Altshuler Shaham Provident Funds, Ltd., Appellant,v.GML Tower, LLC, et al., Defendants, The Pike Company, Inc., et al., Respondents.BriefN.Y.May 2, 2013To Be Argued By: TIMOTHY M. BITTEL, ESQ. Time Requested: 15 Minutes Court of Appeals STATE OF NEW YORK BRIEF FOR DEFENDANT-RESPONDENT ALTSHULER SHAHAM PROVIDENT FUNDS, LTD., Plaintiff-Appellant, -against- GML TOWER LLC, GML ADDIS LLC, AMERIS HOLDINGS INC., LEVY KUSHNIR, and FINANCITECH, LTD., Defendants, -and- THE PIKE COMPANY, INC., PYRAMID ROOFING & SHEET METAL CO., INC., L.A. PAINTING, INC., THE HAYNER HOYT CORPORATION, THE EFFECT GROUP, INC., SYRACUSE MERIT ELECTRIC, A Division of O'CONNELL ELECTRIC CO., INC., and TAG MECHANICAL SYSTEMS, INC. Defendants-Respondents. HAHN, LOESER & PARKS LLP By: TIMOTHY M. BITTEL 200 Public Square, Suite 2800 Cleveland, Ohio 44114 (216) 621-0150 Fax: (216) 274-2562 GILBERTI STINZIANO HEINTZ & SMITH, PC 555 East Genesee Street Syracuse, New York 13202-2159 (315) 442-0124 Counsel to Defendant-Respondent The Hayner Hoyt Corporation Brief Completed on: January 28, 2013 Of Counsel: TIMOTHY M. BITTEL, ESQ. KEVIN ROE, ESQ. JOHN L. STINZIANO, ESQ. Echo Appellate Press, Inc. • 30 West Park Avenue • Long Beach, New York 11561 • (516) 432-3601 Printed on Recycled Paper 19656 COURT OF APPEALS STATE OF NEW YORK Altshuler Shaham Provident Funds, Ltd. Plaintiff-Appellant, -against- GML Tower LLC, GML Addis LLC, Ameris Holdings Inc., Levy Kushnir, and Financitech, Ltd., Defendants, -and- The Pike Company, Inc., Pyramid Roofing & Sheet Metal Co., Inc., The Hayner Hoyt Corporation, L.A. Painting, Inc., The Effect Group, Inc., Syracuse - Merit Electric, A Division of O'Connell Electric Co., Inc. and TAG Mechanical Systems, Inc. Defendants-Respondents. Onondaga County Clerk's Index No. 2008-9348 4th Department Index No. 10- 01745 DISCLOSURE STATEMENT PURSUANT TO RULE 200.1 The Hayner Hoyt Corporation is a private company organized under the laws of the State of New York and is engaged in construction and construction management. CLEVELAN\528741 1.5-TBITTEL Dated: Cleveland, Ohio, January 28,2013 CLEVELAN\52874 1 1.5-TBIITEL Respectfully submitted, -~-By:_-+-JL..L.It-=::._--4,...----J----'-~::::...---- T othy M. Bi el Admitted pro hac vice Counsel for Defendant-Respondent The Hayner Hoyt Corporation 200 Public Square, Suite 2800 Cleveland, Ohio 44114 Tel: (216) 274-2210 Fax: (216) 241-2824 TABLE OF CONTENTS TABLE OF AUTHORITIES ............................................................................................ : ............ iii QUESTIONS PRESENTED ............................................................................................................ 1 STATEMENT OF FACTS .............................................................................................................. 2 A. ", Preliminary Statement ....................................................................................................... 2 B. Identity of the Parties .................................................................................... ~ ................... 7 C. Identity of the Real Estate Parcels .................................................................................... 9 D. Chronology ..................................................................................................................... 11 E. Appellant is Judicially Estopped from Presenting Claims in this Appeal ..................... .15 F. Arguments of Appellant are Contrary to Positions Taken Below ................................. .17 G. Original Loan Agreement Dated March 29,2007 .......................................................... 19 H. MOU Dated May 1, 2007 ........... ' ................................................................... : ................ 21 I. Amendment No.1 (March 4, 2008) ................................................................................ 22 J. Appellant Misrepresented the Funding Available for Construction Pursuant to the Unfiled Original Loan Agreement .................................................................................. 24 K. Mortgage Dated March 4, 2008 ...................................................................................... 27 L. Appellant has Submitted Conflicting Affirmations and Affidavits Regarding the Mortgage it Seeks to Foreclose ....................................................................................... 28 ARGUMENT ................................................................................................................................. 29 I. APPELLANT IS BARRED BY JUDICIAL ESTOPPEL. ............................................. 29 . II. BECAUSE APPELLANT FAILED TO RAISE THE ARGUMENT THAT THE ORIGINAL LOAN AGREEMENT WAS EITHER "PRELIMINARY," "EXPIRED" OR "UNENFORCEABLE" IN THE LOWER COURT, THIS COURT SHOULD NOT CONSIDER SUCH ARGUMENT ON APPEAL. ................ 32 III. THE THREE LOAN AGREEMENTS ARE UNFILED BUILDING LOAN CONTRACTS ................................................................................................................. 35 N. FAILURE TO FILE THE ORIGINAL LOAN AGREEMENT IS THE FIRST VIOLATION OF LIEN LAW § 22 ................................................................................ 37 CLEVELAN\5287411.5~TBITTEL V. FAILURE TO FILE THE MOU DATED MAY 1,2007 IS A SECOND VIOLATION OF LIEN LAW § 22 ................................................................................ 39 VI. FAILURE TO FILE AMENDMENT NO.1 DATED MARCH 4, 2008 IS A THIRD VIOLATION OF LIEN LAW § 22 .................................................................. .40 VII. THE FAILURE OF APPELLANT ALTSHULER TO FILE THE THREE LOAN AGREEMENTS MAKES THE HAYNER HOYT MECHANIC'S LIEN SUPERIOR TO ANY MORTGAGE CLAIM OF APPELLANT ALTSHULER. ....... .41 VIII. CONCLUSION AND REQUEST FOR RELIEF ........................................................... 51 ii CLEVELAN\52874 I 1.5-TBITTEL TABLE OF AUTHORITIES Page(s) CASES 805 Third Ave. Co. v. M W. Realty Assoc., 58 N.Y.2d 447,448 N.E.2d 445 (1983) ....................................................................... .36 Allright New York Parking, Inc. v. Shumway, 94 A.D.2d 962, 463 N.Y.S.2d 968 (4th Dep't 1983) .................................................. 36 Arvantides v. Arvantides, 106 A.D.2d 853,483 N.Y.S.2d 550 (4th Dep't 1984) .............................................. .33 Atlantic Bank of New York v. Forrest House Holding Co., 234 A.D.2d 491,651 N.Y.S.2d 607 (2d Dep't 1996) ................................................ 50 Catamount Enter. Ltd. v. Town of Lyons Assessors, 244 A.D.2d 913, 668 N.Y.S.2d 124 (4th Dep't 1997) .............................................. .33 Dearstine v. Carpenter, 106 Misc. 102, 173 N.Y.S. 875 (Sup. Ct., Schenectady Co. 1919) ........... .41, 42, 43 Enderby v. Keppler, 184 A.D.2d 1058, 584 N.Y.S.2d 364 (4th Dep't 1992) ........................................... .33 Fishier v. Fishier, 2 A.D.3d 487, 769 N.Y.S.2d 273 (2d Dep't 2003) .................................................... .36 Havel v. Kelsey-Hayes Co., 83 A.D.2d 380,445 N.Y.S.2d 333 (4th Dep't 1981) ................................................ .36 HNC Realty Co. v. Golan Heights Developers, Inc., 79 Misc.2d 696, 360 N.Y.S.2d 954 (Sup. Ct., Rockland Co. 1974) ...................... 50 HNC Realty Co. v. Bay View Towers Apartments, Inc., 64 A.D.2d 417,409 N.Y.S.2d 774 (2d Dep't 1978) ..................................... .35, 47, 48 ICSlExecufone Telecom, Inc. v. Performance Parts Warehouse, Inc., 171 A.D.2d 1066,569 N.Y.S.2d 42 (4th Dep't 1991) .............................................. .33 iii CLEVELAN\S287411.S-TBITTEL Kimco of New York, Inc. v. Devon, 163 A.D.2d 573,576 (N.Y. App. Div. 2d Dep't 1990) ...................................... .31, 32 Lindlots Realty Corp. v. Suffolk County, 278 N.Y. 45, 52 (N.Y. 1938) ............................................................................... : ............ 34 Moore v. County of Clinton, 219 A.D.2d 131, 135 (N.Y. App. Div. 3d Dep't 1996) ............................................ .30 Nanuet Nat 'I Bank v. Eckerson Terrace, Inc., 47 N.Y.2d 243,391 N.E.2d 983,417 N.Y.S.2d 901 (1979) ........... .38, 39, 43, 44, 50 Nichols v. Nichols, 306 N.Y. 490, 119 N.E.2d 351 (1954) .......................................................................... .36 Olson v. Kehoe Component Sales, Inc., 242 A.D.2d 902,662 N.Y.S.2d 647 (4th Dep't 1997) ............................................... 36 Oriskany Falls Fuel, Inc. v. Finger Lakes Gas Co., 186 A.D.2d 1021, 590 N.Y.S.2d 824 (2d Dep't 1992) .............................................. 36 P. T. McDermott, Inc. v. Lawyers Mortgage Co., 232 N.Y. 336, 133 N.E. 909 (1922) ....................................................................... passim Pennsylvania Steel Co. v. Title Guar. & Trust Co., 50 Misc. 51,60, 100 N.Y.S. 299 (Sup. Ct., New York Co. 1906), aff'd 120 A.D. 879, 105 N.Y.S. 1135 (1st Dep't 1907), rev'd on other grounds 193 N.Y. 37, 85 N.E. 820 (1908) ....................................................................... .44, 45, 46 Quain v. Buzzetta Const. Corp., 69 N.Y.2d 376 (1987) ........................................................................................................ 32 Rentways, Inc. v. 0 'Neill Milk & Cream Co., 308 N.Y. 342, 349 (N.Y. 1955) ...................................................................................... .34 Riverside Syndicate, Inc. v. Victoria Munroe, et al., 2008 NY Slip Op 1028; 10 N.Y.3d 18; 882 N.E.2d 875; 853 N.Y.S.2d 263; 2008 N.Y. February 7,2008 Decided ....................................................... 29, 30, 32 Rosenblum v. Tilden Improvement Co., 136 A.D. 743,121 N.Y.S. 510 (2dDep't 1910) ......................................................... 44 iv CLEVELAN\5287 411.5-TBITTEL Sackman-Gilliand Corp. v. Lupo, 55 A.D.2d 1008,391 N.Y.S.2d 229 (4th Dep't 1977) ........................................ .43, 47 Secured Equities Invs., Inc. v. McFarland, 300 A.D.2d 1137, 1138-1139 (N.Y. App. Div. 4th Dep't 2002) ............................. 31 Security Nat 'I Bank, 85 Misc. 2d at 785, 382 N.Y.S.2d at 893 .................................... .40 Security Nat 'I Bank v. ViII. Mall at Hillcrest, Inc., 85 Misc. 2d 771, 382 N.Y.S.2d 882 (Sup. Ct., Queens Co. 1976) .................. .39,40 Slatt v. Slatt, 64 N.Y.2d 966, 447 N.E.2d 1099 (1985) ..................................................................... .36 Van Wormer v. Leversee, 87 A.D.2d 942, 451 N.Y.S.2d 237 (3d Dep't 1982) ................................................. .33 Yankee Bank for Fin. & Say. v. Task Assocs., Inc., 731 F. Supp. 64 (N.D.N.Y. 1990) ................................................................................... 50 v CLEVELAN\52874 I 1.5-TBITTEL STATUTES AND OTHER AUTHORITIES Lien Law § 2(9) ........................................................................................................................... 6 Lien Law § 2(13) ......................................................................................................... 1,4,24,35 Lien Law § 2(14) ............................................................................................................... passim Lien Law §§ 3-39-c .................................................................................................................. 49 Lien Law § 13 ............................................................................................................................ 48 Lien Law § 22 .................................................................................................................... passim vi CLEVELAN\52874 I 1.5-TBITTEL QUESTIONS PRESENTED 1. Where Appellant sought and obtained a $10 million judgment with interest from March 29, 2007, by asserting payment on that date under an Original Loan Agreement, is now Appellant judicially estopped from claiming that the Original Loan Agreement is preliminary, unenforceable, or expired? • This Court should answer ''yes.'' 2. When Appellant failed to raise the argument that the Original Loan Agreement was either preliminary, unenforceable, or expired in the Supreme Court, should this Court now decline to consider that argument since it is presented for the first time on appeal? • This Court should answer ''yes'' as did the Fourth Department. The Supreme Court did not consider that question because it was never presented. 3. Where an Original Loan Agreement, for the improvement of real property in New York, is based upon express covenants of the borrower to "construct the improvements diligently, in a workmanlike manner, according to the specifications, costs and schedules set out in the plans .... " is that agreement a Building Loan Contract as defined in Lien Law § 2(13)? • As did both courts below, this Court should answer "yes." 4. Where a mortgage filed in New York is expressly" ... subject to the terms of the Original Loan Agreement dated March 29, 2007 ... " and that CLEVELAN\5287411.5-TBITTEL Agreement expressly requires the borrower to construct improvements on the mortgaged property, is that a "Building Loan Mortgage" as defined in Lien Law § 2(14), which is subordinate to a subsequently filed mechanic's lien because of failure to file that Original Loan Agreement in compliance with Lien Law § 22? • As did both courts below, this Court should answer ''yes.'' STATEMENT OF FACTS A. PRELIMINARY STATEMENT Appellant is in the unusual position of appealing from a $10 million judgment which it signed, and which was entered as a result of an Order to Show Cause sought by Appellant. Appellant obtained this judgment, plus interest at 12% from March 29, 2007 by presenting to the Supreme Court two affidavits from its General Manager, Yair Lowenstein, and one affirmation from its Attorney, Bruce Lederman. The purpose of those affidavits and the affirmation was to attest to the validity of the March 29, 2007 Original Loan Agreement and the documents executed pursuant to that Original Loan Agreement. 1 The Supreme Court expressly relied upon the affidavits and affirmation. Although Appellant got the judgment it wanted, it now argues to this court that the Original Loan Agreement is somehow "expired and unenforceable." (Brief for Plaintiff Appellant, Argument III). When seeking permission to appeal, Appellant never told this Court that it In this brief, the March 29, 2007 Loan Agreement will be referred to as the "Original Loan Agreement." These words are chosen because the Appellant itself adopted that term. Appellant told the Supreme Court that it actually deposited $10,000,000 " ... as provided in the Original Loan Agreement." (R. 313, , 8). 2 CLEVELAN\52874 1 1.5-TBITTEL was changing its position. It never even used the words "unenforceable" or "expired." It certainly did not even hint at such a suggestion before the Supreme Court. This is a simple appellate case involving real property in Syracuse, New York. Complications arise only because Appellant keeps changing the positions which it asserts. This case requires the application of the New York Lien Law provisions for Building Loan Contracts and Building Loan Mortgages to the interpretation of a $10 million Original Loan Agreement signed on March 29, 2007 and then twice modified - first by a Memorandum of Understanding ("MOU") dated May 1, 2007 (R. 355-363) and then by an "Amendment No.1 to Loan Agreement dated March 29, 2007" (hereinafter "Amendment No.1") signed March 4, 2008 (R. 313-354). The phrase Amendment No. 1 is really a misnomer. This document is a complete 42 page restatement of a modified Original Loan Agreement. (R.313-354). Neither the Original Loan Agreement nor its two modifications were filed with the Clerk of Onondaga County as required by Lien Law § 22. (R.364-375). Appellant Altshuler seeks to foreclose a mortgage signed on March 4, 2008. (R. 60-73). That mortgage is expressly based upon the unfiled Original Loan Agreement and its two unfiled amendments. But, when compared to the Original Loan Agreement (R. 287, ~ 5.12), the 2008 mortgage (R. 451, ~ 5.12) overstates 3 CLEVELAN\S2874 1 1.5-TBITTEL the adequacy of funding available for construction to pay contractors such as Respondent Hayner Hoyt. Both lower courts correctly determined that the mortgage claimed by Appeliant Altshuler was subordinate to Respondent Hayner Hoyt's $3.2 million mechanic's lien filed on October 31, 2008 because (1) the Loan Agreements supporting that mortgage were Building Loan Contracts; and (2) by failing to file, Appellants did not comply with Lien Law § 22. As will be demonstrated, the decisions below were correct. Appellant Altshuler has created an argument which: (1) is contrary to the admissions it made and arguments it presented to the Supreme Court; (2) was certainly never preserved in the Supreme Court; (3) is contradicted by the affidavit of its own general manager (CA 49 .37, ~7); (4) is contradicted by the affirmation of Appellant's attorney Bruce Lederman (CA 49 .8, ~I4; CA 49 .11, ~22); and (5) appears designed to obfuscate the comparatively straightforward application of the statutes to the undisputed facts of a business transaction which squarely fits the definition of a "Building Loan Mortgage" [Lien Law § 2(14)] created pursuant to a "Building Loan Contract" [Lien Law § 2(13)] applicable to New York real estate transactions. The statutory law governing this case is more than 100 years old and is really quite straightforward. The primary statutes are: 4 CLEVELAN\52874 I 1.5-TBITTEL (1) N.Y. Lien Law § 2(13) - Building Loan Contract- definition (2) N.Y. Lien Law § 2(14) - Building'Loan Mortgage - definition (3) N.Y. Lien Law § 22 - Building Loan Contract - filing requirement For more than ninety years the Lien Law has been literally interpreted: The Lien Law (§ 22) means literally that if the building loan contract is not filed ''the interest of each party to such contract in the real property affected thereby, is subject to the lien and claim of a person who shall thereafter file a notice of lien." P. T. McDermott, Inc. v. Lawyers Mortgage Company 232 N.Y. 336; 133 N.E. 909, 913-914; 1922 N.Y. LEXIS 1131 (1922) On March 29, 2007, Appellant Altshuler entered into the Original Loan Agreement for $10 million under which it agreed to provide $5.5 million to refinance an existing mortgage and $4.5 million for construction of real property renovations to a 15-story Syracuse, New York building known as GML Tower. (R. 378). Appellant immediately funded $10 million into a trust as provided in the Original Loan Agreement. (R. 313, ~ B). The Original Loan Agreement was twice modified. (R. 355-375, 313-354). Even though all three agreements required the construction of building renovations, none of them were filed in the Office of the Clerk for Onondaga County. (R.364-375). 5 CLEVELAN\52874 I 1.5-TBITTEL Between May 27,2007 and March 6,2008, Appellant Altshuler advanced to the Borrower~ in seven installments, $4.5 million for construction improvements. (R.379-380). The Borrower admits that between May 2007 and March 2008 it received the $4.5 million for construction advances. (R. 522). Because the Original Loan Agreement was not filed as required· by § 22, Respondent Hayner Hoyt did not know, but Appellant Altshuler did know that the stated loan proceeds were insufficient to complete the entire construction project. (R. 287, 1f 5.12). The construction project failed because the owner stopped paying Respondent Hayner Hoyt. Respondent Hayner Hoyt is a contractor [Lien Law § 2(9)], which on July 17, 2007 commenced renovation work on the GML Tower. Respondent Hayner Hoyt's last work on the project occurred on September 5, 2008. After Respondent Hayner Hoyt had commenced work and while work was ongoing, Appellant Altshuler and the Borrower enter..ed into a $10 million mortgage dated March 4, 2008, which was recorded on March 7, 2008. It is this mortgage which Appellant Altshuler now seeks to foreclose. The March 7, 2008 mortgage precisely fits the definition of a "Building Loan Mortgage" under Lien Law § 2(14) because it was made pursuant to the Original Loan Agreement and it " ... consolidated with existing mortgages so as to constitute one lien upon the mortgage property" as defined in Lien Law § 2(14). 6 CLEVELAN\52874 I 1.5-TBITIEL The mortgage applies to two parcels of real estate: (1) 101-131 Onondaga Street, Syracuse, New York- referred to in the documents as "Tower Property" or "GML Tower;" and (2) 449-53 S. Salina Street, Syracuse, New York (the "Addis Building"). Respondent Hayner Hoyt has recorded a mechanic's lien against the GML Tower only and claims no interest in the Addis Building. B. IDENTITY OF THE PARTIES The primary dispute at issue in this appeal is between Appellant Altshuler as the lender and Hayner Hoyt and other contractors who provided labor and materials for the renovation of the GML Tower property. The parties are identified as follows: (1) Altshuler Shaman Provident Funds, Ltd. This is the Plaintiff- Appellant and is a company organized under the laws of the State of Israel. It is the successor in interest to Perfect Provident Funds Ltd. ("Perfect Provident"), which was the named lender under the Original Loan Agreement, the May 1, 2007 MOD, the March 4, 2008 Amendment No. 1 and is the lender identified in the mortgage recorded on March 7, 2008 which is sought to be foreclosed in this case. In these papers it will be referred to as "Appellant Altshuler." Because Appellant Altshuler. substituted itself for Perfect Provident, in this brief Appellant Altshuler 7 CLEVELAN\52874 I 1.5-TBITTEL will be used as if it were the original lender named in the mortgage and the loan agreements. (2) The Hayner Hoyt Corporation; Syracuse Merit Electric, a division of O'Connell Electric Co., Inc.; The Pike Company, Inc.;· The Effect Group; TAG Mechanical; Pyramid Roofing & Sheet Metal Co., Inc.; and L.A. Painting, Inc. are contractors which worked on the GML Tower project and which filed mechanics' liens that were found to be superior to Appellant Altshuler's mortgage recorded on March 7, 2008 because Altshuler had failed to comply with Lien Law § 22. There are other named defendants not active in this appeal. They include the following: (1) GML Tower LLC (hereinafter "Borrower(s)") is a limited liability corporation organized under the laws of the State of Delaware with its principal place of business in Syracuse, New York. (R. 61) It is now and was for all times material to this case the owner of property located at 101-131 East Onondaga, Syracuse, New York. In the various loan documents provided to this Court in the record, that property is alternatively referred to as the "Tower Property" or "GML Tower." In this brief the property is referred to as "GML Tower." (2) GML Addis LLC ("GML Addis") is a Delaware limited liability company which has its principal place of business in Syracuse, New York. Neither 8 CLEVELAN\52874 1 1.5-TBITTEL this entity nor its property are involved in the Lien Law § 22 compliance issue in this appeal. (3) Ameris Holdings Inc. Ltd. ("Ameris Holdings") is a private limited company organized under the laws of Israel (R. 271). It is the parent company of GML Tower LLC, GML Addis LLC and GML Syracuse LLC. (R., 3 77, ~ 4) It is also signatory as a "Borrower(s)" under the Original Loan Agreement. Neither this entity nor its property are involved in the Lien Law § 22 compliance issue in this appeal. (4) Levy Kushnir was the Chairman of Ameris Holdings Ltd. He executed the May 1, 2007 MOD on behalf of Ameris Holdings and on behalf of GML Towers LLC (Borrower). He also provided a $250,000 personal guaranty. His participation is not material to the issues of lien priority in this appeal. (5) Financitech Ltd. is the holder of certain subordinate financing. It is not a participant in this appeal. C. IDENTITY OF THE REAL ESTATE PARCELS The only parcel of real property involved in the mortgage/mechanic's lien priority issue in this appeal is the GML Tower at 101-131 East Onondaga Street, Syracuse, New York. This building consists of a IS-story masonry building previously used as a hotel property attached to the Historic Hotel Syracuse. In the Original Loan Agreement, the Borrower made many detailed express covenants 9 CLEVELAN\5287411.S-TBITTEL with Appellant Altshuler to improve the GML Tower into condominium properties (R. 287, ~ 5.12). Later, the Borrower and Appellant Altshuler agreed, in the March 4, 2008 Amendment No.1, that the scope of improvements would be changed to construction of rental apartment units (instead of condominium units developed for sale). (R. 314, ~ H). The loan transactions for the construction of these improvements to this GML Tower constitute the factual subject matter of this appeal. There are two other adjacent properties on which Respondent Hayner Hoyt performed no work and claims no mechanic's lien. Those properties are: (1) The Historic Syracuse Hotel is located at 100-08 Onondaga Street, Syracuse, New York. It is owned by non-party GML Syracuse LLC. Appellant Altshuler originally obtained assignment of a mortgage on this Historic Hotel property along with a mortgage for the Addis Building and the GML Tower. (R. 379, ~ 13). For reasons not explained in the record, it later released the Historic Hotel from any mortgage at issue in this appeal. (R. 380, ~ 22). (2) The Addis Building located at 449-53 South Salina Street, Syracuse, New York is owned by GML Addis LLC. The disputed March 7, 2008 mortgage filed by Appellant Altshuler claims a mortgage against the Addis Building. The mortgage against the Addis Building is not at issue in this appeal because no contractor claims a lien against the Addis Building. \0 CLEVELAN\52874 1 1.5-TBITTEL The business transaction in which Appellant Altshuler was involved with the various Borrowers appears to involve all three contiguous properties. (R.377, ~~ 3, 13). The general scope of the business transaction between Appellant Altshuler, Ameris and the Ameris subsidiary companies will be described because the totality of the transaction is unconventional and suggests that Appellant Altshuler was not involved in an arm's length transaction with Ameris and its subsidiaries. Both Appellant Altshuler and the Borrowers were, for all times material, located in Tel Aviv, Israel. The documents show that they were negotiating and executing the loan documents in Tel Aviv. D. CHRONOLOGY A chronology is offered to put the business transaction in order and to allow the Court to see how the critical documents fit into the history of this real estate improvement project. On September 7, 2005 Ameris Holdings, through three subsidiaries, purchased the GML Tower (the only building involved in this appeal), the Historic Hotel and the Addis Building for the total purchase price of $9,750,000. (R. 377, ~ 3). The First Bank of Oak Park obtained a $7 million mortgage on all three parcels of property. (R.420). That mortgage on all three parcels of property was assigned to Appellant Altshuler. (R. 434-437). Appellant Altshuler paid $5.5 million to acquire that mortgage. (R. 378, ~ 8). 11 CLEVELAN\5287411.5-TBITTEL Even though Appellant Altshuler had received assignment of the prIor mortgage covering three parcels of property, it accepted a "Mortgage Extension and Modification Agreement" executed only on behalf of GML Tower LLC and providing a mortgage to Appellant Altshuler only on the GML Tower, thereby releasing the two other properties. (R. 439-482). Appellant Altshuler then claims six construction .loan advances totaling $2.5 million on an "unsecured basis" (R.379), even though under its Loan Agreement it was entitled to a mortgage. Under current United States banking regulations, it is quite likely that this unsecured advance would be prohibited. (CA-49.43-44, ~ 17). Apparently, these advances were made out of a trust account in Israel. (R. 313, ~B; R. 280, ~ 4.1; R. 275). Appellant Altshuler and the Borrowers agreed to comply with New York Lien Law (R. 356, ~ b) but then ignored the Lien Law. The chronology is shown below. 12 CLEVELAN\52874 I 1.5-TBITTEL APPELLANT ALTSHULER'S (AA) CHRONOLOGY DATE EVENT RECORD 1. 91712005 GML Tower LLC (a subsidiary of Ameris R 384-387 Holdings) purchases GML Tower Property. R. 377, ~3 2. 91712005 GML Addis LLC (a subsidiary of Ameris R 388-391 Holdings) purchases Addis Building. R 377, ~3 3. 91712005 GML Syracuse LLC (a subsidiary of Ameris R 392-395 Holdings) purchases Historic Hotel. R 377, ~3 4. 91712005 GML Syracuse LLC, GML Tower LLC and R 396-402 GML Addis LLC execute note to First Bank of Oak Park (later by name change Park National). 5. 91712005 GML Syracuse LLC, GML Tower LLC and R 404-436 GML Addis LLC execute mortgage to First Bank of Oak Park (later by name change Park National) securing all three parcels of property. 6. 3/29/2007 AA executes Original Loan Agreement with R. 287, ~ 5.12 Borrowers. The Agreement includes a representation that the Loan Proceeds are adequate for" .... completion in full of sanitary and electrical installation of all property condominium units ... " 7. 3/29/2007 AA actually advances$10 million for the CA-49.39~7 benefit of the borrowers. R. 313, ~B 8. 5/1/2007 MOD between AA and GML Tower R.355-374 LLCI Ameris. Modifies Original Loan Agreement. 9. 5/3/2007 AA signs and records a mortgage which states R. 451, ~ 5.12 that funding is sufficient " ... to complete R. 287, ~ 5.12 Improvement (as that term is defme-d in the Loan Agreement) through completion in full of all property condominium units ... " 13 CLEVELAN\5287411.5-lBITTEL DATE EVENT RECORD O. 5/3/2007 GML Tower LLC executes a mortgage R 439-482 extension and modification agreement in favor ofAA. 1. 5/29/2007 AA makes $250,000 construction loan R 379-398, advance to GML Tower. ~ 18 2. 7/17/2007 TllliC2 Commences Work on GML Tower R265 LLC. 3. 10/26/2007 AA makes $350,000 construction loan R 379-380 advance to GML Tower LLC. 4. 11126/2007. AA makes $400,000 construction loan R 379-380, advance to GML Tower LLC. ~17 5. 12/3112007 AA makes $500,000 construction loan R 379-380, advance to GML Tower. ~ 17 6. 2/3/2008 AA makes $300,000 construction loan R 379-380, advance to GML Tower LLC. ~ 17 7. 2/22/2008 AA makes $700,000 construction loan R 379-380, advance to GML Tower LLC. ~17 8. 3/4/2008 Loan Agreement Amendment No. 1 is R.313-354 executed. 9. 3/4/2008 AA admits that the March 29, 2007 Loan R 313, ~~ A, Agreement is the "Original Loan Agreement" B and that $10 million was deposited "as provided in the Original Loan Agreement." O. 3/6/2008 AA makes $2,000,000 construction loan R. 380, ~ 19 advance to GML Tower LLC pursuant to Original Loan Agreement and Amendment No.1. 1. 3/7/2008 Altshuler signs and records a mortgage which R 451, ~ 5.12 represents that the loan proceeds are adequate to complete the construction improvements " ... in full of all Property Condominiums units ... " 2 THHC refers to Respondent The Hayner Hoyt Corporation. 14 CLEVELAN\52874 1 1.5-TBITTEL DATE 'EVENT RECORD 2. 9/5/2008 THHC Last Work. R265 ~3. 10/3112008 THHC Mechanic's Lien filed for $3,238,106. R265 E. APPELLANT IS JUDICIALLY ESTOPPED FROM PRESENTING CLAIMS IN THIS APPEAL The previous conduct of Appellant and its counsel judicially estop Appellant from now claiming that the Original Loan Agreement was "preliminary," "expired," or "unenforceable." These claims are the fundamental basis of this appeal. Appellant repeatedly and unequivocally told the Supreme Court that the Original Loan Agreement was a fmal and binding agreement entitling Appellant to receive a judgment for $10 million, plus interest at 12% from March 29, 2007. It was even the Appellant who brought the Order to Show Cause which resulted in a judgment for Appellant in the amount of $10 million, plus interest at 12% from March 29,2007. (CA-49.1-.29). These representations to the court are evidenced in the record and include the following: 1. On March 4, 2008 Altshuler admitted that the Original Loan Agreement closed on March 29,2007 through a trust account exactly as provided for in the Original Loan Agreement. (R. 313, ~ B). 2. On December 4, 2008 in the Verified Complaint, Plaintiff alleged, "Defendants ... and Plaintiff entered into a Loan Agreement dated March 29,2007 ... " (R 37). (Attorney Vincent Hanley) 3. On January 10, 2010, Plaintiff's General Manager Yair Lowenstein supplied an affidavit to the court that stated, "On March 29, 2007, Perfect Provident, as lender, and GML Tower and Ameris, as 15 CLEVELAN\S287411.S-TBITTEL 3 borrower, entered into a loan agreement for a $10 million loan. A copy of the loan agreement is attached to the Bittel Aff. as Exhibit E." (CA-49.42). 4. On October 2, 2011 3, Plaintiff's General Manager Yair Lowenstein supplied an affidavit to the court that stated, "Plaintiff actually advanced $10,000,000.00 ... on March 29, 2007 into an account for the benefit of the Owner Defendants on March 29,2007 ... " (CA-49.37, ~ 7). 5. In an affirmation dated October 4, 2011, signed by Attorney Bruce H. Lederman and submitted to the Supreme Court, Attorney Lederman seeks a judgment for $10 million, plus interest at 12% from March 29, 2007 and tells the court in part: "Based upon ... the affidavits of Yair Lowenstein establishing that the amount due is $10,000,000 with interest at 12% from March 29,2007 ... " (CA-49.11, ~ 22). 6. On October 5, 2011, the Supreme Court expressly relied upon the affirmation of Attorney Lederman and the two affidavits of Yair Lowenstein in granting the order to show cause. The court said in part: "Upon the Annexed Affirmation of Bruce H. Lederman, Esq., made the 4th day of October, 2011; the affidavits of Yair Lowenstein, sworn to the 10th day of JanuarY, 2010 (original previously filed with the Court on prior motions) and sworn to the 2nd day of October, 2011 ... " (CA-49.1-.2). 7. On October 26, 2011, the Supreme Court granted the requested judgment to Appellant in the amount of $10 million, plus interest at 12% from March 29,2007. (CA-63.10-.19, at. 11 ~ l.B.). The affidavit of Yair Lowenstein is attached to an affirmation of Attorney Bruce Lederman. Mr. Lederman refers to this affidavit as being dated October 2, 20 II. 16 CLEVELAN\S2874 1 1.5-TBITTEL 8. The Judgment Entry granted by the court on October 26, 2011 was signed and approved by Appellant4, through its attorney, Bruce H. Lederman. (CA-49.24). These clear unequivocal assertions by Appellant's General Manager and two different attorneys on behalf of Appellant, present a compelling basis to support the conclusion that Appellant should be judicially estopped from asserting its claims in this appeal. The conduct of Appellant in changing its position on this critical issue provides basis for this Court to resettle its order granting Appellant leave to appeal in this case. F. ARGUMENTS OF APPELLANT ARE CONTRARY TO POSITIONS TAKEN BELOW The fundamental basis of Appellant's argument to this Court is a claim that the Original Loan Agreement is "expired" or "unenforceable." As demonstrated to the Fourth Department, and as will be shown in this brief, this claim by Plaintiff was never asserted in the Supreme Court. Moreover, this newly created position by Appellant is contrary to the admissions and arguments it made in the Supreme Court. It is difficult to understand how Altshuler can argue that the Original Loan Agreement was anything other than a final and binding agreement when its general manager has provided an affidavit which admits that it obtained a $10 million note on March 29, 2007 and " ... actually advanced $10,000,000.00 on account of the 4 To make it clear, the Appellant is in the strange position of appealing from a judgment which it signed, approved and which it sought to be ordered on an Order to Show Cause. 17 CLEVELAN\52874 1 1.5-TBITTEL replacement Promissory Note on March 29,2007, into an account for the benefit of the Owner Defendants on March 29,2007 ... " (CA-49.37, ~ 7). It makes sense that Appellant Altshuler did in fact advance the $10 million on March 29, 2007 because the record shows that the parties signed and initialed the March 29, 2007 agreement a total of 167 times and that the agreement provides: "11.19 This Loan Agreement represents ,the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties with respect to the subject-matter hereof. There are no unwritten oral agreements between the parties. This instrument may be amended only by an instrument in writing executed by the parties hereto. Any reference in any of the Loan Documents to the Property or Improvements shall include all or any part of the Property or Improvements. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Lender in writing." (R.310). Coupled with the affidavit of Yair Lowenstein admitting that Appellant "actually advanced" the $10 million on March 29, 2007 and the terms of paragraph 11.19 of that Agreement, it is easy to understand why Appellant Altshuler did not challenge the finality of the Agreement at the Supreme Court level. 18 CLEVELAN\52874 1 1.5-TBITIEL G. ORIGINAL LOAN AGREEMENT DATED MARCH 29, 2007 The Original Loan Agreement contains multiple, detailed, unequivocal, express promises by the Borrowers to construct improvements on the GML Tower. The Supreme Court correctly stated: "Characterization of this document is central to the parties' dispute." (R. 16). The Original Loan Agreement shows that the parties contracted for a $10 million project structured with a classic Building Loan Mortgage, as defined in Lien Law § 2(14), under which an existing mortgage was to be consolidated with the construction " ... loan so as to constitute one lien upon the mortgaged property." These express promises include: 1. That Borrowers " ... shall construct the Improvements diligently, in a workmanlike manner, according to the specifications, costs and schedules set out in the Plans ... " (R. 289" 6.1.1). 2. That Borrowers " ... shall not make any changes in the Plans without Lender's prior written consent ... " (R. 289, ,6.1.2). 3. That Borrowers shall on a monthly basis deliver detailed reports regarding the work of contractors, subcontractors and material men to Appellant Altshuler and that Appellant Altshuler is authorized to disapprove such providers and also to discuss with such providers " ... the course of construction." (R. 290,,6.1.3). 4. That Borrowers are obligated to notify Appellant Altshuler in writing of any events delaying or interrupting construction and to specify the work delayed. (R. 290, ,6.1.4). 5. Borrowers warranted that ''the Loan proceeds are sufficient to (a) pay the Current Bank Loan; (b) to complete Improvements through the completion in full of sanitary and electrical installation of all Property condominium units as well as implementation of Improvements through completion of marketing, sale and construction of twenty (20) 19 CLEVELAN\52874 I 1.5-TBITTEL Property condominiums, all in accordance with and as set forth in the Plans." (R. 287, ~ 5.12). 6. Borrowers warranted that all utility services were available as necessary " ... for the development and occupancy of the Property ... " or would be available at the completion of the Improvements. (R. 287, ~ 5.12). 7. Borrowers warranted that all government approvals for the commencement and completion of Improvements have been obtained except as shown in Exhibit H-l to the March 29, 2007 Loan Agreement. (R. 288, ~ 5.14; R. 287, ~ 5.1). 8. Borrowers were obligated to pay an inspector to periodically inspect the Property and to report to Appellant Altshuler regarding matters including but not limited to construction and use of the Loan Proceeds. (R. 288-289, ~~ 8.1, 8.2, 8.3, 8.4 and 8.5). 9. $5.5 million was to be released " ... for immediate repayment on the Closing Date of the Existing Bank Loan ... (R. 281, ~ 4.4.1). 10. The $4.5 million construction loan was to be " ... disbursed, used and applied solely to finance the construction of the Improvements strictly in accordance with Section 7 of this Agreement." (R. 281, ~ 4.4.2). 11. Construction funding requests require a written confirmation of the Inspector and specifying among other information the amount, the designated payee and confirmation that Borrowers have met " ... relevant milestones under the Plans ... " (R. 296, ~ 7.1.3). 12. The parties expressly agreed that "This Loan Agreement represents the final agreement between the parties and may not be contradicted by evidence of prior contemporaneous or subsequent oral agreements . of the parties .... " (R. 310, ~ 11.19). (emphasis added) 13. The parties further confirmed that the March 29,2007 agreement was a final loan document by initialing the printed language "Loan Agreement Fina1.doc" 164 times and signing three more times. (R.217-312). 20 CLEVELAN\5287411.5·1BITfEL The Original Loan Agreement states that it was "made and entered into in Tel-Aviv." (R. 271). It 'appears that Appellant Altshuler and the Borrowers attempted to circumvent the applicability of New York Lien Law and cut off the rights of third parties such as Respondent Hayner Hoyt by making the Loan Agreement subject to the laws of Israel. (R. 308~ ~ 11.13). Further evidence of this attempt is shown by the use of a combination of foreign escrow and restricted accounts to fund the construction aspect of the loan. (R. 280, ~ 4.1; R. 281, ~ 4.4.2). Appellant Altshuler acknowledged the existence of New York law because the Original Loan Agreement provides "other loan documents [presumably this would include the Building Loan mortgage] may be governed and construed in accordance with the laws of the State of New York if such intent is implied or explicitly written in such documents." (R. 308, ~ 11.13). Since Appellant Altshuler admitted funding the entire $10 million on March 29, 2007, no issue every arose regarding the finality of the Original Loan Agreement. Certainly no discovery was taken regarding finality. H. MOD DATED MAY 1,2007 The MOD dated May 1, 2007 is a stated modification of the Original Loan Agreement of March 29,2007. (R.355-357). The parties reaffirm the fact that the $10 million has already been deposited. The representation in the MOD that the 21 CLEVELAN\5287411.5-lBITTEL $10 million has already been deposited is further indication that Altshuler's current claim that the Original Loan Agreement was "expired" is a legal fiction. The MOU verifies that the Original Loan Agreement had been complied with and the funds had been paid and were to be used " ... to fmance and pay construction costs .... " (R. 356, ~ 3.b). On May 1, 2007, Appellant Altshuler acknowledged that it was involved in a construction loan transaction governed by New York Lien Law. The MOU makes detailed provision for lien searches and title reports and requires " ... satisfaction of any of the other requirements for such release of construction loan funds as required by the New York Lien Law ... " (R. 356, ~ 3.b). Appellant Altshuler failed to comply with Lien Law § 22, but clearly admitted that the Lien Law applied to the building loan transaction outlined in the Original Loan Agreement and the MOU. The MOU also confirms construction activities by setting time deadlines for demolition and permitting as is common in any construction project. (R. 356, ~ 4 and R. 363, Ex. H-I). I. AMENDMENT NO.1 (MARCH 4, 2008) This is not a minor amendment. It is a complete restatement of the Original Loan Agreement with modifications. This amendment continues but modifies the Original Loan Agreement and May 1, 2007 (MOU) promise of the Borrowers to 22 CLEVELAN\52874 I 1.5-TBITTEL make improvements upon the GML Tower. Amendment No.1 recites that the parties modified their previous agreements and decided to convert the building project from the construction of condominium units for sale to apartment units for rent. Amendment No. 1 demonstrates the following: 1. A recital that: A. The Lender and the Borrowers entered into a Loan Agreement on March 29, 2007 (the "Original Loan Agreement"), which was supplemented and modified by a Memorandum of Understanding (the "MOD") entered into between the parties on May 1,2007. (R. 313, ~ A). 2. A recital that: ... on March 29, 2007 ... the entire loan proceeds were deposited with the Trustee in the Trust Account as provided in the Original Loan Agreement. 3. A recital that: c .... the remainder, in the principal amount of US $4,500,000 (the "Second Tranche"), was to be used and applied strictly to finance renovations of the Property owned by GML Tower as a condominium Tower ... " (R. 314, ~ C). (emphasis added) 4. A recital that: H. The Borrowers desire to replace the original Plans and complete renovation of the Property according to revised plans pursuant to which residential apartment units and commercial units will be developed and leased (instead of condo units developed for sale), and Lender is willing to allow Borrowers to do so ... (R. 314, 315, ~ H). 5. The express obligation to construct improvements made on March 29, 2007 remains unchanged and binding as part of Amendment No.1: 23 CLEVELAN\S2874 I 1.5-TBITTEL Construction responsibilities. Borrower shall construct the improvements diligently, in a workmanlike manner according to specifications ... (R. 289, , 6.1.1) (R. 355). 6. Defines "Recording Office" as ''the County Clerk's Office of Onondaga County, State of New York. (R.319). Amendment No.1 is a second modification of the Original Loan Agreement. The parties agreed to modify the physical construction from condominiums for sale to apartments for rent and expressly continued the covenant of the Borrowers to conduct construction activities. It evidences the fact that the $4.5 million in construction funds was to be consolidated with the previously existing mortgage and thereby· create a statutorily defined Building Loan Mortgage. The detailed obligations of the Borrower promising to construct improvements and the obligation of Appellant Altshuler to lend for the improvements exactly again matches the definition of a Building Loan Contract as contained in Lien Law § 2(13). The consolidation of the construction loan with the prior mortgage exactly matches the definition of a Building L~an Mortgage as contained in Lien Law § 2(14). J. APPELLANT MISREPRESENTED THE FUNDING AVAILABLE FOR CONSTRUCTION PURSUANT TO THE UNFILED ORIGINAL LOAN AGREEMENT Respondent Hayner Hoyt commenced construction for the GML Tower on July 17, 2007. (R. 265). Appellant admits that the Original Loan Agreement was not filed, nor were any of the amendments to that agreement filed. As a 24 CLEVELAN\52874 1 1.5-TBITTEL 1 consequence, when Hayner Hoyt commenced work in July, 2007, the only public information regarding the sufficiency of funds for construction was the Mortgage Extension and Modification Agreement dated April 30, 2007 and filed in Onondaga County on May 3, 2007. (R. 438-482). That mortgage, signed by Appellant (R. 478), materially misrepresents the funding available for construction. The entire paragraph 5.12 published in that mortgage is materially different than the "confidential" 5 paragraph 5.12 contained in the unfiled Original Loan Agreement. (R. 287).6 The publicly filed mortgage provides in pertinent part: "5.12 LOAN PROCEEDS AND ADEQUACY. The Loan proceeds are sufficient ... (b) to complete Improvement (as that term is defined in the Loan Agreement) through completion in full of all Property condominium units as well as implementation of Improvements through completion of marketing7, sale and construction of twenty (20) Property condominiums, all in accordance with and as set forth in the Plans; (c) together with additional financing in an amount not in excess of $2,000,000 (the "Excess Funding") ... " (R. 451). (Italics added for emphasis, bold in original.) However, the unfiled Original Loan Agreement was materially different and showed that funding was not sufficient for completion. The exact language of the unfiled Original Loan Agreement telling a different story states: 5 The word "confidential" is a word selected by Appellant Altshuler. It appears on each page (39 times) of the Original Loan Agreement (R. 271-312). 6 The March 29, 2007 loan document actually contains an apparent typographical error in that there are two paragraphs "5.12." The second paragraph 5.12 relates to utilities and that typographical error by Appellant is of no consequence. 7 No discovery was taken regarding marketing costs because that was not an issue raised in the Supreme Court. 25 CLEVELAN\52874 1 1.5-TBITIEL "5.12 Loan Proceeds and Adequacy. The Loan proceeds are sufficient .. . (b) to complete Improvements through completion in full of sanitary and electrical installation of all Property condominium units as well as implementation of Improvements through completion of marketing, sale and construction of twenty (20) Property condominiums, all in accordance with and as set forth in the Plans. Together with an additional amount not in excess of $2,400,000 (the "Additional Amount") ... " (R.287). (Italics added for emphasis, bold in original.) The amount of funding available to complete a construction project is of critical importance to a contractor such as Respondent Hayner Hoyt. The fact that 'J' Altshuler recorded a public mortgage which said that there was enough money to complete all condo units when in fact it "confidentially" agreed that there was only enough money to complete the project through sanitary and electrical installation for all units is misleading to Respondent Hayner Hoyt and other contractors performing work on the construction project. Appellant's general manager has stated that Appellant and its borrowers had an agreement which " ... explicitly set forth the party's understanding and agreement that the $4,500,000.00 available in the second tranche was not going to be sufficient to finance the entire renovation project, but was only enough to finance construction through completion of full sanitary and electrical installation." (CA-49.42, ~ 9). Notwithstanding this sworn statement of Appellant's chairman, Appellant never put Hayner Hoyt nor the other contractors on notice of this inadequacy, but instead recorded a mortgage on May 3, 2007, which 26 CLEVELAN\52874 I 1.5-TBITTEL misrepresented that the loan proceeds were adequate " ... to complete improvements through completion in full of all Property condominium units ... " (R. 451, 1f 5.12). This conduct by Appellant Altshuler violates the teaching of this Court that a purpose of Lien Law 1f 22 is " ... to inform such contractors of the amounts to be advanced and times of such advances." P. T. McDermott, supra at 911. The fact that Appellant Altshuler was duplicitous in entering into a "confid~ntial" Original Loan Agreement but then publicizing a mortgage with different terms and conditions regarding adequacy of funding is consistent with its duplicitous conduct in this proceeding, where it has asserted one argument to the Supreme Court but a different and unpreserved argument on appeal. K. MORTGAGE DATED MARCH 4, 2008 Appellant Altshuler admits that the mortgage executed on March 4, 2008 fits the definition of the Building Loan Mortgage Law [Lien Law § 2(14)] because it is the consolidation of a previous mortgage and the new construction loan into one lien upon the mortgaged property. (R. 378, 1f1f 7-8). The recitals in that mortgage confirm that it is expressly based upon the Original Loan Agreement as amended. (R. 61, 1f A). Here, neither the Original Loan Agreement nor its modifications were ever filed (R. 364-375) and the Supreme Court was correct in finding that the mortgage executed on March 4, 2008 was subordinate to the mechanic's lien of Respondent 27 CLEVELAN\52874 I 1.5-TBITTEL Hayner Hoyt because of Appellant Altshuler's failure to comply with Lien Law § 22. L. APPELLANT HAS SUBMITTED CONFLICTING AFFIRMATIONS AND AFFIDAVITS REGARDING THE MORTGAGE IT SEEKS TO FORECLOSE Appellant has filed conflicting affirmations and affidavits and has asserted contrary arguments regarding which mortgage it seeks to foreclose: (1) it filed a verified complaint seeking to foreclose the March 4, 2008 mortgage recorded on March 7, 2008 (Page 6 of the Complaint, R. 38);' and (2) to oppose Respondent's Motion for Summary Judgment it later filed an affidavit of Yair Lowenstein which contradicted the verified complaint and claimed Appellant was actually trying to foreclose a September 2005 mortgage. (R. 380, ~ 21). After having failed in both the Supreme Court and at the Fourth Department, Appellant now again admits that it is foreclosing the 2008 mortgage, but introduces its "expired" and "unenforceable" claim. Appellant's argument is fundamentally unfair. Neither the Supreme Court nor Respondents had an opportunity to address these arguments below. Respondents had no reason to seek discovery below or make argument in opposition to these previously unstated claims. 28 CLEVELAN\S287 411.5-TBITTEL ARGUMENT I. APPELLANT IS BARRED BY JUDICIAL ESTOPPEL. The motion for Permission to Appeal submitted to this Court by Appellant does not contain any of these words: "expired," "unenforceable," or "preliminary." When Appellant sought permission to appeal, it did not tell this Court that it would now contend that the Original Loan Agreement, fundamental to its successful $10,000,000 judgment, was really expired, preliminary, or unenforceable. It surely never spoke or wrote those words to the Supreme Court. The brief for Appellant filed on the merits of this case contain the words "expired," "unenforceable," and "preliminary" more than 38 times. As has been shown above, the Supreme Court relied upon affirmations and affidavits made by Appellant's General Manager and attorney in order to benefit Appellant with a judgment of $10 million, plus interest from the date of the now claimed expired agreement. After having obtained its judgment, it should not be allowed to change its position on this critical issue. In Riverside Syndicate, Inc. v. Victoria Munroe, et al., 2008 NY Slip Op 1028; 10 N.Y.3d 18; 882 N.E. 2d 875; 853 N.Y.S.2d 263; 2008 N.Y. February 7, 2008, the landlord adopted the position that a lease was illegal and void. That position was accepted by the Appellate Division. This Court then expressly warned the landlord that its position could not change in subsequent litigation. In 29 CLEVELAN\52874 I 1.5-TBITTEL an opinion written by Judge Smith, with the concurrence of Judges Graffeo, Read, Pigott, Jones, Cipatrick and Chief Judge Kay, this Court held, " ... having successfully argued that the agreement was void at inception, the landlord may not invoke the agreement in its own defense ... " Id. at 24. In this instant appeal, Appellant has argued more than 38 times that the underlying agreement was expired, preliminary or unenforceable. Those arguments should not be allowed because they are contrary to its assertions made in order to obtain the $10 million judgment plus interest from March 29, 2007. Any assertion that the Original Loan Agr/eement expired is incredible when measured against the sworn statements that on March 29, 2007 the Appellant " ... actually advanced $10,000,000.00 into an account for the benefit of the Owner Defendants on March 29,2007 ... " (CA-49.37, § 7; R. 313, ~ B). The pronouncements of the Appellate Divisions are also instructive to show the well-established jurisprudence of judicial estoppel. In Moore v. County of Clinton, 219 A.D.2d 131, 135 (N.Y. App. Div. 3d Dep't 1996) the court held: "Defendants obtained a judgment in their favor in the foreclosure action by representing to Supreme Court that the judgment of foreclosure would be subject to the tax sale deeds if any of the property described in the tax sale deeds was located within the mortgaged premises. Defendants' claim in this action that the judgment of foreclosure gives them title superior to the tax sale deeds is clearly inconsistent with the position taken by 30 CLEVELAN\5287411.5-TBITTEL Defendants in order to obtain the judgment in the foreclosure action. They are, therefore, estopped from changing their position ... " In Secured Equities Invs., Inc. v. McFarland, 300 A.D.2d 1137, 1138-1139 (N.Y. App. Div. 4th Dep't 2002) the court held: " ... we conclude that the action is further barred by the doctrine of judicial estoppels. The doctrine of judicial estoppel, also known as the "doctrine of estoppel against inconsistent positions[,] precludes a party from framing his pleadings in a manner inconsistent with a position taken in a prior judicial proceeding. [citations omitted] Here plaintiff's predecessor in interest secured a default judgment in its favor by adopting the position that it had properly accelerated the mortgage in the 1989 action. Plaintiff is therefore estopped in this action from adopting a contrary position, i.e., that there was never a proper acceleration of the mortgage, for purposes of avoiding the statute of limitations." The opinion of the court in Kimco of New York, Inc. v. Devon, 163 A.D.2d 573, 576 (N.Y. App. Div. 2d Dep't 1990), is particularly instructive and applicable to the attempt by Altshuler to now change its position with regard to the enforceability of the March 29,2007 agreement. The court in Kimco stated: "We find that defendant's adoption of inconsistent positions in pursuit of his own interests has sufficiently manipulated and impaired the dignity of judicial proceedings to require that he be stopped from claiming that the option is invalid and unenforceable. The defendant, having purchased the property at a bargain price subject to the option, cannot be heard now to deny its validity." 31 CLEVELAN\52874 I 1.5-TBITTEL As in Kimco, Altshuler is attempting to manipulate and impair the dignity of judicial proceedings which occurred below. This Court is requested to follow its own authority as set forth in Riverside Syndicate and to either summarily dismiss these proceedings by resettling its decision to grant leave to appeal or by ruling on the merits in favor of Respondent Hayner Hoyt. II. BECAUSE APPELLANT FAILED TO RAISE THE ARGUMENT THAT THE ORIGINAL LOAN AGREEMENT WAS EITHER "PRELIMINARY," "EXPIRED" OR "UNENFORCEABLE" IN THE LOWER COURT, THIS COURT SHOULD NOT CONSIDER SUCH ARGUMENT ON APPEAL. The Fourth Department followed longstanding precedent and refused to consider the argument asserted by Appellant that the Original Loan Agreement was a preliminary agreement that expired. Specifically, the Fourth Department stated: " ... we do not address plaintiff's contention that the 2007 Loan Agreement was a preliminary agreement that expired before the mortgage at issue was filed. That contention is raised for the first time on appeal and " 'could have been obviated or cured by factual showings or legal countersteps' " in Supreme Court (Dram v. Capone, 206 AD2d 839, 840)." (CA-16, 17). The Fourth Department decision is consistent with this Court's ruling in Quain v. Buzzetta Canst. Corp., 69 N.Y.2d 376 (1987). In a per curiam opinion this court stated: "The City's alternative argument supporting full recovery over, based on breach of contract, was not raised in the pleadings or in its motions before the trial court and is, thus, not properly before this court." Id. At 380. 32 CLEVELAN\52874 1 1.5-TBITTEL That decision by the Fourth Department is supported by many other Fourth Department cases including the following: ICSIExecutone Telecom, Inc. v. Performance Parts Warehouse, Inc., 171 A.D.2d 1066, 569 N.Y.S.2d 42, 43 (4th Dep't 1991). In ICSIExecutone, a summary judgment case, the Court refused to address defendant's argument stating "we do not consider defendant's argument ... because that argument is made for the first time on appeal." Id. In Catamount Enter. Ltd. v. Town of Lyons Assessors, 244 A.D.2d 913, 668 N.Y.S.2d 124 (4th Dep't 1997), the Fourth Department stated that "[b]ecause [a] contention is made for the first time on appeal, we do not consider it." "When an issue is not raised in a lower court, . . . it is not preserved for appellate review." Arvantides v. Arvantides, 106 A.D.2d 853, 854, 483 N.Y.S.2d 550, 551 (4th Dep't 1984); Enderby v. Keppler, 184 A.D.2d 1058, 584 N.Y.S.2d 364,365 (4th Dep't 1992). Accordingly, "a party may not urge grounds for appeal at the appellate level which were not first raised in the court of original instance." Van Wormer v. Leversee, 87 A.D.2d 942,943,451 N.Y.S.2d 237,238 (3d Dep't 1982). It is important to emphasize that notwithstanding the strength of this Appellate Division authority, this Court also has regularly held that new and different theories raised for the first time on appeal will not be considered: 33 CLEVELAN\52874 1 1.5-TBITTEL Rentways, Inc. v. O'Neill Milk & Cream Co., 308 N.Y. 342, 349 (N.Y. 1955) [Court of Appeals]: "an appellate court should not, and will not, consider different theories or new questions, if proof might have been offered to refute or overcome them had they been presented at the triaL" Lindlots Realty Corp. v. Suffolk County, 278 N.Y. 45, 52 (N.Y. 1938) [Court of Appeals]: "While this claim might have been urged under the general denial in the answer it was not raised or mentioned at the trial nor in the motion to dismiss. Hence this issue would not seem available upon appeal." In this case, at no time did Appellant Altshuler argue to the Supreme Court that the Original Loan Agreement was either "preliminary," "expired," or "unenforceable." The Supreme Court's Decision details all of the arguments that were made by Appellant Altshuler and clearly states a ruling on each argument. (R. 12-22). The Supreme Court's Decision is devoid of any discussion of whether the Original Loan Agreement was "preliminary," "expired," or "unenforceable" because Appellant Altshuler waited until appeal to raise such issues. One of Appellant's tactics is to use words that don't appear in the record. For example, the word "commitment" is used more than 97 times to mischaracterize the Original Loan Agreement. A word search of the 588 page record on appeal filed by Appellant does not contain that word even once. 34 CLEVELAN\52874 I 1.5-TBITTEL Based on this Court's longstanding precedent of refusing to address an argument made for the first time on appeal, this Court should not consider Question No.3 presented by Appellant Altshuler nor the arguments asserted by Appellant Altshuler in support of that question because Appellant Altshuler failed to raise those arguments in the lower court. III. THE THREE LOAN AGREEMENTS ARE UNFILED BUILDING LOAN CONTRACTS. Under Lien Law § 2(13), a building loan contract is defined as follows: Building loan contract. The term "building loan contract," when used in this chapter, means a contract whereby a party thereto, in this chapter termed "lender," in consideration of the express promise of an owner to make an improvement upon real property, agrees to make advances to or for the account of such owner to be secured by a mortgage on such real property, whether such advances represent moneys to be loaned or represent moneys to be paid in purchasing from or in selling for such owner bonds or certificates secured by such mortgage upon such real property, providing, however, nothing herein contained shall be deemed to construe as a building loan contract a preliminary application for a building loan made by such owner and accepted by such lender if, pursuant to such application and acceptance, a building loan contract is thereafter entered into between the owner and the lender and filed as provided in section twenty-two of this chapter. (emphasis added.) The determination as to whether a document is a building loan contract is a matter of law for the Court. HNC Realty Co. v. Bay View Towers Apartments, Inc., 64 A.D.2d 417, 409 N.Y.S.2d 774 (2d Dep't 1978). The interpretation of an 35 CLEVELAN\5287411.5-TBITTEL unambiguous contract is an issue to be decided as a matter of law by the Court. Oriskany Falls Fuel, Inc. v. Finger Lakes Gas Co., 186 A.D.2d 1021, 590 N.Y.S.2d 824 (2d Dep't 1992); Olson v. Kehoe Component Sales, Inc., 242 A.D.2d 902,903,662 N.Y.S.2d 647,648 (4th Dep't 1997). As was stated in FishIer v. FishIer, 2 A.D.3d 487, 488, 769 N.Y.S.2d 273, 275 (2d Dep't 2003), "The interpretation of a contract is a matter of law for the court." (citing 805 Third Ave. Co. v. M W. Realty Assoc., 58 N.Y.2d 447,451,448 N.E.2d 445 (1983)). Further, the FishIer court stated: "Where the contract is clear and unambiguous on its face, the intent of the parties must be gleaned from within the four comers of the instrument." FishIer, A.D.3d at 488, 769 N.Y.S.2d at 275 (citing Nichols v. Nichols, 306 N.Y. 490, 496, 119 N.E.2d 351 (1954)); Slatt v. Slatt, 64 N.Y.2d 966, 967, 447 N.E.2d 1099 (1985). This Court has stated that "[i]t is a primary rule of contract construction that where the terms of a written agreement are clear and unambiguous, the intent of the parties must be drawn from the contract language." Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 382, 445 N.Y.S.2d 333, 335 (4th Dep't 1981); Allright New York Parking, Inc. v. Shumway, 94 A.D.2d 962,963,463 N.Y.S.2d 968,970 (4th Dep't 1983). 36 CLEVELAN\52874 1 1.5-TBITTEL The record (R.364-375) unequivocally shows that none of the three agreements to which Appellant Altshuler is a party and under which it purports to have lent money to the GML parties were filed as required by Lien Law § 22. There is no doubt that the $4.5 million agreed to in the unfiled Original Loan Agreement was used to fund construction as agreed. The fact that Appellant Altshuler and its borrowers decided between themselves to use some sort of offshore restricted or trust account (CA-49.37, ~ 7), (R. 275), (R. 356, ~ 3), to pay the money for a construction project in New York does not excuse compliance with Lien Law § 22. Based upon the statutory definition of a Building Loan Contract and the uncontested facts of this case, the lower court correctly determined that the Original Loan Agreement constituted an unfiled Building Loan Contract as did the MOU and Amendment No.1. IV. FAILURE TO FILE THE ORIGINAL LOAN AGREEMENT IS THE FIRST VIOLATION OF LIEN LAW § 22. Lien Law § 22 expressly states that: A building loan contract... and any modification thereof. .. must contain true statement under oath, verified by the borrower, showing the consideration paid or to be paid, ... and, on or before the date of recording the building loan mortgage made pursuant thereto, to be filed in the office of the clerk of the county in which any part of the land is situated,.... If not so filed the interest of each party to such contract in the real property affected thereby, is subject to the lien and claim of a 37 CLEVELAN\52874 1 1.5-TBITIEL person who shall thereafter file a notice of lien under this chapter .... (emphasis added) By its language, § 22 provides for consideration to have been paid either before .or after the Building Loan Contract but mandates that the Building Loan Contract be filed before the recordation of the Building Loan Mortgage. Any argument by Appellant Altshuler regarding the timing of the payments which it made is contradicted by the text of Lien Law § 22. That section uses past and ) future verb tense to anticipate payments either before or after the execution of the Building Loan Contract. Appellant Altshuler violated § 22 when it failed to file the Original Loan Agreement as required under the statute. The subordination of Appellant Altshuler's lien to Respondent Hayner Hoyt's mechanic's lien is supported by Nanuet Nat'l Bank v. Eckerson Terrace, Inc., 47 N.Y.2d 243, 391 N.E.2d 983 (1979). In the Nanuet decision, this Court held that: Resolving a dichotomy among departments of the Appellate Division on a matter of no small consequence to the construction and banking industries, we hold that under section 22 of the Lien Law a lender that knowingly files a building loan contract that materially misrepresents the net sum available to the borrower for the improvement suffers a subordination of its mortgage to subsequently arising mechanics' liens. Id. at 245; 391 N.E.2d at 984. In the case now before this Court, the violation of § 22 by Appellant Altshuler was even more egregious in that it completely ignored § 22 and failed to 38 CLEVELAN\52874 I 1.5-TBITTEL record not only the Original Loan Agreement but subsequent amendments to that contract. As in Nanuet, the claimed mortgage of Appellant Altshuler was properly subordinated to Respondent Hayner Hoyt's mechanic's lien. The Nanuet court expressly affirmed the lower court's ruling that this issue was properly resolved in favor of the mechanic's lien holder on summary judgment. V. FAILURE TO FILE THE MOD DATED MAY 1, 2007 IS A SECOND VIOLATION OF LIEN LAW § 22. Lien Law § 22 provides that subsequent modifications of building loan contracts " ... must be filed within ten days after the execution of any such modification." The May 1,2007 MOD caused a fundamental change regarding the control of funds being paid as a result of the Original Loan Agreement, but it was not filed as required by § 22. Specifically, the Original Loan Agreement called for an escrow account and a "restricted account" to be set up, each of which would be set up in the name of the Borrower. The MOD states that these accounts are now to be " ... maintained by the lender - instead of the borrowers." (R. 356, ~ 3a). Control of the funds for the construction project is a critical and essential term of a building loan contract. It is well settled that where an essential term of a building loan contract was changed· the failure to file the modification as required by § 22 allows the mechanic's lien to gain priority over the lender's claimed mortgages. Security Nat 'I Bankv. Vill. Mall at Hillcrest, Inc., 85 Misc. 2d 771,382 N.Y.S.2d 882 (Sup. 39 CLEVELAN\52874 I 1.5-TBITTEL Ct., Queens Co. 1976). Because Appellant Altshuler failed to file the modification, Respondent Hayner Hoyt's mechanic's lien gained priority over Appellant Altshuler's claimed mortgage. VI. FAILURE TO FILE AMENDMENT NO.1 DATED MARCH 4, 2008 IS A THIRD VIOLATION OF LIEN LAW § 22. Having failed to file both the Original Loan Agreement and the May 1, 2007 MOD, Appellant Altshuler continued to violate § 22·by restating and significantly amending the Original Loan Agreement on March 4, 2008 and then failing to file that new agreement. Amendment No. 1 reflects a series of fundamental modifications to the transaction that required filing. Those modifications include, but are not limited to, a statement that only $2 million plus accrued interest of $74,000 remained (R. 319); a statement that $2,500,000 had been previously distributed pursuant to advance letters (R. 327, Section 4.2); a fundamental change in the project to develop units for lease rather than for sale (R. 314, , H); and a release of the remaining loan funds from trust ($2,074,000) directly to GML Tower (R. 315, , I). In Security Nat'l Bank, the court held that a change in the project's scope from rental units to condominiums for sale was a material change in the building loan contract requiring filing. Security Nat'l Bank, 85 Misc. 2d at 785, 382 i N.Y.S.2d at 893. The court, in that case, further found in that case that the lender's 40 CLEVELAN\52874 I 1.5-TBITIEL lien was subordinate to those of the mechanic's lien due to failure of compliance with § 22 because the modification was not filed. VII. THE FAILURE OF APPELLANT ALTSHULER TO FILE THE THREE LOAN AGREEMENTS MAKES THE HAYNER HOYT MECHANIC'S LIEN SUPERIOR TO ANY MORTGAGE CLAIM OF APPELLANT ALTSHULER. Lien Law § 22 expressly requires that "[aJ building loan contract ... and any modification thereof must. . . be filed in the office of the clerk of the county in which any part of the landis situated ... any subsequent modification ... must be filed within ten days after the execution." A party's failure to comply with § 22's filing requirements results in such party's interest being "subject to the lien and claim of a person who shall thereafter file a notice of lien." P. T. McDermott, Inc. v. Lawyers Mortgage Co., 232 N.Y. 336,348, 133 N.E. 909, 914 (1922). None of the three building loan contracts to which Appellant Altshuler and the Borrowers were parties have been filed as required by § 22. (R.364-375). This exact same situation has been repeatedly addressed by the courts in this state. In Dearstine v. Carpenter, 106 Misc. 102, 173 N.Y.S. 875 (Sup. Ct., Schenectady Co. 1919), the court was faced with a fact pattern virtually identical to the one now before this Court. In Dearstine a mortgage was recorded, work was performed, advances were made and then a mechanic's lien was filed. The court found that the mechanic's lien was superior to the prior recorded mortgage because the building loan contract was not filed as required by Lien Law § 22. 41 CLEVELAN\S287411.S-TBITIEL In the case now at Bar, the Court is presented with an even more compelling factual pattern than in Dearstine. In Dearstine, the construction work commenced after the mortgage was recorded. In this case the construction work of Respondent Hayner Hoyt commenced prior to the recordation of the mQrtgage which Appellant Altshuler seeks to foreclose in this case. The fact pattern in the Dearstine case and the instant case is demonstrated in the following table. DEARS TINE CASE AL TSHULERIHA YNER HOYT CASE BUILDING LOAN 10/12/1917 312912007 CONTRACT 5/112007 3/4/2008 WORK PERFORMED 11/8/1917 TO 121711917 7116/2007 TO 9/5/2008 ADVANCES MADE 1112/1917 5/112007 1116/1917 5/24/2007 11112/1917 10122/2007 11117/1917 11122/2007 1112111917 113112008 2128/2008 3/612008 DATE OF MORTGAGE 1011111917 31712008 RECORDED AT ISSUE IN LITIGATION MECHANIC'S LIEN 121711917 10/3112008 FILED 42 CLEVELAN\52874 I 1.5-TBITTEL As in Dearstine, this Court should find that the mechanic's lien of Respondent Hayner Hoyt is superior to the mortgage claimed by Appellant Altshuler. In Sackman-Gilliand Corp. v. Lupo, 55 A.D.2d 1008,391 N.Y.S.2d 229 (4th Dep't 1977), this Court affirmed the lower court determination that to the extent the mechanics' liens were proven valid and enforceable by trial on the merits they were superior to the earlier recorded mortgages. The finding was based upon the fact that modifications to the building loan contract were not duly filed as required by Lien Law § 22. In the case of P.T. McDermott, Inc. v. Lawyers Mortgage Co., 232 N.Y. 336, 133 N.E. 909 (1922), Judge Pound, in a majority opinion which included Judge Cardozo, expressly found: The Lien Law (§ 22) means literally that if the building loan contract is not filed ''the interest of each party to such contract in the real property affected thereby, is subject to the lien and claim of a· person who shall thereafter file a notice of lien." ... When the mortgage, prior in time of record, becomes subject to a mechanic's lien, prior in law, the mortgage is subordinated thereto as an encumbrance on the real estate, ... "Subject to" as used in this connection is synonymous with "subordinate to" or "inferior to." Id. at 348-49, 133 N.E. at 913-14. Appellant is really seeking a reversal of Nanuet, supra and the clear pronouncement set forth by Judge Pound for the majority of this Court. The opinion in P. T. McDermott has stood for more than 90 years.' It is respectfully 43 CLEVELAN\52874 1 1.5-TBIITEL argued that the nonstandard business transaction created by Appellant does not even serve as an appropriate vehicle to consider changes in this Court's interpretation of Lien Law § 22, yet alone reverse P. T. McDermott and Nanuet. The P. T. McDermott court reversed a lower court finding that the mortgage was subordinated to the mechanic's lien, but the' reversal was based on a finding that the lien did not attach to the mortgage debt or to the mortgage itself. This is . not an issue in this case. This Court used P. T. McDermott to explain the meaning and import of Lien Law § 22 and stated the: " ... object is ... also to inform such contractors of the amounts to be advanced and the times of such advances. at Id. at 911. In Rosenblum v. Tilden Improvement Co., 136 A.D. 743, 121 N.Y.S. 510 (2d Dep't 1910), the court commented that the following quotation from the case of Pennsylvania Steel Co. v. Title Guar. & Trust Co., 50 Misc. 51, 60, 100 N.Y.S. 299 (Sup. Ct., New York Co. 1906), aff'd 120 A.D. 879, 105 N.Y.S. 1135 (1st Dep't 1907), rev'd on other grounds 193 N.Y. 37, 85 N.E. 820 (1908), was a "fair ~ statement of the purpose of the statute" Rosenblum at 746. The court in Pennsylvania Steel stated: The statute is a safeguard against secret arrangements between lender and owner or contractor. It commands that all agreements or modifications thereof be filed. The object is to acquaint the materialman with the exact amount of money to be advanced, the purposes to which it is to be applied and the times when or the stages of 44 CLEVELAN\S287411.5-TBITTEL construction at which advances are to be made. In the terms of the agreement is he to find a guide to his dealings with the owner or contractor. Therefore, the agreement filed should be a true agreement. Nothing should be left to conjecture. The materialman is not called upon to inquire beyond the actual terms of the filed instrument. The agreement is his source of information; the statute his protection. In the event of failure to comply with the statute, the interest in the real property of each party to the agreement is subjected to the lien and claim of the materialman thereafter filing his notice of lien. 50 Misc. at 60, 100 N.Y.S. at 299. The unfiled Original Loan Agreement between Appellant Altshuler and Borrowers is a poster child for the type of "secret arrangements" referenced in the Pennsylvania Steel case. The parties even labeled it "confidential." They thereby indicated a conscious decision to not make the agreement a public filed document as mandated by § 22. Unknown to Respondent Hayner Hoyt and the other contractors performing work on the GML Tower, the parties secretly agreed: (1) That the loan proceeds were inadequate to complete construction and the "additional amount" (emphasis contained in original) of $2.4 million would be deposited in a "restricted account" to fund construction. The $2.4 million was to be provided by "initial sales proceeds" of the condominiums to be constructed. (R. 287, ~ 5.12). 45 CLEVELAN\52874 I 1.5-TBITTEL (2) That the funds available for construction would be reduced by Appellant Altshuler's costs and expenses for attorneys' fees, inspection fees, an independent supervising architect and/or an engineering specialist. (R. 291, ~ 6.2). (3) That the initial sales proceeds from the first twenty condominium units to be sold should equal or exceed $7.2 million (an average of $360,000 per unit). (R. 292, ~ 6.3). These secret arrangements are critically important to demonstrating the financial viability or non-viability of the construction improvement project. Had this information been available, then Respondent Hayner Hoyt and other contractors would have had the ability to make an informed decision as to the business risk involved by providing labor and materials for construction of the improvements. Had Respondent Hayner Hoyt known that the parties were forecasting an average sale price of $360,000, it then would have been able to evaluate if that forecast was reasonable based upon market conditions and in the words of the Pennsylvania Steel court, it would have found "a guide to [its] dealings with the owner ... " Pennsylvania Steel, 50 Misc. at 60, 100 N.Y.S. at 299. Amendment No.1 shows even more secret arrangements between Appellant Altshuler and the Borrowers which critically impact the financial viability of the construction project. For example, in Amendment No.1 Appellant Altshuler and 46 CLEVELAN\52874 1 1.5-TBITTEL the Borrowers agreed: (1 ) to delete the requirement to pay the additional $2.4 million as an "additional amount" to finance construction; and (2) to change the financial underpinnings of the construction project by switching to apartment units for rent as opposed to condominium units for sale. (R. 314, 315, ~ h). The agreement is simply silent as to how or if the previously agreed upon $2.4 million shortfall in construction funding is to be paid. In order to enforce the purpose of the statute, courts have not been reluctant to make the Building Loan Mortgage subordinate to a subsequently filed mechanic's lien where there has been a failure to file the Building Loan Contract or its modifications pursuant to Lien Law § 22. (See,e.g., Sackman-Gilliand, 55 A.D.2d 1008,391 N.Y.S.2d 229 (4th Dep't 1977». In HNC Realty Co. v. Bay View Towers Apartments, Inc., 64 A.D.2d 417, 409 N.Y.S.2d 774 (2d Dep't 1978), the court explained the relationship of sections 13 and 22 and found that the mechanic's lien was superior to a mortgage. The court explained: The issue in this case is whether certain mechanics' liens are entitled to priority as against the lien of a building loan mortgage in the application of the proceeds of a foreclosure sale. Section 13 of the Lien Law provides that the lien of a building loan mortgage shall be superior to mechanics' liens provided, inter alia, that the building loan contract is filed as required by section 22 of the Lien Law. Section 22 provides that a building loan contract, and any modification thereof, must be in writing and, on or before the date of recording the building loan 47 CLEVELAN\S287411.5-TBITTEL mortgage made pursuant thereto, must be filed in the office of the clerk of the county in which the land is situated. Any subsequent modification of the contract must be filed within 10 days after the execution of such modification. If not so filed, the interest of each party to the contract in the real property affected thereby is subject to the claims of persons who thereafter file mechanics'liens. Id. at 419-20,409 N.Y.S.2d at 776. Here, Appellant Altshuler's mortgage sought to be foreclosed identifies the Original Loan Agreement and its amendments and seeks to consolidate the prior mortgage with the construction loan financing precisely as had been repeatedly agreed to by Appellant Altshuler and the Borrowers. The Affidavit of Yair Lowenstein, the General Manager of Appellant Altshuler (R.376-383) shows that on March 29, 2007 the parties actually completed funding of the transaction to which they agreed. The fact that Appellant Altshuler and its Borrowers apparently entered into a course of conduct which claims some of the financing was made on an unsecured basis (R. 379, , 18) does not change the fact that the parties agreed to enter into a Building Loan Contract and, in fact, completed the terms of that contract. Mr. Lowenstein's affidavit shows that Appellant Altshuler and the Borrowers either agreed to waive certain security requirements or, simply, they entered into additional modifications of the Building Loan Contract which were not filed under Lien Law § 22 and therefore made additional violations of Lien 48 CLEVELAN\52874 I 1.5-TBITTEL Law § 22, which support the subordination of Appellant Altshuler's mortgage as found by the court below. Appellant Altshuler's desire to avoid the application of Lien Law § 22 is shown when it attempted to make the Loan Agreement governed by the laws of Israel. (R. 308, ~ 11.13) The applicability of that choice of law, as it may determine the rights between Appellant Altshuler and its Borrowers is not presented as an issue to this Court because in this case there is no claim between, J those entities. Appellant Altshuler and its Borrowers cannot contract to violate New York law and thereby cut off the rights of New York contractors to file a mechanic's lien on property in Onondaga, County. Its claim that the agreement should be severed can't trump New York Lien Law § 22. The state legislature has created a comprehensive senes of statutes to determine and define the requirements for mechanic's liens, Building Loan Contracts, Building Loan Mortgages and the priorities to be established under law among parties who claim liens on property in this state. (Lien Law §§ 3-39-c) Inherently, liens attaching to real property in the State of New York are governed by New York law. Respondent Hayner Hoyt was not in privity to the loan agreements between Appellant Altshuler and its Borrowers. The state legislature has made it abundantly clear that the entire system of filing and recordation has been created so 49 CLEVELAN\52874 I 1.5-TBITTEL that third parties not in privity with lenders such as Appellant Altshuler shall be entitled.to rely upon the statutory scheme of recordation and filing. Lien Law § 22 is clear and absolute. It requires Building Loan Contracts and modifications of such contracts " ... to be filed in the office of the clerk of the county in which any part of the land is situated .... " (emphasis added.) The statute further contains the unequivocal consequence of failure to file and provides: .. .If not so filed the interest of each party to such contract in the real property affected thereby, is subject to the lien and claim of a person who shall thereafter file a notice of lien under this chapter. Additionally, the lower court correctly reasoned that if a lender fails to comply with the requirements of the Lien Law § 22, its entire mortgage would become subordinate to any subsequently filed mechanics' liens: Based on Section 22's language describing a building loan contract "either with or without the sale of land," the court finds that "if a lender fails to comply with the requirements of the Lien Law, its entire mortgage, including that part securing loan proceeds advanced for the purchase of the property, would become subordinate to any subsequently filed mechanic's liens." Atlantic Bank of New York v. Forrest House Holding Co., 234 A.D.2d 491, 492 (2d Dep't 1996); see also HNC Realty Co. v. Golan Heights Developers, Inc., 79 Misc.2d 696, 702-03 (Rockland Co. 1974). In Nanuet Nat'l Bank, the Court of Appeals also subjected a bank's entire interest in a building loan mortgage to that of the mechanic's lienors. 47 N.Y.2d at 248-49. The court declines to follow Yankee Bank for Fin. & Sav. v. Task Assocs., Inc., 731 F. Supp. 64, 71 n.2 (N.D.N.Y. 1990), which gave priority to the lender for loan proceeds used to 50 CLEVELAN\52874 I 1.5-TBITTEL purchase real property on the erroneous assumption that building loan contracts and building loan mortgages only concern improvements on real property. Section 22 governs building loan contracts that involve both improvements and the sale of land. (R. 21). The argument asserted by Appellant Altshuler asks this Court to rewrite Lien Law § 22 and to overrule the holding in p~ T. McDermott, supra. The statute simply makes no provision for splitting a defective building loan mortgage. VIII. CONCLUSION AND REQUEST FOR RELIEF Procedural Relief After having had an opportunity to review the record and the briefs of the parties, and after having noted the conduct of Appellant Altshuler in failing to protect the record below and in actually asserting arguments in the Supreme Court contradictory to those in this appeal, this Court is requested to resettle its order granting leave to appeal and to withdraw such leave. Substantive Relief Should this Court not resettle its order granting leave to appeal, the documents and the conduct of the parties overwhelmingly show that Appellant Altshuler entered into a Building Loan Contract on March 29, 2007. It then failed to comply with Lien Law § 22 by: 1. Not filing the Original Loan Agreement. 2. Not filing two amendments to the Original Loan Agreement. 51 CLEVELAN\52874 I 1.5-TBITTEL 3. Recording mortgage documents which contain materially different terms than did the Original Loan Agreement. Based upon the foregoing, the decision of the lower courts should be upheld and all costs of this proceeding should be taxed to Appellant Altshuler. HAHN LOESER & PARKS LLP BT~~~ lmoth)1MBi\tel OF COUNSEL: Gilberti Stinziano Heintz & Smith, PC 555 East Genesee Street Syracuse, New York 13202-2159 Tel: (315) 442-0124 Fax: (315) 442-0106 5287411.4 Admitted pro hac vice Counsel for Defendant-Respondent The Hayner Hoyt Corporation 200 Public Square, Suite 2800 Cleveland, Ohio 44114 Tel: (216) 274-2210 Fax: (216) 274-2562