Opinion
6886/2017
01-22-2019
WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR MORGAN STANLEY BANK OF AMERICAN MERRILL LYNCH TRUST 2015-C20, Commercial Mortgage Pass-Through Certificates, Series 2015-C20, acting by and through its special servicer CWCapital Asset Management LLC, Plaintiff, v. SYRACUSE AIRPORT EXPRESS, LLC; Madelyne H. Jerry Trust; Madelyne H. Jerry; New York State Department of Taxation and Finance; and "John Doe No. 1" to "John Doe No. 10" inclusive, the last ten names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises described in the complaint, Defendants. Syracuse Airport Express, LLC, Madelyne H. Jerry Trust, Madelyne H. Jerry, Third-Party Plaintiffs, v. Morgan Stanley Bank, N.A., Third-Party Defendant.
FOR PLAINTIFF WELLS FARGO: KILPATRICK TOWNSEND & STOCKTON LLP, Keith M. Brandofino, Esq., of Counsel FOR DEFENDANT AND THIRD PARTY PLAINTIFF, SYRACUSE AIRPORT EXPRESS, LLC, MADELYNE H. JERRY TRUST and MADELYNE JERRY: SCOLARO FETTER GRIZANTI & McGOUGH, P.C., Ronald A. Mittleman, Esq., of Counsel, Douglas J. Mahr, Esq., of Counsel FOR THIRD PARTY DEFENDANT MORGAN STANLEY BANK, N.A.: SCHOEMAN UPDIKE KAUFMAN & GERBER, LLP, Beth L. Kaufman, Esq., of Counsel
FOR PLAINTIFF WELLS FARGO: KILPATRICK TOWNSEND & STOCKTON LLP, Keith M. Brandofino, Esq., of Counsel
FOR DEFENDANT AND THIRD PARTY PLAINTIFF, SYRACUSE AIRPORT EXPRESS, LLC, MADELYNE H. JERRY TRUST and MADELYNE JERRY: SCOLARO FETTER GRIZANTI & McGOUGH, P.C., Ronald A. Mittleman, Esq., of Counsel, Douglas J. Mahr, Esq., of Counsel
FOR THIRD PARTY DEFENDANT MORGAN STANLEY BANK, N.A.: SCHOEMAN UPDIKE KAUFMAN & GERBER, LLP, Beth L. Kaufman, Esq., of Counsel
Anthony J. Paris, J.
In 2014 Third Party Defendant Morgan Stanley (MS) originated a refinancing loan in the amount of 7.5 million dollars to Defendant and Third Party Plaintiff Syracuse Airport Express (SAE) which entity executed the Note and Mortgage to secure the loan. As a further condition of the loan, co-defendants Madelyne Jerry and the Madelyne H. Jerry Trust (Jerry Defendants) executed personal non-recourse limited guarantees.
The Note and Mortgage was ultimately assigned to Wells Fargo (WF). Defendant SAE tendered the required payments until 2017 when it defaulted. As a result of this default, Plaintiff accelerated the balance and commenced this action to foreclose the mortgage by the filing of its Summons and Complaint on November 30, 2017.
Defendants interposed an Answer containing a number of affirmative defenses including but not limited to fraud, equitable estoppel, bad faith, unclean hands, predatory lending practice, etc. as well as a Counterclaim seeking monetary damages.
Thereafter, Defendants initiated a Third Party action against Morgan Stanley seeking monetary damages on substantially the same allegations set forth in their affirmative defenses and Counterclaim to Plaintiff's first party action.
In the interim, Plaintiff served an Amended Complaint and Defendant served an Answer to the Amended Complaint.
During the course of these events, a Receiver was appointed for the subject hotel property, but that appointment is not the subject of the instant matters before the Court.
Plaintiff WF now moves pursuant to CPLR § 3212 for summary judgment and the appointment of a Referee. This motion is opposed by Defendants and they have cross moved to dismiss the Complaint which cross motion is opposed by the Plaintiff.
Defendants also move for an Order allowing for the service of an Amended Answer to Plaintiff's Amended Complaint. Plaintiff opposes this motion.
Finally, Third Party Defendant MS moves pre-Answer pursuant to CPLR § 3211(a)(1) and (7) to dismiss the Third Party Complaint on the basis of documentary evidence and failure to state a cause of action. Defendants and Third Party Plaintiffs, SAE and Jerry Defendants, oppose this motion.
The Court will first address Plaintiff's motion for summary judgment and Defendants' cross motion to dismiss the Amended Complaint. In a motion for summary judgment, the initial burden is on the moving party to come forth with evidence in admissible form to show entitlement to judgment as a matter of law. The burden next shifts to the non-moving party to likewise come forth with evidence in admissible form to raise a question of fact so as to avoid summary judgment. In such motions the Court must view all of the evidence so submitted in the light most favorable to the non-moving party. Zuckerman v. City of New York, 49 NY2d 557 (1980).
Here, Plaintiff has met its initial burden. A copy of the refinanced loan/mortgage, the unpaid note and uncontroverted evidence of default has been presented. Bank of New York Mellon v. Anderson , 151 AD3d 1926 (4th Dept. 2017) ; Deutche Bank National Trust Co. v. Brewton , 142 AD3d 683 (2d Dept. 2016) ; HSBC Bank USA, N.A. v. Spitzer , 131 AD3d 1206 (2d Dept. 2015). Therefore, Plaintiff has established its prima facie case.
The burden next shifts to the Defendants. To meet their shifting burden they assert arguments set forth in the affirmative defenses interposed to answer Plaintiff's Amended Complaint. Among those defenses Defendants contend should defeat Plaintiff's motion for summary judgment are fraud, unclean hands, predatory lending and bad faith.
Defendants also, as part of their cross motion, urge the Court to exercise its equitable powers to direct a loan modification and/or release the Defendants Jerry from any financial obligations under their guarantees and/or to compel Plaintiff to enter a global settlement to include a deed in lieu of foreclosure and the purchase of an adjoining lot Defendant SAE leased from Defendants Jerry. While Defendants' original loan agreements were not with Plaintiff WF, Plaintiff, according to Defendants, is nonetheless subject to these defenses pursuant to the assignment by Third Party Defendant MS.
The main contention of Defendants appears to be that unbeknownst to them, but well known to Plaintiff, (or Third Party Defendant MS), was the fact that their franchisor Holiday Inn was imminently going to enact a property improvement program (PIP) requiring extensive and expensive upgrades and renovations to Defendants' hotel. Had they known of said PIP, they would never have closed on this loan and never agreed to the $1 million dollar reserve required by MS from the loan proceeds. According to Defendants, this was an unfair and unconscionable loan practice of the Plaintiff and/or its assignor MS and the Court should use its equitable powers to correct this fraudulent conduct.
This Court notes that Defendants never set aside the million dollars.
This entire record reflects the business sophistication, acumen and experience of all Defendants. This is a commercial loan to sophisticated business people. All of the pertinent loan documents reflect and provide that Defendants did not rely on any representations of MS; that they were well versed and experienced in such business transactions; that they performed and/or were responsible for their own due diligence; and that they acknowledged that the lender owed them no fiduciary duty. Defendant SAE has been operating this Holiday Inn Express site since the initial licensing agreement in 2005 and its principals were well versed in securing franchise and licensing information and updates (including the PIP) from on line sources.
The record indicates that all the Defendants personally reaped the cash benefit of this refinancing transaction. Despite the million dollar reserve requirement, that money was never set aside by Defendants and only after some three years post closing do Defendants contend they were taken advantage of due to an alleged non-disclosure of the PIP, which Defendant SAE never implemented. The record also reflects that during the period of default, Defendants Jerry charged Defendant SAE $7500 per month for the lot owned by them adjacent to the hotel site and had done so for at least two years despite the fact that it was used by Defendant SAE at no charge prior to this loan. Now, since the appointment of a Receiver, the rental has been substantially reduced to $1750 per month. Such a maneuver begs the question of just who was taking advantage of whom.
The rule in New York as enunciated by the Court of Appeals is clear. It is unjustified for a sophisticated business person or entity, who by plain language in written documents has disclaimed reliance on any representations of the other party and has the means and intelligence of performing his/its own due diligence, to allege fraud, concealment and/or misrepresentation so as to be extricated from a transaction entered into freely and voluntarily. Danann Realty Corp. v. Harris, 5 NY2d 317 (1989) ; DDJ Mgt. LLC v. Rhone Group, LLC, 15 NY3d 147 (2010) ; Ambar Assur. Corp. v. Countrywide Home Loans, Inc., 31 NY3d 569 (2018).
Here, Defendants enjoyed the benefit of their bargain with MS by drawing out $7.5 million dollars, securing a lower interest rate and pocketing at least a million dollars that was supposed to be set aside for the required PIP that Defendant SAE never implemented. Defendants cannot now, in good conscience, some three years after loan closing say they were hoodwinked.
It would be an abuse of the Court's discretion to equitably estop Plaintiff for enforcing its right to foreclose this loan on the basis of Defendants' allegations of fraud, etc. which allegations the Court deems baseless, disingenuous, unfounded and unsubstantiated by Defendants on the basis of their business sophistication and the plain and unambiguous language of the loan documents. See Papas v. Tzolis, 20 NY3d 228 (2012).
Therefore, based on the record before this Court, even when all of the evidence is viewed in the light most favorable to them, the Defendants cannot meet their shifting burden so as to avoid summary judgment with the exception of the liability of the guarantors, Defendants Jerry, for any deficiency judgment.
In this regard, Defendants have met their shifting burden and have raised an issue of fact as to whether or not there has been a violation of the carve out provisions of the exculpation clause governing the non-recourse guarantee. This issue is premature at this stage as there has been no determination of any deficiency. If a sale results in a deficiency, the issue of any exculpatory liability and potential personal liability of Defendants Jerry will be litigated.
By reason of the foregoing, Plaintiff's motion for summary judgment and Order of Reference is GRANTED; and Defendants' cross motion to dismiss the Amended Complaint is DENIED. Plaintiff is directed to submit the appropriate Order granting summary judgment and providing for the appointment of a Referee to be named by the Court to compute the amount due Plaintiff.
As concerns Defendants' motion to serve an Amended Answer to Plaintiff's Amended Complaint, that motion is DENIED as moot for the reasons stated above.
With regard to the pre-answer motion to dismiss by Third Party Defendant MS, that motion is likewise GRANTED on the basis of the foregoing decision. Counsel for Third Party Defendant MS is directed to submit an appropriate Order.