Opinion
20441/09.
Decided March 14, 2011.
City National Bank, by James M. Andriola of Reed Smith LLP, New York, NY, Plaintiff.
424 Lafayette Ave LLC, Victor Baranes and Isaac Broyn, by Mark M. Kranz, Suslovich Klien LLP 1507 Avenue M, Brooklyn, New York, Defendants.
By notice of motion filed on July 2, 2010, under motion sequence six, plaintiff City National Bank, moves for an order: (1) pursuant to CPLR § 3212 granting summary judgement against defendants 424 Lafayette Ave LLC (424), Victor Baranes (Baranes), Isaac Broyn (Broyn) and the New York City Department of Finance (DOF) on in its causes of action for all relief requested in the complaint, including foreclosure and sale; (2) pursuant to CPLR § 3212 granting summary judgment in its favor on the issue of liability and dismissing the counterclaims asserted by 424, Baranes and Broyn; (3) pursuant to CPLR § 3215 and RPAPL § 1321 declaring defendants City of New York Environmental Control Board (ECB) and New York State Department of Taxation and Finance (DOTF) to be in default and granting all relief requested in the verified complaint, including foreclosure and sale; (4) and appointing a referee to ascertain and compute the amount due upon the note and mortgage for which foreclosure is sought in this action and to determine whether the mortgaged premises can be sold in parcels pursuant to RPAPL § 1321; and (5) amending the caption in this action to delete the names of the "John Doe" defendants.
Defendants 424, Baranes and Broyn (the opposing defendants) jointly oppose that part of plaintiff's motion which seeks summary judgment against them. However, they do not oppose the application to delete the names of the "John Doe" defendants.
Defendants ECB, DOF and DOTF did not oppose plaintiff's motion.
BACKGROUND
On August 12, 2009, plaintiffs filed a summons, verified complaint and notice of pendency with the Kings County Clerk's Office. On January 21, 2010, the opposing defendants filed their joint answer with counterclaims. By a verified reply to counterclaims, dated June 14, 2010, plaintiff joined issue and answered their counterclaims. On April 29, 2010, a note of issue was filed.
Plaintiff City National Bank complaint alleges the following salient facts. Plaintiff is a California State chartered commercial bank, 424 is a domestic limited liability company organized under the laws of the State of New York, and Baranes and Broyn are individuals residing in New York State. Pursuant to a purchase and assumption agreement, certain assets of Imperial Capital Bank, including notes mortgages and guaranties were acquired by City National Bank from the FDIC acting as receiver. The allegations of fact in the complaint refers to transactions by Imperial Capital Bank as transactions by plaintiff. 424 borrowed $450,000.00 and executed a promissory note to the plaintiff dated June 14, 2006. 424 also executed a mortgage to plaintiff to secure the June 14, 2006 note. The mortgage applied to real property located at 424 Lafayette Avenue, Brooklyn, New York, block number 1949 and lot number 26 (hereinafter the subject premise). Plaintiff and 424 amended the prior note in the reduced amount of $440,000.00. 424 executed a building note to the plaintiff dated September 14, 2006, in the principal amount of $1,410,000.00 and executed a mortgage to plaintiff to secure the note. Baranes and Broyn each guaranteed the payment of the notes executed by 424 to plaintiff. 424 failed to make payments on the notes when due. Plaintiff sent two notices of default to 424. Thereafter plaintiff sent a notice to Baranes and Broyn advising of 424's default and demanded payment. Neither 424, Baranes nor Broyn made payments when due under the notes before or after receiving the aforementioned notices of default.DOF filed a notice of appearance and waiver dated August 31, 2009 but did not answer the complaint. ECB and DOTF have not appeared in the instant action. .
MOTION PAPERS
Plaintiff's motion papers consist of an affidavit of Robert Yiu, its senior vice president, with three annexed exhibits and the affirmation of James M. Andriola, its counsel, with eighteen annexed exhibits labeled 1, 1(A) through 1(J), 2, 2(A), and 3 through 7. The eighteen exhibits annexed to Robert Yiu's affidavit are the following. Exhibit 1 is a loan modification agreement; exhibit 2 is a loan history record, and exhibit 3 are documents pertaining to assignments of leases and rents. As to the Andriola's affirmation: exhibit 1 is the summons and complaint, exhibit 1(A) is a copy of the original land mortgage, exhibit 1(B) is the land note, exhibit 1(C) is the modified land mortgage, exhibit 1(D) is copy of the building note, exhibit 1(E) is a copy of the building mortgage, exhibit 1(F) is a copy of the guaranty of payment by defendant Victor Baranes, exhibit 1(G) is a copy of the guaranty of payment by defendant Isaac Broyn, exhibit 1(H) is a copy of the notice of default, exhibit 1(I) is a copy of a letter from plaintiff to 424, Baranes, and Broyn regarding their default, and exhibit 1(J) is a copy of a demand letter sent from plaintiff to defendants 424, Baranes and Broyn.
Exhibit 2 is the notice of pendency, exhibit 2(A) is the description of the subject premise, exhibit 3 contains plaintiff's affidavits of service to the defendants, exhibit 4 is DOF's notice of appearance and waiver of foreclosure, exhibit 5 is the answer and counterclaims of 424, Baranes and Broyn, exhibit 6 is a copy of the transcript of the oral argument of plaintiff's prior motion for summary judgment and exhibit 7 is plaintiff's verified reply to counterclaims.
The opposing defendants' opposition papers contain an affirmation of their counsel and six annexed exhibits labeled A through F. Exhibit A is a notice for discovery and inspection. Exhibit B is a notice to take a deposition upon oral examination. Exhibit C is a copy of a letter from plaintiff to the opposing defendants concerning events of default. Exhibit D is a copy of the letter from the defendants concerning rent collection by the plaintiff. Exhibit E is a letter to tenants at the subject premises. Exhibit F is a copy of a letter to plaintiff concerning maintenance of the subject premises.
The opposing defendants also submitted their counsel's affirmation as a sur-reply to plaintiff's reply and in further opposition.
LAW AND APPLICATION
That branch of plaintiff's motion seeking to amend the caption to delete the names of the "John Doe" defendants is granted without opposition.
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). 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 material facts ( Guiffirda v. Citibank, 100 NY2d 72). A failure to make that showing requires the denial of the summary judgment motion, regardless of the adequacy of the opposing papers ( Ayotte v. Gervasio, 81 NY2d 923). 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, supra, 69 NY2d at 324).
"In order to establish prima facie entitlement to summary judgment in a foreclosure action, 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, supra, 70 AD3d at 883; quoting, Mahopac Natl. Bank v Baisley, 244 AD2d 466, 467 [2nd Dept., 1997]).
"Where . . . a creditor seeks summary judgment upon a written guaranty, the creditor need prove no more than an 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], emphasis added, see also, Superior Fidelity Assurance, Ltd., v. Schwartz, 69 AD3d 924, 925 [2nd Dept., 2010]).
In support of its motion for summary judgment against 424, Baranes and Broyn, plaintiff has provided a land mortgage, a building mortgage, a land note, a building note, two modification agreements and two guaranties. These documents are annexed to the affidavit of Robert Yiu, plaintiff's senior vice president and the affidavit demonstrates his personal knowledge of the facts and circumstances set forth in the instant case.
The notes and attendant modifications evince clear promises by defendant 424 to pay a certain amount of money based on notes and mortgage on the subject property. The mortgages clearly evince that the subject premise, located at 424 Lafayette Avenue in Brooklyn, New York, served as security for the notes. Robert Yiu's affidavit states that defendants failed to pay the outstanding balance of the principal and accrued interest under the notes, prior to the maturity date of February 1, 2009. Under the loan agreement, such failure constituted an event of default. Having demonstrated proof of the mortgage and an event of default, the mortgagee, plaintiff City National Bank has made a prima showing that it is entitled to summary judgment on its claim for foreclosure and sale against 424.
Plaintiff's documentary evidence establishes that Baranes and Broyn each signed an unconditional guaranty tied to the underlying notes secured by the mortgages. Robert Yiu's affidavit demonstrates, that Baranes and Broyn failed to perform under their respective guaranty. Having demonstrated proof of absolute and unconditional guaranty of an 424's underlying debts, 424's breach of the agreement and the guarantors' failure to perform under the guaranty, plaintiff has made a prima facie case that it is entitled to summary judgment on its claims against guarantors Baranes and Broyn for all amounts due from 424 to the plaintiff.
RPAPL § 1301 provides in pertinent part that where final judgment for the plaintiff has been rendered in an action to recover any part of the mortgage debt, an action shall not be commenced or maintained to foreclose the mortgage. There is an exception, however, namely, if an executed judgment against the property is returned by the sheriff as wholly or partly unsatisfied. RPAPL § 1301 further provides that the complaint shall state whether any other action has been brought to recover any part of the mortgage debt, and, if so, whether any part has been collected.
It is noted that plaintiff's complaint seeks a declaration that 424, Baranes and Broyn may be adjudged to pay the debt due or remaining unsatisfied after a sale of the mortgage premise and an application of the proceeds as directed in a judgment. The relief sought in the complaint does not violate the proscribed activity described in RPAPL § 1301. Accordingly the burden now shifts to the 424, Baranes and Broyn to demonstrate a triable issue of fact.
The opposing defendants argue that their two counterclaims as well as the plaintiff's alleged failure to produce the original note raises a triable issue of fact. In support of this contention they cite UCC §§ 3-104 and 3-804 to claim that the plaintiff must produce the original note to maintain the cause of action for enforcement of the note and that it has failed to do so. They also claim that they demanded the original note by a notice for discovery and inspection dated January 19, 2010. Specifically they demanded that plaintiff produce "the original promissory notes allegedly given by 424 to plaintiff.
UCC § 3-104 defines an "instrument" in pertinent as a writing that must, "(a) be signed by the maker or drawer; and (b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article; and (c) be payable on demand or at a definite time."
UCC § 3-804 provides in pertinent part that, "The owner of an instrument which is lost . . . may maintain an action in his own name and recover from any party liable thereon upon due proof of his ownership, the facts which prevent his production of the instrument and its terms. The court shall require security, in an amount fixed by the court not less than twice the amount allegedly unpaid on the instrument . . ."
Although 424, Baranes and Broyn made a discovery demand for what they described as the "original note," they did not clearly identify which "note" they were seeking. It is unclear whether the note they are referring to is the one dated June 14, 2006 or a later note.
Nevertheless, plaintiff has annexed a land note dated September 14, 2006 that indicates on it face that it "supercedes and replaces" an original note dated June 14, 2006. Inasmuch as the June 14, 2006 note has been "replaced and superceded", UCC § 3-804 does not require its production.
Furthermore, CPLR § 3015(d) provides that, "unless specifically denied in the pleadings each signature on a negotiable instrument is admitted." (See also Marine Midland Bank v Mattioli, 180 AD2d 406 [2nd Dept., 1995]). The defendants have not denied the signatures on the note dated September 14, 2006 nor have they denied that the same note "replaces and supercedes" the former note dated June 14, 2006. Therefore, the signatures on the note dated September 14, 2006 are deemed admitted. Accordingly, plaintiff's alleged failure to produce the original notes dated June 14, 2006 and September 14, 2006 does not raise a triable issues of fact.
Despite the court's conclusion that the alleged missing notes do not raise a triable issue of fact, the court agrees that the defendants are entitled to the production of the original hand signed notes dated September 14, 2006 pursuant to UCC § 3-804. However, the defendants have not moved for judicial intervention to enforce this provision, rather they claim that the mere existence of the issue raises a triable issue of fact. It does not because it does not bar plaintiff's claim. UCC § 3-804 permits and provides a method for a plaintiff to go forward on a claim to enforce a note when the note is lost or missing by the posting security. The opposing defendants have not affirmatively requested that the court apply this provision to the instant action.
Turning to the opposing defendants' counterclaims, the first counterclaim states, in sum and substance, that the plaintiff is a mortgagee in possession of the subject premises and failed to adequately maintain the premises. The second counterclaim states, in sum and substance, that the plaintiff failed to disburse construction funds in a timely manner pursuant to the building note. Plaintiff has moved for summary judgment pursuant to CPLR § 3212 to dismiss the two counterclaims.
"A mortgagee in possession is "one who has lawfully acquired actual possession of the premises mortgaged to him, standing upon his rights as mortgagee and not claiming under another title, for the purpose of enforcing his security upon such property or making its income help to pay his debt; but the mere fact that the mortgagee receives the rents and profits does not constitute him a mortgagee in possession, unless he takes the rent in such a way as to take out of the hands of the mortgagor the management and control of the estate,"" ( Siegel v. Atterbury, 254 A.D. 514, 519 [1st Dept., 1938]). In general, a mortgagee in possession is under a duty to employ the same care of and supervision over the mortgaged premises that a reasonably prudent owner would exercise in relation to his or her own property; he or she is bound to make reasonable and needed repairs and is responsible for any loss or damage occasioned by his or her willful default or gross neglect in this regard. ( Mortimer v. East Side Sav. Bank, 251 A.D. 97, [4th Dept., 1937]). The question of whether a mortgagee is a "mortgagee in possession" is one of fact for the jury ( Barson v. Mulligan, 191 NY 306 [Court of Appeals, 1908]).
Plaintiff states in the affirmation of its counsel and the affidavit of its senior vice president that it never attained the status of mortgagee in possession because it never took possession of the property in question and instead asked the court appoint a receiver to manage the property. Although there is a similarity between a mortgagee in possession and a court-appointed receiver of rents and profits, there is a fundamental difference between the two ( Gasco Corp. Gordian Group of Hong Kong v Tosco Props., 236 AD2d 510 [2nd Dept., 1997] citing Mortimer v. East Side Sav. Bank, 251 A.D. 97, [4th Dept., 1937]). "The mortgagee in possession takes the rents and profits in the quasi character of trustee or bailiff of the mortgagor. . . . They are applied in equity as an equitable set off to the amount due on the mortgage debt . . . So he may be charged with rents and profits he might have received, if his failure to recover them is attributable to his fraud or willful default ( Gasco Corp. Gordian Group of Hong Kong v Tosco Props., supra ".
Plaintiff's conclusory allegations of fact fail to demonstrate with adequate specificity the nature of plaintiff's conduct with regard to subject property. It is therefore insufficient to meet the prima facie showing required to dismiss the first counterclaim. As to the second counterclaim, the notes annexed to plaintiff's motion are silent as to the terms pertaining to disbursement of the loan. Plaintiff's contends that its disbursement of funds in March 2008 was timely and adequate. This conclusory claim also fail to demonstrate with adequate specificity the nature of plaintiff's conduct. It is therefore insufficient to meet the prima facie showing required to dismiss the second counterclaim.
The mere assertion of a counterclaim, unsupported by proof that it is meritorious, does not bar relief to a plaintiff who is otherwise entitled to summary judgment ( Brody v Soroka, 173 AD2d 431 [2nd Dept., 1991]; citing, M S Mercury Air Conditioning v. Rodoloitz, 24 AD2d 873, 874 [2nd Dept., 1965]). Although plaintiff is not entitled to summary judgment dismissing defendants' counterclaims, it has made its prima facie case against 424 in its action for foreclosure and sale. Plaintiff has also made a prima facie against Baranes and Broyn to demonstrate that they each breached their agreement to guarantee the promissory notes of 424.
Plaintiff asserts that defendant "New York City Department of Finance has served a notice of appearance and waiver and has not asserted any defenses or in any other manner contested plaintiff's right to summary judgment in this action." CPLR § 3212(a) provides, in pertinent part, that any party may move for summary judgment in any action after issue has been joined. It has been held the motion does not lie before joinder of issue "[a]lthough the papers present no triable issue" ( Milk v Gottschalk, 29 AD2d 698 [3rd Dept., 1968]) and that the Supreme Court is powerless to grant summary judgment prior to joinder of issue ( see, CPLR § 3212 [a]; Union Turnpike Associates, LLC v Getty Realty Corp. , 27 AD3d 725 , 728 [2nd Dept., 2006]).
The court now turns to plaintiff's motion for a default judgment against ECB and DOTF. CPLR § 3215(a) states, in pertinent part that when a defendant has failed to appear, plead or proceed to trial of an action reached and called for trial, the plaintiff may seek a default judgment against him. A default judgment is the result of a party failing to appear. RPAPL § 1321 provides, among other things, that where a party defaults in a foreclosure action that the court shall ascertain and determine the amount due, or direct a referee to compute the amount due to the plaintiff and to examine and report whether the mortgaged premises can be sold in parcels.
When a plaintiff seeks default judgment, the burden is on the plaintiff to prove they properly served the defendants with the summons and complaint. The affidavit of plaintiff's process server demonstrates service of the summons and complaint on defendants ECB and DOTF. CPLR § 311(a)(2) provides in pertinent part, "(a) personal service upon a corporation or governmental subdivision shall be made by delivering the summons as follows: 2. upon the city of New York, to the corporation counsel or to any person designated to receive process in a writing filed in the office of the clerk of New York county." Plaintiff's affidavit of service demonstrates that service upon ECB was accomplished in accordance with CPLR § 311(a)(2) by delivery to a suitable agent.
Service upon the State of New York Department of Taxation and Finance is governed by CPLR § 307(2), which provides in pertinent part, "[t]he chief executive officer of every such agency shall designate at least one person, in addition to himself or herself, to accept personal service on behalf of the agency. For purposes of this subdivision the term state agency shall be deemed to refer to any agency, board, bureau, commission, division, tribunal or other entity which constitutes the state for purposes of service under subdivision one of this section." Plaintiff's affidavit of service pertaining to DOTF demonstrates timely filing upon a suitable agent, pursuant to CPLR § 307(2).Plaintiff has claimed in the complaint that the ECB is a judgment creditor of 424 Lafayette and that DOTF is a possible lienor for unpaid New York State franchise taxes. Both ECB and DOTF were properly served with the summons and complaint, and neither one appeared nor answered the complaint.
In summary, plaintiff's motion for summary judgment against the opposing defendants for foreclosure and sale is granted pursuant to CPLR § 3212.
Plaintiff's motion for summary judgment in it favor on the issue of liability and dismissal of the opposing defendants' counterclaims is denied.
Plaintiff's motion for summary judgement as against defendant New York City Department of Finance is denied.
Plaintiff's motion for a default judgment against ECB and DOTF is granted.
The opposing defendants' counterclaims are hereby severed from the main action.
Additionally, plaintiff's motion seeking the appointment of a referee to ascertain and compute the amount due upon the note and mortgage being foreclosed in this action and to determine whether the mortgaged premises can be sold in parcels pursuant to RPAPL § 1321 is granted.
Plaintiff is directed to settle an order of reference.
The foregoing constitutes the decision, order, and judgment of the court.