Opinion
10466-08.
Decided on January 16, 2009.
Edwards Angell Palmer Dodge, LLP, New York, New York, COUNSEL FOR PLAINTIFF.
LeClairRyan, Jeffrey Marley Zalkin, Esq., New York, New York, COUNSEL FOR DEFENDANTS.
Plaintiff, Stephen Nussdorf ("Stephen"), moves for an order pursuant to CPLR 3213 for summary judgment in lieu of a complaint on the ground that this action is based upon instruments for the payment of money only.
BACKGROUND
On July 14, 2003, Defendant, Ilia Lekach ("Ilia"), executed and delivered to Stephen a promissory note ("Note") in the principal amount of $3,500,000 pursuant to which he promised to pay the principal plus interest at the rate of six percent per annum.
On the same day, Defendant Deborah Lekach ("Deborah") purportedly executed a personal guaranty ("Guaranty"), pursuant to which she absolutely and unconditionally guaranteed to pay all amounts due and owing to Stephen from Ilia pursuant to the Note.
On February 6, 2007, Ilia executed and delivered to Stephen an amended and restated promissory note ("Amended Note") in the principal amount of $3,500,000 pursuant to which Ilia promised to pay Stephen the principal plus interest at the rate of six percent per annum. The Amended Note superceded the Note.
On February 27, 2008, Ilia executed and delivered to Stephen a second amended and restated promissory note ("Second Amended Note") in the principal amount of $4,433,650 reflecting the unpaid principal and accrued, but unpaid, interest under the original Note and Amended Note. The Second Amended Note also bore interest at the rate of six percent per annum. It superceded the Amended Note.
The Second Amended Note required Ilia to make payments to Stephen of partial interest in the amount of $5,000 on the first day of each month beginning March 1, 2008 and continuing thereafter until December 31, 2008, when all unpaid interest and principal was to be paid in full. Ilia made interest payments to Stephen as required under the Second Amended Note on March 1 and April 1, 2008. Citibank notified Stephen by letter dated May 21, 2008, that Ilia's $5,000 check dated May 1, 2008 for the May installment was being returned by Ilia's bank for insufficient funds.
In the event of a default, certain remedies were triggered under the Second Amended Note. They included a default rate of interest (10%), late charges (2%), an immediate acceleration of the entire indebtedness due and owing to Stephen without further notice or demand to Ilia, as well as repayment of the costs, fees and expenses incurred by Stephen in connection with the collection of the indebtedness, including attorney's fees. The Second Amended Note did not allow for a cure period.
As a result of Ilia's default, Stephen claims that, as of May 31, 2008, the total amount immediately due and owed to him is $4,535,968.88, which consists of unpaid principal in the amount of $4,433,650 and unpaid and accrued interest in the amount of $102,318.88, plus interest, costs, fees and expenses. The per diem interest from June 1, 2008 is $1,231.57.
Pursuant to the Guaranty, Stephen claims that Deborah is also liable for the same amounts.
Pursuant to the Second Amended Notes and Guaranty, both Deborah and Ilia, Florida residents, have consented to personal jurisdiction in the State of New York.
Paragraph 11 of the Second Amended Note provides that the "(m)aker hereby irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court, over any suit, action or proceeding arising out of or relating to this Second Amended Note . . .".
Page 4 of the Guaranty states that, "(t)he Guarantor . . . hereby submit [sic] to the jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York . . . for the purpose of any suit, action or other proceeding arising out of any of the Guarantor's obligations under or with respect to this Guaranty, and expressly waives any and all objections she may have as to venue in any of such courts."
Stephen seeks an order pursuant to CPLR 3213 granting summary judgment against Ilia and Deborah for the unpaid principal interest and accrued unpaid interest, and the interest that continues to accrue to the date of the judgment, together with the costs, fees and disbursements.
Ilia opposes the motion on the basis that the third payment he made pursuant to the Second Amended Note was only unpaid because the check he issued to Stephen was returned for insufficient funds. Ilia asserts that this was unintentional and that he immediately deposited funds into his bank account to satisfy the third payment. He then called Glenn Nussdorf ("Glenn"), Plaintiff's "agent" and brother, to advise him of the insufficient balance and the recent deposit and offered to issue a replacement check. Ilia claims that Glenn advised Ilia not to worry and that he would re-deposit the check. Ilia argues that he relied on Glenn's representation given his business and personal relationship of over twenty years with Stephen and Glenn during which they did business together in excess of $100 million. Based on Glenn's alleged representation, Ilia did not issue a replacement check due to it. Ilia also notes that he had deposited $5,000 to cover the May check into his bank account via wire on May 22, 2008 and another $50,000 on May 29, 2008. No proof of either deposit was submitted in opposition to this motion.
Thereafter, Ilia made the June payment by check, dated June 7, 2008, which was returned to him by Plaintiff on June 25, 2008 along with a letter, dated June 24, 2008, advising the Defendants that Stephen rejected the June 2008 payment, considered Ilia to be in default and he had initiated a lawsuit against both Ilia and Deborah. This was the first notice that Ilia received that Stephen had not re-deposited the May check.
Ilia asserts that, over the past five year period, he transmitted monthly payments later than the first day of the month and in every instance such payments were accepted by Stephen. As evidence of their prior practice, Ilia points to the two prior promissory notes which preceded the Second Amended Note. Ilia claims "(t)he re-settings of the loan after the initial Promissory Note were always done in an amicable manner with increase in the amounts of sums due." (Ilia Aff. ¶ 20).
Deborah argues that she neither signed the Guaranty nor authorized anyone to sign on her behalf. Deborah submitted an affidavit from a forensic document examiner, Diane C. Flores ("Flores"), as evidence that she did not execute the Guaranty. After examining the Guaranty and checks signed by Deborah during the time period contemporaneous with the execution of the Guaranty, it is Flores's opinion that "there are multiple indications that the signature on the Guaranty was not signed by the person whose signature appears on the contemporaneous specimens submitted . . .". (Flores Aff. ¶ 5). Flores also noted that given the poor quality of the Guaranty, she would need to examine the original in her laboratory in order to render an absolute, unqualified opinion.
In addition, Deborah states that she has never done nor conducted any business in the State of New York. As such, she challenges any assertion by Plaintiff that the State of New York has personal jurisdiction over her.
In reply, Stephen points out that Ilia conceded that he breached the Second Amended Note by failing to timely make the May 2008 interest payment. Furthermore, Stephen argues that Glenn is not his agent and despite the fact that no evidence has been submitted by Ilia to support the contention that Glenn made a promise to forgive the default, the terms of the Second Amended Note do not allow for oral modifications.
Glenn submitted an affidavit supporting Stephen's argument that he is not Stephen's agent. In addition, Glenn asserts that Ilia's description of a telephone conversation between the two of them is a "total fabrication" and that no such conversation occurred during which Glenn told Ilia not to worry about the May payment or during which he indicated that he would re-deposit Ilia's bounced check.
With respect to Ilia's claim that late payments were accepted in the past, Stephen cites to ¶ 6 (b), of the Second Amended Note which states that Ilia "waives any defenses based upon and specifically assents to any and all extensions and postponements of time for payment, changes in terms and conditions and all other indulgences and forbearances which may be granted by the holder to any party now or hereafter liable hereunder.. extensions and postponements of time for payment . . . any other indulgences and forbearances which may be granted by the holder."
As for Deborah's signature, Stephen states that the signature is not a forgery and Defendants should be estopped from asserting so. Stephan maintains that Ilia induced him into making the loan by promising that Deborah would sign the Guaranty. Stephen recounts that after Ilia made this promise, Ilia presented Stephen with the Guaranty which included Deborah's proported signature. Stephen asserts that since Defendants have never raised the issue of Deborah's signature on the Guaranty being a forgery despite the Guaranty being executed in July 2003, they should not be allowed to do so now in response to this motion. Moreover, he contends that since Flores cannot provide a conclusive opinion, this evidence does not overcome Stephen's prima facie entitlement to summary judgment against Deborah.
With respect to jurisdiction over Deborah, Stephen argues that since the Guaranty, which he believes is valid and authentic based upon Ilia's representations that the Guaranty was signed by Deborah, clearly states that Deborah submits to the jurisdiction of the State of New York, this Court has jurisdiction over her.
DISCUSSION A. Summary Judgment in Lieu of Complaint
CPLR 3213 permits a party to move summary judgment in lieu of a complaint when the action is based upon an instrument for the payment of money only.
Under CPLR 3213, when an action is based upon an instrument for the payment of money only, the plaintiff may serve with the summons, a notice of motion for summary judgment and the supporting papers in lieu of a complaint. If the motion is denied, the moving and answering papers will be deemed the complaint and answer, respectively, unless the court orders otherwise.
A motion for summary judgment in lieu of a complaint in an action on a negotiable instrument will be granted only when it is clear that no triable issue or real question of fact is presented ( First International Bank, Ltd. v. L. Blankstein Son, Inc., 59 NY2d 436) or where the defense raised is unrelated to the plaintiff's cause of action ( Parry v. Goodson, 89 AD2d 543 [1st Dept. 1982]) or is clearly without merit ( Gateway State Bank v. Shangri-La Private Club for Women, Inc., 493 NYS2d 226, 227 {113 AD2d 791} [2nd Dept. 1985]).
B. Second Amended Promissory Note
A promissory note is an instrument for the payment of money only for the purpose of CPLR 3213. Davis v. Lanteri, 307 AD2d 947 (2nd Dept. 2003); and East New York Savings Bank v. Baccaray, 214 AD2d 601 (2nd Dept. 1995).
In order to establish a prima facie case on a promissory note, plaintiff must establish the existence of the instrument and the defendant's failure to make payment pursuant to the terms of the instrument. Cutter Bayview Cleaners, Inc. v. Spotless Shirts, Inc., — AD3d — —, 2008 WL 5263896 (2nd Dept. 2008); Mangiatordi v. Maher, 293 AD2d 454 (2nd Dept. 2002); and East New York Savings Bank v. Baccaray, supra .
Once plaintiff has met its burden, the defendant must then establish by admissible evidence the existence of a triable issue concerning a bona fide defense. Cutter Bayview Cleaners, Inc. v. Spotless Shirts, Inc., supra; and Northport Car Wash, Inc. v. Northport Car Care, LLC , 52 AD3d 794 (2nd Dept. 2008). Bald, conclusory allegations are insufficient to defeat a motion for summary judgment in lieu of a complaint. Federal Deposit Ins. Corp. v. Jacobs, 185 AD2d 913 (2nd Dept. 1992).
Stephen established that Ilia executed the Second Amended Note on February 7, 2008. According to the terms of the Second Amended Note, all interest was to be payable in arrears on the first day of each calendar month commencing on March 1, 2008. Ilia agreed to make partial interest payments of $5,000 commencing March 1, 2008 and continuing on the first day of each month until all unpaid interest and principal would be paid in full by December 31. 2008. Ilia acknowledged that he failed to timely make the third payment, the May 2008 payment, pursuant to the terms of Second Amended Note since the check for that payment was returned for insufficient funds. Although Ilia alleges that Glenn, who has denied being an agent of Stephen, verbally agreed to waive the default and re-deposit the check, the terms of the Second Amended Note prohibit any oral modifications. The terms of the Second Amended Note specifically set forth that, "(i)n no event shall any oral agreements, promises, actions, inactions, knowledge, course or [sic] conduct, course of dealing, or the like be effective to amend, terminate, extend or otherwise modify this Second Amended Note" (Second Amended Note ¶ 13). Ilia argues that an agency relationship is a factual question citing People v. Harmon, 221 AD2d 207 (1st Dept. 1995), lv. app. den., 87 NY2d 1020 (1996), precluding the Court from rendering a decision in Stephen's favor. In light of Ilia's unsubstantiated allegations that Glenn is Stephen's agent, the Court finds that People v. Harmon which deals with the relationship between the defendant and an unknown heroin seller unpersuasive. Likewise, Hedeman v. Fairbanks, Morse Co., 286 NY 240 (1941) is also distinguishable. In Hedeman, the Court of Appeals found that where the question of agency is not open to doubt, it is one for the court. Id. at 248.
Moreover, Ilia has failed to submit any documentary evidence to the Court to establish that Glenn was Stephen's agent, that any representation was made by Glenn with respect to re-depositing the May check or that Ilia deposited money into his bank account which would have been sufficient to cover the $5,000 payment then due had the check been redeposited. In addition, Ilia's affidavit is silent with regard to any actions he took to follow-up on Glenn's alleged representation that the May interest payment check would be re-deposited. The only proof presented was that a payment was issued on June 7, 2008.
Ilia also argues that, since promissory notes are governed by Article 3 of the Uniform Commercial Code, UCC Article 1 mandates that Stephen had an obligation of good faith in performing and enforcing the Second Amended Note. Ilia's position is that any assertion of a breach of this good faith requirement requires denial of this summary judgment motion as "the good faith requirement" is a subjective standard. The cases cited by Defendants in support of their argument are not applicable to the case at bar. See, e.g., Scarsdale Nat'l Bank and Trust Co. v. Toronto-Dominion Bank, 533 F.Supp. 378 (S.D.N.Y. 1988) (the court's inquiry was related to good faith as required by a holder in due course); and Feld v. Henry S. Levy Sons, Inc., 37 NY2d 466 (1975) (pertaining to the good faith requirement imposed in output contracts).
Similarly, Defendants' arguments that Plaintiff is equitably estopped, estopped by inaction/laches or by laches from accelerating the full amount due under the Second Amended Note are unavailing. Ilia argues that Plaintiff should be estopped given contradictory "prior oral representations that there would be acceptance of cure of that same default in payment by re-deposit of the May Ck [ sic] rather than by accepting Mr. Lekach's offer of delivery of a replacement check as cure." (Defendants' Joint Brief, p. 13). This argument fails to acknowledge that the terms of the Second Amended Note prohibit any oral modifications. Thus, any reliance on statements allegedly made by a person not involved with the Second Amended Note is of no import. As is clear from Defendants' submissions in opposition to this motion, Ilia concedes that he defaulted in
making the May interest payment pursuant to the terms of the Second Amended Note albeit an "act of oversight" which was "totally unintentional on my part."
With respect to Ilia's claim that he has paid Stephen late over the past five years, the documentary evidence submitted shows that the May 2008 payment was the third payment due under the Second Amended Note. The March 2008 payment was paid by check, dated March 1, 2008, and the April 2008 payment was paid by check, dated March 31, 2008. No prior payment history was submitted beyond Ilia's conclusory assertion. A waiver is the voluntary and intentional abandonment or relinquishment of a known and otherwise enforceable right. Jefpaul Garage Corp. v. Presbyterian Hospital in New York, 61 NY2d 442, 446 (1984). See also, Nassau Trust Co. v. Montrose Concrete Products Corp. 56 NY2d 175, 184 (1982); and Messina v. Messina, 143 AD2d 735, 737 (2nd Dept. 1988). The evidence submitted certainly does not establish a pattern of the acceptance of late payments under the Second Amended Note to allow for a valid defense of waiver
Thus, Plaintiff's motion for summary judgment in lieu of a complaint must be granted against Ilia for the amount of $4,433,650, plus interest and late fees thereon.
C. Attorneys' Fees
It is well-settled that attorneys' fees are considered an incident of litigation and, unless authorized by statute, court rule or written agreement of the parties, are not recoverable. Hooper Assocs. v. AGS Computers, 74 NY2d 487, 491 (1989).
Attorneys' fees may be awarded pursuant to the terms of a contract only to an extent that is reasonable and warranted for services actually rendered. Kamco Supply Corp. v. Annex Contracting Inc., 261 AD2d 363 (2nd Dept. 1999). Provisions or stipulations in contracts for payment of attorneys' fees in the event it is necessary to resort to aid of counsel for enforcement or collection are valid and enforceable. Roe v. Smith, 278 NY 364 (1938); and National Bank of Westchester v. Pisani, 58 AD2d 597 (2nd Dept. 1977).
The amount of attorneys' fees awarded pursuant to a contractual provision is within the court's sound discretion, based upon such factors as time and labor required. SO/Bluestar, LLC v. Canarsie Hotel Corp. , 33 AD3d 986 (2nd Dept. 2006). See also, Matter of Ury, 108 AD2d 816 (2nd Dept. 1985). Legal fees are awarded on a quantum meruit basis and cannot be determined summarily. See, Simoni v. Time-Line, Ltd., 272 AD2d 537 (2nd Dept. 2000); and Borg v. Belair Ridge Development Corp., 270 AD2d 377 (2nd Dept. 2000). When the court is not provided with sufficient information to make an informed assessment of the value of the legal services, a hearing must be held. Bankers Fed. Sav. Bank v. Off W. Broadway Developers, 224 AD2d 376 (1st Dept. 1996).
Paragraph 6(e) of the Second Amended Note provides that, in the event of a default, Ilia would be responsible for all attorneys' fees and costs related to collection. Since no information was provided to the Court regarding the amount of legal fees
expended to date with respect to the motion as against Ilia, a hearing will be necessary in order to determine the value of those services.
D. Guaranty
In order to establish a prima facie case on a guaranty, plaintiff must establish the existence of the underlying promissory note or obligation, the guaranty, and the failure of the prime obligor to make payment in accordance with the terms of the promissory note or obligations. Royal Commercial Corp. v. Kotrulya, 304 AD2d 742 (2nd Dept. 2003); E.D.S. Security Systems, Inc. v. Allyn, 262 AD2d 351 (2nd Dept. 1999); and I.P.L. Corp. v. Industrial Power and Lighting Corp., 202 AD2d 1029 (4th Dept. 1994). A guaranty may be the proper subject of a motion for summary judgment in lieu of a complaint whether or not it recites a sum certain. Key Bank of Long Island v. Munkenbeck, 162 AD2d 503, 504 (2nd Dept. 1990).
To be enforceable, the guaranty must be in writing signed by the person to be charged. Schulman v. Westchester Mechanical Contractors, Inc., 56 AD2d 625 (2nd Dept. 1977). The intent to guarantee payment must be clear and explicit. Salzman Sign Co. v. Beck, 10 NY2d 63 (1961); and PNC Capital Recovery v. Mechanical Parking Systems, Inc., 283 AD2d 268 (1st Dept. 2001). Clear and explicit intent to guarantee the obligation is established by having the guarantor sign in the capacity as guarantor and by the language contained in the guaranty. Salzman Sign Co. v. Beck, supra; and Harrison Court Assoc. v. 220 Westchester Avenue Assoc., 203 AD2d 244 (2nd Dept. 1994).
Once the plaintiff has established a prima facie entitlement to judgment as a matter of law on the guaranty, the defendant must establish through admissible evidence the existence of a triable issue of fact or the existence of a viable defense to the action on the guaranty. Federal Deposit Ins. Co. v. Jacobs, 185 AD2d 913 (2nd Dept. 1992).
Stephen has established a prima facie entitlement to summary judgment pursuant to CPLR 3213 against Deborah by submitting the Second Amended Note and Guaranty and providing an affidavit and proof that payments were not made according to the terms of the contract. Royal Commercial Corp. v. Kotrulya, supra at 743; and E.D.S. Security Systems, Inc. v. Allyn, supra at 351.
The Court must now look to Deborah's opposition to the motion to determine if she has a viable defense to the motion. In responding to the motion, Deborah has raised two defenses; to wit: (1) she did not execute the Guaranty and her signature is a forgery; and (2) this Court does not have in personam jurisdiction over her. In support of the forgery defense, she submitted the affidavit of a forensic document examiner who stated that the signature purporting to be Deborah's handwriting on the Guaranty is not the same as Deborah's handwriting on the samples provided from the same time period.
1. Forgery
Stephen, relying on Banco Popular North America v. Victory Taxi Management, Inc., 1 NY3d 381 (2004), argues that Flores's assertion that it is impossible for her to give an absolute, unqualified opinion regarding the Guaranty given the poor quality of the copy provided to her for comparison, renders Flores's opinion insufficient to raise a triable issue of fact. The Court disagrees.
The Banco Popular Court determined that the expert's affidavit was insufficient because, "the examiner's opinion was the equivalent of stating that he was not able to determine whether (defendant) was the signatory on the documents." Id. at 384. Flores, in her affidavit, states that "there are multiple indications that the signature on the Guaranty was not signed by the person whose signature appears on the contemporaneous specimens submitted, purportedly that of Deborah Lekach." (Flores Aff. ¶ 5). This is different from the expert in Banco Popular. Furthermore, Flores's caution in not rendering an "absolute, unqualified opinion" given the poor quality of the copy without being an opportunity to examine the original, which arguably is in the possession of Plaintiff, should not nullify Flores's opinion when determining whether a triable issue of fact is presented. In this case, since there is no direct evidence witnessing Deborah affixing her signature to the Guaranty, the Court is satisfied that the Flores affidavit if sufficient to raise a triable issue of fact.
2. In Personam Jurisdiction
It is well settled that "due process requires only that in order to subject a defendant to judgment in personam, if he be not present within the territory of the forum, he have certain minium contacts with it such that maintenance of the suit does not offend traditional notions of fair play and substantial justice." International Shoe Co. v. State of Washington, 326 U.S. 310, 316 (1945). The party asserting that the New York courts have jurisdiction over a non-domiciliary has the burden of establishing that a factual basis exists for the courts to exercise jurisdiction over the non-domiciliary or show that such evidence may exist. Roldan v. Dexter Folders, 178 AD2d 589 (2nd Dept. 1991); and Spectra Products, Inc. v. Indian River Citrus Specialities, Inc., 144 AD2d 832 (3rd Dept. 1988).
The standard for jurisdiction is reasonableness; to wit: would the defendant be unduly burdened by having to defend an action in a jurisdiction outside his or her domicile. International Shoe Co. v. State of Washington, supra; Elman v. Belson, 32 AD2d 422 (2nd Dept. 1969); and Reiner v. Durand, 602 F. Supp. 849 (S.D.NY 1985).
Stephen argues that Deborah is subject to the jurisdiction of the State of New York pursuant solely to the language of the Guaranty. That results in circular reasoning since Deborah disputes executing the Guaranty. Thus, there is a question as to whether this Court has jurisdiction over Deborah, a Florida domiciliary, which cannot be resolved until the enforce ability of the Guaranty can be established.
Thus, Plaintiff's motion for summary judgment in lieu of a complaint against Deborah must be denied.
In addition, since there are questions before the Court with respect to jurisdiction over Deborah, the question as to the authenticity of her signature on the Guaranty must first be determined. That is, if Deborah is found to have executed the Guaranty, her consent to this Court's jurisdiction is established. D.O.T. Tiedown Lifting Equip., Inc. v. Wright, 272 AD2d 290, 291 (2nd Dept. 2000). ("It is well settled that forum selection clauses are prima facie valid."). See also, M/S Bremen v. Zapata Off-Shore Co., 407 US 1 (1972).
If the Guaranty is found to be a forgery, the question of jurisdiction over Deborah need not be reached.
Accordingly, it is,
ORDERED, that Plaintiff's motion for summary judgment in lieu of a complaint is granted with respect to Defendant, Ilia Lekach, and denied with respect to Defendant, Deborah Lekach; and it is further,
ORDERED, that the action against Defendant Deborah Lekach is severed and continued; and it is further,
ORDERED, that the action is respectfully referred to Special Referee Frank Schellace on February 24, 2009 at 10:00 a.m. to hear and determine all issues regarding the reasonable legal fees of Plaintiff's attorney, interest and late fees due under the Second Amended Note; and it is further,
ORDERED, that Plaintiff shall serve upon counsel for Defendant Ilia Lekach and file with the Clerk of the Court, a copy of this order, the Note of Issue, proof of service thereof and shall pay the appropriate filing fees on or before February 6, 2009; and it is further,
ORDERED, that the County Clerk is directed to enter a judgment in favor of the Plaintiff Stephen Nussdorf and against Defendant Ilia Lekach in the sum of $4,433,650.00 together with interest at the rate of 10% from the date of default May 1, 2008 until entry of judgment, late fees and reasonable attorney fees as determined by the Special Referee; and it is further,
ORDERED, that counsel for Plaintiff and Defendant, Deborah Lekach shall appear for a preliminary conference on February 13, 2009 at 9:30 a.m.
This constitutes the decision and Order of the Court.