Opinion
No. 25966–09.
2010-08-24
COUNTRY FINANCIAL SERVICES, INC., Plaintiff, v. CENTURY 22 PROPERTIES, INC. and Great Greens Inc., Defendant.
Fred Seeman, Esq., New York, for Plaintiff. Daniel Spitalnic, Esq., Great Neck, for Defendant.
Fred Seeman, Esq., New York, for Plaintiff. Daniel Spitalnic, Esq., Great Neck, for Defendant.
VITO M. DESTEFANO, J.
Background
On November 24, 2004, Defendant Great Greens (“Great Greens”), then an owner of 101–105 Steamboat Road, Great Neck, N.Y. (the “Property”) executed a mortgage with mortgagee Country Bank (Ex. “D” to Plaintiff's Motion). Pursuant to paragraph seven of the Mortgage:
(a) [Great Greens] does hereby absolutely and unconditionally assign to [Country Bank] [Great Green's] right, title and interest in and to all current and future Leases and Rents.... Nevertheless, subject to the terms of this paragraph, [Country Bank] grants to [Great Greens] a revocable license to operate and manage the Mortgaged property and to collect the Rents.... Upon an Event of Default, the license granted to [Great Greens] herein shall automatically be revoked, and [Country Bank] shall immediately be entitled to possession of all Rents, whether or not [Country Bank] enters upon or takes control of the Mortgaged Property.
....
(b) All Leases shall be written on the standard form of lease which has been approved by [Country Bank].... No material changes may be made to [Country Bank] approved standard lease without the prior consent of [Country Bank]. In addition, all renewals of Leases and all proposed leases shall provide for rental rates comparable to existing local market rates and shall be arms-length transactions.
(Ex. “D”). A default under the mortgage includes the failure to make a mortgage payment within 15 days of its due date as well as the failure to comply with either of the above provisions (Ex. “D” at ¶ 20).
Starting in January 2007, Great Greens failed to make the requisite mortgage payments to Country Bank (Affidavit in Support of Motion at ¶ 7). On February 26, 2007, Great Greens entered into a ten-year lease agreement with Defendant Century 22 Properties, Inc. (“Century 22”) whereby Century 22 was required to pay an annual rent of $6,000 for retail space at the subject Property (the “Lease”) (Ex. “E” to Plaintiff's Motion; Affirmation in Support at ¶ 16; Affidavit in Support at ¶ 19).
The security deposit for this Lease was $6,000 (Ex. “E” to Plaintiff's Motion).
Century 22 is actually occupying two stores at the Property for a total of $500 per month (Affidavit in Support at ¶ 19). According to the Plaintiff, the Lease was a “sweetheart” lease as the agreed upon rental payment of $500 per month was well below fair market value (Affidavit in Support at ¶¶ 10, 17–18; Complaint at ¶ 11).
In June 2007, Country Bank commenced a foreclosure action against Great Greens (Affidavit in Support at ¶ 12). Thereafter, Country Bank and Great Greens entered into a stipulation for judgment of foreclosure and sale whereby the parties agreed that the foreclosure action proceed to sale (Ex. “A” to Defendant's Opposition). At the foreclosure sale, Country Financial Services, Inc. (the “Plaintiff”) acquired title to the Property pursuant to a Referee's Deed in Foreclosure on September 21, 2009.
Plaintiff is currently the owner and landlord of the Property (Affidavit in Support at ¶ 7, Ex. “C” to Plaintiff's Motion).
This court notes that although Country Bank was the mortgagee with respect to the property, the Plaintiff is not Country Bank but, rather, Country Financial Services, Inc., which purchased the property at the foreclosure sale after Country Bank stipulated to a Judgment of Foreclosure and Sale (Ex. “C” to Plaintiff's Motion; Ex. “A” to Defendant's Opposition).
While acknowledging the fact that Country Bank is a “closely related” company to Country Financial Services, Century 22 concedes that Country Financial Services is a successor in interest to Great Greens (Affirmation in Opposition at ¶¶ 32–33) and does not dispute that it is the proper plaintiff herein. In this regard, the Lease similarly provides that the Lease is binding upon and inures to the benefit of Great Greens' successors in interest (Ex. “E” to Plaintiff's Motion at ¶ 22).
The Plaintiff commenced the instant action in December, 2009 and service upon Century 22 was completed on January 5, 2010 (Exs. “F” and “G” to Plaintiff's Motion). By its complaint, the Plaintiff alleges, inter alia, the following: 1) the Lease is null and void having been entered into when Great Greens was in default on its mortgage; 2) Century 22 is not paying fair market value of the leased property and, thus, is entitled to market use and occupancy; and 3) it is entitled to possession of the Property and, thus, an Order of Ejectment (Complaint at ¶¶ 34–57). Although Defendant Great Greens timely answered the complaint (Ex. “B” to Plaintiff's Motion), the action was recently discontinued against Great Greens (Stipulation dated August 10, 2010).
Defendant Century 22 did not file an answer or a notice of appearance.
The Instant Motion for Default
Based on Century 22's failure to answer or file a notice of appearance, the Plaintiff moves this Court for an order pursuant to CPLR 3215 granting it a default judgment against Century 22. In support of its motion, the Plaintiff submitted, inter alia, an attorney affirmation and affidavit from Joseph Murphy, Vice President of the Plaintiff bank. Plaintiff argues that Great Greens had no right to enter into the Lease with Century 22 when it was in default under the mortgage and, thus, seeks to set aside the Lease as null and void (Affirmation in Support at ¶¶ 13–14; Affidavit in Support at ¶¶ 13–15). Upon an order that the Lease is set aside, Plaintiff further seeks an Order of Ejectment removing Century 22 from the Property (Affirmation in Support at ¶ 19). The Plaintiff also requests a hearing to determine the fair market value of Century 22's use and occupancy as Plaintiff avers that Century 22 is paying below fair market value for the leased property (Affirmation in Support at ¶¶ 15–18; Affidavit in Support at ¶ 26).
In opposition to Plaintiff's motion, Century 22 submitted an attorney affirmation and an affidavit from Jennifer Feigenbaum, the President of Century 22.
Century 22 argues that its default in answering the complaint was excusable as the parties were involved in settlement negotiations and Feigenbaum's son underwent surgery for a broken hand (Affirmation in Support at ¶¶ 15–19; Affidavit in Support at ¶ 10). Century 22 also claims a meritorious defense to the action insofar as the question of whether the Lease entered into was a “sweetheart” lease is “clearly an issue of fact to be determined by the trier of fact following discovery and litigation”; that the rates charged to Century 22 for the leased property “are reasonable given the geographical real estate market”; and, “adequate consideration was given to Great Greens for the lease rate” (Defendant's Affirmation in Opposition at ¶¶ 22–25).
Defendant Great Greens did not submit papers on the motion.
Feigenbaum indicates in her affidavit that she and her firm Century 22 were given a credit towards the rent on the subject property because Great Greens owed her money from a prior unrelated real estate transaction (Affidavit in Opposition at ¶¶ 14–17).
Analysis
Plaintiff's Application for a Default Judgment
A plaintiff's proof required on an application for a default judgment is proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the default in answering or appearing (CPLR 3215[f] ). The proof of service annexed to Plaintiff's motion demonstrates that Century 22 was served with the summons and complaint first by personal delivery to the secretary of state on December 28, 2009 (Ex. “F” to Plaintiff's Motion) followed by a mailing of the summons and complaint to Century 22 on January 5, 2010 (Ex. “G” to Plaintiff's Motion).
Proof of Plaintiff's claims as set forth in the complaint were demonstrated by the affidavit of Joseph Murphy, Vice President of the Plaintiff bank, as well as various exhibits annexed to Plaintiff's motion (Woodson v. Mendon Leasing Corp., 100 N.Y.2d 62, 71 [2003];Beaton v. Transit Facility Corp., 14 AD3d 637 [2d Dept 2005] ). In his affidavit, Murphy demonstrates that the Lease between Great Greens and Century 22 was entered into after Great Greens first defaulted on its mortgage and, because of its default, Great Greens was not permitted to enter into the Lease. This argument is supported by the mortgage instrument itself which specifically states that while Great Greens assigned its leases and rents to Plaintiff, that Great Greens nevertheless had a license to operate the property and collect rents. This license was automatically revoked, however, upon Great Greens default on the mortgage. It is undisputed that Great Greens defaulted on its mortgage and, thus, at the time it entered into the lease with Century 22, it no longer had the license to do so. The Plaintiff never gave such approval, however. The mortgage instrument also provided that Great Greens needed the approval of Plaintiff before it entered into any Lease agreement. Great Greens was never given that approval, however.
The third element required in Plaintiff's application for a default judgment, proof of the default, was unequivocally demonstrated. Century 22 was served with the summons and complaint on or about January 5, 2010. Century 22 did not timely file an answer or notice of appearance. In fact, Century 22's first appearance occurred on or about May 27, 2010, which is the date of Century 22's opposition to Plaintiff's instant motion for a default judgment.
Excusable Default and a Meritorious Defense to the Default
To avoid entry of a default judgment, Century 22 was required to demonstrate a reasonable excuse for the default and a meritorious defense to the action (Matone v. Sycamore Realty Corp., 50 AD3d 978 [2d Dept 2008] ). Century 22 has failed to demonstrate either requirement and, therefore, Plaintiff is entitled to a default judgment.
In its opposition, Century 22 argues that because the parties were engaged in settlement negotiations and the son of Century 22's President, Ms. Feigenbaum, broke his hand on February 12, 2010, and underwent surgery on February 19, 2010, it had a reasonable excuse for defaulting. Purportedly, the son's broken hand and Feigenbaum's absence during the son's recovery period led to a break down in settlement talks for one and one-half months, until April 1, 2010 when counsel presumably resumed discussions (Affirmation in Opposition at ¶¶ 15–19). The determination of what constitutes a reasonable excuse lies within the sound discretion of the trial court (Grinage v. City of New York, 45 AD3d 729 [2d Dept 2007] ). Century 22's conclusory, undetailed and uncorroborated claim of settlement discussions was insufficient to excuse its default (Kouzios v. Dery, 57 AD3d 949 [2d Dept 2008] ).
With respect to the merits, Century 22 argues that the Lease entered into between it and Great Greens was not a “sweetheart” lease but, rather, was reasonable given the geographical market; that Great Greens received adequate consideration for the lease rate;
and, lastly, that Plaintiff has acknowledged that Century 22 was a tenant pursuant to a “valid lease” (Affirmation in Opposition at ¶ 33). Century 22's contentions, however, fail to demonstrate a meritorious defense.
Great Greens owed real estate commissions to Century 22 for a prior unrelated real estate transaction (Affirmation at ¶ 29; Affidavit in Opposition at ¶¶ 14–17).
“[A]n agreement by the mortgagor with respect to the mortgaged property may not be binding upon the mortgagee or the receiver where the agreement contravenes an express covenant or the necessary implications of a prior recorded mortgage” (Crossland Federal Savings Bank v. Pekofsky, 226 A.D.2d 667, 668 [2d Dept 1996]; New York City Community Preservation Corp. v. Michelin Assoc., 115 AD 718 [2d Dept 1985] ). For the reasons that follow, the Lease entered into between Great Greens and Century 22 was in contravention of various provisions of the underlying mortgage and, thus is held to be null and void (Resolution Trust Corp. v. 53 West 72nd St Realy Assoc., 1991 WL 156260 at *3 [SDNY 1991] ).
Here, the Lease entered into between Great Greens and Century 22 was contrary to the mortgage which stated that Great Green's right to enter into any lease was revoked upon its default under the mortgage.
It is undisputed that Great Greens defaulted on the mortgage prior to entering into the Lease and, thus, was not permitted to enter into the Lease Agreement with Century 22 ( see Resolution Trust Corp. v. 53 West 72nd St Realty Assoc., 1991 WL 156260 [SDNY 1991] [owner's entering into a lease with tenant was without the requisite consent of mortgagee and thus was violation of the mortgage consolidation agreement]; Crossland Federal Savings Bank v. Pekofsky, 226 A.D.2d at 669,supra [where mortgagee did not obtain mortgagor's consent to terminate lease with lessee, which it was required to do under the mortgage, lessee was obliged to pay the full rent as set forth in the lease]; see also, Kaung v. Board of Managers of Biltmore Towers Condominium Ass'n 70 AD3d 1004 [where coop Board exceeded its authority in entering into a lease, the lease was held to be void] ).
Moreover, the mortgage was a “prior recorded mortgage” as it was recorded in the Nassau County Clerk's Office on December 27, 2004, two prior to the February 26, 2007 Lease between Great Greens and Century 22 (Ex. “D” to Plaintiff's Motion).
The mortgage also provided that all lease agreements must be on standard form approved by Plaintiff (Ex. “D”). Century 22 suggests that Plaintiff acknowledged that it was a tenant and “that there was a valid lease” as per a Stipulation for Judgment of Foreclosure and Sale entered into between Great Greens and Country Bank (“Stipulation”) (Affirmation in Opposition at ¶ 33; Ex. “A” to Defendant's Opposition). Century 22 was not named as any of the “stipulating Defendants” nor was Century 22 mentioned anywhere in the entire Stipulation. Accordingly, contrary to Century 22's contention, the Stipulation requiring Great Greens to provide all leases to the Plaintiff does not equate with Plaintiff's approval of the lease.
Morever, Century 22 expressly stated, in counsel's affirmation as well as the Feigenbaum affidavit, that Century 22 was given a credit towards the rent because Great Greens owed her money.
Accordingly, the Lease entered into between Century 22 and Great Greens was not an arms-length transaction, as required by section 7(b) of the mortgage (Ex. “D”) ( compare Resolution Trust Corp. v. 53 West 72nd St Realy Assoc., 1991 WL 156260 [SDNY 1991] [current rental rate was the result of a negotiated settlement and, thus, a receiver in a foreclosure action could not show that the rental agreement between owner and tenant was not bona fide] ).
Feigenbaum stated in her affidavit as follows: “Century 22 was Great Green's real estate broker. In fact, Century 22 was the broker responsible for the sale of 401 Great Neck Road, Great Neck, New York, another property owned by Great Greens and/or its principals. My commission earned on that transaction was nearly $143,000.00. At the time of closing, Great Greens did not have the funds to pay my entire fee, so I agreed to given them time to pay. In February 2007, I agreed to forgive some of the commission, if Great Greens leased me the subject property and would give me a credit towards the rent.” (Affidavit in Opposition at ¶¶ 14–17).
Based on the foregoing, it is hereby ordered that the Plaintiff's motion for a default judgment is granted; the subject Lease entered into in contravention of the mortgage is set aside as being null and void; the Plaintiff is entitled to possession of 101 and 103 Steamboat Road, Great Neck, New York as against defendant Century 22, and the Sheriff of the County of Nassau, upon receipt of a certified copy of this Order, is directed to place Plaintiff in possession accordingly and immediately upon entry of this Order, Plaintiff may exercise all acts of ownership and possession of 101 and 103 Steamboat Road, Great Neck, New York, including entry thereto, as against Century 22; and Plaintiff is entitled to a use an occupancy hearing pursuant to Real Property Law § 220. Said hearing is referred to the Calendar Control Part (CCP), to be held on September 20, 2010. The Plaintiff shall file and serve a Note of Issue, together with a copy of this Order, on all parties and shall serve copies of the same together with receipt of payment, upon the Calendar clerk of this Court within twenty (20) days of the date of this Order. The directive with respect to a hearing is subject to the right of the Justice presiding in CCP II to refer the matter to a Justice, Judicial Hearing Officer, or a Court Attorney/Referee, as he or she deems appropriate.
This constitutes the Decision and Order of the Court.