Opinion
Index 850176/2020
04-06-2022
WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF CD 2016-CD2 MORTGAGE TRUST COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2016-CD2, WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE, FOR THE BENEFIT OF THE REGISTERED HOLDERS OF JPMDB COMMERCIAL MORTGAGE SECURITIES TRUST 2017- C5, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2017-C5, DEUTSCHE BANK TRUST COMPANY AMERICAS, AS TRUSTEE, ON BEHALF OF THE REGISTERED HOLDERS OF CITIGROUP COMMERCIAL MORTGAGE TRUST 2017- P7, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2017-P7, and WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE, ON BEHALF OF THE REGISTERED HOLDERS OF CD2017- CD3 MORTGAGE TRUST, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2017-CD3, Plaintiffs, v. ELMWOOD NYT OWNER, LLC, LANDINGS NYT OWNER, LLC, OAKWOOD NYT OWNER, LLC, WALLKILL NYT OWNER, LLC, BOARD OF MANAGERS 229 WEST 43RD STREET CONDOMINIUM, CRIMINAL COURT OF THE CITY OF NEW YORK, GLOBAL SECURITY GROUP INC., and JOHN DOE NO. I THROUGH JOHN DOE NO. XXX, Defendants.
Unpublished Opinion
DECISION + ORDER ON MOTION
ANDREA MASLEY, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 136 were read on this motion to/for DISMISS.
In motion sequence number 001, Wilmington Trust, National Association as Trustee, for the benefit of the Holders of CD 2016-CD2 Mortgage Trust Commercial Mortgage Pass Through Certificates, Series 2016-CD2; Wilmington Trust, National Association, as Trustee, for the benefit of the registered holders of JPMDB Commercial Mortgage Securities Trust 2017-C5 Commercial Mortgage Pass Through Certificates, Series 2017-C5; Deutsche Bank Trust Company Americas, as Trustee, on behalf of the registered Holders of Citigroup Commercial Mortgage Trust 2017-P7 Commercial Mortgage Pass-Through Certificates, Series 2017-P7; and Wells Fargo Bank, National Association, as Trustee, on behalf of the registered Holders of CD2017-CD3 Mortgage Trust Commercial Mortgage Pass-Through Certificates, Series 2017-CD3 (Lenders), move, pursuant to CPLR 3211 (a)(7), to dismiss defendant Board of Managers 229 West 43rd Street Condominium's (Board) counterclaim asserting the superiority of its lien for Common Charges to any mortgage liens of record.
Background
Unless indicated otherwise, the following facts are taken from the Board's verified answer and counterclaim (NYSCEF Doc. No. [NYSCEF] 24, Verified Answer with Counterclaim and Cross Claim), and for the purposes of this motion to dismiss, are accepted as true.
The Lenders brought this action to foreclose a mortgage lien on the real property located at 229 West 43rd Street, New York, New York (Property). (NYSCEF 1, Summon and Complaint ¶ 1.) The lien, which Lenders are the current holders of, secures a commercial mortgage loan made to defendants Elmwood NYT Owner, LLC, Landings NYT Owner, LLC, Oakwood NYT Owner, LLC, and Wallkill NYT Owner, LLC (Borrower Defendants). (Id.) The Board was named as a defendant because it also holds a lien on the Property. (Id. ¶ 7.) The Board's lien is for "unpaid common charges, special assessments, late charges, interest, attorneys' fees, and expenses that have accrued prior to the date hereof or may accrue after the date hereof ('Common
Charges') on the Retail Unit" at the Property. (Id. H 1.) Section 12.1.4. of the Condominium By-Laws (By-Laws) permits the Board to charge late fees, interest, attorneys' fees, and expenses that have accrued as result of a unit owner failing to pay common charges and special assessments. (NYSCEF 24, Verified Answer with Counterclaim and Cross Claim ¶ 22; see also NYSCEF 26, Condominium By-Laws.) In responses to this action, the Board filed a verified answer with a counterclaim for foreclosure against the Lenders, asserting the superiority of its lien for Common Charges to any mortgage liens of record, and a cross claim for foreclosure against the Borrower Defendants. (NYSCEF 24, Verified Answer with Counterclaim and Cross Claim ¶¶ 8, 34.)
229 West 43rd Street Condominium (Condominium) is an exclusive nonresidential condominium. (Id. ¶ 9.) "The Condominium was established by a Declaration Establishing a Plan for Condominium Ownership of the Premises known as 229 West 43rd Street, New York, New York 10036 (Declaration) recorded July 20, 2011 with the Office of the City Register of the City of New York, County of New York." (Id. ¶ 10.) The Declaration incorporates the By-Laws, governing the general operation, use, and occupancy of the Condominium. (Id. ¶¶11.) Section 12.1.2 of the By-Laws states, in relevant part, that
"[t]he Condominium Board shall have a lien (the 'Condominium Board's Lien') for all unpaid General Common Charges, Special Assessments, other sums payable as if part of General Common Charges or amounts otherwise due to the Condominium Board (together with interest thereon as provided in this Article 12) from a delinquent Unit Owner. To the extent permitted by applicable Law, such lien(s) shall be superior to any mortgage liens of record encumbering such Unit; and except as otherwise hereinabove provided, subordinate only to liens for real estate taxes and other assessments by taxing authorities on any such Units."(NYSCEF 26, Condominium By-Laws, §12.1.2.) The By-Laws allow the Board to determine and allocate common expenses, which include special assessments, and charges, and provides that the expenses are payable monthly. (Id. §§ 6.1.1(a), 6.1.4, and 6.2.)
The Board alleges that Borrower Defendants defaulted on their obligation to pay the Board owed Common Charges. (Id. ¶ 24.) The Board recorded its lien for these Common Charges on April 27, 2020. (NYSCEF 27, Notice of Lien; see also NYSCEF 24, Verified Answer with Counterclaim and Cross Claim ¶ 26.) The Board alleges that, pursuant to the Declaration and RPL § 339-z, the lien for the unpaid Common Charges is superior to the Lenders' lien. (NYSCEF 24, Verified Answer with Counterclaim and Cross Claim ¶¶ 14.)
Discussion
On a motion to dismiss pursuant to CPLR 3211 (a)(7), the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. (Leon v Martinez, 84 N.Y.2d 83, 87-88 [1994].) "[B]are legal conclusions, as well as factual claims which are either inherently incredible or flatly contradicted by documentary evidence" cannot survive a motion to dismiss. (Summit Solomon & Feldesman v Lacher, 212 A.D.2d 487, 487 [1st Dept 2001].)
Application of RPL § 339-z
The Lenders first argue that the Board cannot rely on RPL § 339-z to assert the superiority of its lien for unpaid Common Charges because RPL § 339-z only applies to a traditional sale or conveyance of property and not to a foreclosure sale initiated by a mortgage lender. Specifically, the Lenders assert that, when RPL § 339-z is read as a whole, the exception for an exclusively non-residential condominium, which the Board asserts applies here, only applies to a sale or conveyance, and a foreclosure sale is not either under the statute and applicable case law.
"It is a well-settled principle of statutory construction that a statute or ordinance must be construed as a whole and that its various sections must be considered together and with reference to each other." (People v Mobil Oil Corp., 48 N.Y.2d 192, 197 [1979] [citations omitted].) RPL § 339-z states:
"[t]he board of managers, on behalf of the unit owners, shall have a lien on each unit for the unpaid common charges thereof, together with interest thereon, prior to all other liens except only (i) liens for taxes on the unit in favor of any assessing unit, school district, special district, county or other taxing unit, (ii) all sums unpaid on a first mortgage of record, and (iii) all sums unpaid on a subordinate mortgage of record held by the New York job development authority, the New York state urban development corporation, the division of housing and community renewal, the housing trust fund corporation, the New York city housing development corporation, or in a city having a population of one million or more, the department of housing, preservation and development. Upon the sale or conveyance of a unit, such unpaid common charges shall be paid out of the sale proceeds or by the grantee. Any grantor or grantee of a unit shall be entitled to a statement from the manager or board of managers, setting forth the amount of the unpaid common charges accrued against the unit, and neither such grantor nor grantee shall be liable for, nor shall the unit conveyed be subject to a lien for, any unpaid common charges against such unit accrued prior to such conveyance in excess of the amount therein set forth. Notwithstanding the above, the declaration of an exclusive non-residential condominium may provide that the lien for common charges will be superior to any mortgage liens of record."
"The law is clear that all unpaid sums on a first mortgage take priority over the subsequent lien for unpaid common charges." (Great Homes Group, LLC v GMAC Mtge., LLC, 180 A.D.3d 1013, 1014 [2d Dept 2020] [citations omitted].) In Bankers Trust Co. v Bd. of Mgrs. of Park 900 Condominium, 81 N.Y.2d 1033 (1993), the Court of Appeals was faced with determining "whether [RPL § 339-z] provides for the survival of the statutory lien for common charges in the face of a first mortgage foreclosure and the payment of the sums due pursuant to that lien out of any proceeds of the foreclosure sale or from the purchaser (grantee) at the foreclosure." (Id. at 1035.) The Court concluded that the Appellate Division, First Department, correctly stated that "the 'sale or conveyance' language in section 339-z refers to a sale or voluntary transfer of the condominium unit rather than to the foreclosure of a first mortgage," making it clear that the Legislature's intent was to "subordinate liens for unpaid common charges to a first mortgage." (Id. at 1036.) The Court found that "it would be inconsistent with that intent to treat a first mortgage foreclosure as a 'sale or conveyance' within the meaning of section 339-z." (Id.)
This court notes that the foreclosure in Bankers Trust involved a residential condominium unit, so the Court of Appeals did not address the non-residential exception. However, the Appellate Division, First Department acknowledged that the statute created the "possibility of a non-residential condominium declaration that the common charges would retain priority over any other mortgage liens" and that "the statute obviously retains the priority of a recorded first mortgage in residential condominiums (and non-residential condominiums without such declarations)." (Bankers Jr. Co. v Bd. of Managers of Park 900 Condominium, 181 A.D.2d 274, 277 [1st Dept 1992] [internal quotation marks and citations omitted], affd, 81 N.Y.2d 1033 [1993].) The First Department went on to state "[b]y thus specifically affording a mechanism for establishing the priority to any mortgage of a lien for common charges of an exclusive nonresidential condominium, the Legislature, by implication, has denied the lien for common charges of a residential condominium any right of priority to a first mortgage." (Id. [internal quotation marks and citations omitted].) These statements indicate that RPL § 339-z is applicable here. To hold otherwise would render the non-residential provision meaningless.
From the plain language of the statute, the legislature created a specific mechanism to establish the priority to any mortgage of a lien for common charges on an exclusive non-residential condominium. (See RPL § 339-z ["Notwithstanding the above, the declaration of an exclusive non-residential condominium may provide that the lien for common charges will be superior to any mortgage liens of record"].) The court cannot disregard the "notwithstanding" clause.
A "notwithstanding provision controls over any contrary language." (Warberg Opportunistic Trading Fund, LP. v GeoResources, Inc., 112 A.D.3d 78, 83 [1st Dept 2013] [internal quotation marks and citations omitted].) The Appellate Division, First Department further points out that "[i]n construing statutes and contracts, the U.S. Supreme Court has remarked that the use of... a notwithstanding clause clearly signals the drafter's intention that the provisions of the 'notwithstanding section override conflicting provisions of any other section," concluding that "the effect of a notwithstanding clause will prevail even if other provisions of the contract[ ] might seem to require ... a [conflicting] result." (Id. at 83 [internal quotation marks and citation omitted].) Interpreting RPL § 339-z's notwithstanding clause as superior to the other provisions of the statute is in line with the Legislature's intent to carve out an exception for non-residential condominiums.
Notice Requirements for the Board's Lien
The Lenders argue that the Board's lien for common charges is unenforceable as it violated Sections 12.1.3 and 13.2(f) of the By-Laws because the notice of the Borrower Defendants' default did not include KeyBank National Association (KeyBank), the servicer responsible for enforcing the loan on the Lenders' behalf. The Board claims notice of past due payments went to KeyBank on February 26, 2020. In support of its claim, the Board submits a FedEx shipping invoice which indicates that KeyBank received a delivery from the Board on February 27, 2020. (NYSCEF 48, FedEx Invoice at 4, 11.) Additionally, in letter dated February 28, 2020, KeyBank specifically references the notice. (NYSCEF 19, KeyBank Letter ["As you are aware, as more particularly described in the default notice to Borrower dated February 26, 2020 from the Condominium Board of 229 West 43rd Street Condominium ... ."].)
The Lenders also assert that the Board failed to provide them with 30 days' notice and an opportunity to cure before recording the lien on April 27, 2020. However, the FedEx invoice also evidences that the Lenders received a delivery from the Board on February 27, 2020. (Id. at 2, 6; see also NYSCEF 47, Notice of Past Due Payments; NYSCEF 19, KeyBank Letter.) Thus, the Board contends it has demonstrated that the Lenders had adequate notice in accordance with the By-Laws.
Section 12.1.3 of the Board's By-Laws states in pertinent part:
"[t]he Condominium Board shall not record any notice of any Condominium Board's Lien prior to the date on which all applicable notice and grace periods (including cure periods to which any Registered Mortgagee may be entitled) in respect of the default(s) giving rise to the Condominium Board's Lien have expired. The Condominium Board's Lien shall be effective from and after the time of recording in the public records of New York County of a claim of lien stating the description of the Unit, the name, if any, and the address of the Unit, the liber and page of record of the Declaration, the name of the record owner, the amount due and purpose of such amount and the date when due."(NYSCEF 26, By-Laws.)
Section 13.2(f) of the Board's By-Laws states in pertinent part:
... upon the occurrence of an Event of Default by a Unit Owner, no remedies contemplated under the Condominium Documents shall be exercised by the [Board] ... if a Registered Mortgagee of such Unit Owner shall ... within thirty
(30) days following its receipt of any notice to the effect that a Monetary Event of Default has occurred with respect to its mortgagor, cure (or cause to be cured) such Monetary Event of Default... The [Board] will not commence a proceeding to foreclose its lien against any Unit as a result of any Unit Owner's default until expiration of the thirty (30) day time period described herein that is afforded to any Registered Mortgagee to cure such default.(Id. [emphasis added].)
At this time, the court cannot definitely determine whether the notice letter was contained in the FedEx delivery to KeyBank and the Lenders on February 27, 2020. This is a factual issue that cannot be resolved on this motion.
For the foregoing reasons, the Lenders' motion to dismiss the counterclaim is denied.
Accordingly, it is
ORDERED that plaintiffs' motion dismissing defendant Board of Managers 229 West 43rd Street Condominium's counterclaim is denied; and it is further
ORDERED the parties shall submit a proposed PC order on consent or competing PC orders within 20 days of the date of this decision.