Opinion
18-CV-2702 (MKB) (RER)
2021-05-17
PLENITUDE CAPITAL LLC, Plaintiff, v. UTICA VENTURES, LLC, Michael Israel, Sholomo Ehrenreich, New York City Department of Housing Preservation and Development, By Construction Corp., New York City Environmental Control Board, and John Does Nos. 1 Through 10, Defendants.
Jerry Montag, Seyfarth Shaw LLP, New York, NY, for Plaintiff. Craig Stuart Lanza, Brooklyn, NY, for Defendant Utica Ventures, LLC. Joy Tolulope Anakhu, New York City Law Department, New York, NY, for Defendant New York City Department of Housing Preservation and Development. Joseph J. Schwartz, Law Office of Joseph J. Schwartz, P.C., Brooklyn, NY, for Defendant By Construction Corp.
Jerry Montag, Seyfarth Shaw LLP, New York, NY, for Plaintiff.
Craig Stuart Lanza, Brooklyn, NY, for Defendant Utica Ventures, LLC.
Joy Tolulope Anakhu, New York City Law Department, New York, NY, for Defendant New York City Department of Housing Preservation and Development.
Joseph J. Schwartz, Law Office of Joseph J. Schwartz, P.C., Brooklyn, NY, for Defendant By Construction Corp.
MEMORANDUM & ORDER
MARGO K. BRODIE, United States District Judge:
Plaintiff Plenitude Capital LLC commenced the above-captioned foreclosure action on May 7, 2018, against Utica Ventures, LLC ("Utica"), Michael Israel, Sholomo Ehrenreich, the New York City Department of Housing Preservation and Development (the "HPD"), By Construction Corp. ("By Construction"), the New York City Environmental Control Board (the "ECB"), and John Does 1–10 (the "John Doe Defendants"). (Compl, Docket Entry No. 1.) Plaintiff seeks to foreclose on a mortgage encumbering property located at 404-406-408 Utica Avenue, Brooklyn, New York (the "Property"). (Id. at 1.) On May 11, 2018, Plaintiff filed an Amended Complaint, (Am. Compl., Docket Entry No. 10), and on August 20, 2018, Plaintiff filed a Second Amended Complaint ("SAC"), (SAC, Docket Entry No. 13).
Plaintiff moved for summary judgment and then for default judgment, (Pl.’s Mot. for Summ. J., Docket Entry No. 22; Pl.’s Mem. in Supp. of Pl.’s Mot. for Summ. J., Docket Entry No. 22-11; Pl.’s Mot. for Default J. ("Oct. 2019 Default Mot."), Docket Entry No. 36; Pl.’s Mem. in Supp. of Oct. 2019 Default Mot., Docket Entry No. 37). The Court referred both motions to Magistrate Judge Ramon E. Reyes, Jr., (Order dated Apr. 9, 2019; Order dated Oct. 30, 2019), and ultimately accepted Judge Reyes’ reports and recommendations in their entirety. (Report and Recommendation dated June 11, 2019 ("June 2019 R&R"), Docket Entry No. 27; Mem. and Order dated Aug. 5, 2019 ("Aug. 2019 Mem. and Order"), Docket Entry No. 30; Report and Recommendation dated Sept. 10, 2020 ("Sept. 2020 R&R"), Docket Entry No. 41; Mem. and Order dated Oct. 23, 2020 ("Oct. 2020 Mem. and Order"), Docket Entry No. 44.) The Court (1) granted summary judgment against Ehrenreich, denied default judgment against Utica, Israel, HPD, By Construction, and ECB without prejudice to renewal upon entry of default, and dismissed Plaintiff's claims against the John Doe Defendants, and (2) granted Plaintiff's motion for default judgment only as to Israel, HPD, and ECB, denied default judgment against Utica and By Construction, and directed Plaintiff to request entry of default against Utica and By Construction. (Aug. 2019 Mem. and Order; Oct. 2020 Mem. and Order.)
Plaintiff now moves for a default judgment against Utica and By Construction and asks the Court to compute the amount owed to it, or, in the alternative, to designate a special master or magistrate judge to compute the amount due to it. (Pl.’s Mot. for Default J. ("Pl.’s Mot."), Docket Entry No. 51; Pl.’s Mem. in Supp. of Pl.’s Mot. ("Pl.’s Mem."), Docket Entry No. 52.) For the reasons set forth below, the Court grants Plaintiff's motion for a default judgment and computes the amount owed.
I. Background
The Court assumes familiarity with the underlying facts as detailed in the June 2019 R&R, September 2020 R&R, August 2019 Memorandum and Order, and October 2020 Memorandum and Order and provides only a summary of the pertinent facts.
On August 4, 2016, Utica executed a consolidated secured promissory note encumbering the Property (the "Note") and delivered the Note and accompanying mortgage (the "Mortgage") to Plaintiff. (SAC ¶¶ 1, 14–16; Description of Premises, annexed to SAC as Ex. A, Docket Entry No. 13-1.) Plaintiff holds the Note and Mortgage. (SAC ¶ 22; Note, annexed to SAC as Ex. B, Docket Entry No. 13-2; Mortgage, annexed to SAC as Ex. C, Docket Entry No. 13-3.) The Mortgage matured on February 3, 2018, and Plaintiff demanded payment on February 12, 2018. (SAC ¶¶ 19–20; Letter dated Feb. 12, 2018, annexed to SAC as Ex. E, Docket Entry No. 13-5.) Under the terms of the Mortgage, Utica has defaulted on its obligation to pay the Mortgage and Plaintiff is entitled to recover the sum secured by the Note and Mortgage as well as interest, reasonable attorney's fees, costs, disbursements, and allowances, taxes, assessments, water and sewer charges, insurance premiums, and other charges. (SAC ¶¶ 24, 25–30, 36–37; Billing Statement, annexed to SAC as Ex. F, Docket Entry No. 13-6.) By Construction has filed three mechanic's liens against the Property, all dated October 25, 2017. (SAC ¶ 8.)
In support of the allegations in the SAC, Plaintiff attaches various documents, including the description of the Property, the Note, and the Mortgage. Because the documents are attached to the SAC, the Court considers them in deciding Plaintiff's motion for default judgment. See L-7 Designs, Inc. v. Old Navy, LLC , 647 F.3d 419, 422 (2d Cir. 2011) ("A complaint is [also] deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are ‘integral’ to the complaint." (alteration in original) (quoting Sira v. Morton , 380 F.3d 57, 67 (2d Cir. 2004) )); Johnson v. Classic Material NY, LLC , No. 19-CV-10529, 2021 WL 1164089, at *1 (S.D.N.Y. Mar. 25, 2021) (granting motion for default judgment upon "facts ... drawn from [p]laintiff's [c]omplaint, [m]otion for [d]efault [j]udgment, and the attached exhibits and affidavits thereto").
Plaintiff requested, and the Clerk of Court granted, a certificate of default against Utica and By Construction. (Req. for Clerk's Certificate of Default, Docket Entry No. 45; Certificate of Default, Docket Entry No. 46.) Plaintiff now moves for default judgment against Utica and By Construction. (Pl.’s Mot. 2; Pl.’s Mem. 1.)
On October 9, 2018, counsel for By Construction filed a notice of appearance. (Notice of Appearance, Docket Entry No. 18.) On August 9, 2019, counsel for Utica filed a notice of appearance. (Notice of Appearance, Docket Entry No. 31.) Neither of these Defendants has filed an answer or otherwise engaged in litigation.
II. Discussion
a. Standard of review
Pursuant to Rule 55 of the Federal Rules of Civil Procedure, there is "a ‘two-step process’ for the entry of judgment against a party who fails to defend: first, the entry of a default, and second, the entry of a default judgment." City of New York v. Mickalis Pawn Shop, LLC , 645 F.3d 114, 128 (2d Cir. 2011) (citing New York v. Green , 420 F.3d 99, 104 (2d Cir. 2005) ). "[T]he court may, on plaintiffs’ motion, enter a default judgment if liability is established as a matter of law when the factual allegations of the complaint are taken as true." Bricklayers & Allied Craftworkers Loc. 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Constr., LLC , 779 F.3d 182, 187 (2d Cir. 2015). "A default ... only establishes a defendant's liability if those allegations are sufficient to state a cause of action against the defendant." Taizhou Zhongneng Imp. & Exp. Co., Ltd. v. Koutsobinas , 509 F. App'x 54, 56 (2d Cir. 2013) ; LG Funding, LLC v. Florida Tilt, Inc. , No. 15-CV-631, 2015 WL 4390453, at *2 (E.D.N.Y. July 15, 2015) ("To determine whether the default judgment should issue, the [c]ourt examines whether ‘the factual allegations, accepted as true, provide a proper basis for liability and relief.’ " (quoting Rolls-Royce PLC v. Rolls-Royce USA, Inc. , 688 F. Supp. 2d 150, 153 (E.D.N.Y. 2010) )). However, the Second Circuit has an "oft-stated preference for resolving disputes on the merits," Enron Oil Corp. v. Diakuhara , 10 F.3d 90, 95 (2d Cir. 1993), and therefore "[a] plaintiff is not entitled to default judgment as a matter of right, merely because a party has failed to appear or respond," LG Funding, LLC , 2015 WL 4390453, at *2 (citing Erwin DeMarino Trucking Co. v. Jackson , 838 F. Supp. 160, 162 (S.D.N.Y. 1993) ). "The entry of a default, while establishing liability, ‘is not an admission of damages.’ " Mickalis Pawn Shop, LLC , 645 F.3d at 128 (quoting Finkel v. Romanowicz , 577 F.3d 79, 83 n.6 (2d Cir. 2009) ). "There must be an evidentiary basis for the damages sought by plaintiff, and a district court may determine there is sufficient evidence either based upon evidence presented at a hearing or upon a review of detailed affidavits and documentary evidence." Cement & Concrete Workers Dist. Council Welfare Fund v. Metro Found. Contractors, Inc. , 699 F.3d 230, 234 (2d Cir. 2012) (first citing Fed. R. Civ. P. 55(b)(2) ; and then citing Fustok v. ContiCommodity Servs., Inc. , 873 F.2d 38, 40 (2d Cir. 1989) ). b. Plaintiff is entitled to a judgment of foreclosure and sale
Plaintiff argues that it has established its entitlement to a judgment of foreclosure and sale under New York law by "producing: (1) the [M]ortgage and the [N]ote; and (2) proof of the mortgagor default." (Pl.’s Mem. 2 (first citing Gustavia Home, LLC v. Hoyer , 362 F. Supp. 3d 71, 79 (E.D.N.Y. 2019) ); then citing OneWest Bank, N.A. v. Hawkins , No. 14-CV-4656, 2015 WL 5706945 (E.D.N.Y. 2015) ; and then citing Wells Fargo Bank, N.A. v. Ullah , No. 13-CV-485, 2015 WL 3735230 (S.D.N.Y. 2015) ). In addition, Plaintiff moves the Court to appoint a referee to sell the property in accordance with the judgment of foreclosure and sale. (Pl.’s Mem. 5; see Proposed J. of Foreclosure and Sale, annexed to Pl.’s Mot. as Ex. P, Docket Entry No. 51-17.)
Under New York law, a plaintiff moving for a default judgment in a foreclosure action must demonstrate "the existence of the mortgage and mortgage note, ownership of the mortgage, and the defendant's default in payment" on the loan secured by the mortgage. Gustavia Home, LLC v. Bent , 321 F. Supp. 3d 409, 414 (E.D.N.Y. 2018) (internal quotation marks omitted) (quoting Campaign v. Barba , 23 A.D.3d 327, 805 N.Y.S.2d 86, 86 (2005) ); see also U.S. Bank, N.A. v. Squadron VCD, LLC , 504 F. App'x 30, 32 (2d Cir. 2012) ("In a mortgage foreclosure action under New York law, a lender must prove (1) the existence of a debt, (2) secured by a mortgage, and (3) a default on that debt." (first citing R.B. Ventures, Ltd. v. Shane , 112 F.3d 54, 59 n.2 (2d Cir. 1997) ; and then citing United States v. Freidus , 769 F. Supp. 1266, 1277 (S.D.N.Y. 1991) )). Courts in this district have appointed a referee to conduct the sale of the property where the plaintiff has established a prima facie case of foreclosure and sale. See, e.g. , Windward Bora, LLC v. Brito , No. 19-CV-4073, 2020 WL 7296859, at *2 (E.D.N.Y. Dec. 11, 2020) ; Avail 1 LLC v. Latief , No. 17-CV-5841, 2020 WL 5633099, at *1 (E.D.N.Y. Sept. 21, 2020) ; Nationstar Mortg. LLC v. Fernandez , No. 17-CV-404, 2018 WL 3424452, at *1 (E.D.N.Y. Mar. 20, 2018).
Plaintiff has established that it is entitled to a judgment of foreclosure and sale. Plaintiff has produced the Note and Mortgage, which are signed by Israel on behalf of Utica and made out to Plaintiff, together with an affidavit from an attorney for Plaintiff establishing the default. (See Mortgage; Note; Decl. of Jerry A. Montag ("Montag Decl.") 21–22, annexed to Pl.’s Mot., Docket Entry No. 51-1.)
The Court also enters a default judgment against By Construction because although properly served, By Construction did not answer the SAC. Its mechanic's liens, filed in October of 2017, are subordinate to the earlier-filed Mortgage. See Makhoul v. 115 96th St. Holding Corp. , 263 A.D.2d 470, 692 N.Y.S.2d 725, 725 (App. Div. 1999) ("The plaintiff's mechanic's lien, recorded in November [of] 1995, was subordinate to the mortgage lien as the mortgage was recorded six years earlier." (citing W.L. Dev. Corp. v. Trifort Realty , 44 N.Y.2d 489, 406 N.Y.S.2d 437, 377 N.E.2d 969 (1978) )); Natixis, New York Branch v. 20 TSQ Lessee LLC , 71 Misc.3d 1201A, 141 N.Y.S.3d 834, 834 (N.Y. Sup. Ct. 2021) (unpublished table disposition) (explaining that "[r]ecorded mortgages generally have priority over subsequently-filed mechanic's liens," except for a building loan mortgage, defined as "one to provide ‘a loan for the purpose of erecting a building and to be advanced in installments from time to time as might be rendered safe by the condition of the building’ " (first citing N.Y. Lien Law § 13.1; and then quoting Pawling Sav. Bank v. Jeff Hunt Props., Inc. , 225 A.D.2d 678, 639 N.Y.S.2d 462, 463 (App. Div. 1996) )). Therefore, Plaintiff is entitled to entry of a default judgment against By Construction. See Bank of Am., N.A. v. 3301 Atl., LLC , No. 10-CV-5204, 2012 WL 2529196, at *14 (E.D.N.Y. June 29, 2012) ("Courts have found that entry of a default judgment under Fed. R. Civ. P. 55 is appropriate where the complaint alleges ‘nominal liability — i.e. , that any judgments the [d]efaulting [d]efendants may have against [the debtor], if liens on the mortgaged property, are subordinate to the [plaintiff's] lien.’ " (quoting Christiana Bank & Tr. Co. v. Dalton , No. 06-CV-3206, 2009 WL 4016507, at * 5 (E.D.N.Y. Nov. 17, 2009) )); 3301 Atl., LLC , 2012 WL 2529196, at *13 (recommending that a default judgment be entered against defendant East Coast Petroleum, which "was named because of a possible interest ‘by virtue of a mechanic's lien filed with the Kings County Clerk,’ " had been served, and had not appeared); see also Wells Fargo Bank, N.A. v. 390 Park Ave. Assocs. , LLC, No. 16-CV-9112, 2018 WL 4373996, at *1 n.1 (S.D.N.Y. Sept. 12, 2018) ("The eight entities with mechanic's liens have not appeared, and default judgments were entered against them on July 20, 2018.").
Because Plaintiff has made a prima facie showing that it is entitled to a default judgment, the Court grants Plaintiff's application for the appointment of a referee. See E. Sav. Bank, FSB v. Evancie , No. 13-CV-878, 2014 WL 1515643, at *4 (E.D.N.Y. Apr. 18, 2014) (allowing foreclosure sale with appointment of referee after the plaintiff presented note, mortgage, and proof of default). Plaintiff shall propose a referee within fourteen days of the entry of this Memorandum and Order.
c. Plaintiff is entitled to damages
Plaintiff contends that it is owed $3,871,875, "reflecting a principal balance of $2,250,000, late fees in the sum of $3,750.00, and interest in the sum of $1,618,125.00, with [N]ote interest in the sum of $67,500.00 and default interest in the sum of $1,550,625.00, plus per diem interest of $1,500.00." (Pl.’s Mem. 5.) In support of its claim for damages, Plaintiff submits the affidavit of Mickael Ohana, ("Ohana Affidavit"), who is a member of Plaintiff, the Note and Mortgage, and a billing statement annexed to the Ohana Affidavit. (See Ohana Aff., annexed to Pl.’s Mot., Docket Entry No. 51-19; Note; Mortgage; Billing Statement, annexed to Ohana Aff. as Ex. 3, Docket Entry No. 51-22.) Ohana avers that he is "personally familiar with Plaintiff's record keeping practices and procedures," and has reviewed the Note, Mortgage, and related business records of Plaintiff. (Ohana Aff. ¶ 2.) The affidavit includes a description of Plaintiff's damages. (Id. ¶¶ 4–10.) Plaintiff contends that a hearing on damages is unnecessary because it has submitted affidavits supporting its claim. (Pl.’s Mem. 3–4.)
Plaintiff also attached the billing statement to the SAC. (Billing Statement, annexed to SAC as Ex. F, Docket Entry No. 13-6.)
Plaintiff does not seek an award of attorneys’ fees and costs because Plaintiff believes it "is unlikely to collect [the anticipated deficiency] from the guarantor defendant." (Ohana Aff. ¶ 10.)
The Court finds that an evidentiary hearing is unnecessary and enters judgment in Plaintiff's favor in the amount set forth below.
i. Unpaid principal balance
Plaintiff requests entry of judgment for the unpaid principal balance of $2,250,000. (Pl.’s Mem. 5; Ohana Aff. ¶ 9.) The request is supported by the terms of the Note, which states that upon default, the holder may "declare and demand this Note immediately due and payable." (Note 3; see also Pl.’s Mem. 4; Ohana Aff. ¶ 9.) As of Utica's last payment on November 2, 2017, the balance due was $2,250,000. (Ohana Aff. ¶ 9.) The billing statement, which lists all of Utica's payments since the loan origination, demonstrated that there is a balance due in the amount of $2,250,000 for the unpaid principal balance. See Ditech Fin. LLC v. Durdu , No. 19-CV-977, 2020 WL 8413566, at *4 (E.D.N.Y. Aug. 24, 2020) ("[The] [p]laintiff's complaint and the supporting documents establish that defendant failed to make payments on the unpaid principal balance after June 1, 2018." (footnote omitted)), report and recommendation adopted , 2021 WL 194041 (E.D.N.Y. Jan. 20, 2021).
ii. Interest on the unpaid principal balance
Plaintiff seeks interest in the amount of $1,618,125.00, which consists of (1) Note interest in the sum of $67,500.00 until the Note matured on February 3, 2018, (2) interest at the default rate from March 1, 2018 to November 30, 2020, totaling $1,550,625.00, and (3) per diem interest of $1,500.00 on each day thereafter. (Pl.’s Mem. 4–5.) The Note establishes an interest rate of twelve percent per year until maturity, increasing to twenty-four percent upon maturity, calculated on the basis of a 360-day year and charged per diem. (Note 2 ("Interest shall for all purposes hereunder be ... charged on the basis of a [365] or [366] day year counting the number of days elapsed."); see also Ohana Aff. ¶ 8 (calculating per diem interest for the period before the Note matures).)
"Banks have developed three approaches for establishing the time factor to address the impossibility of calculating equal daily and equal monthly interest charges throughout the year." Kreisler & Kreisler, LLC v. Nat'l City Bank , 657 F.3d 729, 731–32 (8th Cir. 2011) (citing In re Oil Spill by the "Amoco Cadiz" off the Coast of Fr. on Mar. 16, 1978 , No. 92-3282, 1993 WL 360955, at *1 (7th Cir. Sept. 14, 1993) ). "The most common method in commercial loans is to use the actual number of days the loan has been outstanding in a year divided by a 360[-]day year." Id. at 732 (first citing In re Oil Spill by the "Amoco Cadiz" off the Coast of Fr. on Mar. 16, 1978 , 1993 WL 360955, at *4 ; and then citing David Thorndike, Thorndike Encyclopedia of Banking and Financial Tables 11–1.2 (4th ed. 2001)); see In re Haimil Realty Corp. , 546 B.R. 257, 263–264 (Bankr. S.D.N.Y. 2016) (calculating interest under the "actual/360" day count convention).
Before the Note matured, per diem interest was calculated as follows according to its terms:
(Principal) * (stated interest rate) * (1/360)
($2,250,000.00) * (0.12) * (1/360) = $750.00
Accordingly, interest accrued at a rate of $750.00 per day until the Note matured.
Plaintiff seeks note interest in the sum of $67,500.00, "with sum of $22,500 per month," that was "charged from November 30, 2017, through January 31, 2018." (Pl.’s Mem. 4–5.) This amount corresponds to three $22,500 monthly charges — described as "November interest," "December interest," and "January interest" on the billing statement — that Utica did not pay, totaling $67,500.00. (Billing Statement 3.) The Court awards Plaintiff the $67,500.00 it requests.
The Court calculates that Plaintiff was entitled to $69,000 in pre-maturity interest, $1,500 more than it seeks in this motion, but awards Plaintiff the amount requested. The Note provided that interest would, "for all purposes," be charged "counting the number of days elapsed." (Note 2.) The months of November 2017, December 2017, and January 2018 together contain ninety-two days. The applicable per diem interest rate of $750.00, multiplied by ninety-two days, equals $69,000.
Beginning on February 1, 2018, interest accrued at the rate of twenty-four percent per year, or $1,500 per day. (Ohana Aff. ¶ 9; Note 4; Billing Statement 2.) Accordingly, the Court awards Plaintiff interest at the rate of $1,500 per day from February 1, 2018 through the date that the Court enters judgment.
iii. Late fees
Plaintiff seeks late fees totaling $3,750.00 for the period from December 10, 2017, through January 31, 2018. (Pl.’s Mem. 4–5; Ohana Aff. ¶ 10.) The Note specifies that Plaintiff is entitled to a late fee equaling up to five percent of each payment not received within ten days of the due date. (Note 4 ("Holder may collect a late payment fee not to exceed an amount equal to five percent (5%) of any periodic payment not received within ten (10) days of the date such payment is due and payable ....").) Each month until the maturity date, Plaintiff was obligated to pay "all accrued interest calculated at the [applicable twelve percent interest rate] on the outstanding Principal Sum of [the] Note." (Note 2.) Each monthly payment was $22,500.00, (Billing Statement), so the associated late fee was five percent of that amount, or $1,125.00. Utica incurred unpaid late fees on December 10, 2017, January 10, 2018, and February 10, 2018, (id. at 2), for a total of $3,375.00. Accordingly, the Court awards judgment in Plaintiff's favor in the amount of $3,375.00 in late fees.
III. Conclusion
For the foregoing reasons, the Court grants Plaintiff's motion for a default judgment against Utica and By Construction. The Court also grants Plaintiff's motion for damages in the amount of $2,250,000 for the unpaid principal balance due on the Note; $67,500 for the unpaid interest accrued on the Note before its maturity; interest at the rate of $1,500 per day from February 1, 2018 until the Court enters judgment; and $3,375.00 in late fees.
Plaintiff is ordered to propose a referee for the foreclosure and sale of the Property within fourteen days of entry of this Memorandum and Order.