Southwell v Middleton

[*1] Southwell v Middleton 2007 NY Slip Op 52185(U) [17 Misc 3d 1129(A)] Decided on November 16, 2007 Supreme Court, Kings County Knipel, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 16, 2007
Supreme Court, Kings County

Leroy Southwell, Plaintiff,

against

Reginald Middleton, et al., Defendants.



2907/06



Attorneys for Plaintiff

Lee A. Pollock, Esq.

Pollock & Maguire, LLP

106 Corporate Park Drive - Suite 401

White Plains, NY 10604

(914) 251-1525

Attorneys for Defendants

(Emigrant Savings Bank)

Carol A. Dunning, Esq.

Carol A. Dunning, P.C.

46 George Street

Manhasset, NY 11030

(516) 708-9500

(Middleton and Lefferts Place)

Andrew Morris Weltcheck, Esq.

Marcus Attorneys

13 Greene Avenue

Brooklyn, NY 11238

(718) 643-6555

(Washington Mutual) Michael Gibson, Esq.

Satterlee, Stevens, Burke & Burke

230 Park Avenue - Suite 1103

New York, NY 10169

212 818-9200

Lawrence S. Knipel, J.

Upon the foregoing papers, plaintiff Leroy Southwell moves for an order, pursuant to CPLR 3025(b), granting leave to serve an amended complaint. Defendants Reginald Middleton and Lefferts Place, LLC (hereinafter "Middleton") cross-move for an order, pursuant to CPLR 3212 and 6514, granting summary judgment dismissing the complaint and cancelling the notice of pendency. Plaintiff further moves for an order disqualifying the Marcus Attorneys law firm from representing Middleton based on the attorney-witness rule. Defendant Emigrant Savings Bank ("Emigrant") moves an order, pursuant to CPLR 3212, granting summary judgment dismissing the complaint as against it and, pursuant to CPLR 3025, granting leave to serve an amended answer to assert an additional defense, as well as a counterclaim against plaintiff and cross claims against Middleton. Defendant Washington Mutual Bank, FA ("WaMu") moves for an order, pursuant to CPLR 3212, granting summary judgment dismissing the complaint as against it and for costs and attorneys fees.

Plaintiff commenced this action for a declaratory judgment and other relief stemming from the execution of an "Equity Purchase Agreement," whereby plaintiff agreed, in essence, to give a deed to the subject property to Middleton in return for Middleton's paying off a delinquent mortgage on the property, while plaintiff would be allowed to remain on the property as a tenant and make monthly rental payments to recompense Middleton for the monies expended to satisfy the mortgage. Plaintiff became the owner of the subject premises by deed dated August 30, 2002. On or about September 13, 2002, plaintiff encumbered the property with a mortgage in favor of Full Spectrum Lending, Inc. to secure a loan in the amount of $339,500.00, which was subsequently assigned to Countrywide Home Loans, Inc. ("Countrywide"). In the summer of 2003, plaintiff began to fall behind in his mortgage payments to Countrywide and faced the prospect of foreclosure. Plaintiff was subsequently referred by a friend to Middleton in November of that year, who allegedly offered to assist plaintiff in satisfying the mortgage in a manner that would allow plaintiff to retain occupancy of his home. Middleton and plaintiff thereafter entered into the Equity Purchase Agreement, which contained the following relevant provisions: In consideration of $100, receipt of which is hereby acknowledged by the Seller, the Seller agrees to sell, and the Buyer agrees to buy, the above described property for a net purchase price of the payoff amount of the existing mortgage plus any additional encumberances that may prevent the conveyance of clear title as well as the expenses of the purchase transaction, not exceeding $380,000 (net purchase price).[*2]

It is also agreed:

* * *

8. The Purchaser agrees to secure a mortgage for the net purchase price as described in the first paragraph, the Seller agrees to allow adjustments to the contract of sale gross purchase price as long as the net sales satisfies the definition of "net purchase price" referenced above.

9. As a condition of the sale, the Seller receives a 4 month lease with an option to buy the house back from the purchaser. This option expires 4 months from the date of closing of the sale to the Purchaser. The buyback price shall be $444,000.

10. The aforementioned option includes an equity pay down feature, wherein if Mr. Southwell cannot attain a mortgage within 300 basis points of the prevailing 30 year conventional mortgage rate average within the expiry period of option, Mr. Middleton will lease the property to Mr. Southwell for 30 years. . .The deed shall remain in Mr. Middleton's name or the name of an affiliated LLC, LLP or majority owned investment vehicle until the receipt of the final payment of the 30 year lease to own agreement, or the outright purchase of the property by Mr. Southwell, whichever comes first. Mr. Middleton will take out and pay a mortgage in his name, and Mr. Southwell will pay Mr. Middleton according to the lease-buyback agreement.

* * *

12. Mr. Southwell, as a condition of accepting the buyback option, acknowledges that the lease will have an expense pass through provision wherein Mr. Southwell must pay all expenses (ex. taxes, utilities, household repairs, maintenance and insurance fees) directly to Mr. Middleton in addition to lease payments, unless express written permission to do otherwise is both requested and granted.

The parties thereafter attended a closing whereat plaintiff executed a quitclaim deed in favor of Middleton, who had taken out a new mortgage on the property in favor of Emigrant in the amount of $408,000.00. The Countrywide mortgage debt of $360,529.50 was satisfied with the funds from the Emigrant loan. On the HUD-1 settlement statement, the contract sale price was listed as $680,000.00 and the amount of "cash to seller" was stated as $302,887.87, though plaintiff states he did not receive any such proceeds.

Plaintiff alleges that in August 2004, Middleton informed him that the subject property was being converted into condominiums and plaintiff would not be able to reacquire his home. On December 22, 2004, Middleton executed a deed in favor of defendant Lefferts Place, LLC, a limited liability company of which Middleton is the sole member, and subsequently placed a second mortgage on the property in favor of WaMu.Plaintiff commenced this action originally asserting five causes of action: 1) a declaratory judgment [*3]that the deed to Middleton is a mortgage pursuant to Real Property Law (RPL) § 320; 2) a declaratory judgment finding that the lease-buyback provision of the Equity Purchase Agreement is usurious under the General Obligations Law; 3) unjust enrichment; 4) fraud and 5) unconscionability. By order dated July 17, 2006, this court granted, in part, Middleton's motion to dismiss the complaint to the extent of striking the causes of action for usury, unjust enrichment and unconscionability. Following the issuance of the order, the parties engaged in discovery. As the result of information gleaned therefrom, plaintiff seeks to amend the complaint to restore the dismissed causes of action for usury and unconscionability, based on new evidence which remedies the deficiencies in the original pleading, add causes of action based on violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and equitable reformation of contract, and supplement the extant causes of action for a declaration of mortgage under RPL § 320 and fraud. Middleton argues that the amendments are without merit and seeks summary judgment dismissing all causes of action.

Plaintiff's Motion to Amend the Complaint and Middleton's

Cross Motion for Summary Judgment

In the interest of expediency, this court will examine the proposed amended complaint and determine both whether the amendments are meritorious for pleading purposes and whether the amendments withstand Middleton's cross motion for summary judgment. "Leave to amend or supplement pleadings should be freely granted unless the amendment sought is palpably improper or insufficient as a matter of law, or unless prejudice and surprise directly result from the delay in seeking the amendment" (Maloney Carpentry, Inc. v Budnik, 37 AD3d 558, 558 [2007]; see Emilio v Robinson Oil Corp., 28 AD3d 417, 418 [2006]; CPLR 3025[b]). "The decision to allow or disallow the amendment is committed to the court's discretion" (Edenwald Contr. Co. v City of New York, 60 NY2d 957, 959 [1983]). The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law tendering sufficient evidence to demonstrate the absence of any material issues of fact (Alvarez v Prospect Hosp., 68 NY2d 320, 324). Once this showing has been made, the burden shifts to the party opposing the motion to lay bare its proof and present evidentiary facts sufficient to raise a genuine triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557[1980]; Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065 [1979]). Mere conclusory assertions, devoid of evidentiary facts, are insufficient for this purpose, as is reliance upon surmise, conjecture, or speculation (see Smith v Johnson Prods., 95 AD2d 675 [1983]).

Real Property Law § 320

Under RPL § 320, a deed conveying real property, although absolute on its face, will be considered to be a mortgage when the instrument is executed as security for a debt (see Basile v Erhal Holding Corp., 148 AD2d 484 [1989]). RPL § 320 does not require a conclusive showing that the transfer was intended as security; it is sufficient that the conveyance "appears to be" intended only as a security in the nature of a mortgage (Leonia [*4]Bank v Kouri, 3 AD3d 213, 217 [2004]). To establish that a deed was meant as security, "examination may be made not only of the deed and a written agreement executed at the same time, but also [of] oral testimony bearing on the intent of the parties and to a consideration [of] the surrounding circumstances and acts of the parties" (Corcillo v Martut, Inc., 58 AD2d 617, 618 [1977]; see Hughes v Harlam, 166 NY 427, 431 [1901]; Matter of Newcourt Realty Holding Corp. v Gabel, 28 AD2d 704, 704 [1967]). To establish prima facie entitlement to summary judgment, a defendant is required to demonstrate that, as a matter of law, the deed was not meant as security for the debt owed by the plaintiff (see Ujueta v Euro-Quest Corp., 29 AD3d 895, 895-896 [2006]). In the prior order, the court found that considering the language of the "Equity Purchase Agreement" together with the allegations in the complaint, plaintiff had sufficiently stated a cause of action for a declaration that the deed to Middleton was in the nature of a mortgage. The Equity Purchase Agreement entered into in conjunction with the deed contains provisions for plaintiff to remain on the property while paying Middleton over 30 years [not unlike the term of a 30 year mortgage], after which time title would be returned to plaintiff. Further, plaintiff was to remain responsible for the payment of taxes, utilities, insurance, etc., not unlike a mortgagor. Thus, the Equity Purchase Agreement suffices as a "written instrument" executed simultaneously with the deed which shows that the deed "appears to be" intended only as security. Accordingly, that part of plaintiff's motion to amend the complaint to supplement the RPL § 320 claim is granted and Middleton's cross motion to dismiss the RPL § 320 claim and cancel the notice of pendency is denied.

Usury

In the original complaint, plaintiff claimed that if the subject transaction were considered a loan, then the buyback price of $444,000.00 would be usurious. When determining whether a transaction constitutes a usurious loan it must be "considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it" (Ujueta, 29 AD3d at 895 quoting Lester v Levick, 50 AD2d 860, 862-863 [1975], revd on dissenting op of Christ, J., 41 NY2d 940 [1977]). In the prior order, this court dismissed plaintiff's cause of action for usury on the basis that the buyback price set forth in the Equity Purchase Agreement cannot be considered interest since it did not relate to the consideration for making the loan, but more akin to a prepayment penalty. Plaintiff now argues that in light of the deposition testimony of Middleton, it is shown that Middleton did not contemplate a thirty year lease to be vested in plaintiff, but only a four month lease which would expire outright unless plaintiff exercised the option and repurchased the property for the "usurious" amount of $444,000. The relevant testimony of Middleton cited by plaintiff is as follows:

Q. And what was the end of the lease term? [*5]

A. The lease term the actual lease term?

Q. Yes.

A. Let me correct my previous answer. The equity paydown feature was indicative to the buy back price after a 30 year lease term which never came into play. So the only lease that I can discuss that was actually available was a four month lease term.

Middleton also testified:

The concept was I would purchase the property, and upon my purchasing the property [plaintiff] has an option to buy the property back within four months. He can attempt to get a mortgage and if he cannot, and I stress, cannot get a mortgage within the specific price which is named in the equity purchase agreement, then I will enter a 30 year lease with him, and the 30 year lease had other characteristics to it which would've been fully fleshed out if the 30 year lease would have come into play which it did not. So at that point all he had was a four month lease and an option to buy it back, which was not exercised.

However, Middleton's testimony does not show that he intended the absolute maturity date of the alleged loan to come at the end of the four month buyback period, and there is no language in the agreement which would support such an interpretation. The mechanism by which the thirty year lease would vest is not stated in succinct terms. The Equity Purchase Agreement provides certain circumstances where the lease may be considered null and void:

13. Mr. Southwell must make all payments to Mr. Middleton on time, and without demand. If Mr. Southwell misses any two payments in any consecutive 12 month period, the lease is considered breached, null and void and the buyback option is dissolved, and considered null an void. If Mr. Southwell is late (if payment is paid past the standard 15 day grace period) on any 3 payments in any consecutive 12 month period, the lease is considered breached, null and void. In any circumstance where the lease is considered breached, the current lessors of the subject property will be considered holdovers by default.

Thus it is clear that if plaintiff were to default in his payments under the lease, then Middleton would be able to extinguish plaintiff's leasehold interest. However, there is no provision in the Equity Purchase Agreement which explicitly allows Middleton to extinguish plaintiff's tenancy at the end of the four month buyback period simply because plaintiff did not endeavor to procure a mortgage and/or fail to give notice to Middleton that he was not exercising the buyback option. It is settled that any ambiguities in a contract must be construed against the drafter (Jacobson v Sassower, 66 NY2d 991, 993 [1985]; Strauss Paper Co., Inc. v RSA Executive Search, Inc., 260 AD2d 570, 571 [1999]). There is an ambiguity with respect to the circumstances under which plaintiff is entitled to continue occupancy of the premises under a thirty year lease following the expiration of the four month option [*6]period. The testimony and new allegations do not support a cause of action for usury since, as determined in the prior motion, the agreement, as construed most favorably toward plaintiff, contemplated a thirty year lease to take effect if the four month buyback option could not be exercised. Even if Middleton's testimony shows that he contemplated two distinct lease periods, such does not show that he intended to deny plaintiff a thirty year lease under any and all circumstances. Accordingly, plaintiff's motion to amend the complaint to reassert a cause of action for usury is denied.Fraud

The "signer of a written agreement is conclusively bound by its terms unless there is a showing of fraud, duress or some other wrongful act on the part of any party to the contract" (Barclays Bank of New York, N.A. v Sokol, 128 AD2d 492, 420 [1987] quoting Columbus Trust Co. v Campolo, 110 AD2d 616, 617 [1985]). To prove fraud, plaintiff must demonstrate that Middleton knowingly misrepresented a material fact, upon which plaintiff justifiably relied, resulting in an injury (New York Univ. v Continental Ins. Co., 87 NY2d 308 [1995]). In the proposed amended complaint, plaintiff alleges that Middleton falsely represented that he "would assist" plaintiff in making arrangements to satisfy the mortgage held by Countrywide in a manner that would allow plaintiff to pay Middleton as if he were paying Countrywide and still maintain ownership of his home, and that Middleton made representations to plaintiff that they would not need attorneys to enter into the Equity Purchase Agreement. In light of the evidence uncovered through discovery, including the deposition testimony of Middleton, plaintiff's allegations as to false statements made by Middleton are, simply, that the parties did not need attorneys and that Middleton would help plaintiff "get out of his situation." In essence, plaintiff is alleging that Middleton fraudulently represented that plaintiff would be allowed to enter into a thirty-year lease following the four-month option period, but in reality intended to unilaterally extinguish plaintiff's interest in the property at the end of the four month period. However, this allegation is tantamount to arguing that Middleton entered into the Equity Purchase Agreement intending not to perform. A cause of action sounding in fraud may not be sustained where the pleading alleges that the party to be charged did not intend to perform the contract at the time the contract was executed (Rocchio v Biondi, 40 AD3d 615 [2007]; Place v Ginsburg, 280 AD2d 656 [2001]; Manshul Constr. Corp. v City of New York, 143 AD2d 333 [1988]). Contrary to plaintiff's argument, the alleged "promissory fraud" which was the subject of Graubard Mollen Dannett & Horowitz v Moskovitz (86 NY2d 112 [1995]) is not applicable here, as there is no showing that Middleton breached any duty to plaintiff independent of the contract (see Van Neil v Berger, 219 AD2d 811 [1995]), or made a fraudulent representation collateral or extraneous to the contract (see Coppola v Applied Electric Corp., 288 AD2d 41 [2001]). The testimony of plaintiff demonstrates simply that Middleton failed to provide him with a thirty-year lease as contemplated within the terms of the Equity Purchase Agreement. As a result, Middleton's motion for summary judgment dismissing plaintiff's cause of action for fraud is granted.

Unconscionability

In Gillman v Chase Manhattan Bank (73 NY2d 1 [1988]), the Court of Appeals outlined the doctrine of unconscionability in contract formation as follows:

"An unconscionable contract has been defined as one which is so grossly unreasonable or unconscionable in the light of the mores and business practices of the [*7]time and place as to be unenforcible (sic) according to its literal terms. The doctrine, which is rooted in equitable principles, is a flexible one and the concept of unconscionability is intended to be sensitive to the realities and nuances of the bargaining process. A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made- i.e., some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.

The procedural element of unconscionability requires an examination of the contract formation process and the alleged lack of meaningful choice. The focus is on such matters as the size and commercial setting of the transaction, whether deceptive or high-pressured tactics were employed, the use of fine print in the contract, the experience and education of the party claiming unconscionability, and whether there was disparity in bargaining power. In general, an unconscionable contract has been defined as one which is so grossly unreasonable because of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party" (Gillman, 73 NY2d at 10-11)(citations and internal quotation marks omitted).

In the prior order, this court found that plaintiff's complaint failed to set forth allegations that he had no meaningful choice at the time he entered the Equity Purchase Agreement. In the proposed amended complaint, plaintiff sets forth several allegations demonstrating that he was in default under his "workout" agreement with Countrywide which initiated the foreclosure process, and that there were no other lenders which would refinance due to plaintiff's poor credit rating. Additionally, plaintiff submits the affidavit of "expert witness" Arnold R. Streisfeld who avers that plaintiff could not have obtained any conventional or subprime mortgage or qualify for "hard money" financing during the four month option period due to his poor credit worthiness. However, while it is clear that plaintiff was in financial hardship at the time he entered into the Equity Purchase Agreement, there is no showing that plaintiff had no choice but to enter into the agreement. Plaintiff testified that he was referred to another person for possible financial assistance but entered into the agreement with Middleton before his call to that alternate person was returned. There is further no allegation that plaintiff sought out any other persons who would provide financial assistance or purchase the subject property. Accordingly, plaintiff's motion to amend the complaint to reassert the unconscionability cause of action is denied.

RICO claims

Plaintiff maintains that in addition to the alleged fraudulent scheme involving the subject property, Middleton was involved in similar schemes with respect to other properties and may be held liable for damages under RICO.

281 Cumberland Street

Plaintiff alleges that the property at 281 Cumberland Street was purchased by Middleton's wife Sunni Middleton, from a financially distressed homeowner on January 3, 2002 at a price below market value. After mortgaging the property three times in order to access the equity, Sunni Middleton then transferred the property to Middleton for no consideration by deed dated July 9, 2004. Middleton then sold the property for a [*8]substantial profit. It is further alleged that Middleton had a poor credit rating from 1999-2003 and this transaction was effectuated in order to rebuild Middleton's credit.

221 Washington Avenue

Plaintiff further alleges that in or around August 2003, Middleton entered into an equity purchase agreement with Occran Ittai in connection with the property at 221 Washington Avenue, which was in foreclosure. Middleton entered into a contract of sale with Mr. Ittai for a purchase price of $626,000.00, with a down payment of $2,000. Plaintiff alleges that this contract was altered to reflect a purchase price of $680,000 before Middleton submitted the contract to a mortgage broker. Plaintiff maintains that the submission of the altered contract to the mortgage broker was an attempt to misrepresent and conceal the true terms his transaction with Mr. Ittai, which constitutes "bank fraud," and that the altered contract's transmission by facsimile constitutes "wire fraud."

In connection with the 221 Washington Avenue transaction, Middleton borrowed the sum of $612,000.00 from MortgageIT, Inc. secured by two mortgages on the property. Plaintiff alleges that Mr. Ittai was not paid the $626,000 purchase price, let alone the $680,000 purchase price reflected in the altered contract, receiving only $534,307.06, of which $490,695.71 was used to satisfy the existing mortgage on the property, with residual cash of $43,611.35 paid to Mr. Ittai. According to the HUD-1 statement, however, the amount of $165,582.41 was listed as "cash to seller." In September 2005, the property was resold for the amount of $1,500,000. Further, Middleton is alleged to have submitted an application to the mortgage broker in connection with the subject transaction with plaintiff representing that he owned the 281 Cumberland Street property at a time when the property was owned by his wife, thus constituting bank fraud.

96 Lefferts Place

Plaintiff alleges that Middleton's transmission by facsimile of the altered contract of sale for the subject property to Middleton's mortgage broker to obtain money under false pretenses constitutes wire fraud, and Middleton's completion of the HUD-1 in addition to other documents at closing and the mailing and/or facsimile transmission of these closing documents in order to obtain monies from Emigrant constitutes bank fraud, wire fraud and mail fraud under 18 USC § 1341.

The RICO statutes were enacted to make it unlawful for someone to earn income from a pattern of racketeering activity to be used to: (1) acquire an interest in, establish or operate an enterprise involved in interstate commerce; (2) acquire or maintain an interest in such enterprise through a pattern of racketeering activity; (3) conduct or participate in the conducting of such enterprise through racketeering activity; and (4) conspire to do any [*9]of the foregoing acts (Simpson Elec. Corp. v Leucadia, Inc., 72 NY2d 450, 453 [1988]).[FN1]

"Racketeering" is defined as any one of a number of predicate offenses, including mail fraud (18 USC § 1341) wire fraud (18 USC § 1343), and bank fraud (18 USC §1344)(18 USC § 1961 [1]). A "pattern" is defined as "at least two acts of racketeering activity ... the last of which occurred within ten years ... after the commission of a prior act of racketeering activity" (18 USC § 1961[5]). The civil remedy provision of RICO provides: "any person injured in his business or property by reason of a violation of section 1962 ... may sue therefor ... and shall recover threefold the damages he sustains and ... a reasonable attorney's fee" (18 USC § 1964 [1988]). The elements of a civil RICO claim, then, are 1) a violation of the RICO statute, including proof that the defendant has participated in a pattern of racketeering, and 2) an injury to business or property (McCool v Strata Oil Co., 972 F 2d 1452 [1992]). [*10]

Although civil liability may be predicated upon a violation of the RICO statute, civil RICO claims are subject to heightened pleading requirements (Besicorp Ltd. v Kahn, 290 AD2d 147, 151 [2002] [civil RICO claims subject to heightened pleading requirements because RICO claims are the "litigation equivalent of a thermonuclear device"] [internal quotation marks and citations omitted], lv denied 98 NY2d 601 [2002]; see also CFJ Assoc. of NY v Hanson Indus., 274 AD2d 892, 896 [2000]).

Here, plaintiff has failed to set forth allegations sufficient to establish that the foregoing transactions constitute a "pattern" of racketeering activity. There are no allegations that the transaction concerning the property at 281 Cumberland was fraudulent in and of itself. While plaintiff alleges that an altered contract of sale for 221 Washington Avenue was transmitted by facsimile, "[i]f an act of wire fraud is alleged, it must be predicated on interstate communications (Ritchie v Carvel Corp., 180 AD2d 786 [1992]). Here, there is no allegation that the facsimile transmission was interstate. Further there is no allegation that the "financial institutions" defrauded by Middleton's amendment of the contract of sale in the 221 Washington Avenue transaction or his alleged false claim as to ownership of 281 Cumberland Street were federally chartered or insured banks, which is an essential element to set forth a violation of Bank Fraud under 18 USC §1344 (United States v Schultz, 17 F3d 723 [1994]). Finally, when one alleges predicate acts of mail fraud "it is necessary to allege that the injured party relied on the fraudulent misrepresentations of the defendant, and that the reliance was the cause of the injury" (B.V. Optische Industrie De Oude Delft v Hologic, Inc., 909 F Supp 162, 170 [1995]). Assuming Middleton sent altered contracts or closing documents through the mail, the fraudulent representations contained therein were not the cause of plaintiff's injury. Even if mail fraud was committed in this instance, it would constitute only one predicate act and thus would be insufficient to demonstrate a "pattern."

Accordingly, plaintiff's motion to amend the complaint to assert the causes of action for RICO violations is denied.

Reformation of Contract

The purpose of reformation is to "restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties" (George Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211, 219 [1978]). "To reform a contract based on mistake, a plaintiff must establish that the contract was executed under mutual mistake or a unilateral mistake induced by the defendant's fraudulent misrepresentation" (Simek v Cashin, 292 AD2d 439, 440 [2002]). "[T]he law does not permit reformation of agreements to embrace conditions not agreed upon or contemplated by the parties and in the absence either of mistake or fraud, unilateral or bilateral" (Abajian v Compagnie Generale De Telegraphie Sans Fil, 23 AD2d 553, 554 [1965]). Plaintiff's contention is not that the agreement is mistaken in the parties' intent, but that the agreement is ambiguous. Plaintiff has not identified any written term in the agreement that was the product of mistake or fraud. Accordingly, plaintiff's motion to amend the complaint to add a cause of action for reformation of contract denied.

Disqualification of Counsel

Plaintiff contends that the attorneys at the Marcus Attorneys firm, which is representing Middleton in the instant action, must be disqualified because they are critical [*11]witnesses to contested facts including , in particular, the parties' intention in entering into the Equity Purchase Agreement, and testimony from lawyers at Marcus Attorneys is likely to be prejudicial to Middleton, and because the firm has a clear conflict between its duty to represent Middleton zealously and its self-interest in avoiding liability to third parties as a result of its intimate involvement in the "engineered financing" deal, which conflict is highlighted by an indemnification agreement which Marcus Attorneys required Middleton to sign prior to the closing.

22 NYCRR 1200.21 (a) precludes an attorney from representing a client before any tribunal "if the lawyer knows or it is obvious that the lawyer ought to be called as a witness on a significant issue on behalf of the client." At the same time, 12 NYCRR 1200.21(b) precludes an attorney from representing a client when it is apparent that the lawyer "may be called as a witness on a significant issue other than on behalf of the client, and it is apparent that the testimony would or might be prejudicial to the client." Consequently, disqualification is appropriate when the moving party establishes that its adversary's attorney's testimony is necessary to the movant's case, or that, if called as a witness, such testimony would be prejudicial to the attorney's client (Goldberger v Eisner, 21 AD3d 401 [2005]; Daniel Gale Assoc., Inc. v George, 8 AD3d 608, 609 [2004]). However, in determining whether disqualification is warranted, a court must be mindful of the fact that the right to be represented by counsel of one's own choosing "is a valued right and any restrictions must be carefully scrutinized" (S & S Hotel Ventures Ltd. Partnership v 777 S.H. Corp., 69 NY2d 437, 450 [1987]). Thus, the burden of demonstrating that disqualification is warranted falls squarely upon the party seeking this remedy (Arons v Charpentier, 8 AD3d 595, 596 [2004]).

An attorney witness "ought" to be called "only when it is likely that the testimony to be given by the witness is necessary" (S & S Hotel Ventures Ltd. Partnership, 69 NY2d at 445-446). Merely because an attorney "has relevant knowledge or was involved in the transaction at issue" does not make that attorney's testimony necessary (id. at 445). Plaintiff has failed to establish that testimony from the Marcus Attorneys firm is necessary to establish his case for the imposition of an equitable mortgage, rather than being just cumulative as to Middleton's intentions at the time the transaction was engineered. Nor has plaintiff sufficiently shown that the testimony of the attorneys would necessarily be prejudicial or antithetical to the interests of Middleton. Accordingly, plaintiff's motion to disqualify the Marcus Attorneys firm is denied.

Motions of Emigrant and WaMu for Summary Judgment

RPL § 266 provides the following:

"This article does not in any manner affect or impair the title of a purchaser or incumbrancer (sic) for a valuable consideration, unless it appears that he had previous notice of the fraudulent intent of his immediate grantor, or of the fraud rendering void the title of such grantor."

"Pursuant to Real Property Law § 266, a bona fide purchaser or encumbrancer for value is protected in his or her title unless he or she had previous notice of the alleged prior fraud by the seller. It is only if the facts within the knowledge of the purchaser are of such a nature, as, in reason, to put him upon inquiry, and to excite the suspicion of an ordinarily [*12]prudent person and he fails to make some investigation, that he will be chargeable with that knowledge which a reasonable inquiry, as suggested by the facts, would have revealed" (Fischer v Sadov Realty Corp., 34 AD3d 630, 631 [2006][internal quotation marks and citations omitted]). Emigrant's closing manager testified that it was the closing agent's responsibility to make copies of all checks and determine whether the figures were supported by the HUD-1 closing statement, and that if there was a discrepancy in the figures then the closing agent would have to investigate further. This court finds that an issue of fact exists as to whether the discrepancies in the closing documents should have put Emigrant's closing representative on notice to inquire further into the specifics and nature of the transaction, which precludes a finding of bona fide mortgagee status and equitable subrogation as a matter of law. Accordingly, Emigrant's motion for summary judgment is denied. However, Emigrant's motion to amend its answer to assert its additional defense and claims is meritorious and, as a result, is granted. It is not alleged that WaMu had any notice whatsoever that Middleton's deed was suspect or constitutes only a "mortgage." Plaintiff merely alleges that if the Equity Purchase Agreement were voided on account of usury then all subsequent transactions would likewise be void. However, while a holder in due course of a note does not take it free of the defense of usury (Sabine v Paine, 223 NY 401 [1918]), plaintiff has not identified any authority holding that a deed having the character of a mortgage which is rendered void as the result of usury also renders void any subsequent mortgagees who did not otherwise have notice of the usurious nature of the transaction. At any rate, plaintiff's claim for usury has been found to be without merit. Accordingly, WaMu's motion for summary judgment is granted. That part of WaMu's motion for costs and fees is denied.

The foregoing constitutes the decision and order of the court.

E N T E R,

J. S. C. Footnotes

Footnote 1:8 USC § 1962 provides:

"(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.

"(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

"(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

"(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section."