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: JORDAN R. PAVLUS, ESQ. Time Requested: 10 Minutes Court of Appeals STATE OF NEW YORK BRIEF FOR DEFENDANTS-RESPONDENTS SYRACUSE MERIT ELECTRIC, A Division of O'CONNELL ELECTRIC CO. INC., and TAG MECHANICAL SYSTEMS, INC. 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. BYRNE, COSTELLO & PICKARD, P.C. Attorneys for Defendants-Respondents Syracuse Merit Electric, A Division of O'Connell Electric Co., Inc. and TAG Mechanical Systems, Inc. 100 Madison Street, Tower 1, Suite 1600 Syracuse, New York 13202-2721 Phone No. (315) 474-6448 Fax No. (315) 474-6448 Brief Completed on: January 29, 2013 Of Counsel: JORDAN R. PAVLUS, ESQ. TERRY R. PICKARD, ESQ. Echo Appellate Press, Inc. • 30 West Park Avenue • Long Beach, New York 11561 • (516) 432-3601 Printed on Recycled Paper 19675 COURT OF APPEALS STATE OF NEW YORK. ALTSHULER SHAHAM PROVIDENT FUNDS, LTD., P la in tifJ-Appellant, -against- GML TOWER LLC, GML ADDIS LLC, AMErus HOLDINGS, INC., LEVY KUSHNER and FINANCITECH, Onondaga County Clerk's Index No.: 2008- 9348 4th Department Index No.: 10-01745 LTD., DISCLOSURE Defendants, -and- STATEMENT PURSUANT TO RULE 500.1(1) 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. Syracuse Merit Electric is a division of O'Connell Electric Co., Inc., a company organized under the laws of the State of New York, which performs electrical contracting work in the State of New York, is a private company and no shares are publicly traded. TAG Mechanical Systems, Inc., a company organized under the laws of the State of New York, which performs HV AC contracting work in the State of New York, is a private company and no shares are publicly traded. Dated: Syracuse, New York January 29,2013 BYRNE, COSTELLO & PICKARD, P.C. ~~~? ~lus,Esq. Terry R. Pickard, Esq. Byrne, Costello & Pickard, P.C. Attorneys for Defendants-Respondents Syracuse Merit Electric, a Division of O'Connell Electric Co., Inc. and TAG Mechanical Systems, Inc. Tower I, Suite 1600 100 Madison Street Syracuse, New York 13202-2721 Telephone: (315) 474-6448 Facsimile: (315) 424-8556 TABLE OF CONTENTS PAGE Preliminary Statement ............................................... 1 Questions Presented ................................................. 2 Procedural Facts ................................................... 3 Decisions Below .................................................... 5 Argument ......................................................... 8 Point I - Altshuler's New Arguments Need Not Be Considered ......................................... 8 Point II - Altshuler's Contradictory Arguments Are Precluded By Judicial Estoppel .................................... 8 Point III - Altshuler Is Precluded From Making Arguments For The First Time On Appeal ................................ . . . . 9 Point IV - The Rarely Invoked Exception For New Points Of Law Does Not Apply ....................................... 11 A. Altshuler's New Arguments Could Have Been Obviated By Factual Showings in Supreme Court ................... 12 1. The March 29, 2007 Loan Agreement Was Not "Preliminary", "Unenforceable", "Expired" or a "Commitment" ............................... 12 11. The March 29, 2007 Loan Agreement Was Binding, Whether Or Not It Was Negotiated in Israel ........ 20 111. The Amendment No.1 Was Not Merely A "Commitment" ............................... 22 B. Altshuler's New Arguments Could Have Been Obviated By Legal Countersteps In Supreme Court .................. 23 Point V - Altshuler Entered Into A Series Of Unique Transactions Which Also Failed To Comply With Lien Law § 13 And It Concedes This Point On Appeal ............................... 27 Conclusion ...................................................... 29 11 TABLE OF AUTHORITIES CASES PAGE Atlantic Bank of New York v. Forrest House Holding Co .. 234 A.D.2d 491, 492 (2nd Dept. 1996) ............................... 7, 24 Bingham v. New York Trans. Auth., 99 N.Y.2d 355, 359, 786 N.E.2d 28, 756 N.Y.S.2d 129 (2003) ......................................... 10, 11, 20 County of Nassau v. Cuomo, 69 N.Y.2d 737,741,504 N.E.2d 689,512 N.Y.S. 362 (1987) ....................................................... 26 Gramercy Equities Corp. et ai. v. Dumont, 72 N.Y.2d 560, 565, 531 N.E.2d 629, 534 N.Y.S.2d 908 (1988) ........................................... 26 Gregory, et ai. v. ~oard of Appeals of the Town of Cambria, et aI., 57 N.Y.2d 865, 867,442 N.E.2d 437,456 N.Y.S.2d 39 (1982) .......................... 26 HNC Realty Co. v. Bay View Towers Apartments, 64 A.D.2d 417, 420 (2nd Dept. 1978) ................................. 5, 7 HNC Realty Co. v. Golan Heights Developers, Inc., 79 Misc.2d 696, 702-03 (Rockland Co. 1974) ........................... 24 Howard Say. Bank v. Lefcon P'ship, 209 A.D.2d 473, 475 (2nd Dept. 1978) ................................................ 5 Kimco of New York, Inc. v. Devon, 163 A.D.2d 573, 576 (2nd Dept. 1990) ..... 9 Misicki v. Caradonna, 12 N.Y.3d 511,518-519,909 N.E.2d 1213,1218,882 N.Y.S.2d 375, 380-381 (2009) ....................................... 11 111 Monroe Savings Bank v. First National Bank of Waterloo, et aI, 50 A.D.2d 314 (4th Dept. 1976) .................................. 27 Moore v. County of Clinton, 219 A.D.2d 131, 135 (3fd Dept. 1996) ........... 9 Morgan et at. v. State of New York, 90 N.Y.2d 471, 487, 685 N.E.2d 202, 662 N.Y.S.2d 421 (1997) .............................................. 19 Nanuet Nat'l Bank v. Eckerson Terrace, Inc., 47 N.Y.2d 243 (Ct. App. 1979) .................................. 7, 24, 25 North Fork Bank v. Cohen & Krassner, 44 A.D.3d 375, 376 (1 st Dept. 2007) ... 9 Quain et at. v. Buzzetta Construction Corp., 69 N.Y.2d 376,380,507 N.E.2d 294, 514 N.Y.S.2d 701 (1987) ........................................... 28 Riverside Syndicate, Inc. v. Victoria Munroe, et aI, 10 N.Y.3d 18, 853 N.Y.S.2d 263, 882 N.E.2d 875 (2008) .......................................... 9 Saratoga County Chamber of Commerce, Inc. v. Pataki, 100 N.Y.2d 801, 824-825, 766 N.Y.S.2d 654, 798 N.E.2d 1047 (2003), cert. denied, 540 U.S. 1017, 124 S. Ct. 570, 157 L.Ed. 2d 430 (2003) ...................................... 8 Secured Equities Invs, Inc. v. McFarland, 300 A.D.2d 1137, 1138-1139 (4th Dept. 2002) ............................................................. 9 State of New York v. Avco Financial Service of New York, Inc., 50 N.Y.2d 383, 386-387, 406 N.E.2d 1075, 429 N.Y.S.2d 181 (1980) .................... 18 Telaro v. Telaro, 25 N.Y.2d 433.439, 255 N.E.2d 158 306 N.Y.S.2d 920 (1969) ............................................ 10, 26 STATUTES CPL §430.20 ..................................................... 26 CPLR 5025(a) .................................................... 18 IV Lien Law Section 2 .......................................... 1, 6, 16, 20 Lien Law Section 13 ..................................... 2, 3, 27, 28, 29 Lien Law Section 22 .................. 1, 2, 3, 5, 6, 12, 17, 18, 23, 24, 28, 29 OTHER Karger, Powers of the New York Court of Appeals [3d ed rev] ...... 8, 11, 12,26 v PRELIMINARY STATEMENT This Brief is submitted in opposition to the Appeal from the Order of the New York State Supreme Court in and for the County of Onondaga (Karalunas, J.) entered May 20, 2010, and the Memorandum and Order of the Fourth Department Appellate Division entered April 29, 2011, which affirmed.the Supreme Court Order. All references to the Record on Appeal herein are abbreviated as "R" and "CA" with the corresponding pages from the Record on Appeal noted. This appeal involves questions of priority under § 22 of the Lien Law between a mortgage recorded on March 7, 2008 (R. 60.) by Altshuler Shaham Provident Funds, Ltd. (hereinafter referred to as "Altshuler," which is the successor in interest and substituted plaintiff for Perfect Provident Funds, Ltd.) and certain mechanic's liens. The Supreme Court below correctly held: (a) that the March 29, 2007 agreement (R. 271) is a "building loan contract" as defined in § 2( 13) of the Lien Law; (b) that Altshuler failed to file the March 29, 2007 agreement as required by Lien Law § 22; and (c) that as a result of this Lien Law § 22 violation, the mortgage recorded on March 7, 2008 is subject to mechanic's liens filed against a fifteen (15) floor Hotel property located in Syracuse, New York (hereinafter referred to as the "Tower Property"). 1 QUESTIONS PRESENTED 1. Can the New York Court of Appeals decide this matter without considering Altshuler's new arguments? Answer: Yes. 2. Are Altshuler's new arguments precluded by Judicial Estoppel? Answer: Yes. 3. Is Altshluer precluded from making new arguments for the first time on appeal? Answer: Yes. 4. Is the rarely invoked exception to the preclusion of new arguments applicable to the instant case? Answer: No. 5. Did Altshuler enter into a series of unique transactions which violated sections 22 and 13 of the Lien Law? Answer: Yes. 2 PROCEDURAL FACTS Altshuler commenced this action by filing a Summons and Verified Complaint (R. 35) on or about December 4, 2008, seeking to foreclose a mortgage against two parcels of property. The relevant property for purposes of this appeal is the Tower Property, on which the Defendants-Respondents performed work and filed mechanics liens. On December 3, 2009, The Hayner Hoyt Corporation ("Hayner Hoyt"), by notice of motion, moved for summary judgment declaring that, pursuant to Lien Law § 22, its mechanic's lien filed against the Tower Property was superior in priority to the Altshuler mortgage recorded on March 7, 2008. (R.23). On January 19,2010, Syracuse Merit Electric, a Division of O'Connell Electric Co., Inc. ("Syracuse Merit"), by notice of cross motion, moved for summary judgment declaring that, pursuant to § 13 of the Lien Law, its mechanic's lien filed against the Tower Property was superior in priority to $4.5 million secured by the mortgage Altshuler recorded on March 7, 2008. (R.484). On January 20,2010, The Pike Company, Inc. ("Pike"), by notice of cross motion, moved for summary judgment declaring that, pursuant to Lien Law § 22, its mechanic's lien filed against the Tower Property was superior in priority to the mortgage Altshuler recorded on March 7, 2008. (R. 537). Altshuler opposed all of the motions. (R. 376-483, R3 574). 3 On May 20, 2010, the Supreme Court below entered an Order (1) granting the motion of Hayner Hoyt (2) granting the cross motion of Syracuse Merit, except as to attorney's fees and costs, and (3) granting the cross motion of Pike to the extent its lien was superior to the Altshuler mortgage. (R. 10-11). On April 29, 2011, the Supreme Court Order was affirmed by the Fourth Department Appellate Division. (CA 16-17). On July 1, 2011, the Fourth Department Appellate Division denied an application for leave to appeal to the Court of Appeals filed by Altshuler. (CA 64). On October 5, 2011, an agreed upon form of final order for judgment of foreclosure and sale was presented to the Supreme Court by way of an order to show cause filed by Altshuler (CA 49.1). On October 26, 2011, the order was modified, signed and. entered by the Supreme Court. (CA 54-63). On February 9, 2012 the Court of Appeals dismissed Altshuler's motion for leave to appeal (CA 46) and subsequently denied Altshuler's motion to reargue. (CA 47). On February 28, 2012, Hayner Hoyt filed a motion to remove the stay language in the previously entered foreclosure order for judgment. On March 29, 2012, the Supreme Court granted said motion (CA 21-23) and a foreclosure sale of the subject property was conducted on June 6, 2012. (CA 12-14). On July 13,2012, the Supreme 4 Court entered an order confirming the referee's report of sale. (CA 4-11). On August 9,2012, Altshuler filed a second motion for leave to appeal to the Court of Appeals, which was granted on October 23, 2012. (CA 3). DECISIONS BELOW The Supreme Court Decision below correctly couched the crux of the determination as such: "[i]f Section 22 applies to the March 29, 2007 Loan Agreement that plaintiff never filed, then plaintiff s mortgage is subordinate to the liens subsequently filed by those who provided services and materials for the project. Howard Save Bank v. Lefcon P'ship, 209 A.D.2d 473, 475 (2nd Dept. 1978); HNC Realty Co. v. Bay View Towers Apartments, 64 A.D.2d 417,420 (2nd Dept. 1978)." (R. 18). After setting forth the definition of "building loan contract" pursuant to Lien Law § 2(13), the Supreme Court correctly stated the following undisputed facts in holding that the March 29, 2007 agreement fits the definition of a "building loan contract: " The March 29, 2007 Loan Agreement on its face comports with the definition of a building loan contract. It is between a lender and the owner of real property. In the agreement, the owner makes an express promise to make improvements on the property. See~, March 29,2007 Loan Agreement §§ 4.4.2, 6.1.1, 7.1 The lender agrees to make periodic advances of$4.5 million to fund the improvements. See Ld. § 7 The lender was to be kept apprised of construction progress. See Ld. § § 7.1.3, 8. The agreement contemplates that 5 the $10 million loan will be secured by a mortgage on real property. See i.d. § 3. In a miscellaneous provision, the agreement even labels itself a "construction loan transaction[]" in which "construction financing is being provided by Lender." Id. § 11.9. CR. 19.) In making its holding, the Supreme Court addressed each and every argument Altshuler put forth in opposition to the motions for summary judgment. Althsuler only made three arguments in the Supreme Court: • The March 29, 2007 loan agreement was not a building loan contract because the $4.5 million loan provided for therein was advanced on an unsecured basis before the mortgage was recorded on March 7, 2008. • The March 7, 2008 mortgage was not a building loan mortgage because it did not "consolidate" the previous mortgage. • Even if the March 29, 2007 loan agreement was a building loan contract that should have been filed pursuant to Lien Law § 22, $5.5 million of its mortgage should retain priority over mechanic's liens. The Supreme Court correctly rejected the first argument in ruling that § 22 of the Lien Law requires a building loan contract to be filed regardless of whether a building loan mortgage is executed or recorded. CR. 20). The Supreme Court correctly rejected the second argument in holding that the mortgage recorded on March 7, 2008 was a building loan mortgage because it consolldated the previous mortgages to create one lien on the property. CR. 21~22). See Lien Law § 2( 14 ). 6 The Supreme Court correctly rejected the last argument put forth by Altshuler as well. Relying on Atlantic Bank of New York v. Forrest House Holding Co., 234 A.D.2d 491, 492 (2nd Dept. 1996); HNC Realty Co. v. Golan Heights Developers, Inc., 79 Misc.2d 696, 702-03 (Rockland Co. 1974); and Nanuet Nat'l Bank v. Eckerson Terrace, Inc. 47 N.Y.2d 243, 391 N.E.2d983,417N.Y.S.2d90l (1979), the Supreme Court held that because § 22 of the Lien Law describes a building loan contract "with or without the sale of land," the entire Altshuler mortgage was subordinate to the mechanics liens on the Tower Property. (R.21). Every single remaining argument advanced by Altshuler on this appeal was not made in the Supreme Court and Altshuler concedes this point. (Altshluer brief at page 24-25, 50.) The Fourth Department Appellate Division affirmed for the reasons stated in the Supreme Court decision, and also stated "[w]e add only that 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." (Internal citations omitted). (CA 16-17). 7 ARGUMENT POINT I ALTSHULER'S NEW ARGUMENTS NEED NOT BE CONSIDERED The Court of Appeals can make a finding with regard to this action without considering Altshuler's new arguments, which are detailed in Point III below. Thus, it is unnecessary to consider them on this appeal. See Saratoga County Chamber of Commerce, Inc. v. Pataki, 100 N.Y.2d 801, 824-825, 766 N.Y.S.2d 654, 798 N.E.2d 1047 (2003), cert. denied, 540 U.S. 1017, 124 S. Ct. 570, 157 L.Ed. 2d 430 (2003); see also (Karger, Powers of the New York Court of Appeals § 14: 1, at 497 [3d ed rev]. POINT II ALTSHULER'S CONTRADICTORY ARGUMENTS ARE PRECLUDED BY THE DOCTRINE OF JUDICIAL ESTOPPEL Altshuler has made numerous new arguments on appeal which contradict arguments and submissions made in Supreme Court, as set forth in detail in Point III below. The Court need only look to the foreclosure complaint (R. 35-45), affidavits of Yair Lowenstein (R. 376-380, CA 49.36-49.39) and final order for judgment of foreclosure (CA 55) for the contradictory arguments put forth by Altshuler on this appeal. 8 The doctrine of judicial estoppel, also known as the doctrine of estoppel against inconsistent positions, precludes Altshuler's new arguments from consideration. The New York Court of Appeals recently indicated its endorsement of this rule by stating "[ w]e do not prejudge these claims except to say that, having successfully argued that the agreement was void at inception, the landlord may not invoke the agreement in its own defense." Riverside Syndicate, Inc. v. Victoria Munroe, et aI, 10 N.Y.3d 18, 853 N.Y.S.2d 263, 882 N.E.2d 875 (2008). In addition, every Appellate Division department has adopted the judicial estoppel doctrine to prevent parties from contradicting a previous position to suit its current argument. See North Fork Bank v. Cohen & Krassner, 44 A.D.3d 375, 376 (1 st Dept. 2007); Kimco of New York, Inc. v. Devon, 163 A.D.2d 573,576 (2nd Dept. 1990); Moore v. County of Clinton, 219 A.D.2d 131, 135 (3 rd Dept. 1996); Secured Equities Invs, Inc. v. McFarland, 300 A.D.2d 1137, 1138-1139 (4th Dept. 2002). This Honorable Court should make a similar finding in the instant case. POINT III AL TSHULER IS PRECLUDED FROM MAKING ARGUMENTS FOR THE FIRST TIME ON APPEAL It is well-settled law that an argument·that is first advanced on appeal has not been properly preserved for review. The Court of Appeals recently stated the 9 standard thusly: "Defendants argue that this is purely an issue of law that can be addressed even if raised for the first time on appeal. As we have many times repeated, this Court with rare exception does not review questions raised for the first time on appeal. Unlike the Appellate Division, we lack jurisdiction to review unpreserved issues in the interest of justice. A new issue--even a pure law issue--may be reached on appeal only if it could not have been avoided by factual showings or legal countersteps had it been raised below (see Telaro v. Telaro, 25 NY2d 433,439 (J969).The sound policy reasons that 'underlie this principle are especially acute when the new issue seeks change in a long-established common-law rule. These are not empty technicalities. Rather, they are "at the core of the distinction between the Legislature, which may spontaneously change the law whenever it perceives a public need, and the courts which can only announce the law when necessary to resolve a particular dispute between identified parties." Bingham v. New York Trans. Auth., 99 N.Y.2d 355, 359, 786 N.E.2d 28, 756 N.Y.S.2d 129 (2003). New arguments put forth by Altshuler on appeal include: • The March 29, 2007 loan agreement was a "preliminary" "commitment" that was "expired" and "unenforceable." • The Amendment No.1 to the March 29,2007 loan agreement was merely a "commitment." • The March 29, 2007 loan agreement was not binding because it was negotiated and signed in Israel. • A severability clause in the Amendment No. 1 supports the argument that only $5.5 million of its mortgage should be subordinated. The straight forward question on this appeal is whether the Supreme Court 10 ruling was correct. Therefore, only the arguments made to the Supreme Court may be put forth on appeal. Permitting new arguments on appeal would be akin to allowing Altshuler to tum back the clock and reargue the motion for summary judgment on different grounds. In declining the consider a new issue presented on appeal, the New York Court of Appeals in Bingham stated: "[h]ad defendants' new argument been presented below, plaintiff would have had the opportunity to make a factual showing or legal argument that might have undermined defendants' position." See Id. Court of Appeals precedent instructs that a similar holding should be made in the instant case. POINT IV THE RARELY INVOKED EXCEPTION FOR NEW POINTS OF LAW DOES NOT APPLY The Court of Appeals rarely invokes an exception to the general rule precluding new arguments. The exception was recently described by the Court of Appeals as a "rarely invoked exception for a newly raised point of law that is decisive in a civil case and could not have been obviated by factual showings or legal countersteps ifit had been raised below." Misicki v. Caradonna, 12 N.Y.3d 511,518-519,909 N.E.2d 1213, 1218, 882 N.Y.S.2d 375,380-381 (2009) (internal quotations omitted), citing (Karger, Powers of the New York Court of 11 Appeals **6 § 17: 1, at 591-592 [3d ed rev] [internal quotation marks and footnote omitted]). This rare exception is not present in the instant case, as provided below. A. Altshuler's New Arguments Could Have Been Obviated By Factual Showings in Supreme Court Anticipating that Defendants-Respondents would take the position that its arguments were precluded because they were first raised on appeal, Altshuler argues that issues of law may be properly raised for the first time on appeal. (Brief at page 50). In making this argument, Altshuler concedes that it raises new issues and arguments for the first time on appeal. However, the rarely invoked exception to consider these new arguments is not applicable because they could have been obviated by factual showings below. 1. The March 29, 2007 Loan Agreement Was Not "Preliminary", "Unenforceable", "Expired" or a "Commitment" The entire basis of the Althshuler appeal is that the March 29, 2007 loan agreement was "preliminary," or only a "commitment" and that Lien Law § 22 should not require Altshuler to record an "unenforceable" or "expired" document. Altshuler states repeatedly that the March 29, 2007 agreement was a "commitment" in an attempt to characterize it as something other than a binding building loan contract which was carried out by the parties and which Altshuler was required to file pursuant to Lien Law § 22. These repeated references to the 12 March 29, 2007 agreement as the "2007 commitment" is just another euphemism for calling the loan agreement the "preliminary agreement," which the Fourth Department Appellate Division correctly declined to consider for the first time on appeal. (CA 16). This Honorable Court should rule likewise. Had Altshuler alleged in the Supreme Court that the March 29, 2007 loan agreement was a commitment, expired, unenforceable, or preliminary, Defendants-Respondents could have pointed to numerous contradictions on the face of the documents which indicated that the parties considered the March 29, 2007 loan agreement to be binding and that it was carried out pursuant to its terms: • March 29, 2007 loan agreement • Paragraph 5.12 refers to binding nature of March 29, 2007 loan agreement. (R. 287). • April 30, 2007 Mortgage Extension and Modification Agreement • Paragraph 5.12 refers to binding nature of March 29, 2007 loan agreement. (R. 287). • Mortgage recorded on May 3, 2007 • [o]n March 29, 2007, Lender made a loan to Borrower and Ameris Holding Ltd., a private limited company organized under the law of Israel ("Ameris") in the principal sum ofTEN MILLION AND NO/100THS UNITED STATES DOLLARS ($10,000,000.00) (the "Loan") pursuant to and subject to the terms of the Loan Agreement ("Loan Agreement"). (R. 439)(Emphasis Added). 13 • March 4, 2008 Mortgage and Security Agreement • Paragraph 5.12 refers to binding nature of March 29, 2007 loan agreement. (R. 87). • March 4, 2008 Amendment No.1 to the Loan Agreement • "A. The Lender and 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 "MOU" entered into between the parties on May 1, 2007. B. Pursuant to the Original Loan Agreement, on March 29, 2007 the Lender·made a loan to the Borrowers in the principal sum of US $10,000,000 (the "Loan"), and the entire Loan proceeds were deposited with the Trustee in the Trust Account as provided in the Original Loan Agreement" (R. 313). • Mortgage recorded on March 7, 2008 • LenderlMortgagee made a loan (the. "Loan") in the principal amount ofTEN MILLION AND 00/100 UNITED STATES DOLLARS ($10,000,000.00) to GML Tower and Ameris Holdings Ltd ... .pursuant to the terms of a Loan Agreement made and entered as of March 29, 2007. .. (R. 61) (Emphasis Added). • References the March 29, 2007 agreement for the definition of terms not defined in the mortgage. (R. 63.) • Multiple references to the loan amount owed pursuant to the March 29, 2007 agreement. (R. 63, ~~ 1, 3) 14 • December 4, 2008 Foreclosure Complaint • All sums sought via the complaint alleged to be due pursuant to the March 29, 2007 agreement. (R. 37, ~ 4, 5; R. 39-40, ~ 12, 13, 14, 15). • January 10,2010 Affidavit of Yair Lowenstein • On March 29, 2007, the parties "entered into a loan agreement for a $10 million loan." (R. 3 78, ~ 7) • ,The March 29, 2007 agreement bifurcated the $10 million loan into $5.5 million to refinance the existing mortgage and $4.5 million to fund construction. (R. 3 78, ~ 8) • On May 3,2007, pursuant to the March 29,2007 loan agreement, Altshuler recorded a $5.5 million mortgage in its favor on the Tower Property. (R. 379 at ~ 13-14, R. 438). • Refers to the March 29, 2007 document as the "loan agreement" in paragraphs 7, 8, 9, 10, 11, 15, 16 and 18 (R. 378- 380). • Althsuler entered into a memorandum of understanding which modified the loan agreement and disbursed funds pursuant thereto on May 2,2007. (R. 379). • Final $2 million advanced pursuant to Amendment No. 1 to the loan agreement. (R. 380, ~ 19). • September 2011 Affidavit of Yair Lowenstein • Altshuler advanced $10 million into an account for the owner on March 29,2007. (CA49.37, ~ 7). • Altshuler seeks 12% interest from March 29, 2007. (CA 49.38, ~ 8). 15 • October 26,2011 Final Order for Judgment of Foreclosure and Sale • Altshuler is awarded interest at 12% from March 29, 2007. (CA 55, ~ A; CA 63.1). All of the above facts are established on the face of the record. The interpretation of the relevant documents is purely an issue of law for this Court. None of these representations expressly state or even imply that the March 29, 2007 agreement is merely a "commitment," "expired," "unenforceable" or that it was "preliminary" in any fashion. In fact, the above references represent exactly the opposite: that the March 29, 2007 agreement was entered into and $10 million was loaned to the owners of the Tower Property pursuant thereto. Further, the general manager of Altshuler in effect concedes that the May 3, 2007 mortgage was a building loan mortgage because it was recorded pursuant to the March 29, 2007 loan agreement. (R. 379 at ~ 13-14, R. 438). That mortgage was later consolidated to create the March 7, 2008 mortgage Altshuler sought to foreclose; precisely meeting the definition of building loan mortgage pursuant to Lien Law § 2(14). At the time the May 3, 2007 mortgage was recorded (R.438), the March 29, 2007 loan agreement, as amended by the May 1, 2007 MOO, required the owner to make improvements to the real property with traditional construction financing 16 and disburse $4.5 million to the owner for that purpose. (R. 271-312; R. 355-359). Inexplicably, Altshuler did not file the March 29, 2007 loan agreement or MOD, which were indisputably in full force and effect when it filed the March 3, 2007 mortgage. Instead, Altshuler sought to circumvent the filing requirements of Lien Law § 22 by disbursing $4.5 million to the Tower Property owner pursuant to a personal guarantee of Levy Kushnir (R. 314, 317-318, 379). Then on March 4, 2008, Altshuler modified the March 29, 2007 agreement to greatly reduce the personal guarantee of Levy Kushnir to $250,000.00 (R. 41, 318 and 325), and grant Altshuler an additional $4.5 million mortgage on the Tower Property. (R. 380, ~ 19). In sum, Altshuler loaned $4.5 million to the owner of the Tower Property on an "unsecured" basis (R. 379, ~ 17), then after the economy "changed," (Altshuler brief on appeal, 18) and contractors had expended significant work and materials improving the Tower Property, it filed the March 7, 2008 mortgage against the Tower Property securing an additional $4.5 million, which destroyed any equity in the property on which contractors could rely for payment pursuant to a mechanic's lien foreclosure sale. Altshuler was obligated to disburse the $4.5 million pursuant to the March 29, 2007 agreement, but it chose instead to disburse those funds based only on a personal guarantee, then forgive nearly the entire personal guarantee in favor of an additional $4.5 million mortgage on the Tower Property. This is precisely the type of secret arrangement Altshuler claims did not transpire (Altshuler brief on appeal, 41), but which the Record reveals as accurate. The March 29, 2007 loan agreement is even labeled in the header of each page "confidential execution copy." (R.271-312). It is clear Altshuler never intended to file the March 29, 2007 loan agreement, even though it indisputably fits the definition of a building loan contract under Lien Law § 2(13). All parties appearing on the motion for summary judgment matter before the Supreme Court agreed that no factual issues precluded summary judgment. They simply disagreed on the law. Alshuler now attempts to inject new factual . characterizations of the loan documents to suit its arguments. Court of Appeals precedent instructs that these new arguments should not be considered. In State of New York v. Avco Financial Service of New York, Inc., 50 N.Y.2d 383,386-387,406 N.E.2d 1075, 429 N.Y.S.2d 181 (1980) the Supreme Court summarily invalidated a security clause in a loan agreement because it violated CPLR §5025(a). The Appellate Division affirmed, but did so on a new ground advanced by the Attorney General that the security clause was unconscionable. Id at 386. The Court of Appeals reversed the Appellate Division 18 decision because "the determination of unconscionability was improperly made without any opportunity for an evidentiary presentation as to the commercial and bargaining context in which the clause appears." Id. In making its decision, the Court of Appeals noted that "at no point did the Attorney-General by affidavits from borrowers or otherwise make any factual showing as to such matters ... " Id at 930. The issue of whether the security clause could be construed in a certain manner depended on a determination to be made at the trial court. The determination could not be made for the first time on appeal. Id at 390. As in State of New York v. Avco above, Altshuler made no allegations by affidavit or otherwise at the Supreme Court regarding the March 29,2007 agreement being a "commitment," "expired," "unenforceable" or "preliminary." In Morgan et al. v. State of New York, 90 N.Y.2d 471,487,685 N.E.2d 202, 662 N.Y.S.2d 421 (1997) the New York Court of Appeals declined to consider whether the condition or placement of mats during a martial arts maneuver constituted negligence by the defendants. The Court stated "[f]irst, plaintiffs never claimed in their complaint or bill of particulars that the condition or placement of the mats caused or contributed to the accident and no evidence was introduced to support such an assertion. Therefore, that argument cannot constitute a basis upon which we could review whether summary judgment could 19 be denied to the defendants." Id at 487. Similarly, Altshuler made no allegation in its complaint (and no bill of particulars exists) that the March 29, 2007 loan agreement was merely a "commitment," "expired," "unenforceable" or "preliminary." (R. 35-45). It appears the reason for Altshuler's change of position with regard to the characterization of the March 29, 2007 loan agreement is a reflection of the inescapable conclusion that it squarely fits the definition of a building loan contract under § 2( 13) of the Lien Law. The only way Altshuler can be successful on this appeal is if this Court accepts the new and contradictory argument it propounds in which the March 29, 2007 was merely a "commitment" which "did not close" and "was never consummated." (Brief at page 15). Altshuler should not now be permitted to make new arguments on appeal which could have been obviated by factual showings in the Supreme Court. See Bingham v. New York City Transit Authority, et aI, 99 N.Y.2d 355,359,786 N.E.2d 28, 30, 756 N.Y.S.2d 129, 131 (2003). 11. The March 29, 2007 Loan Agreement Was Binding, Whether Or Not It Was Negotiated in Israel Altshuler also argues the March 29, 2007 loan agreement and MOU were not binding because they were negotiated and executed in Israel. (Altshuler brief 20 at 9, 14, 15). This argument is made notwithstanding the fact that the parties carried out the terms of these agreements. In addition, this argument is not employed by Altshuler when referring to the Amendment No. 1 to the loan agreement or the 2008 mortgage, even though they too were negotiated and executed in Israel. On page 18 of its brief, Altshuler states that on March 4, 2008, the March 29, 2007 loan agreement "was amended by an agreement executed in Israel entitled Amendment No. I." (Altshuler brief at page 18). Then on the next page of the brief, Altshuler states that on the same day, in accordance with Amendment No.1, "the 2008 Consolidated Mortgage was executed in Israel and sent to New York for recording." (Altshuler brief at page 19). The final $2 million was disbursed pursuant thereto on March 6, 2008 and the mortgage was recorded on March 7, 2008. In sum, Altshuler takes the position that the March 29, 2007 loan agreement and MOU were not binding because they were executed in Israel. It then takes the position that the Amendment No.1 to the March 29, 2007 loan agreement and 2008 mortgage, both executed in Israel, were immediately binding. The inherent inconsistency in these positions is self evident and establishes their lack of veracity. 21 111. The Amendment No.1 Was Not Merely A "Commitment" The record is clear that Amendment No. 1 was not merely a commitment. • January 10,2010 Affidavit of Yair Lowenstein • March 4, 2008, Altshuler and owner entered into Amendment No.1 to Loan Agreement. (R. 380, , 18.) • Pursuant to Amendment No. 1 to Loan Agreement, on March 6, 2008, $2 million disbursed and mortgage recorded. (R. 380, , 19). • Amendment No.1 to Loan Agreement dated March 29, 2007 • "Amendment No.1, made and entered into as of March 4, 2008." (R. 313). • December 4, 2008 Foreclosure Complaint • "4. Defendants ... and the plaintiff entered into a loan agreement dated Mach 29, 2007, which was modified by Amendment No.1 to Loan Agreement dated as of March 4, 2008 (said loan agreement, as amended, being hereinafter referred to as the "Loan Agreement"), pursuant to which plaintiff agreed to lend to .... Borrowers the principal sum of Ten Million Dollars ($10,000,000.00), on the terms and conditions specified in the Loan Agreement. 5. Pursuant to the Loan Agreement, and on or about March 4, 2008, the Borrowers executed and delivered to plaintiff a Replacement Promissory Note dated March 4, 2008 in the principal amount of Ten Million Dollars ($10,000,000.00), a copy of which is attached hereto as Exhibit "A" (Note), pursuant to which the Borrowers 22 agreed to pay plaintiff the principal sum of $10,000,000, with interest thereon, in accordance with the Loan Agreement. " It appears Altshuler argues that Amendment No. 1 was merely a commitment because otherwise it precisely meets the definition of a modification to the March 29, 2007 loan agreement which was required to be filed pursuant to Lien Law § 22. As reflected above by Altshuler's own allegations, Amendment No.1 was a modification of the March 29, 2007 loan agreement and failure to file it was a violation of § 22. B. Altshuler's New Arguments Could Have Been Obviated By Legal Countersteps In Supreme Court Yet another argument put forth for the first time on appeal and not argued before the Supreme Court is that a severability provision in Amendment No.1 to the March 29, 2007 loan agreement requires that only $4.5 million of the mortgage should be subordinated to the mechanic's liens. (Altshuler brief at 7, 48). A search of the record reveals that this argument was never made to the Supreme Court. (R. 575-576; R. 21). Altshuler never took the position that a severability provision would save $5.5 million of its mortgage from subordination. (R.20-21). It argued that $5.5 million of its mortgage should not be subordinated because the mortgage was not "consolidated." (R. 20-21). Altshluer now takes the 23 contrary position on appeal and concedes that its mortgage was consolidated (Questions Presented in Altshuler Brief at pages 31, 35), but now relies for the first time on the so-called severability provision .. Thus, it is precluded from making this new and contrary argument for the first time to this Court. However, if this argument was made in the Supreme Court, Defendants- Respondents could have responded with a legal counterstep by pointing to the subordination provision in § 22 of the Lien Law. After setting forth the filing requirement for building loan contracts and any modifications thereof, the statute states: "[i]fnot 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 und~r this chapter." Section 22 makes no distinction regarding the types of interest which are subject to mechanic's liens, it simply states that the interest of the parties to the unfiled building loan contract is subject to later filed mechanic's lien. The provisions of a loan agreement related to the property, including whether or not it contained a severability provision, are irrelevant. Defendants-Respondents also could have cited numerous cases in support of this rule of law. Atlantic Bank of New York v. Forrest House Holding Co., 234 A.D.2d 491, 492 (2nd Dept. 1996); HNC Realty Co. v. Golan Heights . Developers, Inc., 79 Misc.2d 696, 702-03 (Rockland Co. 1974); Nanuet Nat'l 24 Bank v. Eckerson Terrace, Inc. 47 N.Y.2d 243, 391 N.E.2d 983, 417 N.Y.S.2d 901 (1979). After the Supreme Court ruling, Altshuler obtained new counsel to represent it in the appeal of the decision. New counsel may have identified new arguments which could have been made to the Supreme Court. Nevertheless, Altshuler is still precluded from presenting those new arguments on appeal. Any other ruling would permit appellants to proffer all new arguments at every level of appeal each time its previous arguments were unsuccessful. Such a system would put the impossible burden on Supreme Court Justices to imagine and consider each and every legal issue which could possibly be proffered by the parties and analyze each one in the course of making a decision on a disputed matter. This is not our system of jurisprudence. Altshuler had advocates at the Supreme Court which . vigorously opposed the various motions for summary judgment. The arguments put forth by those advocates were unsuccessful. The only question on this appeal is whether the Supreme Court and Fourth Department ruled properly on those arguments. New arguments are not permitted. The New York Court of Appeals has repeatedly declined to consider pure issues of law on appeal because they could have been obviated by legal countersteps in the lower courts. 25 In Gregory, et at v. Board of Appeals of the Town of Cambria, et aI., 57 N.Y.2d 865, 867, 442 N.E.2d 437, 456 N.Y.S.2d 39 (1982) the Court of Appeals declined to consider a pure issue of law concerning a "presumption of regularity" of government officials and the effect of the failure to reply to a Statute of Limitations defense. In County of Nassau v. Cuomo, 69 N.Y.2d 737, 741, 504 N.E.2d 689,512 N.Y.S. 362 (1987) the Court of Appeals declined to address a pure issue of law regarding the state's obligation to accept a prisoner "forthwith" under CPL §430.20. In Gramercy Equities Corp. et at v. Dumont, 72 N.Y.2d 560, 565, 531 N.E.2d 629, 534 N.Y.S.2d 908 (1988) the Court of Appeals declined to consider a pure issue of law regarding whether an indemnification claim was procedurally precluded until after a full accounting. Under the applicable rarely invoked exception, Altshuler's new arguments cannot be considered if they might have been obviated below. Karger, supra § 17:1, at 595. Altshuler has simply not carried its burden to show that its new arguments could not have been obviated by factual showings or legal countersteps below. See Telaro v. Telaro, 25 N.Y.2d 433.439, 255 N.E.2d 158 306 N.Y.S.2d 920 (1969). 26 POINT V ALTSHULER ENTERED INTO A SERIES OF UNIQUE TRANSACTIONS WHICH ALSO FAILED TO COMPLY WITH LIEN LAW.§ 13 AND IT CONCEDES THIS POINT ON APPEAL As reflected in the record at (484-536), Syracuse Merit made a cross motion in the Supreme Court which took the position that the $4.5 million sought to be secured by the March 7, 2008 mortgage was subordinate to mechanic's liens on the property because Altshuler violated sections 13(2) and 13(3) of the Lien Law. 1 (R. 1 7). Altshuler opposed this cross motion, arguing that no part of its mortgage should be subordinated (R. 574). The Supreme Court granted the cross motion based on Lien Law § 13 (R. 22). The Fourth Department affirmed. (R. 16). In its motion for leave to appeal to the Court of Appeals and brief on appeal, Altshuler specifically limits the issues it seeks to have reviewed and does not request review of the decision granting the Syracuse Merit cross motion, in effect IThe cross-motion relied on Monroe Savings Bank v. First National Bank of Waterloo. et aI, 50 A.D.2d 314 (4th Dept. 1976) as authorIty. In Monroe, the Fourth Department held: "[t]he ... mortgage was made and recorded following the final advancement of funds by the Bank. However, the subdivision (13) trust covenant is without effect in this case since the Corporation could not agree to receive as a trust fund money that was previously advanced to it and which was spent long before the execution of the mortgage which included the trust fund covenant." "The mere fact that the mortgage contains the required trust fund covenant should not afford the Bank a priority over subsequently filed mechanics' liens when in fact no trust fund was created." Id at 31 7-318. 27 conceding that it violated Lien Law § 13 and waiving any right to take a contrary position on this appeal. Quain et al. v. Buzzetta Construction Corp., 69 N.Y.2d 376, 380, 507 N.E.2d 294, 514 N.Y.S.2d 701 (1987). Altshuler's concession that it violated § 13 of the Lien Law has more than the practical effect of removing all doubt that $4.5 million of its mortgage is subordinate to mechanic's liens on the property. It is yet another illustration that Altshuler entered into a series of unique transactions in Israel which failed to comply with sections 22 and 13 of New York Lien Law and is now left in the unenviable position of arguing that it was not required to comply with the Lien Law after the fact. These unconventional transactions have no practical statewide significance. The current version of Lien Law § 22 has been in effect since 1930. Lenders have had very little trouble complying with it since that time, as reflected by the relative lack of case law on the subject. This case merely presents a unique set of circumstances which are unlikely to be repeated. On the other hand, if the Court were to endorse the actions taken by Altshuler, it would cast doubt on when a building loan contract must be filed. In such a situation, a lender could enter into a building loan contract, but choose not to file it because it may renegotiate it at some point in the future, depending on whether the economy and market conditions change. This is not the statutory 28 scheme required by Lien Law § 22. Section 22 requires every building loan contract to be filed in order to remove any doubt regarding funds available for construction. If such building loan contract is modified in the future, § 22 requires the modification to be filed as well. It is that simple. If it is a building loan contract, it must be filed. If it is modified, it must be filed. If Altshuler had simply followed these simple steps, this matter likely would have proceeded as any other commercial mortgage foreclosure action. However, Altshuler ignored the simple requirements of Lien Law sections 22 and 13, and its interest was correctly made subject to the mechanic's liens on the property. CONCLUSION Based on the foregoing, the Orders of the Supreme Court and Fourth Department Appellate Division should be affirmed in every respect. Dated: January 29, 2013 BYRNE, COSTELLO & PICKARD, P.C. ~ Terry R. Pickard, Esq. Attorneys for Defendants-Respondents Syracuse Merit Electric, a Division of O'Connell Electric, Inc. and TAG Mechanical Systems, Inc. Tower I, Suite 1600 100 Madison Street Syracuse, New York 13202-2721 Telephone: (315) 474-6448 Facsimile: (315) 424-8556 29