Opinion
553-2013
11-02-2015
Consolidated Mortgages, LLC, Plaintiff, v. Westport Golf Investors, LLC, John F. Hall and Rodney E. Edwards, The Commissioner of Labor of the State of New York and the Essex County Industrial Development Agency, Defendants. John F. Hall and Rodney E. Edwards, Third-party Plaintiffs, v. v. First Niagara Funding, Inc., First Niagara Bank, NA, Robert Hall and Leslie Hall-Butzer, Third-party Defendants.
LAW OFFICES OF LOUIS J. MAIONE, P.C. Attorneys for Plaintiff and Third-Party Defendants Robert Hall and Leslie Hall-Butzer (Louis J. Maione, Esq.) 350 Central Park West, Third Floor New York, New York 10025 MARTIN, SHUDT, WALLACE, DILORENZO & JOHNSON (Attorneys for Defendant Westport Golf Investors, LLC) Robert L. Adams, Esq. 258 Hoosick Street Troy, New York 12180 STANCLIFT, LUDEMANN, SILVESTRI & McMORRIS, PC Attorneys for Defendants/Third-Party Plaintiffs John F. Hall and Rodney E. Edwards (John M. Silvestri, Esq.) 3 Warren Street, P.O. Box 358 Glens Falls, New York 12801 HODGSON RUSS, LLP (Attorneys for Third-Party Defendant First Niagara Funding, Inc., First Niagara Bank, NA) Garry M. Graber, Esq. 140 Pearl Street, Suite 100 Buffalo, New York 14202
LAW OFFICES OF LOUIS J. MAIONE, P.C. Attorneys for Plaintiff and Third-Party Defendants Robert Hall and Leslie Hall-Butzer (Louis J. Maione, Esq.) 350 Central Park West, Third Floor New York, New York 10025 MARTIN, SHUDT, WALLACE, DILORENZO & JOHNSON (Attorneys for Defendant Westport Golf Investors, LLC) Robert L. Adams, Esq. 258 Hoosick Street Troy, New York 12180 STANCLIFT, LUDEMANN, SILVESTRI & McMORRIS, PC Attorneys for Defendants/Third-Party Plaintiffs John F. Hall and Rodney E. Edwards (John M. Silvestri, Esq.) 3 Warren Street, P.O. Box 358 Glens Falls, New York 12801 HODGSON RUSS, LLP (Attorneys for Third-Party Defendant First Niagara Funding, Inc., First Niagara Bank, NA) Garry M. Graber, Esq. 140 Pearl Street, Suite 100 Buffalo, New York 14202 Glen T. Bruening, J.
Plaintiff commenced this action in September of 2013 to foreclose two mortgages on certain real property located at 49 Country Club Way (also known as 1052 Stevenson Road, 1, 3 and 4) in the Town of Westport, New York, owned by Defendant Westport Golf Investors, LLC (Westport) and operated as the Westport Country Club (Country Club). Plaintiff is a limited liability company, formed in June 2013, the members of which are Third-party Defendants Robert M. Hall (Robert Hall) and Leslie Hall-Butzer (Leslie Hall). Notably, Defendant Westport's members currently include Defendant John F. Hall (John Hall), who is the General Manager and majority shareholder, Defendant Rodney E. Edwards (Edwards), Leslie Hall and certain nonparties — Randall and Elizabeth Turner, Como Oil Company and Constance Seay. As an added twist, Robert Hall is the President of Como Oil, and John Hall, Leslie Hall, and Robert Hall are siblings.
Ms. Seay has not been named in this action. However, she submitted opposition to Plaintiff's first motion seeking summary judgment, contending that she is a necessary party to this action, among other things.
In July 2009, Westport executed a Demand Grid Note (Grid Note) to borrow $30,000.00 from Third-Party Defendant First Niagara Funding, LLC (Niagara), and also executed a mortgage encumbering the Country Club property to secure the note. Also in July 2009, Westport and Niagara executed a Consolidation, Modification, Extension and Spreading Agreement (Consolidation Agreement), which, among other things, consolidated certain other notes that were ultimately assigned to Niagara and secured by mortgages encumbering the Country Club property. The Consolidation Agreement and related Consolidated and Restated Promissory Note (Restated Note) acknowledged a consolidated debt in the amount of $1,500,000.00 which was to be repaid in 59 monthly installments in the amount of $11,353.49, with the final payment due August 1, 2014.The last complete monthly installment made by Westport was made in December 2012. By April 2013, Westport was in default of the notes by four months. By letter agreement, dated April 8, 2013, Niagara proposed to enter into a forbearance agreement with Westport. By that proposed forbearance agreement, Westport acknowledged being in default of the Consolidation Agreement and, for the stated reason to allow Westport time to market the property, it was proposed that Westport temporarily pay a reduced monthly installment — consisting of interest in the approximate amount of $5,600.00 per month — commencing May 1, 2013 through April 1, 2014. The forbearance agreement was in letter-form, drafted by Niagara, closed with the signature of Niagara's Vice President. The forbearance agreement was signed by John F. Hall on April 15, 2013, both as a member of Westport and as a guarantor. It is undisputed that Westport made payments to Niagara in May, June, July and August 2013 in the amounts set forth therein ($5,785.48, $5,225.60, $5,785.48, and $5,598.85, respectively). In May 2013, Robert Hall, on behalf of Como Oil, unsuccessfully attempted to remove John Hall as manager of Westport.
In June 2013, Plaintiff was formed. On August 27, 2013, Niagara sold the notes and assigned the mortgages to Plaintiff for the sum of $825,000.00. Niagara also sent correspondence to Westport advising of the sale and where to send future correspondence. In early September 2013, Westport advised Plaintiff of the existence of the forbearance agreement and tendered to Plaintiff the sum of $5,785.85, representing the next payment due thereunder. However, on September 11, 2013, Plaintiff rejected and returned that payment, based on the belief that Westport had not made any payments pursuant to that agreement, and contending that Westport was in default of the loan documents (see Affidavit of Robert Hall, sworn to on April 23, 2015, ¶ 40).
On September 26, 2013, Plaintiff commenced this foreclosure action. By Notice of Motion dated December 2, 2013, "based on misinformation from [Niagara]," Plaintiff sought an order granting it, among other things, summary judgment on its application for a judgment of foreclosure and sale (Reply Affidavit of Robert Hall, sworn to on May 5, 2015, ¶ 34). In that motion, Plaintiff argued that the forbearance agreement was a nullity, and was neither enforceable nor binding on Plaintiff. As is relevant to the facts with respect to this matter, in its answer to the Third-Party Complaint, Niagara admitted to having entered into the forbearance agreement with Westport, and to having retained payments made by Westport (see Niagara's Answer to Third-Party Complaint, ¶ ¶ 21-23, 25). Accordingly, by Decision and Order filed February 13, 2014, the Hon. Thomas J. Buchanan, among other things, denied Plaintiff's motion, finding questions of fact with respect to whether Westport and Niagara had entered into the forbearance agreement, and whether Plaintiff caused the default by refusing to accept the fifth payment under the forbearance agreement, tendered in September 2013.
On March 28, 2014, Westport filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of New York, thus invoking the automatic stay provisions set forth in Bankruptcy Code § 362 (a). By Order dated March 10, 2015, the Bankruptcy Court granted Plaintiff relief from the automatic stay for the purpose of "continuing or commencing mortgage foreclosure proceedings and seeking the appointment of a receiver in connection therewith" (Heller Affidavit, Exhibit C).
This was later converted to a Chapter 7 proceeding.
Contrary to Plaintiff's argument, the lift stay issued by the Bankruptcy Court does not satisfy Plaintiff's burden on this motion. Nor does it entitle Plaintiff to a judgment of foreclosure and sale.
Plaintiff now makes its second motion, pursuant to CPLR 3212, seeking a judgment of foreclosure against Westport. Plaintiff acknowledges that the September 2013 forbearance payment was rejected based on the mistaken belief that Westport had made no payments pursuant to the forbearance agreement (see Affidavit of Robert Hall, sworn to on April 23, 2015, ¶ 40), but argues that even if valid and enforceable, the forbearance agreement does not cure the underlying default (see Affidavit of Robert Hall, sworn to on April 23, 2015, ¶ 47). Plaintiff notes that Westport admittedly failed to make mortgage payments between January 2013 and April 2013 and failed to make any payments pursuant to either the forbearance agreement or the notes since this action was commenced (see Affidavit of Robert Hall, sworn to on April 23, 2015, ¶ ¶ 47-49, 54).
In opposition to Plaintiff's motion, Defendants Hall and Edwards (Defendants) argue that both Robert Hall, through Como Oil, and Leslie Hall, as members Westport, breached their fiduciary obligations to Westport by negotiating with and purchasing the notes from Niagara at a discounted price, thus operating to deprive Westport's remaining members of their investments. More importantly, and as relevant to Plaintiff's motion, Defendants argue that as of the date that Plaintiff acquired the notes from Niagara, Westport was not in default of the forbearance agreement, and that Plaintiff wrongfully refused acceptance of the September 2013 payment. Defendants also move seeking consolidation of this action with three other related actions pending in Essex County Supreme Court, bearing Index Numbers 575-2013, 559-2013, and 167-2015.
The Court is not persuaded by Plaintiff's argument that Defendants Hall and Edwards are precluded from opposing Plaintiff's motion. There is no evidence that, by their guarantees, Defendants Hall and Edwards waived any defenses that would be available to Westport (compare Red Tulip, LLC v Neiva, 44 AD3d 204, 206, 209-210 [1st Dept 2007], lv dismissed 10 NY3d 741 [2008][holding "absolute and unconditional" guaranty which "absolutely, unconditionally and irrevocably" waived right to assert "any defense, set-off, counterclaim or cross claim of any nature whatsoever with respect to this guaranty," except the defense of actual payment, waived all counterclaims and defenses).
Initially, the Court notes that, while there is "no explicit prohibition in CPLR 3212, [] caselaw has held that unless there's some newly discovered evidence to justify a second motion, or some other adequate cause, a second one is not to be entertained" (Siegel's Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3212:21; see Williams v City of White Plains, 6 AD3d 609, 609 [2d Dept 2004]). This motion makes the similar arguments made in the prior motion, and offers no facts that were unavailable at the time the first motion was made. Even if members of Plaintiff could claim ignorance of the forbearance agreement based on the assertions of Niagara, the record reflects that in early September 2013, before this action was commenced, Westport's counsel advised Plaintiff of the forbearance agreement and assured that Westport would "continue to comply with the terms of the same" (Affirmation of Louis J. Maione, Esq., dated April 23, 2015, Exhibit B). While Plaintiff's motion should be denied on this basis alone, the Court finds that summary judgment is precluded based on the existence of triable issues of fact.
To establish its entitlement to summary judgment, Plaintiff is required to produce the mortgages and the unpaid notes, together with evidence of Westport's default (see Cohen v Colistra, 233 AD2d 542, 542 [3d Dept 1996]). The papers submitted in support of Plaintiff's motion establish that 1) Westport entered into a Consolidation Agreement with Niagara; 2) Westport's loans were secured by mortgages encumbering the subject property; 3) Niagara entered into a forbearance agreement with Westport in April 2013; 4) in August 2013, Plaintiff purchased the notes from Niagara and the mortgages were assigned to Plaintiff; 5) Plaintiff rejected and returned Westport's September 2013 forbearance payment, contending that Westport was in default, and 6) Westport's default continues. By Plaintiff's papers, it has established its prima facie entitlement to summary judgment (see Great W. Bank v Terio, 200 AD2d 607, 608 [1994], appeal dismissed, lv denied 83 NY2d 901 [1994]), thus shifting the burden to Defendants to assert defenses which raise questions of fact (see Cohen v Colistra, 233 AD2d at 542). Along these lines, tender of payment is a proper defense to a foreclosure action (see United Cos. Lending Corp. v Hingos, 283 AD2d 764, 765 [3d Dept 2001]). Evidence of bad faith, fraud, or oppressive or unconscionable conduct, including evidence that the mortgagee purposefully caused the default to "oust defendants from the partnership and acquire their interest in its real property by acquiring and foreclosing upon the mortgage," will operate to relieve a default and foreclose summary judgment in a plaintiff's favor (see 192 Sheridan Corp. v O'Brien, 252 AD2d 934, 936 [3d Dept 1998][where two partners of defendant partnership became principal shareholders of plaintiff and commenced an action to foreclose the partnership property approximately two weeks later, the Court held that although plaintiff presented a prima facie case for foreclosure based upon defaults of the mortgage, there was still a question as to whether the default was unenforceable on the grounds of bad faith, fraud, or oppressive or unconscionable conduct]).
While a mortgagee is not required to accept an insufficient tender of payment of arrears, in this case, Westport's September 2013 tender was not for arrears, but was a payment made pursuant to the forbearance agreement.
In opposition to Plaintiff's motion, Defendants have produced evidence that Plaintiff, through Robert Hall, attempted to remove John Hall from his position, immediately thereafter formed Plaintiff, purchased the notes from Niagara, wrongfully rejected the September 2013 payment, then approximately two weeks later, commenced this action. There is no dispute that Niagara entered into a forbearance agreement with Westport. This agreement permitted Niagara to reserve its rights under a mortgage instrument, while granting Westport the flexibility necessary to make repayments (see Counsel Abstract, Inc. Defined Benefit Pension Plan v Jerome Auto Ctr., Inc., 23 AD3d 274, 276 [1st Dept 2005]). Plaintiff has conceded that obligations thereunder would "run to any successor-in-interest which purchased the Mortgage, including Consolidated" (Affidavit of Robert Hall, sworn to on April 23, 2015, ¶ 68, see also ¶ 67). Thus, there is a sufficient evidence to establish a question of fact as to whether Plaintiff purposefully caused the default in an attempt to oust Westport's interest in its real property and whether any of its members breached their duty to Westport.
In next addressing Defendants' cross-motion seeking consolidation of this action with certain other actions, CPLR 602 (a) gives the trial court broad discretion to consolidate actions involving common questions of law or fact. Great deference is to be accorded to the motion court's discretion. This foreclosure action was commenced by Plaintiff in 2013. Essex County Supreme Court Index Number 575-2013 was also commenced in 2013 by Robert Hall and Leslie Hall "as members" of Westport, seeking dissolution of Westport. In that matter, Petitioners sought and were denied the appointment of a receiver. Essex County Supreme Court Index Number 559-2013 was commenced in 2013 by Westport seeking declaratory relief and damages sustained as a result of Robert Hall's and Leslie Hall's breach of fiduciary duty to Westport. According to Plaintiff, Index Number 559-2013 was "stayed by the Court on October 29, 2013, per the honorable Thomas Buchanan" (Affirmation of Lois J. Maione, Esq., dated November 18, 2013, ¶ 4 [Index Number 575-2013]). However, the record does not reflect any such order. Essex County Supreme Court Index Number 167-2015 is a derivative action commenced in 2015 by Robert Hall, Leslie Hall, and Westport Hospitality Investors, LLC (Hospitality) regarding Hospitality, which also seeks dissolution of Hospitality. The Court is unaware of the procedural status of that matter.
By Order dated May 21, 2015, Plaintiff requested, and was granted, the appointment of a receiver in the above-captioned matter. By Order dated September 2, 2015, with Plaintiff's consent, the Court granted the receiver's request to appoint a property manager to oversee operations of the golf course. By conference call with the Court on October 8, 2015, Plaintiff indicated that it was not willing to further fund Westport's operations.
Although there is a preference for consolidation in the interest of judicial economy, the Court, at this time, denies Defendants' cross-motion. While the actions arise out of common facts, including Westport's alleged default under the notes and the alleged breach of duties alleged to have been owed by Westport's members to Westport, the Court deems consolidation inappropriate at this time in light of Westport's pending bankruptcy proceeding, the lack of identity of the parties, the stay alleged to have been ordered with respect to Index Number 559-2013, and the confusion of multiple law suits, and the lack of the specific procedural posture of Supreme Court Index Number 167-2015.
Accordingly, it is hereby
ORDERED, that Plaintiff's motion seeking an order, pursuant to CPLR § 3212 is denied; and it is further ORDERED, that Defendants' cross-motion seeking consolidation is denied.
This constitutes the Decision and Order of the Court. The original Decision and Order is being returned to counsel for Defendants/Third-Party Plaintiffs. A copy of the Decision and Order/Judgment has been delivered to the County Clerk for placement in the file. The signing of this Decision and Order and delivery of a copy of this Decision and Order shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the applicable provisions of that rule respecting filing, entry and notice of entry.
IT IS SO ORDERED.
ENTER. Dated: November 2, 2015 Saratoga Springs, New York __________________________________
GLEN T. BRUENING
Acting Supreme Court Justice The Court considered the following papers: In General: Summons and Complaint; Defendants Hall's and Edwards' Third-Party Summons and Complaint; Niagara's Answers to Third-Party Complaints; Papers considered with respect to Plaintiff's Notice of Motion, filed December 5, 2013; Papers considered with respect to Plaintiff's application seeking the appointment of a receiver, filed March 19, 2015; Plaintiff's Answer to Niagara's Cross-claim and Counterclaim; Plaintiff's Answer to Counterclaims and Cross-claims of Defendant Westport; Plaintiff's Answer to Counterclaims and Cross-claims of Defendants Hall and Edwards.
By Plaintiff:
Notice of Motion, filed April 23, 2015; Affidavit of Robert Hall, sworn to on April 23, 2015, with Exhibits A-E; "Statement of Uncontested Material Facts," dated April 23, 2015; Affirmation of Louis J. Maione, Esq., dated April 23, 2015, with Exhibits A-K; Memorandum of Law, dated April 23, 2015; Reply Affidavit of Robert Hall, sworn to on May 5, 2015, with Exhibits A-B; Affirmation of Louis J. Maione, Esq., dated May 6, 2015, with Exhibits A-B; Reply Memorandum, dated May 6, 2015.
By Defendants Hall and Edwards:
Notice of Cross-Motion, filed May 1, 2015; Affidavit of John Hall, sworn to on May 1, 2015, with Exhibits 1-3; Affidavit of John M. Silvestri, Esq., sworn to on May 1, 2015; Sur-Reply of John M. Silvestri, Esq., dated May 8, 2015