Decided May 19, 2009.
Plaintiff (US BANK): Harris N. Cogan, Shawnda M. Grady of Blank Rome LLP.
Defendant (653 Eleventh Avenue): John D. Winter of Patterson Belknap Webb Tyler LLP.
Plaintiff, U.S Bank National Association ("US Bank") brings this action to foreclose loans which were made to defendant 653 Eleventh Avenue, LLC ("653 Eleventh Ave"). U.S. Bank now moves for an order: (1) dismissing the affirmative defenses and counterclaims of 653 Eleventh Ave. pursuant to CPLR 3211(a)(1) (7), or in the alternative, severing any counterclaims pursuant to CPLR 603 and 3212(e); (2) for summary judgment ordering foreclosure of two mortgages in favor of US Bank pursuant to CPLR 3212; and (3) directing an inquest to ascertain and compute the amount due upon the notes and mortgages being foreclosed, as well as attorney's fees and costs, as sought in the complaint. 653 Eleventh Ave opposes. No other party submits papers.
This action arises out of a dispute over loans for the construction and development of a Boutique Hotel which was to be built at 653 11th Avenue in the County and State of New York. On October 31, 2006, a loan agreement was entered into between US Bank and 653 Eleventh Avenue, wherein US Bank (as administrative bank for Sovereign and Midfirst Banks) agreed to a loan with a maximum principle amount of $136,149,363.96. Two loans were issued by US Bank, the Building Loan Mortgage and the Project Loan Mortgage, which secured an aggregate principal amount of $67,956,597.28. The two loans matured on April 30, 2008 ("the maturity date"). The loans were made to 653 11th Ave. after PR II Horizon NYC LLC, an affiliate of the Prudential Insurance Company ("Prudential") agreed to a "take out" commitment. A "take out" is an agreement by a party other than the borrower to repay a lender's loan upon satisfaction of certain conditions. The parties entered into an "Agreement to Fund Upon Completion," which required Prudential to contribute 94.22% toward repayment of the US Bank loans and Savta Yona LLC ("Savta") (a Company indirectly owned by Micahal Yanko, principal of 653 Eleventh Ave) to contribute 5.78%. The Agreement also obligated Savta Yona to pay all cost overruns incurred with the construction project. According to a Multi-Party Agreement entered into on October 31, 2006, Prudential would provide permanent financing that would, in effect, replace the US Bank loans upon the project's substantial completion, whether or not Savta contributed its share. The outside closing date until which Prudential is obligated to provide funds is October 26, 2009. Additionally, a Guaranty was executed by Michael Yanko and Eran Conforty (partial owner of Savta).
When the loans matured by their terms, and 653 Eleventh Ave did not repay them, it entered into an "Pre-Negotiation Agreement" with US Bank. Subsequently, US Bank made seven advances of loan proceeds to 653 Eleventh Ave. Each advance was accompanied by an agreement titled "Agreement Regarding Requested Advance," dated June 10, 2008; July 9, 2008; August 8, 2008; August 29, 2008; October 3, 2008, November 3, 2008 and December 4, 2008, respectively. (the "Post-Maturity Agreements"). Each Post-Maturity Agreement acknowledged 653 Eleventh Ave's default.
US Bank submits the agreements here but inadvertently submits two agreements dated June 10, 2008, omitting the July 9, 2008 agreement.
By mid-December 2008, the project was still not complete and at a meeting between US Bank and 653 Eleventh Ave, held on December 12, 2008, US Bank represents that it proposed a settlement agreement that was rejected by 653 Eleventh Ave. Thereafter, US Bank commenced this foreclosure proceeding on December 19, 2008. On or about January 26, 2009, 653 Eleventh Ave served its answer with affirmative defenses and counterclaims. Included in 653 Eleventh Ave's defenses were that US Bank's claim was barred due to, among other things: it's unconscionable conduct; its breach of implied covenant of good faith and fair dealing; fraudulent conduct; fraudulent inducement; and unclean hands. Eleventh Avenue also brought counterclaims for: Breach of Implied Covenant of Good Faith; Interference with Contractual Relations; Unjust Enrichment; Fraud; and for Trespass to Real Property and Waste.
US Bank, in support of its motion, submits: the summons and complaint, 653 Eleventh Ave's answer with affirmative defenses and counterclaims; the Loan Agreement by and between 653 Eleventh Ave and US Bank, dated October 31, 2006; six Amended and Restated Building Loan Notes, dated January 31, 2007; a copy of the Agreement to Fund Upon Completion between 653 Eleventh Ave as Owner, Hotel Eleven LLC as Joint Venturer, Savta Yona LLC as co-venturer, Mamon LLC as member, and PR II Horizon NYC, LLC, dated October 31, 2006; a copy of the Assignment of Interest in Agreement to Fund Upon Completion, a copy of a Guaranty; a copy of the Multi-Party Agreement; a letter from US Bank to 653 Eleventh Ave, dated April 30, 2008; a letter from US Bank to 653 Eleventh Ave, dated May 9, 2008; copies of seven Agreements Regarding Requested Advances; a Demand for Payment from US Bank to 653 Eleventh Ave, dated December 18, 2008; a copy of this court's decision dated December 23, 2008; a copy of the Oath of Receiver; a copy of this court's Amended Order Appointing Temporary Receiver; a letter from Horizen Global, LLC to Stephen Weiss and Andrew Weiss, dated November 27, 2007; a copy of a Security Agreement and Assignment; a copy of the Assignment of Leases and Rents; and a letter from US Bank's attorney and the Court, dated December 19, 2008.
US Bank argues that there is no dispute that 653 Eleventh Ave is in default on the two loan agreements and that it has met its prima facie burden, entitling it to summary judgment in the foreclosure of those loans. As to 653 Eleventh Ave's defenses and counterclaims, US Bank argues that those claims are barred by the terms of the Post-Maturity Agreements, warranting their dismissal.
653 Eleventh Ave, in opposition, submits the following, not duplicative of US Bank's submissions: a number of email correspondences regarding Flintock Construction Services LLC ("FCS"), General Contractor; and a "Letter of Intent," dated July 15, 2008. 653 Eleventh Ave argues that US Bank intentionally frustrated its efforts to pay off the mortgage by "stringing [it] along with ad hoc promises (and extensions of additional funds) intended to induce defendants to complete the project." Further, 653 Eleventh Ave argues that US Bank brought the instant foreclosure action to avoid completion of the project and colluded with Prudential, the majority partner in the project "so that the minority partner's equity stake could be redistributed and the permanent funding secured." 653 Eleventh Ave also claims that, as part of US Bank's "scheme," it would not let 653 Eleventh Avenue replace Flintock, allegedly an incompetent construction manager, so that the project would not be finished by the outside completion date. Finally, 653 Eleventh Ave claims that summary judgment is premature because it has not received any discovery from US Bank in the action.
CPLR 3211 states, in relevant part:
(a) a party may move for judgment dismissing one or more causes of action asserted against him on the ground that:
(1) A defense is founded upon documentary evidence; or
(7) the pleading fails to state a cause of action.
On a motion to dismiss pursuant to CPLR 3211(a)(1) "the court may grant dismissal when documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." ( Beal Sav. Bank v. Sommer , 8 NY3d 318 , 324) (internal citations omitted). Here, US Bank relies on the Post-Maturity Agreements as documentary proof that 653 Eleventh Ave's defenses and counter-claims should be dismissed. However, the crux of 653 Eleventh Ave's claim is that those agreements were fraudulently induced. "Such a claim necessarily relies upon extrinsic evidence that cannot be found in the terms of a written agreement and such agreement cannot constitute the documentary basis for this type of dismissal." ( Altomare v. Balnir, 309 Ad2d 683 [1st Dept. 2003]). Nonetheless, US Bank is entitled to summary judgment on the foreclosure action and dismissal of 653 Eleventh Ave's counterclaims and defenses for the reasons stated below.
"A plaintiff may establish a prima facie right to foreclosure by producing the mortgage documents underlying the transaction and undisputed evidence of nonpayment."( Red Tulip, LLC v. Neiva , 44 AD3d 204 , 209[1st Dept. 2007]). Here, it is undisputed that the loans matured on April 30, 2008 and 653 Eleventh Ave has failed to make the required payments. As such, US Bank has stated its prima facie entitlement to judgment as a matter of law in the foreclosure action. Thus, the burden shifts to 653 Eleventh Ave to raise a triable issue regarding its affirmative defenses and counterclaims in opposition to the foreclosure. ( Id. at 209).
Red Tulip presents facts similar to the instant case. There, a developer defaulted on a loan intended to fund the purchase and development of a vacant loft. The borrowers signed an unconditional guaranty which "absolutely, unconditionally and irrevocably" waived their right to assert defenses and counterclaims. ( Id. at 206.) In Red Tulip, as here, the defaulting borrowers subsequently asserted counterclaims in opposition to the foreclosure action which alleged, among other things, that the lender prevented them from satisfying the mortgage, triggering a default. Citing to Citibank v. Plapinger, 66 NY2d 90, 92, in support of the proposition that a defense alleging fraudulent inducement of a guaranty was barred by the express terms of the guaranty where defenses were unconditionally waived, the court ultimately held that "The language of the guaranty in this case is not only as broad and unconditional as that in Citibank . . . but it also expressly waives all defenses and counterclaims . . . accordingly, we find that all . . . defenses and counterclaims . . . are barred by the guaranty." ( Red Tulip at 209-210).
Here, Section 10 of each of the Post-Maturity Agreements states, in relevant part:
General Release. By execution of this Agreement, Borrower and each Guarantor acknowledges and confirms that it or he does not have any offsets, defenses, claims or counterclaims whatsoever against Administrative Bank or the Banks, or any of the other Released Parties . . . whether asserted or unasserted. To the extent that such offsets, defenses, claims or counterclaims may exist, Borrower and each Guarantor for itself and its successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs and executors, as applicable . . . jointly and severally, knowingly, voluntarily and intentionally releases and forever discharges Administrative Bank, the Banks . . . of and from and all manner of actions . . . claims, counterclaims and demands whatsoever, asserted or unasserted, in law or in law or in equity, which Releasors ever had or now have against the Released Parties, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated. (emphasis added).
Thus, as 653 Eleventh Ave has expressly waived its right to assert any defenses or counterclaims when it signed the Post-Maturity Agreements, all of its defenses and counterclaims are barred by such agreements. ( Id. at 210).
653 Eleventh Ave's claim, that it should not be held to the waiver language of the Post-Maturity Agreements because it was fraudulently induced into signing them, is unsupported. 653 Eleventh Ave urges the court to analogize the instant case with Canterbury Realty Equip. Corp. v. Poughkeepsie Sav. Bank, 135 AD2d 102[3rd Dept. 1988], and ultimately find that its defenses and cross-claims should stand.
In Canterbury, the bank extended a $2 Million line of credit to plaintiff as part of a loan transaction. Plaintiff signed a guaranty which stated that payment would become due if plaintiff suspended its business. Thereafter, plaintiff exceeded its credit line with the bank but claims that it did so because it relied on an oral agreement that permitted it to borrow above the stated limit. Plaintiff also stated that a bank officer orally approved checks in advance, despite having exceeded the limit. Because plaintiff exceeded the credit limit, the bank ultimately stopped honoring plaintiff's checks which drove plaintiff into bankruptcy. The court found that it was wrongful and unfair for the bank to permit plaintiff to exceed the debt limit and then precipitously declare a default with little or no notice. The court denied summary judgment as to the bank and found that a triable issue of fact existed "as to whether the bank unfairly brought about the occurrence of the very condition ([plaintiff's] suspension of business . . .)upon which it relied to accelerate the loan against guarantors."
The court in Red Tulip found that the case before it was distinguishable from Canterbury "in at least two material respects." These were that, "at the time of [the bank's] alleged wrongful conduct, the mortgage debt had already become due and was in default . . . and [the borrower] had been experiencing financial problems well before that point." The court found that "unlike Canterbury, the record in this case does not support a finding that [the bank] wrongfully caused [the borrower's] default."( Red Tulip at 211).
Here, as in Red Tulip, 653 Eleventh Ave defaulted on its loans before US Bank agreed to lend 653 Eleventh Ave additional funds to complete the project and 653 Eleventh Ave entered into the agreements fully aware of US Banks continuing right to foreclose upon the loans. Indeed, the Post-Maturity Agreements contain several clauses which expressly reserve US Bank's right to foreclose on the loans. Section 2, titled Borrower's Acknowledgments of Indebtedness, Maturity, Right to Payment, Other Defaults, Waiver of Notices and No Further Commitment of the Post-Maturity Agreements states, in relevant part:
Borrower hereby acknowledges and agrees as follows:
b. Maturity Date. The Maturity Date under the Loan Documents occurred on April 30, 2008 and Event of Default has occurred and is continuing by reason of Borrower's failure to pay all amounts owing under the Loan Documents on or before the Maturity Date . . .
Section 4, Reservation of Rights; No Forbearance states, in relevant part:
a. The outstanding Principle Balance under the Loan Documents and all unpaid accrued interest thereon together will all fees, costs and expenses . . . are and shall continue to be due and payable . . . Administrative Bank shall be entitled to exercise any and all rights and remedies available under the Loan Documents, under this Agreement, at law or in equity . . . Nothing in this Agreement shall limit the right of the Administrative Bank at any time to foreclose on any collateral that secures the Borrower's obligations under the Loan Documents.
b. The of the Requested Advance (I) shall not be deemed to be a consent to any waiver or modification of any term or condition of the Loan Documents, (ii) shall not prejudice any right or remedy that Administrative Bank or the Banks may now have or may have in the future under or in connection with the Loan Documents . . .Neither the making of the Requested Advance nor any oral discussions which may have occurred to date . . . shall be deemed a waiver by Administrative Bank or the Banks of any of the Designated Defaults . . . or the terms and conditions of the Loan Agreement or any other Loan Documents, which remain unmodified and in full force and effect.
Section 16, NO COMMITMENT TO EXTEND, RESTRUCTURE OR FORBEAR, states, in relevant part:
ADMINISTRATIVE BANK AND THE BANKS ARE NOT COMMITTING AT THIS TIME, TO EXTEND THE MATURITY DATE OF ANY LOAN OR OTHERWISE RESTRUCTURE ANY LOAN, OR FORBEAR FROM EXERCISING ANY OF THEIR RIGHTS OR REMEDIES UNDER THE LOAN DOCUMENTS . . .
Nor does the evidence support 653 Eleventh Ave's allegations that US Bank purposefully delayed the project by prohibiting the replacement of Flintock, whom 653 Eleventh Ave alleges was an incompetent construction manager. 653 Eleventh Ave claims that US Bank "made it clear" that it would not consent to the termination of Flintock, even after it sent several email correspondences to US Bank regarding Flintock's insufficiency. However, upon review of those correspondences it appears that 653 Eleventh Ave's intentions were indefinite. Indeed, the last and most recent email, dated April 8, 2008, from 653 Eleventh to US Bank, regarding Flintock states:
We are currently evaluating our options which includes terminatingFCS as per the terms of our contract. We must approach these options delicately as there is a Payment and Performance Bond in place for our protection. At the very least we will be in discussions with the Bonding Company. This is not our first choice of recourse however we need to apply a great deal of pressure to FCS and this is an effective way of doing so.
Finally, there is no merit to 653 Eleventh Ave's claim that summary judgment is premature because there has been no discovery exchanged in this case. Pursuant to CPLR 3212(f), the court may deny a motion for summary judgement "should it appear from affidavits submitted in opposition to the motion that facts essential to justify opposition may exist but cannot then be stated." However "it is well settled that the mere hope by the party opposing summary judgment that it will uncover evidence that will prove its case is insufficient under CPLR 3212(f) to postpone a decision on a summary judgment motion.( Casey v. Clemente , 31 AD3d 361 [2nd Dept. 2006]). Further, "CPLR 3212(f) should not be employed as a means of embarking on a fishing expedition to explore the possibility of fashioning a defense." ( Oates v. Marino, 106 AD2d 289 [1sr Dept. 1984]) (internal citations omitted).
In a separate action before this court titled Matter of the Application of Savta Yona LLC and 653 Eleventh Ave LLC, Index No. 103028/09, 653 Eleventh Ave sought to compel pre-action discovery in hopes of unearthing a side agreement between US Bank and Prudential. Prudential, however, denied the existence of such a side agreement by both attorney affirmation and by the sworn affidavit of Lynn DeCastro.
Here, the evidence submitted establishes that any and all of 653 Eleventh Ave's counterclaims are barred by the Post-Maturity Agreement. It does not appear from the affidavits submitted in opposition to the motion that facts essential to justify opposition may exist but cannot be stated. Indeed, 653 Eleventh Ave's "vague allegations of wrongdoing" do not give rise to a CPLR 3212(f) defense. (see Oates at 804).
Wherefore, it is hereby
ORDERED that the motion is granted; and it is further
ORDERED that the Clerk is directed to enter judgment in the foreclosure action in favor of US Bank National Association and against defendants; and it is further
ORDERED that this action be and the same is hereby referred to JOEL B. MAYER 295 MADISON AVENUE NEW YORK, NY 10017, 212-684-6920, as Referee to Compute the amount due to the plaintiff, to ascertain and compute the amount due to the plaintiff for principal, interest, and other disbursements advances as provided for in the note and mortgage upon which this action was brought, to examine and report whether or not the mortgaged premises can be sold in parcels, and that the referee make his/here report to the Court with all convenient speed; and it is further
ORDERED that the Referee's hearing be had in the County of New York; and it is further
ORDERED that by accepting this appointment the referee certifies that he/she is in compliance with Part 36 of the Rules of the Chief Judge ( 22 NYCRR Part 36), including, but not limited to, section 36.20 (Disqualifications From Appointment), and section 36.2(d) (Limitations on Appointments Based on Compensation); and it is further
ORDERED that all cross-claims and affirmative defenses as against US Bank National Association are hereby dismissed.
This constitutes the decision and order of the court. All other relief requested is denied.