection with the five sub-subassignments to Rapaport, duplicate originals of the assignments from Graveraet to Rosen, of the affidavits signed by Graveraet, and of the subassignments from Rosen to Hyman, were exhibited to Rapaport. On December 15, 1954, Graveraet executed an affidavit in the presence of Rapaport stating that he ratified and reaffirmed his assignments to Rosen and the subassignments from Rosen to Hyman.

In addition to his subassignments to Hyman, Rosen made other subassignments, as follows: (1) of the assignment dated April 4, 1951, Rosen subassigned interests to the following persons: $4,000 to Alex Cohen on April 10, 1951; $12,000 to Selma Lashine on April 10, 1951; $12,000 to Abraham Silberman on April 10, 1951; and $5,000 to Maurice Kreis on April 23, 1951; (2) of the assignment dated November 8, 1951, Rosen subassigned an interest to the extent of $15,750 to Henry Legum on March 3, 1952. Copies of these subassignments have been identified and filed herein as Trustee's Exhibits GRAV-C-1, GRAV-C-2, GRAV-C-3, GRAV-C-4, and GRAV-G-2, respectively.

Hyman sub-subassigned to one Donald Jones an undivided $25,000 in the subassignment from Rosen to Hyman dated December 19, 1951. A copy of this sub-subassignment has been identified and filed herein as Trustee's Exhibit GRAV-H-1-a.

In consequence of various other assignments and reassignments of the insurance policies originally procured, and by virtue of taking out additional insurance on Graveraet's life, the parties claiming a share of the five assignments described as Trustee's Exhibits GRAV-C, GRAV-E, GRAV-G, GRAV-H, and GRAV-I, obtained and maintained the following insurance on Graveraet's life:

                                     Dollar        Insurance
                                     Amount          Held on
                                    of Interest      Life of
                                     Claimed        Graveraet
                                   -------------    ---------
          Henry N. Rapaport
          (individually and as
            attorney to collect
            for Estate of Gustave
            Rubner, deceased)         $247,750       $149,000
            Donald Jones                25,000         15,000
            Henry Legum                 15,750          5,000
            Selma Lashine               12,000          6,000
            Abraham Silberman           12,000          6,000
            Maurice Kreis                5,000          3,000
            Alex Cohen                   4,000          3,000
                                      ----------     --------
                      Totals,         $321,500       $187,000

In connection with the five subassignments from Hyman to Rapaport, Hyman agreed to and did assign to Rapaport insurance policies on Graveraet's life in the amount of $149,000, including ten insurance policies assigned in connection with the five subassignments from Rosen to Hyman.

The cost of certain insurance obtained for the five assignments by Graveraet was by terms of the policies subject to being reduced by their actual cash value. Cost of the policies was further subject to reduction by applying dividends against the premiums or (as in the case of one Maccabees insurance policy) by refunds in cash. The total of such reduction does not appear from the matters of record on these motions.

In calculating the amount of insurance to be procured for the five assignments from Graveraet to Rosen, the latter took into consideration, among other factors, the ages of Marie Julia Young Kaufman Pratt and of Graveraet, and the fair market value of the ...


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