Opinion
Index No. 850042/2022 Motion Seq. No. 003
07-12-2023
WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE, FOR THE BENEFIT OF THE HOLDERS OF CD 2019-CD8 MORTGAGE TRUST COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2019-CD8, Plaintiff, v. 63 SPRING LAFAYETTE, LLC, JACK TERZI, NEW YORK CITY DEPARTMENT OF FINANCE, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, JOHN DOES 1 THROUGH 10, Defendant.
Unpublished Opinion
DECISION + ORDER ON MOTION
HON. FRANCIS A. KAHN, III JUSTICE
The following e-filed documents, listed by NYSCEF document number (Motion 003) 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98 were read on this motion to/for SUMMARY JUDGMENT(BEFORE JOIND). Upon the foregoing documents, the motion and cross-motion are determined as follows:
This is an action to foreclose on a mortgage encumbering commercial real property located at 63 Spring Street, New York, New York, given by Defendant 63 Spring Lafayette LLC ("Spring") to non-party MUFG Union Bank ("MUFG"). The mortgage secures a promissory note which evidences a loan with an original principal amount of $18,500,000.00. The note and mortgage, both dated May 28, 2019, were executed by Defendant Jack Terzi ("Terzi") as Authorized Signatory of Spring. Concomitantly with these documents, the parties executed a loan agreement and Terzi executed a guaranty of the indebtedness. Plaintiff commenced this action wherein it is alleged that on or about April 1, 2020, Defendant Spring defaulted in repayment under the loan. Further, it is claimed that Plaintiff took assignment of the note and mortgage on or about August 22, 2019. Defendants Spring and Terzi answered jointly and pled eight affirmative defenses including lack of standing.
Now, Plaintiff moves for inter alia summary judgment against the appearing Defendants, for a default judgment against the non-appearing parties, appointing a referee to compute and to amend the caption. Defendants oppose the motion and cross-move to dismiss the complaint pursuant to CPLR §3211 [a][1 ] and [7] as well as §3212. Plaintiff opposes the cross-motion.
In moving for summary judgment, Plaintiff was required to establish prima facie entitlement to judgment as a matter of law though proof of the mortgage, the note, and evidence of Defendants' default in repayment (see eg U.S. Bank, N.A. v James, 180 A.D.3d 594 [1st Dept 2020]; Bank of NY v Knowles, 151 A.D.3d 596 [1st Dept 2017]; Fortress Credit Corp, v Hudson Yards, LLC, 78 A.D.3d 577 [1st Dept 2010]). Based upon the above affirmative defense, Plaintiff was also required to demonstrate it had standing when this action was commenced (see eg Wells Fargo Bank, N.A. v Tricario, 180 A.D.3d 848 [2nd Dept 2020]).
Proof supporting a prima facie case on a motion for summary judgment must be in admissible form (see CPLR §3212[b]; Tri-State Loan Acquisitions III, LLC v Litkowski, 172 A.D.3d 780 [1st Dept 2019]). A plaintiff may rely on evidence from persons with personal knowledge of the facts, documents in admissible form and/or persons with knowledge derived from produced admissible records (see eg U.S. Bank N.A. v Moulton, 179 A.D.3d 734, 738 [2d Dept 2020]). No particular set of business records must be proffered, as long as the admissibility requirements of CPLR 4518[a] are fulfilled and the records evince the facts for which they are relied upon (see eg Citigroup v Kopelowitz, 147 A.D.3d 1014, 1015 [2d Dept 2017]).
Plaintiffs motion was supported with an affidavit from Ana G. Nunez ("Nunez"), an Asset Manager with LNR Partners, LLC ("LNR"), which is the "Special Servicer of the subject. . . commercial mortgage loan". Nunez's affidavit laid a proper foundation for the admission of the records of Plaintiff and LNR into evidence under CPLR §4518 (see Bank of N.Y.Mellon v Gordon, 171 A.D.3d 197 [2d Dept 2019]). Nunez also claimed familiarity with the record keeping practices of the Master Servicer of the Loan, Midland Loan Services, a division of PNC Bank, National Association ("Midland"), but no foundation for Midland's records was proffered. Nevertheless, the records of Plaintiff and Midland were admissible since Nunez sufficiently established that those records were received from the makers and incorporated into the records LNR kept and that it routinely relied upon such documents in its business (see U.S. Bank N.A. v Kropp-Somoza, 191 A.D.3d 918 [2d Dept 2021]). Annexed to the motion were certain of the records referenced by Nunez (cf. Deutsche Bank Natl. Trust Co. v Kirschenbaum, 187 A.D.3d 569 [lsl Dept 2020]). Further, the power of attorney dated August 3, 2021, demonstrated LNR's authority to act on behalf of Plaintiff (see Deutsche Bank Natl. Trust Co. v Silverman, 178 A.D.3d 898, 901 [2d Dept 2019]).
Nunez's affidavit and the referenced documents sufficiently evidenced the note and mortgage. As to the Mortgagor's default, it "is established by (1) an admission made in response to a notice to admit, (2) an affidavit from a person having personal knowledge of the facts, or (3) other evidence in admissible form" (Deutsche Bank Natl. Trust Co. v McGann, 183 A.D.3d 700, 702 [2d Dept 2020]). As Nunez' knowledge of Defendants' default was based solely upon a review of documents, the records evidencing the default (ie. an account ledger or similar records) were required to be proffered (see U.S. Bank v Rowe, 194 A.D.3d 978 [2d Dept 2021]). The default notices annexed to Nunez' affidavit, even if admissible, were insufficient to establish the default in payment (see Bank of N.Y. Mellon v Mannino, 209 A.D.3d 707 [2d Dept 2022]).
The default notice was contained on a letterhead for Ballard Spahr LLC, counsel to Midland. Nunez laid no foundation for that entity's records.
Accordingly, as admissible evidence of Defendants' default was not proffered, Plaintiff failed to establish prima facie entitlement to summary judgment on the cause of action for foreclosure (see generally Federal Natl. Mtge. Assn, v Allanah, 200 A.D.3d 947 [2d Dept 2021]).
As to standing in a foreclosure action, the note is the dispositive instrument (Aurora Loan Servs., LLC v Taylor, 25 N.Y.3d 355, 361-362 [2015]). "'Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident'" (U.S. Bank N.A. v Carnivale, 138 A.D.3d 1220, 1221 [2d Dept 2016], quoting Onewest Bank F.S.B. v Mazzone, 130 A.D.3d 1399,1400 [2d Dept 2015]). However, "mere physical possession of a note at the commencement of a foreclosure action is insufficient to confer standing or to make a plaintiff the lawful holder of a negotiable instrument for the purposes of enforcing the note" (U.S. Bank N.A. v Moulton, 179 A.D.3d 734, 737 [2d Dept 2020]). "Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff" (Wells Fargo Bank, NA v Ostiguy, 127 A.D.3d 1375, 1376 [2d Dept 2015] [citations omitted]). The indorsement must be made either on the face of the note or on an allonge "so firmly affixed thereto as to become a part thereof' (UCC §3-202[2]). "The attachment of a properly endorsed note to the complaint may be sufficient to establish, prima facie, that the plaintiff is the holder of the note at the time of commencement" (Deutsche Bank Natl. Trust Co. v Webster, 142 A.D.3d 636, 638 [2d Dept 2016]; cf. JPMorgan Chase Bank, N.A. v Grennan, 175 A.D.3d 1513 [2d Dept 2019]).
Here, the note was attached to the complaint, but the endorsement' in blank was contained in an undated allonge on a separate page, and annexed as a separate exhibit, which reveals no discernable evidence of firm attachment from a visual inspection (cf. U.S. Bank NA v Hunte, _____ A.D.3d ____, 2023 NY Slip Op 02022 [2d Dept 2023]). Resultantly, Plaintiff was required to establish the allonge was "firmly affixed" to the original note (see Wells Fargo Bank v Mitselmakher, ____ A.D.3d ____, 2023 NY Slip Op 02709 [2d Dept 2023]; Nationstar Mtge., LLC v Calomarde, 201 A.D.3d 940, 942 [2d Dept 2022]; JPMorgan Chase Bank, N.A. v Grennan, supra at 1516). Not every attachment can satisfy UCC §3-202 [2] and Nunez offered no description of the nature of the attachment (see HSBC Bank, USA, N.A. v Roumiantseva, 130 A.D.3d 983 [2d Dept 2015]; Slutsky v Blooming Grove Inn, 147 A.D.2d 208 [2d Dept 1989]).
As the assignment of the mortgage make no reference to the note, it conveys nothing and it a nullity (see eg U.S. Bank N.A. v Dellarmo, 94 A.D.3d 746, 748 [2d Dept 2012]["[W]hile assignment of a promissory note also effectuates assignment of the mortgage, the converse is not true: since a mortgage is merely security for a debt, it cannot exist independently of the debt, and thus, a transfer or assignment of only the mortgage without the debt is a nullity and no interest is acquired by it"]; Bank of N.Y.v Silverberg, 86 A.D.3d 274, 280 [2d Dept 2011]).
Accordingly, Plaintiff failed to establish, prima facie, it had standing when this action was commenced.
As to the cross-motion to dismiss, a motion pursuant to CPLR §321 l[a][l] may only be granted where "documentary evidence" submitted decisively refutes plaintiff s allegations (AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 N.Y.3d 582, 590-91 [2005]) or "conclusively establishes a defense to the asserted claims as a matter of law" (Held v Kaufman, 91 N.Y.2d 425, 430-431 [1998]; see also Beal Sav. Bank v Sommer, 8 N.Y.3d 318, 324 [2007]). The scope of evidence that is statutorily "documentary" is exceedingly narrow and does not include, for instance, affidavits (see Fontanetta v John Doe 1, 73 A.D.3d 78, 84 [2d Dept 2010]).
On a motion pursuant to CPLR §3211 [a][7], a movant is required to establish either that a cause of action is facially insufficient (see 298 Humboldt, LLC, v Torres, 197 A.D.3d 1081, 1083 [2d Dept 2021], quoting Guggenheimer v Ginzburg, 43 N.Y.2d 268, 275 [1977]) or proffer evidence which flatly contradicts the legal conclusions and factual claims contained in the complaint (see id.; Kantrowitz & Goldhamer, PC. v Geller, 265 A.D.2d 529 [2d Dept 1999]). In assessing facial sufficiency, the allegations contained in the complaint must be presumed to be true, liberally construed and a plaintiff must be accorded every possible favorable inference (see Chanko v American Broadcasting Cos. Inc., 27 N.Y.3d 46 [2016]; Palazzolo v Herrick, Feinstein, LLP, 298 A.D.2d 372 [2d Dept 2002]; Schulman v Chase Manhattan Bank, 268 A.D.2d 174 [2d Dept 2000]). In that context, "the sole criterion is whether the pleading states a cause of action, and if from its four comers factual allegations are discerned which taken together manifest any cause of action cognizable at law" (Guggenheimer v Ginzburg, 43 N.Y.2d 268, 275 [1977]). As to evidentiary based motions, in the uncommon circumstance the evidence reaches the requisite threshold, the court "must determine whether the proponent of the pleading has a cause of action, not whether she has stated one" (Kantrowitz & Goldhamer, P.C. v Geller, supra; see also Lawrence v Miller, 11 N.Y.3d 588, 595 [2008]; Rovello v Orofino Realty Co., 40 N.Y.2d 633, 635-636 [1976]).
As to the guarantees, any claim that the Terzi, as the guarantor Defendant, is not a proper party to this action is without merit. "Any person who is liable to the plaintiff for payment of the debt secured by the mortgage may be made a defendant in the action" (RPAPL §1313). As such, "[a] guarantor of the mortgage debt, while not a necessary party, is a permissible party in a mortgage foreclosure action" (2 Bergman, New York Mortgage Foreclosures § 12:13[2]; see also Trustco Bank, N.A. v Cannon Bldg. of TroyAssocs., 246 A.D.2d 797 [3d Dept 1998]; Bank of E. Asia v Smith, 201 A.D.2d 522, 523 [2d Dept 1994]; Morrison v Slater, 128 AD 467, 468 [1st Dept 1909]).
Defendants' argument that Plaintiffs causes of action seeking a deficiency judgment and recover}' under the guaranty fail to state a claim is without merit. The guaranty stated that Terzi "absolutely, irrevocably and unconditionally guarantees to the Lender (i) payment and the full, faithful and timely performance of any and all liabilities and obligations of Borrower whether now existing or hereafter incurred under the Environmental Indemnity, and (ii) payment of the Recourse Obligations defined in Article X of the Loan Agreement (all of which payments, liabilities and obligations in (i) and (ii) are hereinafter collectively referred to as the "Guaranteed Obligations")". At a minimum, Article X creates personal liability for "actual loss or damage to Lender arising from ... the failure to pay any of the taxes, assessments or similar charges as specified in the Loan Documents, or ... the failure to maintain insurance in compliance with the provisions of the Loan Documents". The guarantor is also liable for "all legal costs and expenses (including reasonable attorneys' fees) reasonably incurred by Lender in connection with litigation or other legal proceeding involving the collection or enforcement of the Loan".
In opposition to the cross-motion to dismiss, Plaintiff proffered another affidavit from Nunez wherein she avers the taxes and insurance were not paid on the premises and that Plaintiff has incurred legal expenses because of Defendant's default in repayment. Affidavits "may be used freely to preserve inartfully pleaded, but potentially meritorious, claims" (Rovello v Orofino Realty Co., supra). When these allegations are assumed as true, as the Court must, the cause of action is sufficiently pled (see generally Leon v Martinez, 84 N.Y.2d 83, 88 [1994]). "Whether the complaint will later survive a motion for summary judgment, or whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of a prediscovery CPLR 3211 motion to dismiss" (Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 A.D.3d 34, 38 [2d Dept 2006]).
As to the branch of the motion to dismiss Defendants' affirmative defenses, CPLR §3211 [b] provides that "[a] party may move for judgment dismissing one or more defenses, on the ground that a defense is not stated or has no merit". For example, affirmative defenses that are without factual foundation, conclusory or duplicative cannot stand (see Countrywide Home Loans Servicing, L.P. v Vorobyov, 188 A.D.3d 803, 805 [2d Dept 2020]; Emigrant Bank v Myers, 147 A.D.3d 1027, 1028 [2d Dept 2017]). When evaluating such a motion, a "defendant is entitled to the benefit of every reasonable intendment of its pleading, which is to be liberally construed. If there is any doubt as to the availability of a defense, it should not be dismissed" (Federici v Metropolis Night Club, Inc., 48 A.D.3d 741, 743 [2d Dept 2008]).
As pled, all the affirmative defenses, except the first as it relates to standing, are entirely conclusory and unsupported by any facts in the answer. As such, these affirmative defenses are nothing more than unsubstantiated legal conclusions which Eire insufficiently pled as a matter of law (see Board of Mgrs. of Ruppert Yorkville Towers Condominium v Hayden, 169 A.D.3d 569 [1st Dept 2019]; see also Bosco Credit V Trust Series 2012-1 v. Johnson, 177 A.D.3d 561 [1st Dept 2020]; 170 W. Vil. Assoc, v. G &ERealty, Inc., 56 A.D.3d 372 [1st Dept 2008]; see also Becher v Feller, 64 A.D.3d 672 [2d Dept 2009]; Cohen Fashion Opt., Inc. v V& MOpt., Inc., 51 A.D.3d 619 [2d Dept 2008]). Further, to the extent that specific legal arguments were not proffered in support of any affirmative defense, those defenses were abandoned (see U.S. Bank N.A. v Gonzalez, 172 A.D.3d 1273, 1275 [2d Dept 2019]; Flagstar Bank v Bellafiore, 94 A.D.3d 1044 [2d Dept 2012]; Wells Fargo Bank Minnesota, N.A v Perez, 41 A.D.3d 590 [2d Dept 2007]).
The branch of Plaintiff s motion for a default judgment against the non-appearing parties is granted without opposition (see CPLR §3215; SRMOFII2012-1 Trust v Telia, 139 A.D.3d 599, 600 [1stDept 2016]).
The branch of Plaintiff's motion to amend the caption is granted without opposition (see generally CPLR §3025; JP Morgan Chase Bank N.A. v Laszio, 169 A.D.3d 885, 887 [2d Dept 2019]).
Accordingly, it is
ORDERED that the branch of Plaintiff's motion for summary judgment on its causes of action for foreclosure and appointment of a referee are denied, and it is
ORDERED that Defendants' cross-motion is denied in its entirety, and it is
ORDERED that all the affirmative defenses in Defendants' answer, except the first as it relates to standing, are stricken, and it is
ORDERED that the Defendants captioned as "JOHN DOES 1 THROUGH 10" are hereby stricken from the caption, and it is further
ORDERED the caption is amended as follows:
WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE, FOR THE BENEFIT OF THE HOLDERS OF CD 2019-CD8 MORTGAGE TRUST COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2019-CD8, Plaintiff,
-against-
63 SPRING LAFAYETTE, LLC, JACK TERZI, NEW YORK CITY DEPARTMENT OF FINANCE, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, Defendants.
Index No. 850042/2022
and it is
ORDERED that this matter is set down for a status conference on August 24, 2023 @ 10:40 am via Microsoft Teams.