Opinion
504160/14
10-06-2015
Walter Puryear, Plaintiff, v. Prokeen Management Company, Inc., 227 KINGSTON REALTY LLC; GARY PURDY; NYC ENVIRONMENTAL CONTROL BOARD; NYS DEP'T OF TAXATION AND FINANCE; NYC DEP'T OF FINANCE and "JOHN DOE No.1" through "JOHN DOE #10", said names being fictitious, parties intended being possible tenants or occupants of premises, and corporations, other entities or persons who claim, or may claim a lien the premises, Defendants.
Atty for Plaintiff Orrin Jaroslawicz Stein Farkas Schwartz & Fish LLP 49 West 37th Street, 9th Floor New York, NY 10018 Atty for Defendant Law Offices of Jason J. Rebhun, P.C. 225 Broadway, 38th Floor New York, NY 10007
Atty for Plaintiff
Orrin Jaroslawicz
Stein Farkas Schwartz & Fish LLP
49 West 37th Street, 9th Floor
New York, NY 10018
Atty for Defendant
Law Offices of Jason J. Rebhun, P.C.
225 Broadway, 38th Floor
New York, NY 10007
Francois A. Rivera, J.
By notice of motion filed on January 7, 2015, under motion sequence number one, plaintiff Walter Puryear (hereafter plaintiff or Puryear) moves for an order: (1) granting summary judgment on default against defendant Prokeen Management Company, Inc. (hereafter PMC) pursuant to CPLR 3212 and 3215 (a); (2) granting summary judgment against the defendants Gary Purdy (hereafter Purdy) and 227 Kingston Realty LLC (hereafter Kingston) pursuant to CPLR 3212; (3) appointing a receiver for the property pursuant to CPLR 6401; (4) appointing a referee to compute the amount due on the mortgage; and (5) amending the caption.
Kingston submitted an affirmation in opposition to plaintiff's motion for summary judgment.
BACKGROUND
On May 8, 2014, plaintiff commenced the instant commercial mortgage foreclosure action by filing a summons and complaint and a notice of pendency with the Kings County Clerk's Office.
The complaint alleges the following salient facts, among other. On May 7, 2008, PMC executed and delivered to Puryear a note promising to pay Puryear the sum of $680,000.00 secured by a property located at 227 Kingston Avenue, Kings County, New York (hereafter "the premises"). As the sole shareholder of PMC, Purdy agreed to personally guarantee the loan. PMC failed to make any payments of principal or interest on the note since July of 2013. PMC sold the premises to Kingston for the sum of $702,000.00 on or about February 21, 2014.
By verified answer dated July 3, 2014, Kingston joined issue. By verified answer dated July 15, 2014, Purdy joined issue. PMC has neither answered the complaint nor appeared in the action. A note of issue has not been filed.
LAW AND APPLICATION
Default Judgment as to PMC
Plaintiff moves for "summary judgment on default" against defendant PMC pursuant to CPLR 3212 and 3215 (a). PMC has not answered or appeared in the action. A motion for summary judgment may not be made before issue is joined and the requirement is strictly adhered to (City of Rochester v Chiarella, 65 NY2d 92 [1985] citing, Miller v Nationwide Mut. Fire Ins. Co., 92 AD2d 723 [4th Dept 1983], Alro Bldrs. & Contrs. v Chicken Koop, 78 AD2d 512 [1st Dept 1980]; Milk v Gottschalk, 29 AD2d 698 [3rd Dept 1968]; Siegel, N.Y.Prac. § 279). However, pursuant to CPLR 2001, the Court is permitted to disregard irregularities, defects, mistakes, and omissions, when a substantial right of a party is not prejudiced. In the instant matter the Court chooses to disregard the plaintiff's error in labeling the relief sought as "summary judgment on default" and instead deems the relief requested as an accelerated judgment under CPLR 3215.
CPLR 3215 provides as follows:
When a defendant has failed to appear, plead or proceed to trial of an action reached and called for trial, or when the court orders a dismissal for any other neglect to proceed, the plaintiff may seek a default judgment against him.
On a motion for leave to enter a default judgment pursuant to CPLR 3215, the movant is required to submit proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the defaulting party's default in answering or appearing (U.S. Bank Nat. Ass'n v Poku, 118 AD3d 980 [2nd Dept 2014] citing CPLR 3215 [f]; U.S. Bank, N.A. v. Razon, 115 AD3d 739 [2nd Dept 2014]). In addition to those requirements, in an action involving breach of a contract the plaintiff has an additional notice requirement. CPLR 3215 (g) (4) (i) provides as follows:
When a default judgment based upon non-appearance is sought against a domestic or authorized foreign corporation which has been served pursuant to paragraph (b) of section three hundred six of the business corporation law, an affidavit shall be submitted that an additional service of the summons by first class mail has been made upon the defendant corporation at its last known address at least twenty days before the entry of judgment.
Plaintiff's affidavit of service demonstrates that service was effectuated upon PMC, a domestic corporation, on May 8, 2014 by serving the New York State Secretary of State. Plaintiff utilized Business Corporations Law (hereinafter BCL) 306 [b] [1] which provides that service is complete the date that the Secretary of State is served. PMC had thirty days from May 8, 2014, to answer the complaint (CPLR 3012[c]) and did not do so. Accordingly, the plaintiff has established that PMC has defaulted.
However, plaintiff did not annex an affidavit of service evidencing the additional mailing of the summons to the last known address of the business as required by CPLR 3215 (g) (4). Accordingly, the plaintiff's motion is denied without prejudice. Plaintiff's Motion for Summary Judgment as Kingston
The plaintiff has annexed a document to the reply papers which it purported to be a copy of the CPLR 3215 (g) (4) notice. However, it contains a cover letter and does not contain the notice. Regardless, it is not proper to consider evidence in support of a motion that is submitted for the first time in reply papers (Katz v Castlepoint Insurance Company, 121 AD3d 948 [2nd Dept 2014] see also Tingling v C.I.N.H.R., Inc, 74 AD3d 954 [2nd Dept 2010]).
Puryear is seeking summary judgment against Kingston based on the undisputed fact that Kingston is the current owner of the premises and accordingly, a necessary party to the action. It is well established that summary judgment may be granted only when it is clear that no triable issue of fact exists (Alvarez v Prospect Hospital, 68 NY2d 320 [1986]). The burden is upon the moving party to make a prima facie showing that he or she is entitled to summary judgment as a matter of law by presenting evidence in admissible form demonstrating the absence of any material facts (Giuffrida v Citibank, 100 NY2d 72 [2003]). A failure to make that showing requires the denial of that summary judgment motion, regardless of the adequacy of the opposing papers (Ayotte v Gervasio, 81 NY2d 923 [1993]). If a prima facie showing has been made the burden shifts to the opposing party to produce evidentiary proof sufficient to establish the existence of material issues of fact (Alvarez v Prospect Hospital, 68 NY2d 320 at 324 [1986]).
Generally, a plaintiff in a mortgage foreclosure action is entitled to summary judgment if it establishes the existence of a mortgage, an unpaid note, and the defendant's default, and the defendant fails to raise a triable issue of fact in opposition (PNC Bank, N.A. v Klein, 125 AD3d 953, 954 [2nd Dept 2015]; see NationStar Mtge., LLC v Silveri, 126 AD3d 864 [2nd Dept 2015]).
The New York Uniform Commercial Code (hereinafter the UCC) § 3-102 provides that negotiable instruments are governed by the provisions therein. The UCC defines a negotiable instrument as:
an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
Accordingly, the note is a negotiable instrument governed by the provisions of the UCC. In the instant matter, the plaintiff has elected to foreclose upon the property securing the note. In an action for foreclosure a plaintiff must submit the mortgage and unpaid note, along with evidence of default (Capstone Business Credit, LLC v Imperia Family Realty, 70 AD3d 882, 883 [2nd Dept 2010]). The burden then shifts to the defendant to demonstrate "the existence of a triable issue of fact as to a bona fide defense to the action, such as waiver, estoppel, bad faith, fraud, or oppressive or unconscionable conduct on the part of the plaintiff" (Capstone Business Credit, LLC, 70 AD3d at 883; quoting Mahopac Natl. Bank v Baisley, 244 AD2d 466, 467 [2nd Dept 1997]).
In the instant matter Puryear is unable to produce the note. However, UCC 3-804 provides that owners of lost instruments may maintain an action in and recover from any party liable thereon upon due proof of "ownership, the facts which prevent the production of the instrument and its terms" (UCC 3-804 ). The plaintiff must establish these elements to a standard higher than preponderance. The standard of proof on a lost instrument has been described as "clear," "clear and certain" or "clear and satisfactory" which is a higher standard than the general civil standard of preponderance of the evidence (New York Jurisprudence Book 75A 220-375 pages 465-466).
The lost note affidavit contains four enumerated paragraphs. The first states that Puryear is the lendee and payee under the note dated May 7, 2008, made by Prokeen Management in the amount of $680,000.00. The second paragraph claims that Puryear is the legal and "beneficial owner and holder of the note" and that the note has not been transferred, forgiven, discharged, satisfied, cancelled, assigned, subordinated, sold, transferred, encumbered, pledged, hypothecated or paid in full. The third paragraph states that the note was "lost and cannot be produced." Puryear also states that "I was unable to locate the original note after a thorough a diligent search of my records." The fourth paragraph states that the lost note is identical to the document annexed to the motion, except that it is signed by Prokeen Management Company, Inc. Puryear also states that there were several oral modifications which extended the term of the loan. No other details are mentioned as to the modifications.
The lost note affidavit fails to include any details as to the facts surrounding the execution of the note, how the note was lost, where it had been kept and where the search was conducted in the attempt to locate the note. Furthermore, the lost note affidavit also fails to mention who on behalf of PMC signed the note. Accordingly, the lost note affidavit fails to establish ownership, the facts which prevent the production of the instrument and its terms. Accordingly, Puryear has failed to produce the note or remedied the failure to produce the note through an adequate lost note affidavit and, therefore, has not met his burden.
The proponent's failure to sufficiently demonstrate its right to summary judgment requires a denial of the motion regardless of the sufficiency, or lack thereof, of the opposing papers (Cugini v System Lumber Co., Inc., 111 AD2d 114 [1st Dept 1985]). Plaintiff's Motion for Summary Judgment Against Purdy
Puryear also moves for an order granting summary judgment against Purdy based on his alleged personal guarantee of the note. In order to recover under a guarantee a creditor needs to establish the absolute and unconditional guaranty, the underlying debt, and the guarantor's failure to perform under the guarantee," (Kensington House Company v Oram, 293 AD2d 304, 305 [1st Dept 2002],see also, Superior Fidelity Assurance, Ltd., v Schwartz, 69 AD3d 924, 925 [2nd Dept 2010]). The plaintiff must establish that payment on the underlying debt was due (Tire & Rubber Co. v Azzaretto, 103 AD3d 880 [2nd Dept 2013]).
There is no opposition to this branch of the motion. However, a summary judgment motion should not be granted merely because the party against whom judgment is sought failed to submit papers in opposition to the motion (i.e., "defaulted" (Liberty Taxi Mgt., Inc. v. Gincherman, 32 AD3d 276 [1st Dept 2006] citing Vermont Teddy Bear Co., v 1—800 Beargram Co., 373 F3d 241 [2d Cir2004] ["the failure to oppose a motion for summary judgment alone does not justify the granting of summary judgment. Instead, the ... court must still assess whether the moving party has fulfilled its burden of demonstrating that there is no genuine issue of material fact and its entitlement to judgment as a matter of law"]; see (Cugini v. System Lumber Co., Inc., 111 AD2d 114 [1st Dept 1985]).
In the instant matter, plaintiff submits a purported copy of the note, an affidavit of merit and the lost note affidavit. Puryear alleges that the guarantee was entered into by Purdy in connection with the note executed by PMC. As discussed above, the lost note affidavit is insufficient to allow the plaintiff to meet his prima facie burden on a summary judgment motion as it lacks details required by UCC 308-4. Accordingly, Puryear has not established the underlying debt that Purdy allegedly guaranteed.
Furthermore, Puryear submitted a document purported to be the guarantee. The guarantee is signed by Purdy. The guarantee specifically references that Puryear is loaning Purdy $680,000.00 which is evidenced by a promissory note. The guarantee makes no mention of the mortgage, the property or of PMC. The language of the guarantee which outlines Puryear's right to collect specifically states that payment may be proceeded upon immediately after the failure by the "maker to pay any of the obligations." The guarantee defines the maker as Purdy, not PMC. It is unclear whether Purdy guaranteed the note that PMC allegedly entered into or guaranteed a different debt. As plaintiff failed to meet his prima facie burden, his motion for summary judgment against Purdy is denied. The Court need not consider the merits of Kingston's opposition because of plaintiff's failure to meet his prima facie burden (Winegrad v New York Univ, Me, Ctr , 64 NY2d 851, 853 [1985]).
Plaintiff's Motion to Appoint a Referee
Plaintiff also seeks an order appointing a referee to compute the amount due from the mortgagors. RPAPL 1321 provides in pertinent part as follows:
If the defendant fails to answer within the time allowed or the right of the plaintiff is admitted by the answer, upon motion of the plaintiff, the court shall ascertain and determine the amount due, or direct a referee to compute the amount due to the plaintiff and to such of the defendants as are prior incumbrancers of the mortgaged premises, and to examine and report whether the mortgaged premises can be sold in parcels and, if the whole amount secured by the mortgage has not become due, to report the amount thereafter to become due.
When seeking an order of reference to determine the amount that is due on an encumbered property, a plaintiff must show its entitlement to a judgment. That entitlement may be shown by demonstrating defendant's default in answering the complaint, or by the plaintiff showing entitlement to summary judgment or by showing that the defendant's answer admits plaintiff's right to a judgment (see RPAPL 1321; 1-2 Bruce J. Bergman, Bergman on New York Mortgage Foreclosures, § 2.01 [4] [k] [note: online edition]).
A motion for an order of reference is a preliminary step toward obtaining a default judgment of foreclosure and sale (HSBC Bank USA, N.A. v Alexander, 124 AD3d 838 [2nd Dept 2015]; see also RPAPL 1321[1]). As discussed above, plaintiff has failed to make his showing under either CPLR 3215 or 3212 and accordingly, he is not entitled to a referee (HSBC Bank USA, N.A. v Betts, 67 AD3d 735 [2nd Dept 2009]). Plaintiff's motion pursuant to RPAPL 1321 is denied without prejudice. Plaintiffs motion to Appoint a Receiver
Plaintiff seeks an order to pursuant to CPLR 6401 to appoint a receiver for the property. This portion of the motion is not opposed. CPLR 6401 (a) provides, in pertinent part, as follows, emphasis added:
(a) Appointment of temporary receiver; joinder of moving party. Upon motion of a person having an apparent interest in property which is the subject of an action in the supreme or a county court, a temporary receiver of the property may be appointed, before or after service of summons and at any time prior to judgment, or during the pendency of an appeal, where there is danger that the property will be removed from the state, or lost, materially injured or destroyed. A motion made by a person not already a party to the action constitutes an appearance in the action and the person shall be joined as a party.
A receiver may only be appointed in an action which has property as its subject matter, therefore, it is the general rule that a receiver cannot be appointed in an action for a sum of money. If, however, the action effects specific money, e.g., the proceeds of the sale of specific securities, a receiver over the proceeds may be appointed (see generally Joseph M. McLaughlin, Practice Commentaries, McKinney's CPLR C6401:1 at 406 citing Meurer v Meurer, 21 AD2d 778 [1st Dept 1964]). A temporary receiver should only be appointed where there is a clear evidentiary showing of the necessity for the conservation of the property at issue and the need to protect a party's interests in that property because the appointment results in the taking and withholding of possession of property from a party without an adjudication on the merits ( Quick v Quick, 69 AD3d 828 [2nd Dept 2010]).
"The appointment of a temporary receiver is an extreme remedy which can only be invoked in cases in which the moving party has made a clear evidentiary showing of the necessity for conservation of the property and protection of the interests of the movant (see CPLR 6401 (a), Hoffman v Hoffman, 81 AD3d 600 [2nd Dept 2011]). Plaintiff alleges that he has received a cancellation of insurance by PMC after the property was sold. He also submitted tax lien foreclosure commencement papers under index number 11984/2014. Plaintiff also alleges that he has paid outstanding taxes and water charges in 2014 on the property. Furthermore, the affirmation of counsel states that the property is income producing. The plaintiff has sufficiently shown that the property may be materially injured if a receiver is not appointed. The plaintiff has met his burden to appoint a receiver. Motion to Amend the Caption
Plaintiff has requested that the commencement papers be amended by striking all John Doe defendants from the caption. Plaintiff's counsel has also averred that the John Doe defendants are not necessary parties and have not been served. Inasmuch as there is no opposition to this branch of plaintiff's motion, and the Court sees no prejudice to any party, the request is granted (see Deutsche Bank Nat. Trust Co. v Islar, 122 AD3d 566 [2nd Dept 2014] citing CPLR 1024 and Flagstar Bank v Bellafiore, 94 AD3d 1044 at 1046 [2nd Dept 2012]) and the names of John Doe defendants # 1 through # 10 are stricken pursuant to CPLR 3217 (d).
CONCLUSION
Plaintiff's motion pursuant to CPLR 3215 for an order of default against PMC is denied without prejudice.
Plaintiff's motion pursuant to CPLR 3212 for an order granting summary judgment against defendants Purdy and Kingston is denied.
Plaintiff's motion pursuant to CPLR 6401 for an order appointing a receiver is granted. Plaintiff is directed to submit a proposed order.
Plaintiff's motion pursuant to RPAPL 1321 for an order appointing a referee to compute the amount due on the mortgage is denied without prejudice.
Plaintiff's motion pursuant to CPLR 1024 to amend the caption is granted.
The foregoing constitutes the decision and order of this Court.
Enter:
J.S.C.