Decided September 8, 2011.
Upon the foregoing papers, in this action by plaintiff VNB New York Corp. (plaintiff) against defendants M. Lichtenstein LLC, Yechial Michael Lichtenstein, and Nahman Simon Lichtenstein (the Lichtenstein defendants), Meir Frei, Townhouse Builders, Inc., and other named defendants to foreclose a construction loan on commercial real property, plaintiff moves for an order: (1) granting it summary judgment in its favor and dismissing the verified answer of defendant Townhouse Builders, Inc., the amended verified answer of defendant Meir Frei, and the answer and counterclaims of defendants M. Lichtenstein LLC, Yechial Michael Lichtenstein, and Nahman Simon Lichtenstein, pursuant to CPLR 3212, on the ground that there is no justiciable issue of fact to be tried and that the answers, defenses, and counterclaims of these defendants are without merit, (2) referring this action to a suitable person to examine it or its agent under oath as to payments which have been made, and to ascertain and compute the amount due to it on the notes and mortgages at issue, and to examine and report whether or not the subject premises can be sold in parcels, and (3) amending the caption hereof by striking therefrom the defendants sued herein as John Doe #1 through John Doe #20.
On February 7, 2005, M. Lichtenstein LLC purchased commercial property, located at 475 East 8th Street for $999,900. Yechial Michael Lichtenstein, Nahman Simon Lichtenstein, and Meir Frei are members of M. Lichtenstein LLC. M. Lichtenstein LLC intended to convert the property into a seven-story elevator apartment building comprised of 12 residential condominium units. According to Yechial Michael Lichtenstein, in 2007, construction was commenced with M. Lichtenstein LLC's own funds and $500,000 in initial construction costs were incurred. M. Lichtenstein LLC then sought to obtain a loan to continue to develop the property.
On November 20, 2007, M. Lichtenstein LLC entered into a Building Loan Agreement and a Project Loan Agreement with LibertyPointe Bank, and M. Lichtenstein LLC also executed and delivered a Building Loan Note in the original principal sum of $3,085,250 with interest and a Project Loan Note in the original principal sum of $89,750 with interest to LibertyPointe Bank. Both the Building Loan Note and the Project Loan Note required monthly payments of interest on the amount of the principal advanced in the prior month and both had a maturity date of June 1, 2009, at which time the principal balance and accrued and unpaid interest were due. On the same date, M. Lichtenstein LLC, for the purpose of securing the Building Loan Note and the Project Loan Note, further executed and delivered a Building Loan Mortgage and a Project Loan Mortgage to LibertyPointe Bank. These mortgages were duly recorded.
Also on November 20, 2007, as additional security for the construction loan, M. Lichtenstein LLC entered into an Interest Reserve Fund Agreement with LibertyPointe Bank, in which the parties agreed to establish a reserve fund in the amount of $293,000 to guarantee the interest payments under the loan. On the same date, Yechial Michael Lichtenstein, Nahman Simon Lichtenstein, and Meir Frei (collectively, the Guarantors) executed a Completion Guaranty for the Building Loan Note (the Completion Guaranty) and a Guaranty for the Project Loan Note (the Project Loan Guaranty). Paragraph 5 (b) of the Completion Guaranty provided as follows:
"The undersigned acknowledges that this Guaranty and the undersigned's obligations under this Guaranty are and shall at all times continue to be absolute, irrevocable and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Guaranty and the obligations of the undersigned under this Guaranty or the obligations of any other person or party (including, without limitation, Borrower) relating to this Guaranty or the obligations of the undersigned hereunder or otherwise with respect to the Debt, as such term is defined in the Note . . . This Guaranty sets forth the entire agreement and understanding of Lender and the undersigned, and the undersigned absolutely, unconditionally and irrevocably waives any and all right to assert any defense, set-off, counterclaim or cross claim of any nature whatsoever with respect to this Guaranty or the obligations of the undersigned under this Guaranty or the obligations of any other person or party (including, without limitation, Borrower) relating to this Guaranty or the obligations of the undersigned hereunder or otherwise with respect to the Loan in any action or proceeding brought by Lender to collect the Debt, or any portion thereof, or to enforce the obligations of the undersigned under this Guaranty. The undersigned acknowledges that no oral or other agreements, understandings, representations or warranties exist with respect to this Guaranty or with respect to the obligations of the undersigned under this Guaranty, except those specifically set forth in this Guaranty."
There were delays in the construction, and the construction project was not completed by the maturity date of June 1, 2009 set forth in the note and mortgage. The Lichtenstein defendants and Meir Frei (collectively, defendants), therefore, requested that LibertyPointe Bank modify and extend the loan. By a Modification of Building Loan Agreement, a Building Loan Note and Mortgage Modification Agreement, and a Project Loan Note and Mortgage Modification Agreement, each dated June 1, 2009, the loan was extended to December 1, 2009. Thereafter, as construction was still not completed, defendants requested yet another loan modification, and a Modification of Building Loan Agreement, Building Loan Note and Mortgage Modification Agreement, and a Project Loan Note and Mortgage Extension and Modification Agreement, each dated December 1, 2009, were executed by M. Lichtenstein LLC, which extended the loan to December 1, 2011 (the December 1, 2009 Loan Modification). Paragraph 6 of the December 1, 2009 Modification expressly provided as follows:
This paragraph is contained in the Modification of Building Loan Agreement, which has been annexed by plaintiff to its moving papers.
"The Borrower hereby represents and warrants that no defense, offset, claim or counterclaim exists under said Building Loan Agreement or any other Loan Document and, to the extent same exists without the knowledge of the Borrower, said defense, offset, claim or counterclaim is hereby waived."
At the time of the December 1, 2009 Loan Modification, the Guarantors executed a Reaffirmation of Guaranties with respect to both the Completion Guaranty made in connection with the Building Loan Note and Building Loan Mortgage and the Project Loan Guaranty made in connection with the Project Loan Note and Project Loan Mortgage. Paragraph 2 of the Reaffirmation of Guaranties provided that the Guarantors "do not have any offset, defense, or counterclaim with respect to their obligations under the Guaranties (any such offset, defense, or counterclaim as may now exist being hereby irrevocably waived by the Guarantors)." Paragraph 4 of the Reaffirmation of Guaranties set forth that "[t]he Guaranties have been duly executed and delivered by the Guarantors and constitute the legal, valid and binding obligations of the Guarantors enforceable in accordance with their terms. Paragraph 5 of the Reaffirmation of Guaranties further provided that the Guarantors "hereby affirm all of the Guarantors' liabilities and obligations under the Guaranties, and said Guaranties shall continue in full force and effect and shall continue to guaranty all of the obligations of the Borrower to the Lender, the Loan and all other indebtedness of the Borrower to the Lender as well as the completion of the Improvements."
Due to financial difficulties, LibertyPointe Bank was shut down by federal regulators in March 2010. By an assignment dated March 11, 2010 and recorded on September 29, 2010, the Building Loan Mortgage and the Project Loan Mortgage, as modified and extended, and the notes secured thereby were assigned by the Federal Deposit Insurance Corporation (the FDIC), as Receiver for LibertyPointe Bank, to Valley National Bank. By an assignment dated June 1, 2010 and recorded on September 29, 2010, these mortgages and notes were further assigned by Valley National Bank to plaintiff.
It is undisputed that M. Lichtenstein LLC failed to make the monthly interest payments required by the notes and mortgages commencing with the May 1, 2010 installment and continuing each month thereafter. As set forth by plaintiff, there continues to remain due and owing by M. Lichtenstein LLC on the subject mortgages and notes the aggregate principal balance of $3,088,055.17 plus interest thereon at the rate of 5.5% from April 1, 2010, the date of M. Lichtenstein LLC's last mortgage payment. Consequently, on October 8, 2010, plaintiff brought this foreclosure action by filing a summons, verified complaint, and notice of pendency.
The Lichtenstein defendants interposed an answer dated December 30, 2010, asserting twelve affirmative defenses and seven counterclaims. The Lichtenstein defendants' counterclaims seek a judgment against plaintiff in excess of $4,500,000 in damages, as well as declaratory and injunctive relief. Meir Frei also interposed an answer to plaintiff's complaint. Since Meir Frei's answer merely denied knowledge or information sufficient to form a belief as to substantially all of the material allegations of plaintiff's complaint, plaintiff moved for summary judgment as against Meir Frei. Meir Frei, claiming that he had initially not been made privy to the information possessed by the Lichtenstein defendants concerning the dealings with LibertyPointe Bank, and that he later became privy to such information after he received a copy of the answer filed by the Lichtenstein defendants, then cross-moved to amend his answer. By an order dated April 13, 2011, the court granted Meir Frei leave to amend his answer and Meir Frei's amended answer, which asserts 12 affirmative defenses, was deemed served. Plaintiff's motion as against Meir Frei was withdrawn due to the fact that it had been superceded by plaintiff's instant motion, which is addressed to Meir Frei's amended answer.
The Lichtenstein defendants oppose plaintiff's motion and Meir Frei also opposes plaintiff's motion by mainly reiterating the arguments asserted by the Lichtenstein defendants. Townhouse Builders, Inc. (who was named as a defendant due to a mechanic's lien filed by it against the premises) has submitted no opposition papers to plaintiff's motion, and does not oppose plaintiff's motion.
Initially, it is noted that a plaintiff establishes its prima facie right to judgment as a matter of law in a foreclosure action by producing the mortgage, the unpaid note, and undisputed evidence of default ( see Washington Mut. Bank, F.A. v O'Connor , 63 AD3d 832 , 833; Daniel Perla Assoc., LP v 101 Kent Assoc., Inc. , 40 AD3d 677 , 677; LPP Mtge., Ltd. v Card Corp. , 17 AD3d 103 , 104; US Bank Trust N.A. Trustee v Butti , 16 AD3d 408, 408; Republic Natl. Bank of NY v O'Kane, 308 AD2d 482, 482; Hypo Holdings v Chalasani, 280 AD2d 386, 387). Here, plaintiff has established its prima facie right to foreclosure by producing the mortgage and the note, which was unpaid, as set forth in the affidavit of David Jaques, the vice-president of Valley National Bank, the agent and servicer for plaintiff, and uncontroverted evidence that defendants have made no payments commencing with the May 1, 2010 installment and each month thereafter. In fact, defendants, in their opposition papers, admit that M. Lichtenstein LLC has defaulted under the mortgage. In addition, plaintiff has shown that the Guarantors signed the Completion Guaranty and the Reaffirmation of Guaranties as additional collateral for the Building Loan Note and the Project Loan Note.
Thus, plaintiff, as the movant, has met its initial burden of demonstrating entitlement to judgment as a matter of law in this foreclosure action ( see Washington Mut. Bank, F.A., 63 AD3d at 833; Daniel Perla Assoc., LP, 40 AD3d at 677 ; LPP Mtge., Ltd., 17 AD3d at 104; US Bank Trust N.A. Trustee, 16 AD3d at 408; Republic Natl. Bank of NY, 308 AD2d at 482; Hypo Holdings, 280 AD2d at 387). Consequently, the burden shifted to defendants to raise a triable issue of fact regarding the affirmative defenses and counterclaims asserted by them in opposition to plaintiff's motion seeking foreclosure ( see Washington Mut. Bank, F.A., 63 AD3d at 833; US Bank Trust N.A. Trustee, 16 AD3d at 408).
In opposition to plaintiff's motion, Yechial Michael Lichtenstein asserts that the affidavit of plaintiff's servicer David Jaques, is made without personal knowledge, and, thus, is insufficient to support plaintiff's motion. Yechial Michael Lichtenstein states that he has never met or spoken to David Jaques, and that David Jaques was only "cc-ed" on some e-mails which he had with Raymond LaRocco, who, he asserts, is the person who actually has personal knowledge of the facts.
This argument must be rejected. David Jaques has submitted a response to Yechial Michael Lichtenstein's assertion, wherein he specifically attests to his personal knowledge of the subject loan. In addition, Raymond A. LaRocco, who is the vice-president of Valley National Bank, agent and servicer for plaintiff, has submitted a reply affidavit, in which he affirms the contents of plaintiff's moving papers. Thus, these affidavits by David Jaques and Raymond LaRocco, along with the relevant documents, are sufficient to support plaintiff's motion for summary judgment ( see Charest v K Mart of NY Holdings, Inc. , 71 AD3d 471 , 471; IRB-Brasil Resseguros S.A. v Eldorado Trading Corp. Ltd. , 68 AD3d 576 , 577).
The Lichtenstein defendants further argue that plaintiff's motion for summary judgment must be denied because plaintiff had previously brought a motion for summary judgment against Meir Frei and successive motions for summary judgment are not permitted. This argument is also devoid of merit. As noted above, plaintiff's prior motion for summary judgment as against Meir Frei was withdrawn as it was superceded by plaintiff's instant motion for summary judgment addressed to Meir Frei's amended answer.
Defendants, in further opposition to plaintiff's motion, set forth, in their opposing papers, the allegations raised in their defenses and counterclaims, and contend that these allegations raise triable issues of fact which require a denial of plaintiff's motion. Among these allegations is defendants' argument that LibertyPointe Bank made the construction loan with full knowledge that it was not viable. Specifically, defendants contend that LibertyPointe Bank knew that the projected costs of the construction project and the appraisal of the property did not justify the loan which it gave to M. Lichtenstein LLC.
In support of this contention, defendants assert that on or about June 25, 2007, as part of the loan process, Anthony Meo, a senior vice-president at LibertyPointe Bank, sent M. Lichtenstein LLC a commitment letter outlining the terms of the construction loan to finance the project, which set forth the total project costs as $5,400,000, including equity from defendants of $2,225,000, justifying a loan for $3,155,000 ($5,400,000 minus $2,225,000). Defendants state that they later found out that prior to the issuance of the commitment letter, M. Lichtenstein LLC was in possession of a confidential appraisal dated May 7, 2007, which listed the Net Sellout Value of the Property as Condominiums at only $5,000,000. Yechial Michael Lichtenstein asserts that based upon these appraisal numbers, LibertyPointe Bank should only have lent M. Lichtenstein LLC an amount significantly less than $3 million ($5,000,000 appraised Sellout Value minus $2,225,000).
Plaintiff, however, asserts that defendants rely upon an outdated project budget and incorrect Sellout Value when they allege that the projected costs of the construction project exceeded the value. Plaintiff points to an updated internal memorandum, dated June 28, 2007, from Janie Leung to Anthony Meo and approved by Anthony Meo, which shows that after the loan was approved, LibertyPointe Bank revised its loan budget to reflect that the premises was valued at the purchase price of $999,900, rather than the "as-is" value of the premises of $2,000,000 (land value of $1,500,000 plus $500,000 expended in hard and soft costs). Plaintiff explains that since the premises had already been purchased, the site value was not considered as a component of the project costs of the construction loan. Plaintiff states that instead, the loan amount of $3,175,000 was based upon the Gross Sellout Value as Condominiums for $5,300,000, resulting in a loan to value ratio of 60%.
Yechial Michael Lichtenstein, in response, asserts that the value must be reduced to the Net (not Gross) Sell Out Value in order to present a realistic characterization of the return to M. Lichtenstein LLC, as the borrower, and that the $5,300,000 figure must be reduced by the amount M. Lichtenstein LLC invested. Yechial Michael Lichtenstein states that when the $2,250,000 amount that defendants were to invest is deducted from the Net Sell Out Value of $5,000,000, this leaves only $2,750,000 out of a $3,175,000 loan. Yechial Michael Lichtenstein also asserts that defendants should be afforded discovery surrounding this June 28, 2007 internal memorandum pertaining to why Anthony Meo revised the budget, why the June 25, 2007 commitment letter differed from this internal memorandum, and why the revised budget was never disclosed to defendants.
Raymond A. LaRocco, however, notes that when LibertyPointe Bank lent defendants the funds requested for construction, they voiced no concern over the $3,175,000 figure, despite the fact that they were fully aware of the fact that the cost to purchase the premises was $999,900 and not $2,000,000. He also points out that in underwriting a loan, changes and revisions are frequently made internally that have no impact on the borrower or the amount of funds which a bank has committed to lend the borrower. As reflected in the June 28, 2007 internal memorandum, no portion of the loan was attributed to paying for the site, either before or after the revision to the budget. Furthermore, contrary to defendants' argument, the May 7, 2007 confidential appraisal was not for the purpose of determining or projecting the borrower's return on its investment, but for lending purposes for the use in underwriting the loan, and the amount attributed to the site cost in the appraisal did not change the total amount of money that LibertyPointe Bank had committed to lend to M. Lichtenstein LLC.The Lichtenstein defendants' argument that discovery is needed to explore the June 28, 2007 internal memorandum must be rejected. The Lichtenstein defendants have not shown that the value of the premises was peculiarly within LibertyPointe Bank's knowledge, or that any further discovery on this issue would yield information not already in their possession. Furthermore, while the Lichtenstein defendants argue that summary judgment should be denied because there is discovery outstanding, they do not annex any discovery demands to their opposing papers, and fail to show how any responses to such demands would enable them to demonstrate a triable issue of fact ( see Jones v New York City Tr. Auth., 166 AD2d 293, 293).
Defendants further attempt to raise a triable issue of fact by contending that while the construction was progressing, plaintiff, rather than fulfilling its commitment to provide funding of over $3,000,000 in connection with the development of the premises, delayed funding. Defendants argue that while the Building Loan Agreement required LibertyPointe Bank to fund within seven business days of its receipt of a draw request and the Project Loan Agreement provided that LibertyPointe Bank would make a good faith effort to provide the requested funds within five business days, LibertyPointe Bank routinely took far longer than standard practice to provide requested funds. Specifically, defendants state that upon receipt of a draw request from them, LibertyPointe Bank would take several days to acknowledge it, and would then send an engineer to inspect the completed work in 10 to 14 days. Defendants state that from that point, obtaining approval from LibertyPointe Bank required repeated requests over several weeks, and that even after approval was obtained, it took several days for funds to be submitted. Defendants assert that contrary to an assertion made by plaintiff that they did not provide the requisite affidavit to obtain funds, the affidavit required under section 6 (E) (iii) of the Building Loan Agreement did not have to be signed for each requisition, but only once before any funding was given.
Defendants contend that these delays by LibertyPointe Bank in paying these draw requests caused significant delays to the construction project because they were unable to pay contractors for work performed, and that this resulted in the contractors abruptly discontinuing their work until they were paid. Defendants assert that these delays prevented the completion of a sample condominium unit prior to the spring of 2008, which, in turn, prevented them from selling any condominium units prior to the decline in demand for real estate properties in general and such condominium units in particular. Defendants further assert that due to these delays by LibertyPointe Bank, they had not completed a sample unit by the spring of 2009, and that this induced them to sign the December 1, 2009 Modification. Defendants also assert that it was these delays by LibertyPointe Bank that were the cause of their ultimate inability to make the scheduled loan payments.
Plaintiff, however, has annexed a spreadsheet (Exhibit V), which is a compilation (created by plaintiff's attorney for ease of reference) of supporting documentation contained in other exhibits, which shows that all funding was advanced within seven days of request. While this spreadsheet sets forth draw down requests from November 19, 2007 to July 22, 2009, defendants only assert that the date the July 22, 2009 draw request was received by LibertyPointe Bank is incorrect as reflected in a report from LibertyPointe Bank's engineer, KOW Building Consultants, to LibertyPointe Bank, dated July 24, 2009, in which the engineer wrote that the property was inspected on July 20, 2009, two days before the receipt date of July 22, 2009 listed in the spreadsheet, and that the request to inspect the property was received on July 14, 2009, eight days before the listed receipt date of July 22, 2009. Defendants further point to an e-mail sent to them on July 16, 2009 from someone at United Commercial Group, attaching a lien waiver document, and requesting that the attached document be signed and notarized. Defendants assert that this e-mail shows that the draw request was received by LibertyPointe Bank on or before July 14, 2009.
The July 22, 2009 date referenced in the spreadsheet, however, was taken directly from the Application and Certification for Payment, which has been attached as an exhibit by plaintiff. This Contractor's Application for Payment was certified by the architect on July 22, 2009. Contrary to Yechial Michael Lichtenstein's assertion, KOW's Periodic Report to LibertyPointe Bank does not indicate that it received a request to inspect the property on July 14, 2009. Rather, the Report was prepared on July 24, 2009 for the period from April 7, 2009 to July 14, 2009. Notably, in paragraph 3, under the section entitled "Notes", KOW Building Consultants expressly stated that as of July 24, 2009, "No Borrower's Requisition has been received," and recommends that the Borrower make a request for funding from the Bank. Furthermore, while defendants attempt to cast blame on LibertyPointe Bank for their delay in construction, the KOW Building Consultants' July 24, 2009 report, similar to the other reports submitted by KOW Building Consultants, specifically stated that the reasons for delay in the construction project included the fact that on March 11, 2008, a stop work order had held up work for two to three months. In addition, this report notes that delays were caused by adjustments to the sprinkler plans, and that, previously, gas installation had delayed mechanical work.
Exhibit T to plaintiff's motion, which contains portions of the KOW Report of July 24, 2009, does not appear to contain the entire Report as the pagination is not sequential.
Defendants also point to the fact that LibertyPointe Bank was shut down by federal regulators in March 2010 due to its own financial difficulties, and that a cease and desist order, which was issued against LibertyPointe Bank in July 2009, disclosed that LibertyPointe Bank was "engaged in unsafe or unsound banking practices and had committed violations of law and/or regulation." Defendants argue that since LibertyPointe Bank was faced with mounting losses and increasing pressures from state and federal banking regulators, it took an increasingly aggressive approach to managing the loan in an effort to keep the loan performing on its books so that it could avoid classifying it as non-performing, which would have required it to reserve additional capital against the loan that it did not have. Defendants claim that LibertyPointe Bank stripped funds from the construction loan budget and redirected these funds to pay interest to itself.
Defendants note that LibertyPointe Bank was authorized to use the Interest Reserve Fund to cover interest payments due on the loan, but that by June 2009, the $293,000 Interest Reserve Fund had been depleted. In fact, M. Lichtenstein LLC acknowledged, in paragraph 5 of the December 1, 2009 Modification, that the Interest Reserve Fund had been fully depleted. Defendants assert, however, that without any contractual authority under the loan documents, LibertyPointe Bank diverted $150,000 of the funds, which were to be used by defendants to develop the property, to re-fund the Interest Reserve Fund, and then used these monies in the Interest Reserve Fund to pay itself interest. Yechial Michael Lichtenstein claims that LibertyPointe Bank was engaged in a troubling trend, which the FDIC, in a 2008 release, noted was being engaged in by banks, whereby the banks added extra interest reserve to "mask loans that would otherwise be reported as delinquent." Yechial Michael Lichtenstein claims that by improperly taking interest from the funds that had been reserved under the construction budget, LibertyPointe Bank made it impossible for defendants to complete the project.
According to defendants, the project remains only 80% complete because they were never able to secure the necessary funding to complete it.
Yechial Michael Lichtenstein asserts that LibertyPointe Bank only had authority to use loan funds to pay outstanding unpaid hard costs and not outstanding interest. Specifically, contending that the amounts payable under that agreement were limited to hard costs relating to construction, Yechial Michael Lichtenstein points to Section 7 (F) of the Building Loan Agreement, captioned "Lender Entitled to Make Advances to Pay Borrower's Obligations," which provides: "Any amounts payable under this Agreement, including but not limited to any loan commitment fees, Lender's Inspecting Engineer's fees and Lender's Attorneys' Fees, if not paid by Borrower when due, may be advanced by Lender without any authorization by Borrower. All such amounts advanced shall be deemed advanced to Borrower and shall be secured by the Mortgage." However, the cited paragraph, by its terms, clearly does not appear to support the limitation claimed by Yechial Michael Lichtenstein. Moreover, defendants' argument ignores paragraph 2 (a) of the Interest Reserve Fund Agreement, which explicitly authorized LibertyPointe Bank, in its sole discretion, under certain circumstances, to disburse proceeds from the Interest Reserve Fund to cover the cost of monthly interest payments.
Although the defendants do not specify the dates of the alleged diversion of $150,000 for interest payments, defendants maintain that, by June 2009, the interest reserve was fully depleted. This appears to be contradicted by plaintiff's exhibit U which includes a request for disbursement dated August 5, 2009 listing an interest reserve balance of $32,129.04. However, the LibertyPointe approval of a Request for Disbursement, dated August 5, 2009, does suggest that most of the $40,837.50 disbursement was applied to the interest payments due for July and August 2009, thus corroborating defendants' claim that funds were applied to interest obligations. However, despite the questionable identification of interest payments as a "hard cost" in the Request of August 5, the application of loan funds to such purpose was authorized and does not create a defense to defendants' obligations. The December 2009 Modification of Loan Agreement, executed by Yechial Michael Lichtenstein as managing member of M. Lichtenstein LLC and for which the individual defendants expressly reaffirmed their guaranties, specifically indicates the amount still available to be advanced to the defendant Borrower under the loan and acknowledges that the interest reserve had been depleted and that the Borrower would be required to make the monthly interest payments from its own funds. Accordingly, in executing the loan modification and guaranties in December 2009, defendants waived any claim to any alleged improper distribution for interest payments prior to December 2009. In any case, any effort by Liberty Pointe to avoid action by the FDIC by maintaining defendants' loan on its books as "performing" by advancing sums for interest due, as permitted under the terms of the agreements, would not relieve defendants of their obligations to repay the sums advanced by LibertyPointe under the loan documents.
$14,051.10 was requested for July's interest payment and $23,447.05 was requested for August's interest payment (a total of $37,498.15).
Based upon the unequivocal documentary evidence, defendants' defenses and counterclaims lack evidentiary support ( see Fortress Credit Corp. v Hudson Yards, LLC , 78 AD3d 577 , 577). Even if the defenses and counterclaims raised by defendants were viable and sufficient to raise a triable issue of fact herein, defendants are precluded from raising any such defenses and counterclaims under the December 1, 2009 Modification executed by M. Lichtenstein LLC and the Completion Guaranty and the Reaffirmation of Guaranties signed by the Guarantors in connection with the mortgage loans by which they explicitly waived all defenses and counterclaims. In fact, Meir Frei, in paragraph 45 of his answer, and the Lichtenstein defendants, in paragraph 93 of their answer, concede that they waived various defenses under the December 1, 2009 Modification Agreement. It is not against public policy to enforce a waiver of the right to interpose counterclaims ( see Chemical Bank NY Trust Co. v Batter, 31 AD2d 802, 802). Such a waiver constitutes an "insurmountable obstacle" to defendants' attempt to assert these defenses and counterclaims ( see JPMCC 2007-CIBC19 Bronx Apts., LLC v Fordham Fulton LLC , 84 AD3d 613, 613; Red Tulip, LLC v Neiva , 44 AD3d 204 , 209).
Defendants, however, seek to avoid the effect of their waivers by arguing that they were fraudulently induced into executing the December 1, 2009 Modification Agreement, and that such fraudulent inducement precludes enforcement of their waiver of defenses and counterclaims. Specifically, Yechial Michael Lichtenstein states that around the time the loan was scheduled to mature on June 1, 2009, defendants contacted LibertyPointe Bank to restructure the loan. Mr. Lichtenstein claims that such restructuring was needed because the development of the project had been inhibited by the financial crisis and hampered by LibertyPointe Bank's use of project funds for interest payments and LibertyPointe Bank's improper delays in funding the loan, delaying its completion by over a year. Lichtenstein further asserts that, unbeknownst to defendants, LibertyPointe Bank was seeking to avoid reclassifying the loan downwards because it would come under the FDIC's scrutiny which could trigger immediate FDIC takeover. Yechial Michael Lichtenstein further asserts that Raymond LaRocca and Meyer Eichler (another officer of LibertyPointe Bank) repeatedly represented to him and the other defendants that it would enter a restructuring plan only if M. Lichtenstein LLC would agree to extend the maturity date of the loan, reaffirm the guarantees, and keep the loan current. Lichtenstein claims that in reliance upon LibertyPointe Bank's assurances that it would restructure the loan, M. Lichtenstein LLC signed the December 1, 2009 Modification extending the loan until December 1, 2011, and the Guarantors signed the Reaffirmation of Guaranties. Lichtenstein complains that LibertyPointe Bank never restructured the loan, choosing, instead, to keep the loan performing on its books and continue collecting interest payments, resulting in defendants' inability to complete the construction project.
Defendants' attempt to avoid their waivers based upon their claim of fraudulent inducement must be rejected. In addressing a claim of fraud in the inducement with respect to a guarantee, the Court of Appeals, in Citibank v Plapinger ( 66 NY2d 90, 92), held that fraud in the inducement of a guarantee "is not a defense to an action on the guarantee when the guarantee recites that it is absolute and unconditional irrespective of any lack of validity or enforceability of the guarantee, or any other circumstance which might otherwise constitute a defense available to a guarantor in respect of the guarantee." Indeed, the Court of Appeals, in Citibank ( 66 NY2d at 93), expressly found that although the evidence in that case was sufficient to raise a triable issue concerning fraud in the inducement, "the language of disclaimer in the guarantee [was] sufficiently specific to foreclose as a matter of law the defenses and counterclaims based on fraud, negligence or failure to perform a condition precedent asserted against [the] plaintiff banks," relying on the rule set forth in Danann Realty Corp. v Harris, 5 NY2d 317, which would preclude reliance on any allegedly fraudulent inducement.
Relying upon Citibank ( 66 NY2d at 93), New York courts have consistently upheld broadly worded waiver language to preclude the assertion of defenses to a guaranty ( see Fortress Credit Corp., 78 AD3d at 577; General Trading Co. v A D Food Corp., 292 AD2d 266, 267; Banco do Estado de Sao Paulo v Mendes Jr. Intl. Co., 249 AD2d 137, 138; Gannett Co. v Tesler, 177 AD2d 353, 353; Preferred Equities Corp. v Ziegelman, 190 AD2d 784 [2d Dept 1993]). Here, the language of the Completion Guaranty and the Reaffirmation of Guaranties in the instant case is as broad and unconditional as that in Citibank ( 66 NY2d at 93) and the above-cited cases, and expressly waives all defenses and counterclaims by the Guarantors. In paragraph 6 of the December 1, 2009 Modification, Borrower represents and warrants that no defense or counterclaim exists, and expressly waives any defense or counterclaim by M. Lichtenstein LLC. The Reaffirmation of Guaranties similarly contains an acknowledgment by the guarantors that no offset, defense or counterclaim exists as to their obligations and that any such defense is "irrevocably waived." Thus, based upon the specific language of the December 1, 2009 Modification, the Completion Guaranty, and the Reaffirmation of Guaranties, defendants waived their right to assert the defense and counterclaim of fraudulent inducement ( see JPMCC 2007-CIBC19 Bronx Apts., LLC, 84 AD3d at 613; Fortress Credit Corp., 78 AD3d at 577; Red Tulip, LLC, 44 AD3d at 209; Preferred Equities, 190 AD2d at 784; North Fork Bank Trust Co. v Bernstein Gershman, 201 AD2d 472, 473 [2d Dept 1994]). Such waiver forecloses defendants' reliance on the claim that they were fraudulently induced to sign the December 1, 2009 Modification Agreement by LibertyPointe Bank's alleged oral promise of a restructuring of the loan ( see Citibank, 66 NY2d at 93; JPMCC 2007-CIBC19 Bronx Apts., LLC, 84 AD3d at 613; Fortress Credit Corp., 78 AD3d at 577; Red Tulip, LLC, 44 AD3d at 209; Preferred Equities, 190 AD2d at 784; North Fork Bank, 201 AD2d at 473).
Defendants, however, relying upon the case of Sterling Natl. Bank Trust Co. of NY v Giannetti ( 53 AD2d 533, 533), argue that since their counterclaims are based upon fraud by LibertyPointe Bank, public policy precludes the enforcement of the written waivers executed by them. In Sterling Natl. Bank Trust Co. of NY ( 53 AD2d at 533), the Appellate Division, First Department, held that "defenses based upon allegations of fraud may not be waived . . . because a written waiver in any form cannot operate to shield a party from his [or her] own fraud", reasoning that "[f]or the courts to give effect to such a clause would be violative of both public policy and morality, since an ultimate finding of fraud must of necessity vitiate the contract relied upon."
Defendants' reliance upon Sterling Natl. Bank Trust Co. of NY is misplaced. Notably, Sterling Natl. Bank Trust Co. of NY ( 53 AD2d at 533), was decided prior to the decision by the Court of Appeals in Citibank ( 66 NY2d 90). More recently, the Appellate Division, First Department, in Red Tulip, LLC ( 44 AD3d at 209), citing Citibank ( 66 NY2d at 92), has expressly held that an unconditional guaranty and waiver of defenses signed by a defendant in connection with a commercial mortgage loan barred her from asserting her remaining affirmative defenses and counterclaim in that action ( see also JPMCC 2007-CIBC19 Bronx Apts., LLC, 84 AD3d at 613). Here, based upon the most recent legal authority reflecting the current public policy of this State, defendants are similarly precluded from raising the defense of fraudulent inducement based upon their waivers of defenses and counterclaims contained in the contracts they signed, the language of which was specifically upheld as an enforceable waiver in Red Tulip ( see Citibank, 66 NY2d at 93; JPMCC 2007-CIBC19 Bronx Apts., LLC, 84 AD3d at 613; Fortress Credit Corp., 78 AD3d at 577; Red Tulip, LLC, 44 AD3d at 209; Preferred Equities, 190 AD2d at 784; North Fork Bank, 201 AD2d at 473).
Moreover, in the case at bar, defendants could not have reasonably relied upon any oral representations of LibertyPointe Bank made in or about June, 2009, prior to the December Modification, as such claims are inconsistent with the express language in the Completion Guaranty, the Reaffirmation of Guaranties, and the December 1, 2009 Modification. The irrevocable and absolute waivers contained in the Completion Guaranty and Reaffirmation Guaranties were reaffirmed in the December 1, 2009 Modification, without any reference to further restructuring of the loan, other than such extension. In credentials submitted in support of their request for the loan for this project, Yechial Michael Lichtenstein and Nahman Simon Lichtenstein represented themselves to LibertyPointe Bank to be sophisticated real estate developers, who had successfully managed and developed numerous construction projects in New York, New Jersey, and Pennsylvania. A sophisticated business person cannot reasonably claim to have been defrauded when he or she "fails to make further inquiry or insert appropriate language in the agreement for [his or her] protection[. Such party] has willingly assumed the business risk that the facts may not be as represented" and must be held to the terms to which he or she contractually agreed ( Global Mins. Metals Corp. v Holme , 35 AD3d 93 , 100; see also Arfa v Zamir , 76 AD3d 56 , 60, aff'd, 2011 NY Slip Op 04719, 2011 WL 2183280).
While defendants, at oral argument, relied upon Pike v New York Life Ins. Co. ( 72 AD3d 1043 ), in which the Appellate Division, Second Department, relied upon Sterling Natl. Bank Trust Co. of NY ( 53 AD2d at 533), that insurance case is readily distinguishable from the instant commercial foreclosure action. In Pike ( 72 AD3d at 1046, 1051), the waiver contained in a boiler-plate assignment was held to be ineffective to bar the plaintiffs' claims that they had been fraudulently induced to purchase insurance policies that were unsuitable for their needs and that they could not reasonably afford. Significantly, Pike, unlike the case at bar, did not involve a fully negotiated contract between sophisticated business persons over a multi-million dollar loan, containing specific unconditional and absolute language of waiver, but, rather, involved a boilerplate assignment containing a generalized exclusion executed by the insured individual consumers. Here, inasmuch as the waivers were executed following extended negotiations between sophisticated business people, defendants are bound to their express waivers of the right to interpose defenses and counterclaims and cannot reasonably contend that they relied upon oral representations not reflected in the signed documents ( see Citibank, 66 NY2d at 95; see also, M T Mortg. Corp. v Ethridge, 300 AD2d 286, 287 [2d Dept 2002] (holding that "reli[ance] upon prior or contemporaneous statements of the plaintiff at the time of the execution of the note" violates the parol evidence rule and such assertions are barred); European Am. Bank v Syosset Autorama, 204 AD2d 266 [2d Dept 1994]).
Accordingly, plaintiff's motion for an order granting it summary judgment in its favor and dismissing the verified answer of Townhouse Builders, Inc., the amended verified answer of Meir Freir, and the answer and counterclaims of the Lichtenstein defendants is granted. A referee shall be appointed to ascertain and compute the amount due to plaintiff under the mortgages. Plaintiff's motion to amend the caption of this action to delete John Doe #1 through John Doe #20, is granted. Plaintiff is directed to submit an order to the court in accordance with this decision and order within 10 days of the date of this decision and order.
Settle order on notice.
This constitutes the decision and order of the court.