Opinion
No. 515638/2023
05-08-2024
BOARD OF MANAGERS OF THE 805 WASHINGTON AVENUE CONDOMINIUM, on behalf of all unit owners, Plaintiff, v. 805 WASHINGTON AVE LLC; JOHN DOES #1 through #20; and ABC CORPORATIONS #1 through #20, intended to be other as yet unknown direct or indirect recipients of the assets of 805 WASHINGTON AVE LLC, Defendants.
Unpublished Opinion
DECISION AND ORDER
PRESENT: HON. RICHARD VELASQUEZ, Justice.
At an IAS Term, Part 66, of the Supreme Court of the State of New York, held in and for the County of Kings, at the Courthouse, at 360 Adams Street, Brooklyn, New York, on the 8th day of May, 2024.
The following e-filed papers read herein:
NYSCEF Nos.
Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed
31, 51
Opposing Affidavits (Affirmations)
56, 65, 76-78
Affidavits/ Affirmations in Support of OSC
4-6, 40, 43
Upon the foregoing papers, plaintiff Board of Managers of the 805 Washington Avenue Condominium (Board or plaintiff) moves, by order to show cause (OSC), pursuant to CPLR 6201 (3), for an order granting plaintiff a pre-judgment attachment of the commercial condominium unit (Commercial Unit) owned by defendant 805 Washington Ave LLC (Sponsor). By separate OSC, the Board moves (i) for an order of contempt and sanctions against the Sponsor; (ii) for an order imposing sanctions against the Sponsor pursuant to 22 NYCRR § 130-1.1; (iii) to amend its complaint to add Washington Realty Group LLC (Realty Group) as a party defendant; and (iv) to modify the temporary restraining order (TRO) issued by this court on July 31, 2023 to restrain Realty Group, as well as any other individual or entity, from taking any action to transfer, encumber, dispose of, or secret the Commercial Unit.
The Board commenced this action to recover damages from the Sponsor for breach of contract, relating to alleged construction defects in the subject condominium building at 805 Washington Avenue in Brooklyn, and to set aside as fraudulent any conveyance by the Sponsor of the Commercial Unit. The Sponsor purchased the property on which the condominium is situated from 801 Brothers Realty Corp. (801 Corp.) for the sum of $9.5 million pursuant to a Purchase and Sale Agreement (PSA) dated July 7, 2016. The Operating Agreement of the Sponsor, also dated July 7, 2016, contains the following provision at section 6.2:
(e) Conveyance of the Commercial Unit.
(i) Upon the Company's receipt of a temporary or permanent certificate of occupancy for the Project, and the upon the recording of the Declaration of Condominium in accordance with this Section 6.2, the Developer shall cause the Company to execute a condominium unit deed by which the Company conveys to an entity to be named by the Investor Representative (the "Commercial Unit Grantee") the Commercial Unit, free and clear of any and all liens and encumbrances, together with applicable transfer tax documents, and such other documents reasonably necessary to effect the conveyance of the Commercial Unit to the Commercial Unit Grantee, provided however, such conveyance shall not transpire prior to (x) the approval and release by the Project Loan
lenders and (y) the consent of the Project Loan lenders under the Loan Documents or (z) upon the payment in full of the entire outstanding balance due under the Project Loan.
The "Investor Representative" in the aforesaid provision is defined in the Operation Agreement as Shaher Othman, who signed the PSA on behalf of the seller, 801 Corp. The Declaration of Condominium was recorded on January 14, 2020. The Offering Plan was declared effective on August 5, 2019.
According to a report by the Falcon Group, an architectural and engineering firm retained by the Board to inspect the condition of the building, numerous construction defects were present, including missing mortar, firestopping and waterproofing. The Board alleges that such defects constitute a breach of the terms of the Offering Plan and each unit Purchase Agreement (which incorporate by reference the terms and conditions of the Offering Plan), particularly the Sponsor's "absolute obligation to design and build the Building in accordance with applicable law, codes, regulations, filed plans and specifications, and locally accepted building practices for items which are not covered by codes." The Board commenced the instant action on May 23, 2023, and subsequently brought its first OSC (Motion Sequence [MS] #1) for a pre-judgment attachment of the Commercial Unit, which the Board alleged was the last remaining asset of the Sponsor. The Board's first OSC seeking the attachment order was signed on July 31, 2023. The OSC contained a TRO barring the Sponsor, pending the hearing of the OSC, "from transferring, assigning, disposing of, enCilmbering, or secreting property (sic) the commercial condominium unit located at 805 Washington Avenue, Brooklyn, NY 11238."
On July 31, 2023, the same day the first OSC was signed, a deed conveying the Commercial Unit from the Sponsor to Realty Group was recorded with the City Register. The deed is dated February 3, 2022 and was acknowledged on July 21, 2023. The transfer resulted in the Board's second OSC (MS # 2) for contempt, sanctions, amendment of the complaint to add Realty Group as a party defendant and modification of the TRO to restrain Realty Group; as well as any other individual or entity, from taking any action to transfer, encumber, dispose of, or secret the Commercial Unit. The second OSC does not include a TRO.
First OSC
To obtain an order of attachment, the moving party must demonstrate through affidavit or other written evidence (1) the existence of a cause of action for a money judgment, (2) a probability of success on the merits, (3) the existence of one or more grounds enumerated in CPLR 6201, and (4) that the amount demanded from the defendant exceeds all counterclaims known to the plaintiff (see CPLR 6212 [a]; Ford Motor Credit Co. v Hickey Ford Sales, 62 N.Y.2d 291, 301 [1984]). Because attachment "is considered a harsh remedy," CPLR 6201 is "strictly construed in favor of those against whom it may be employed" (65J Bay St., LLC v Discenza, 189 A.D.3d 952, 953 [2d Dept 2020]). Among the grounds set forth in CPLR 6201 is where "the defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiffs favor, has assignee!, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts" (CPLR 6202 [3]).
Whether or not the Board demonstrated through written evidence or affidavit the four factors necessary for an order of attachment, "[i]t is beyond cavil that attachment will only lie against the property of the debtor, and that the right to attach the property 'is only the same as the defendant's own interest in it'" (Bank of N.Y. v Norilsk Nickel, 14 A.D.3d 140, 145 [1st Dept 2004], quoting Sidwell &Co., Inc. v Kamchatimpex, 166 Mise 2d 639, 644 [Sup Ct, NY County 1995]; see Leonardo v Siegal, 150 A.D.2d 760, 760 [2d Dept 1989]; Friede v National City Bank of NY, 222 A.D. 645, 649 [1st Dept 1928]["[i]t is well settled that an attachment can only be levied against property belonging to the attachment debtor"]). Insofar as title to the Commercial Unit is no longer held by the Sponsor, the remedy of attachment no longer lies.
As a result, the Board's first OSC is denied.
Second OSC
A motion to punish a party for civil contempt is addressed to the sound discretion of the motion court (see Heffer v Krebs, 196 A.D.3d 684, 685 [2d Dept 2021]; Bongiorno v Di Frisco, 196 A.D.3d 452, 454 [2d Dept 2021]). "To prevail on a motion to punish for civil contempt, the movant must establish by clear and convincing evidence: '(1) that a lawful order of the court, clearly expressing an unequivocal mandate, was in effect, (2) that the party against whom contempt is sought disobeyed the order, (3) that the party who disobeyed the order had knowledge of its terms, and (4) that the movant was prejudiced by the offending conduct'" (Heffer, 196 A.D.3d at 685, quoting Spencer v Spencer, 159 A.D.3d 174, 177 [2d Dept 2018]; see Bongiorno, 196 A.D.3d at 454; Toranzo v Toranzo, 185 A.D.3d 621, 623 [2d Dept 2020]). The movant has the burden of proving contempt by clear and convincing evidence (see Heffer, 196 A.D.3d at 685; Bongiorno, 196 A.D.3d at 455; Toranzo, 185 A.D.3d at 623).
While the Board maintains that the deed conveying the Commercial Unit is fraudulently backdated to a date prior to the commencement of this action, the deed was acknowledged on July 21, 2023 and recorded on July 31, 2023, the same day the TRO restraining conveyance went into effect. Under the circumstances, the Board has not demonstrated, let alone proved by clear and convincing evidence, that the deed to the Commercial Unit was transferred after the TRO went into effect.
As a result, that part of the Board's second OSC seeking an order of contempt is denied.
In the absence of significant prejudice or surprise to the opposing party, leave to amend a pleading should be freely given (see CPLR 3025 [b]; Edenwald Contr. Co. v City of New York, 60 N.Y.2d 957, 959 [1983]), unless the proposed amendment is palpably insufficient or patently devoid of merit (see Bernardi v Spyratos, 79 A.D.3d 684, 688 [2d Dept 2010]; Martin v Village of Freeport, 71 A.D.3d 745 [2d Dept 2010]; Malanga v Chamberlain, 71 A.D.3d 644, 646 [2d Dept 2010]; Uadi, Inc. v Stern, 67 A.D.3d 899, 900 [2d Dept 2009]). "In an action to set aside an alleged fraudulent conveyance, the transferee of the subject property is a necessary party" (Alvaro v Faracco, 85 A.D.3d 1072, 1073 [2d Dept 2011]; see Friedman v Friedman, 125 A.D.2d 539, 541 [2d Dept 1986]). While the Sponsor argues that file board's underlying cause of action for fraudulent conveyance is not sufficiently pleaded with particularity, there is no pending motion for dismissal and the Board's motion to amend seeks simply to add Realty Group as a necessary party defendant and add factual allegations to reflect the conveyance. The proposed amendment is therefore neither palpably insufficient nor patently devoid of merit. Further, the Sponsor has not shown that it would suffer prejudice by the amendment.
As a result, that part of the Board's second OSC for leave to amend is granted.
In addition to adding Realty Group as a defendant, the Board further seeks what is effectively injunctive relief restraining Realty Group from transferring or encumbering the Commercial Unit. However, as jurisdiction has not yet been attained over Realty Group, such relief is denied as premature.
Finally, that part of the second OSC for an award of sanctions under 22 NYCRR § 130-1.1 is denied. There is no sufficient showing by the Board that the Sponsor's conduct during the course of this litigation has been frivolous as defined by said rule.
For purposes of 22 NYCRR Part 130, conduct is frivolous if: "(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; (2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or (3) it asserts material factual statements that are false." (22 NYCRR § 130-1.1 [c]).
Accordingly, it is hereby ORDERED that the Board's first OSC (MS # 1) is denied; and it is further
ORDERED that that part of the Board's second OSC (MS # 2) for leave to amend the complaint is granted; and it is further
ORDERED that the remainder of the Board's second OSC (MS # 2) is denied; and it is further
ORDERED that the Board shall serve the amended pleadings on all parties within 20 days of the filing of this order with notice of entry.
The forgoing constitutes the decision and order of the court.