Opinion
No. 032751/2014E.
01-31-2017
JPMORGAN CHASE BANK, National Association, Plaintiff, v. Joseph KLEIN; Biltmore Real Property Holdings, Inc.; New York State Department of Taxation and Finance ; Basewood Group, LLC; The Bank of New York Mellon fka Bank of New York as Trustee for the Certificateholders CWMBS, Inc. CHL Mortgage Pass–Through Certificates, Series 2005–HYB 8; "John Does" and "Jane Does," said names being fictitious, parties intended being possible tenants or occupants of premises, and corporations, other entities or persons who claim a lien the premises, Defendants.
Michael R. O'Donnell, Esq., for Plaintiff, PennyMac as assignee of JPMorgan Chase. Jerrold Miles, Esq. for Defendant, Joseph Klein (no papers submitted on motion). Charles Edward Gary, Esq. for Defendant, State Tax Commission (no papers submitted on motion). Daniel G. Walsh, Esq., for Defendant/Third Party Plaintiff, Bank of New York Mellon.
Michael R. O'Donnell, Esq., for Plaintiff, PennyMac as assignee of JPMorgan Chase.
Jerrold Miles, Esq. for Defendant, Joseph Klein (no papers submitted on motion).
Charles Edward Gary, Esq. for Defendant, State Tax Commission (no papers submitted on motion).
Daniel G. Walsh, Esq., for Defendant/Third Party Plaintiff, Bank of New York Mellon.
ROLF M. THORSEN, J.
Plaintiff, JPMorgan Chase Bank, N.A. (hereinafter "JPMorgan"), commenced this action to foreclose on a mortgage executed on July 10, 2003 by defendant/borrower Biltmore Real Property Holdings, Inc. (hereinafter "Biltmore") pertaining to property located at 39 Fairmont Avenue in Haverstraw, New York ("the subject property"). Plaintiff moves for an order dismissing the Defendant, Bank of New York's (hereinafter "Bank of NY") first affirmative defense and counterclaim. Specifically, in its Answer, Bank of N.Y. alleges that the Bank of N.Y. is "the holder of a first mortgage encumbering the Premises," i.e., has priority lien status over Plaintiff's lien, and that any claimed interests in the subject property by Plaintiff, Defendants, or their successors or assigns, are subordinate to the Bank of NY's first mortgage lien. See, Plaintiff's Exhibit 4. The Court has considered the following papers on the motion:
The subject property is a multi-family residential dwelling.
As will be explained in further detail, Washington Mutual Bank, FA ("Washington Mutual") was the original lender on the mortgage.
For the purpose of the within motion, Plaintiff refers to PennyMac, the current holder of the Washington Mutual mortgage, and the movant herein.
1. PennyMac's Notice of Motion, Affirmation of Michael R. O'Donnell, Esq. and Exhibits 1 through 32 attached thereto, and Memorandum of Law;
2. Bank of NY's Affirmation in Opposition and Exhibits A through P attached thereto, Affidavit of Ilana Zion in Opposition and Exhibits A through C attached thereto, and Memorandum of Law in Opposition;
3. PennyMac's Affirmation in Reply and Exhibits 33 through 55 attached thereto, Affidavit of Johnny Morton and Exhibits A through J attached thereto, and Reply Memorandum of Law; and
4. Miscellaneous correspondence.
Factual Background:
Although at first blush the within action appears to be a "run-of-the-mill" mortgage foreclosure action by Plaintiff, a review of the motion papers and exhibits indicates that the within action is much more complex. For the sake of clarity, the Court must set forth a brief, yet detailed history of the events that are relevant to the within motion. To begin, by deed dated May 30, 2001, Yash and Hemangini Aggarwal conveyed title to the subject property to JJT Properties, Inc. (hereinafter "JJT Inc."). See, Plaintiff's Exhibits 10 and 33. In order to purchase the subject property, JJT Inc. and another corporate entity entered into a Purchase Money Mortgage agreement in the amount of $250,000.00 with the Aggarwals. See, Plaintiff's Exhibits 11 and 34. The Purchase Money Mortgage and deed were duly recorded in the Rockland County Clerk's Office on June 7, 2001. See, Plaintiff's Exhibits 10, 11, 33 and 34.
On March 19, 2002, JJT Inc., and a host of other corporations, merged into Biltmore. A Certificate of Merger was filed with the New York State Department of State on May 7, 2002 and recorded in the Rockland County Clerk's Office on June 11, 2002. See, Plaintiff's Exhibits 12 and 35. In order to "pay off" the Purchase Money Mortgage with the Aggarwals, on July 10, 2003, Biltmore executed a mortgage with Washington Mutual in the amount of $263,250 .00 relative to the subject property. The signatory on the mortgage documents reads "Biltmore Real Property Holdings, Inc. By: Joseph Klein" and are signed by Joseph Klein. See, Plaintiff's Exhibits 3, 14 and A–C, H. The Washington Mutual mortgage was recorded with the Rockland County Clerk's Office on July 21, 2003. A Satisfaction of Mortgage regarding the Purchase Money Mortgage with the Aggarwals was signed on October 13, 2004 and recorded in the Rockland County Clerk's Office on October 20, 2004. See, Plaintiff's Exhibits 3, 14, 15 and 37. Due to the demise of Washington Mutual in or around 2015, the Washington Mutual mortgage was assigned to JPMorgan and then subsequently assigned to PennyMac. See, Plaintiff's Exhibits 16, 38, 17 and 39, I and J.
Despite the subsequent assignments, the Court will continue to refer to the mortgage as the "Washington Mutual mortgage" and will continue to refer to the movant/PennyMac as Plaintiff as PennyMac has not been substituted as party Plaintiff.
Despite JJT Inc.'s 2002 merger into Biltmore, by deed dated March 29, 2005, JJT Inc. purportedly conveyed title to subject property to Charley Holdings, LLC (hereinafter "Charley Holdings"). See, Plaintiff's Exhibit 18. Said deed was recorded in the Rockland County Clerk's Office on June 16, 2005. See, Plaintiff's Exhibit 18 and 40. Defendant Joseph Klein signed the Indenture on behalf of JJT Inc.
The Court notes that, as indicated in the deed, JJT Inc. and Charley Holdings, LLC utilized the same business address.
Thereafter, by deed dated April 14, 2005, Charley Holdings conveyed title of the subject property to Leszek Wolanski (hereinafter "Wolanski"). See, Plaintiff's Exhibits 19 and 41. The deed was recorded on April 28, 2005 in the Rockland County Clerk's Office. See, Plaintiff's Exhibits 19 and 41. To affect the purchase of the subject property, Wolanski executed a mortgage with Credit Suisse First Boston Financial Corp. (hereinafter "Credit Suisse") in the amount of $416,250.00. See, Plaintiff's Exhibits 20 and 42. The mortgage was filed in the Rockland County Clerk's Office on April 28, 2005. See, Plaintiff's Exhibits 20 and 42. On February 5, 2014, the Credit Suisse mortgage was assigned to Defendant/Third–Party Plaintiff Bank of N.Y. and said assignment was recorded in the Rockland County Clerk's Office on February 11, 2014. See, Plaintiff's Exhibits 21 and 43. It is this Credit Suisse mortgage, now held by the Bank of NY, that the Bank of N.Y. contends has priority lien status over the Washington Mutual mortgage, currently assigned to PennyMac.
Although not necessarily relevant to the within motion but included herein for a more complete chronology of events, the year after taking title to the subject property, Wolanski deeded the subject property, along with nine other properties, to Biltmore, who in turn deeded the subject property to Joseph Klein. See, Plaintiff's Exhibits 22 and 44, 23 and 45. The deeds were recorded in the Rockland County Clerk's Office on February 27, 2006 and November 29, 2006, respectively. See, Plaintiff's Exhibits 22 and 44, 23 and 45. Thereafter, on February 27, 2014 but prior to the assignment of the Credit Suisse mortgage to the Bank of NY, Joseph Klein conveyed the subject property to Baseword Group. See, Plaintiff's Exhibits 24 and 46. Then, on January 28, 2016, after the assignment of the Credit Suisse mortgage to the Bank of NY, Baseword Group conveyed the subject property to St. Laurian, Inc. See, Plaintiff's Exhibits 25 and 47.
Baseword Group appears to have been inadvertently named as a defendant in the caption as "Basewood Group, LLC."
In support of its motion to dismiss the Bank of NY's first affirmative defense and counterclaim, Plaintiff contends that its mortgage, i.e., the Washington Mutual mortgage, has priority status over the Credit Suisse/Bank of N.Y. mortgage. Specifically, it claims that: (1) due to the merger of JJT Inc. into Biltmore, JJT Inc. ceased to exist and its conveyance of the subject property to Charley Holdings was invalid, as was the subsequent conveyance of the subject property by Charley Holdings to Wolanski and all subsequent conveyances thereafter; and (2) because Plaintiff's mortgage was recorded prior to the Credit Suisse/Bank of N.Y. mortgage, it holds "first in time, first in right" status.
Bank of NY, however, argues that its mortgage should be given priority status and the motion to dismiss should be denied for a variety of reasons. Bank of N.Y. claims, inter alia, that since discovery has yet to be conducted, the motion is premature; that the Washington Mutual mortgage is invalid because there is no evidence that Joseph Klein had the authority to act on behalf of Biltmore; and Plaintiff has failed to submit authenticated documents in support of its motion to dismiss based on documentary evidence.
Legal Discussion:
In determining a motion to dismiss pursuant to CPLR § 3211(a)(1), such a motion "will be granted only if the ‘documentary evidence resolves all factual issues as a matter of law, and conclusively disposes of the ... claim.’ " Fontanetta v. John Doe, 73 AD3d 78, 84 (2d Dept.2010), quoting, Fortis Fin. Servs. v. Fimat Futures USA, 290 AD3d 383 (1st Dept.2002). "[T]o be considered ‘documentary,’ evidence must be unambiguous and of undisputed authenticity." Id. at 86, quoting, Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3211:10, at 21–22. In other words, only "where the documentary evidence utterly refutes [the] factual allegations [and] conclusively establish[es] a defense as a matter of law" will the motion to dismiss be granted. Sands Point Partners Private Client Group v. Fidelity Natl. Title Ins. Co., 99 AD3d 982 (2d Dept.2012).
Turning first to the challenges raised with respect to the validity of the Washington Mutual mortgage executed by Joseph Klein on behalf of Biltmore, this Court finds, based on the documentary evidence, that Joseph Klein had the authority to execute the mortgage documents. "Materials that clearly qualify as ‘documentary evidence’ include documents reflecting out-of-court transactions such as mortgages, deeds, contracts and any other papers, the contents of which are ‘essentially undeniable.’ " Sands Point Partners Private Client Group v. Fidelity Natl. Title Ins. Co., 99 AD3d at 984. Here, Plaintiff has submitted the mortgage, the Adjustable Rate Note, the Adjustable Rate Rider, and the 1–4 Family Rider/Assignment of Rents, all of which were executed on behalf of Biltmore by Joseph Klein on July 10, 2003. See, Plaintiff's Exhibit B. Plaintiff has also submitted a Borrower's Certificate and a Corporate Resolution to Borrow, which were executed by Joseph Klein prior to the execution of the mortgage, clearly indicating that he, as President of Biltmore, was authorized to act on behalf of Biltmore in connection with borrowing the sum of $263,250 from Washington Mutual. See, Plaintiff's Exhibits C and D. Moreover, in a letter signed by Joseph Klein and dated one month prior to the execution of the mortgage, Klein specifically identifies himself as "the president and 100% shareholder of Biltmore Real Property Holdings, Inc." See, Plaintiff's Exhibit E. Thus, the documentary evidence establishes that Joseph Klein had the authority to act on behalf of Biltmore.
Interestingly, in the mortgage foreclosure action with respect to the Credit Suisse/Bank of N.Y. mortgage entitled Bank of N.Y. v. Wolanski, Index No. 031803/2014 E, which was transferred to this Court by Decision and Order (Garvey, J.) dated April 20, 2016, the signatory of the deed conveyance underlying the mortgage in that case reads: "Charley Holdings, LLC by Joseph Klein." See, Plaintiff's Exhibit 41. Although the doctrine of estoppel against inconsistent positions is not applicable here, were this Court to credit the Bank of NY's argument that Joseph Klein lacked authority to sign the Washington Mutual mortgage, then the validity of the Credit Suisse/Bank of N.Y. mortgage would also be called into question.
Further, and "[a]s far as mortgages are concerned, the law is clear that [mortgagees] do not have a duty of care to ascertain the validity of the documentation presented by an individual who claims to have the authority to act on behalf of a borrower corporation or entity." LZG Realty, LLC v. H.D.W.2005 Forest, LLC, 87 AD3d 727, 729 (2d Dept.2011).
Based on the foregoing, the Court holds that the Washington Mutual mortgage against the subject property is valid and was duly recorded in the Rockland County Clerk's Office on July 21, 2003.
Turning next to the issue of whether the Credit Suisse mortgage has priority over the Washington Mutual mortgage, the Court finds that it does not. Pursuant to Bus. Corp. Law Section 906(b)(2), [w] hen [a] merger or consolidation has been effected: ... (2) All property, real and personal, including subscriptions to shares, causes of action and every other asset of each of the constituent entities, shall vest in such surviving or consolidated corporation without further act or deed." In other words, "[a] corporation merged out of existence typically ‘ceases to exist as a separate entity’...." Preson v. APCH, Inc., 89 AD3d 65, 72 (4th Dept.2011), quoting, Westside Fed. Sav. & Loan v. Fitzgerald, 136 A.D.2d 699 (2d Dept.1988). Applied here, when JJT Inc. merged into Biltmore on March 19, 2002, the date the Certificate of Merger was signed, which was subsequently filed on May 7, 2002 with the New York State Department of State and recorded on June 11, 2002 in the Rockland County Clerk's Office, neither JJT Inc., nor Joseph Klein on behalf of JJT Inc., had the authority to sell the real property that vested in Biltmore—by operation of law as a result of the merger—to Charley Holdings. As a result, the conveyance from JJT Inc. to Charley Holdings is invalid, as is the subsequent conveyance from Charley Holdings to Wolanski. See, Torrey Delivery v. Chatauqua Truck Sales & Service, 47 A.D.2d 279 (4th Dept.1975). Thus, because the deeds transferring the subject property from JJT Inc. to Charley Holdings and from Charley Holdings to Wolanski are void, then the Credit Suisse mortgage based on such deed is likewise invalid. See, ABN AMRO Mtge. Group v. Stephens, 91 AD3d 801, 803 (2d Dept.2012).
Based on the foregoing, it is hereby
ORDERED that Plaintiff's motion to strike the Bank of NY's First Affirmative Defense is granted; and it is further
ORDERED that Plaintiff's motion to dismiss the Bank of NY's First Counterclaim is granted; and it is further
ORDERED that Plaintiff's motion—seeking a declaration that the Washington Mutual/PennyMac mortgage is a superior and prior mortgage lien to the Credit Suisse/Bank of N.Y. mortgage—is granted; and it is further
ORDERED that the Rockland County Clerk's Office shall duly note the existence of the within Decision and Order in the records maintained by the Rockland County Clerk's Office with respect to the recordings of the Washington Mutual mortgage (Instrument ID No.2003–0051093) and the Credit Suisse mortgage (Instrument ID No.2005–00022745), respectively; and it is further
ORDERED that Plaintiff/movant shall serve a copy of the within Decision and Order on the Rockland County Clerk's Office within seven (7) days of the date of this Order; and it is further
ORDERED that any relief requested not specifically addressed herein is denied.
The foregoing constitutes the Decision and Order of this Court.