767 Third Ave. LLC v Orix Capital Mkts., LLC
Annotate this CaseDecided on July 26, 2005
Supreme Court, New York County
767 Third Avenue LLC and 320 WEST 13TH REALTY LLC, Plaintiffs,
against
Orix Capital Markets, LLC, Defendant.
601047/04
Bernard J. Fried, J.
Defendant Orix Capital Markets, LLC (Orix) moves, pursuant to CPLR 3212, for summary judgment, dismissing the third, fourth, and seventh causes of action of the amended complaint.
The facts underlying this action were set forth in a prior decision, dated January 21, 2005 (Prior Decision). Summarized, plaintiffs 767 Third Avenue LLC (767) and 320 West 13th Realty LLC (320) each sought to refinance mortgage loans by prepaying the loans, and each receiving an assignment of mortgage, rather than a satisfaction of mortgage, to minimize their respective mortgage recording fee obligations. Plaintiffs allege that Orix, as loan servicer, wrongfully charged 767 an excessively high assignment fee, and wrongfully refused to provide 320 with an assignment of mortgage.
In August 2003, 767 advised Orix, in Orix's capacity as servicer for the Certificate holders of the Credit Suisse First Boston (CSFB) Commercial Mortgage-Pass Through Certificates Series 1998-C1 Trust (Trust), that it intended to refinance the 767 loan, and it requested an assignment of the 767 mortgage. 767 objected to Orix's request that it pay an assignment fee in the amount of $413,819.77, representing 1% of the outstanding principal shown as due on the payoff statement. If Orix issued a satisfaction of judgment, instead of an assignment, 767 would have been liable to pay a mortgage recording fee of $1,815,000. 767 agreed to pay the amount demanded, and, at the closing held on September 11, 2003, the Trust delivered an assignment of the mortgage, and 767 executed and delivered a release (Release) to Orix. The Release provides, in part: "Borrower hereby releases Noteholder and Servicer and their agents, employees and attorneys (collectively the "Releases") from: (a) any and all claims relating to the $413,819.77 fee charged for the Assignment; and (b) any claim that the amounts set forth in the Payoff Statement are incorrect."
767 contends that if Orix carried out its threat to deliver a satisfaction of mortgage, instead of an assignment, it would have been liable to pay an incremental mortgage recording tax in the amount of $1,138,004.37, representing the tax due on the amount being paid to the lender. This amount reflects, in effect, the benefit to which 767 was entitled to, because of its past payment of [*2]taxes to record the consolidated mortgage securing this amount of mortgage indebtedness.
According to 320, by unilaterally issuing a satisfaction of mortgage, Orix caused it to forfeit the benefit of the mortgage recording tax, because the satisfaction extinguished the consolidated mortgage lien securing the 320 loan, and thus, it created an entirely new lien for the new lender's benefit, and it was required to pay a mortgage recording tax in the amount of $275,000, including $160,875 that it should not have had to pay.
Orix now moves for summary judgment, dismissing the third, fourth, and seventh causes of action of the amended complaint.
The third cause of action of the amended complaint alleges that, on behalf of 767, Orix breached the loan documents, as supplemented by a "Pooling and Servicing Agreement," dated as of June 11, 1998 (PSA), among (1) CSFB Mortgage Capital LLC, (2) State Street Bank and Trust Company (State Street Bank), as trustee (Trustee) for the Trust, (3) Orix, and (4) others, by failing to service the loans in good faith, as set forth above. The seventh cause of action of the amended complaint makes the same allegations, but on behalf of 320.
The third and seventh causes of action are identical to two causes of action contained in a proposed amended complaint that plaintiffs presented to the court in a prior motion for leave to amend the complaint, the sufficiency of which I addressed in the Prior Decision.
As set forth in the Prior Decision, I found that these causes of action lacked merit, and I denied the request to include them in the proposed amended complaint. Although leave to amend the complaint is to be freely granted, leave is properly denied where the proposed claims are palpably insufficient (Tishman Constr. Corp. of New York v City of New York, 280 AD2d 374 [1st Dept 2001]).
These two causes of action are based upon the claim that plaintiffs were third-party beneficiaries of the PSA. I ruled that the only viable claims were those based upon the breach of contract claims that were already contained in the original complaint, in which plaintiffs alleged that Orix breached its obligations under the note and mortgage, including its obligations of good faith and fair dealing, by imposing a 1% fee for the granting of an assignment of mortgage.
Instead of inserting the additional breach of contract claims into the amended complaint, plaintiffs had the opportunity, if so advised, to have moved to reargue the Prior Decision, something that they did not do. Moreover, at oral argument, plaintiffs conceded that the primary reason for asserting these causes of action was to broaden the scope of discovery.
Hence, I grant the motion to dismiss these two causes of action. Dismissal of the two claims, predicated upon the PSA, does not mean, however, that plaintiffs are precluded from obtaining discovery relating to the PSA. I will consider that issue when and if it becomes necessary to do so.
The fourth cause of action of the amended complaint seeks a declaration that the Release is void. Allegedly, Orix falsely and fraudulently represented to 767 that it was demanding the Release on behalf of the Trustee, and was acting within the authority that the Trustee granted to it. Orix prepared the Release, falsely stated that the Release was being provided "in order to induce Noteholder to provide the Assignment . . . ." Moreover, Orix presented 767 with a power of attorney that expressly stated that 767 could "rely completely unconditionally and conclusively on [defendant's] authority" to act on the Trustee's behalf. The complaint alleges further that Orix's false representations were intended to facilitate its effort to compel 767 to execute the Release, and that the Release is the product of Orix's wrongful acts, including its abusive misuse of the position of power and trust that it occupied as servicer. [*3]
In the Prior Decision, I found that 727's economic duress argument, seeking to void the Release, was unavailing. I found merit, however, to the assertion that the Release was void due to fraud for purposes of granting leave to amend the complaint. A party may avoid a release if it establishes that it executed the release through fraud (see New York City School Constr. Auth. v Koren-DiResta Constr. Co., 249 AD2d 205 [1st Dept 1998]). To avoid a release on this ground, a party must allege every material element of fraud with specific and detailed evidence in the record sufficient to establish a prima facie case (Touloumis v Chalem, 156 AD2d 230 [1st Dept 1989]), including misrepresentation of material facts, falsity, scienter, reliance, and injury (Standish-Parkin v Lorillard Tobacco Co., 12 AD3d 301 [1st Dept 2004]).
Orix argues that the statement that the Release was being provided "in order to induce Noteholder to provide the Assignment" cannot constitute a misrepresentation, because the statement is true, in that the Trust was the owner and holder of the 767 note, 767 mortgage, and related loan documents, and thus, only the Trustee could provide an assignment of the 767 mortgage, and that it executed the assignment in its capacity as servicer for the Trustee.
767's contention, however, is that the Release should have recited that it was being given to induce Orix, in its capacity as servicer, to provide the Assignment, rather than to induce the Noteholder (i.e., Trustee), who had no knowledge of the fee demanded for the assignment, the demand for the Release, the delivery of the Release, or the assignment fee at the time that 767 paid it, and there is support in the record for these assertions (see Affirmation of Adam Gilbert, Esq., dated May 31, 2005, at Ex 2, p 18). Furthermore, according to Robert Kaufman, a principal of 767, Orix's representation that the Trustee required the Release was a substantial factor in inducing 767 to execute the Release.
Although on the prior motion, and again here, Orix argues that 767 cannot prove detrimental reliance, as stated in the Prior Decision, the issues of material representation (i.e., the Trustee's role in the transaction) and reasonable reliance essential elements of fraud are not subject to summary disposition (Brunetti v Musallam, 11 AD3d 280 [1st Dept 2004]). This case does not present the "rare circumstance" in which reasonable reliance is subject to summary disposition (cf. J.A.O. Acquisition Corp. v Stavitsky, 18 AD3d 389 [1st Dept 2005]).
Accordingly, it is
ORDERED that the motion is granted only to the extent of dismissing the third and seventh causes of action of the amended complaint.
Dated:
ENTER:
_________________
J.S.C.
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