NYCTL 1998-2 Trust v Johnson

[*1] NYCTL 1998-2 Trust v Johnson 2009 NY Slip Op 50300(U) [22 Misc 3d 1126(A)] Decided on February 23, 2009 Supreme Court, Kings County Lewis, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 23, 2009
Supreme Court, Kings County

NYCTL 1998-2 Trust and THE BANK OF NEW YORK, as Collateral Agent and Custodian, Plaintiffs,

against

Donna L. Johnson, NORWEST MORTGAGE, INC., NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK STATE DEPARTMENT OF TAXATION & FINANCE, THE PEOPLE OF THE STATE OF NEW YORK, and JOHN DOE 1 through JOHN DOE 100, Defendants.



21144/2001



Plaintiff Attorney:Susan L McWalters, Esq.

Certilman Balin Adler & Hyman, LLP

Yvonne Lewis, J.

Robert Burton, owner of Apt. 1A at 69-71 South Oxford Street, Brooklyn, NY (Block 2101, Lot 1001) via a wholly-owned corporation, has moved this court for an order directing either the defendant New York State Department of Taxation & Finance (hereinafter, NYSDT & F) or non-party New York City Department of Finance (hereinafter, NYCDOF) to reimburse him for his share of New York City water & sewer taxes (approximately $6,000.00 to $9,000.00 of $150,000.00) not disclosed at the time of his acquisition of the said unit, via foreclosure sale, and thereafter billed to his condominium association, Roanoke Owners Corp., plus interest at the judgment rate of nine percent (9%) per annum. It is Mr. Burton's position that the NYCDOF failed to reveal the outstanding New York City water & sewer taxes although it had been informed of the foreclosure sale prior to its occurrence and that it should therefor be liable to him for the portion that was levied against him by the condominium association approximately two and a quarter (21/4) years after the purchase. Mr. Burton stresses the fact that said taxes were neither listed on the NYCDOF's property tax records nor attested to by the tax lien servicer's (JER Revenue Services) representative in testimony before the Referee, and notes that while the NYSDT & F had been joined as a necessary party, the NYCDOF had not been although it was the original owner and subsequent assignor of the real estate tax lien foreclosed herein. Furthermore, Mr. Burton cites the First Department case of Swersky v. Dreyer & Traub, 219 AD2d 321 [1996], to the effect that "under the special facts' doctrine, a duty to disclose arises "where one party's superior knowledge of essential facts renders a transaction without adequate disclosure inherently unfair" (citing Beneficial Commercial Corp. v. Murray Glick Datsun, Inc., 601 F. Supp. 770 [S.D.NY], quoting Chiarella v. United States, 445 U.S. 222, 108 S. Ct. 1108, 63 L. Ed.2d 348)." Finally, Mr. Burton asserts that the NYCDOF should be estopped from enforcing his share of the undisclosed water & sewer taxes since its omission resulted in its [*2]unjust enrichment to his detriment, inasmuch as if there had been timely disclosure then the surplus from the foreclosure sale could have paid for the same rather than escheat to the state as it will in this case. In support of that contention, Mr. Burton noted the Court of Appeals matter of Nassau Trust Co. v. Montrose Concrete Prod., Inc., 56 NY2d 185, 451 NYS2d 663 (1982), which held that an estoppel "rests upon the word or deed of one party upon which another rightfully relies and so relying changes his position to his injury."

In opposition, counsel for the plaintiff, NYCTL 1998-2 Trust and The Bank of New York, as Collateral Agent and Custodian, argues that Mr. Burton has no individual standing in the matter sub judice since the successful bidder at the subject foreclosure sale was a Katherine B. Dougherty who subsequently assigned the bid to Equity Preservation Corporation which then took title. In addition, the taxes against which Mr. Burton complains are not against the block and lot that pertain to Apt. 1A but to the common areas of the condominium, which were not subject to the tax lien foreclosure. Therefore, "[i]f the Condominium Association billed for back taxes on the tax lot which covers the common areas, subsequent to the closing, that is between the Condominium Association and the owner of the unit and has nothing to do with the plaintiff in this foreclosure action." Furthermore, counsel asserts that the plaintiff never made any representations to Mr. Burton, and since no condominium liens were of record at the time of the foreclosure sale, it cannot be successfully argued that the plaintiff then possessed any superior knowledge of essential facts, much less of any condominium charges that would be made two and a half (21/2) years later. Counsel notes that Mr. Burton has also omitted to include any bill from his Condominium Association and/or proof of payment with regards to any portion of taxes due on the common areas of the condominium.

The NYCDOF has cross-moved for an order dismissing Mr. Burton's motion on several grounds, first, for his failure to have properly commenced a cause of action against it by summons and complaint, pursuant to CPLR §304; second, that the finality of foreclosure actions bars Mr. Burton from instituting any action with regards to the foreclosed parcel since "[a] judgment of foreclosure and sale entered against a defendant is final as to all questions at issue between the parties, and all matters of defense which were or might have been litigated in the foreclosure action are concluded (citing, Money Store of NY, Inc. v. Doner Holding Corp., 112 AD2d 284, 491 NYS2d 730 [2d Dept., 1985], citing, Gray v. Bankers Trust Co. of Albany, 82 AD2d 168, 442 NYS2d 610, etc.); third, that Mr. Burton was not a party to and failed to timely intervene in the foreclosure proceeding, pursuant to CPLR §1012 ( a); fourth, that the court lacks jurisdiction over the NYCDOF, pursuant to CPLR §32 11 ( a) (8), since it was not named in the foreclosure action or this motion or served in either, and appears herein solely for the purpose of contesting Mr. Burton's jurisdiction and standing to bring this motion; fifth, that the pleading fails to state a cause of action, pursuant to CPLR §3211(7) inasmuch as Mr. Burton should proceed against the custodian of any surplus funds to which he deems himself entitled; and, sixth, that the court should not proceed in the absence of a necessary party, pursuant to CPLR §32 11( a) (10). More to the point, the NYCDOF asserts that at the time of the closing, ". . .a certain sum was outstanding for water/sewer charges relating to a water/sewer account maintained by the Roanoke Condominium, said charges not being against any of the individual Tax Parcels, but rather against the billing parcel lot 7501 and payable by the condominium board of managers or through the entity known as The Roanoke Home Owners Association. . ."; that [*3]Mr. Burton, through his wholly owned corporation, purchased an individual unit which included an "AS IS, WHERE IS" clause; and, that when he made his due diligence (own title search), he apparently overlooked or failed to search for claims on the condominium as a whole, including billing Lot 7501, which according to the condominium's by-laws, encumbered certain charges upon the purchased unit Lot 1001 as well as other lots in the Roanake condominium." Counsel notes that paragraph 6.18 of the condominium's by-laws specifically provides that "[w]ater and sewer services shall be supplied to and for all the Units and the Common Elements through one or more Building systems by the City of New York [. . .] the board shall pay all such charges, together with all related sewer rents arising therefrom, promptly after the bills for the same shall have been rendered, and the Unit Owners shall be required to reimburse the Condominium Board therefor based on each Unit Owner's Common Interest"(bold emphasis inserted by NYCDOF's counsel). In essence, NYCDOF's counsel dually argues that Mr. Burton did not act as a prudent condominium purchaser as evidenced by his failure to have examined the balance sheet of the condominium to assess its financial health; to wit, whether it had adequate reserves to meet its outstanding liabilities and future expenses, and that the city neither levied against Mr. Burton's unit nor did it have any direct, arm's length business dealings or fiduciary duty to him. In short, the water/sewer liability was payable by the condominium association, billed to Block 2101, Lot 7501, which included water consumption for the entire building, existed at the time of his acquisition, was readily ascertainable by the proper inquiry, and was passed on to him as a consequence of the condominium's by-laws. Counsel notes that since "CPLR §1001 ( a) provides that persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action shall be made plaintiffs or defendants," it therefore follows that Mr. Burton's instant motion should also be dismissed, pursuant to CPLR §3211 9 a)(10), for the failure to have included the condominium association as a necessary party.

In reply, Mr. Burton notes that the "terms of [foreclosure] sale" specifically provided that "[a]ll taxes, encumbrances and water and sewer rates, which at the time of sale, are liens or encumbrances upon said premises, will be allowed by the Referee out of the purchase money provided the purchaser shall, prior to the delivery of the Deed, produce to the Referee proofs of such liens and duplicate receipts for the payment thereof. To the extent that the Referee may pay out of proceeds taxes, assessments and water and sewer rates which are liens upon the property sold. . .said sums. . .shall be apportioned as of midnight of the Sale Date. . . . Mr. Burton again argues that no disclosure had been made at the time of purchase that the NYCDOF was billing the condominium association under a different tax lot than that of his unit, and reiterates his claim for reimbursement from the NYCDOF on the grounds of the "partial statement rule," the "special facts doctrine," and the general principles of common law equity and estoppel, hereinabove discussed. More particularly, Mr. Burton submits that it is incongruous to believe that a person buying at foreclosure under terms that all water and sewer taxes will be paid from the proceeds would have a legal duty to search for non-disclosed liens. In any event, Mr. Burton submits that no proof has been furnished that NYCDOF's tax lot existed on the date that the subject apartment was sold and closed, such that it could have been searched, uncovered, and located through due diligence. With regards to the purchase itself, Mr. Burton clarified for the record that Ms. Kay Dougherty was a tenant in the subject apartment prior to its foreclosure. She [*4]bid on the same as Equity's agent to whom she assigned her successful bid, and to which the property was thereafter deeded at the closing. The only change that has occurred since that time is that he, Mr. Burton, the sole shareholder and officer of said corporation from its inception, has held himself out as the unit's owner in lieu of the corporation. Mr. Burton further contends that collateral estoppel and res judicata are herein inapplicable to him inasmuch as he was not a party to the original foreclosure action. He notes, however, that the NYCDOF had been notified of the commencement of the foreclosure action, pursuant to section 11-335 of the Administrative Code, and served with the plaintiff's amended complaint. Accordingly, Mr. Burton maintains that as an unrecorded lien holder with knowledge that the property was to be sold, NYCDOF ". . .is not, therefore, in a position to assert, as against an innocent purchaser, a claim which would deprive him [the innocent purchaser] in a very material way of a portion of his purchase. If he [NYCDOF] intended to assert a claim to any part of the property, good faith and fair dealing required that would be purchasers should be informed of that fact." (citing, McMillan v. Leaman, 101 AD 436, 1905 NY App. Div. Lexis 385 [1905]). Mr. Burton also asserts that the Condominium Board is not a necessary party to his present claim since it had no board of directors at said time and owed no generalized duty to prospective buyers of the subject apartment. Finally, in substantiation of his claim, Mr. Burton represents that he furnished NYCDOF's counsel with a water and sewer tax arrears records from the condominium association documenting one-hundred and thirty-seven thousand, six-hundred and seventy-seven ($137,677.00) thousand dollars outstanding as of the 5th day of April, 2005 (25 ½ months after the subject apartment closed), for which his unit was responsible for five point six, one, eight, eight (5.6188%) percent. Mr. Burton then states that said amount has been paid by him since April 5, 2005, ". . .of which $20,00.00 to $22,000.00 appears allocable to the period after apartment 1-A closed. . . ."

The court notes that based on the foregoing figures supplied by Mr. Burton, his percentage would have resulted in liability of seven-thousand, seven-hundred and thirty-five ($7,735.80) dollars and eighty cents. In the end, Mr. Burton argues that ". . .it is far more equitable and reasonable to require [NYC]DOF to clearly disclose [NYC]DOF liens that encumber all the units in a condominium building and which, like [NYC]DOF's lien at bar are not disclosed or even adverted to in the ownership and lien records of individual members of the general public, than to burden foreclosure sale bidders upon and purchasers of such units with a duty to locate obscure [NYC]DOP records that [NYC]DOF could at minimal cost and inconvenience to itself disclose in a manner that one desirous of actually informing the absentee might reasonably adopt to accomplish it'." (Citing Mullane v. Central Hanover Bank & Trust Co., 339 US 306).

Counsels for the City of New York and NYCDOF submitted a response to Mr. Burton's reply which restated the arguments hereinabove discussed as to his failure to have instituted a new action by summons and complaint, to have intervened in the foreclosure action, to have served the Department and thereby obtained jurisdiction over it, and the absence of the condominium board as a necessary party. In addition, since the NYCDOF was neither a party to the foreclosure or subsequent sale nor did it ever assess any water/sewer charges against the foreclosed lot 1001, there is no way for it to be construed as a party to any business transaction, much less to have owed any duty to disclose uniquely known, non-public facts not known to the [*5]parties of such transaction. In other words, as reiterated by counsel for NYCDOF, the lien complained of was billed under a separate lot number (7501) against the entire condominium which, pursuant to its by-laws, was passed along to the individual units. Mr. Burton, it is argued, should have directed his inquiries to the condominium board as part of his due diligence. Counsel emphasizes the fact that RPL §339-z , known as the Condominium Act, clearly provides that a condominium unit buyer "shall be entitled to a statement from the manager or board of managers, setting forth the amount of the unpaid common charges accrued against the unit, and neither such grantor nor grantee shall be liable for, nor shall the unit conveyed be subject to a lien for any unpaid common charges against such unit accrued prior to such conveyance in excess of the amount therein set forth." Counsel also notes that although received by Mr. Burton on April 5, 2005, the water/sewer tax arrears records for the condominium, furnished by its own managing agent, clearly set forth two DEP accounts (for lots 1001 and 7501) and could have been obtained by Mr. Burton pre-closing. In addition, counsel notes that Mr. Burton has proffered no proof of any bill or payment by him of any portion of any outstanding water/sewer charges, which he has alleged to be from six-thousand ($6,000.00) to nine-thousand ($9,000.00), and twenty-thousand ($20,000.00) to twenty-two thousand ($22,000.00). Furthermore, counsel advises that the surplus money that Mr. Burton asserts should have been used towards the outstanding water/sewer charges was already disbursed to the foreclosure defendant, Ms. Donna Johnson, some five years ago. The plain fact is that all taxes for foreclosed lot 1001 were paid at the foreclosure closing. The condominium board's election, based on its by-laws, to pass on its own liability to the individual unit owners in no way renders the City liable for Mr. Burton's ". . .discovery of this fact or his dissatisfaction with this course of action" subsequent to his purchase of the subject unit.Unfortunately for Mr. Burton, the matter of McMillan v. Leaman, 101 AD 436, 1905 NY App. Div. Lexis 385 (1905), on which he heavily relies, is clearly distinguishable from his predicament. In said case, the court held that as against [that] defendant the plaintiff is estopped from asserting a claim to, or lien upon, the property for which a recovery has been had, [where] [t]he plaintiff, while not actually present at the foreclosure sale, admitted he was present in the salesroom on the day the sale took place and that he knew the property was to be sold, notwithstanding which fact he gave no notice of his claim, nor did he then attempt in any way to enforce it. He is not, therefore, in a position to assert, as against an innocent purchaser, a claim which would deprive him in a very material way of a portion of his purchase. If he intended to assert a claim to any part of the property about to be sold, good faith and fair dealing required that would-be purchasers should be informed of that fact (citing, Thompson v. Blanchard, 4 NY 303).

Mr. Burton concedes that while the NYSDT & F had been joined as a necessary party in the foreclosure action, the NYCDOF had not been, and that the condominium board was not even functional at the time of his acquisition. It is also not refuted that the water/sewer taxes in question were levied against the condominium board which apportioned them against Mr. Burton's unit pursuant to its by-laws following the foreclosure sale. Accordingly, the asserted

lien was clearly against the common areas of the condominium not his unit. In addition, the [*6]

NYSDOF was not party to the foreclosure and is neither asserting nor looking to enforce any lien

against the purchased unit.

More significantly, Mr. Burton has failed to furnish any case law or statute to establish that

it was impermissible for Roanoke Condominium to apportion its common area charges to

individual units. To the contrary, 19A NY Jur. 2d Condominiums, Etc. §120 specifically defines common charges as "each unit's proportionate share of the common expenses in accordance with its common interest" (NY RPL §339-e [2]), and common expenses as "expenses of operation of the property" (NY RPL §339-e [4] [a]); and "all sums designated common expenses by or pursuant to the provisions of the Condominium Act (NY RPL §339-d), the declaration or the by-laws" (NY RPL §339-e [4] [b]). In addition, paragraph 6.18 of the Roanoke condominium's by-laws specifically provides that "[w]ater and sewer services shall be supplied to and for all the Units and the Common Elements through one or more Building systems by the City of New York [. . .] the board shall pay all such charges, together with all related sewer rents arising therefrom, promptly after the bills for the same shall have been rendered, and the Unit Owners shall be required to reimburse the Condominium Board therefor based on each Unit Owner's Common Interest."

In general, the concepts of res judicata and collateral estoppel require for their application the rendering of a final judgment on the merits by a court of competent jurisdiction upon parties to the same cause of action. Where, however, collateral estoppel is asserted by a person who was neither a party nor in privity with a party to the first case, courts are required to make certain that no unfairness will result to the prior litigant if the estoppel is applied (73A NY Jur 2d Judgments, §356). For example, a defendant who was implicated as a party to fraud based on active concealment of crucial information from the plaintiff would be barred from raising estoppel even though he was not a party to the proceeding (See Manufacturers & Traders Trust Co. v. Bittorf, 216 AD2d 72, 627 NYS2d 686 [1st Dept., 1995]). The holding clearly established that collateral estoppel will not apply unless it is patently clear that the prior determination squarely addressed and specifically decided the issue concerned. In the instant case, neither Mr. Burton nor the NYCDOF were parties to the foreclosure action or in privity with any of the parties to the same. In addition, since no final judgment had been made in said action in connection with the common charges levied against the condominium, much less the board's apportionment of the same amongst the individual units, there is no basis to preclude NYCDOF as contended by Mr. Burton.

More to the point, it follows that Mr. Burton has failed to assert a viable claim against the NYCDOF since it neither imposed nor asserted the lien in question on his unit. His dispute, if any can be said to exist, lies with his own condominium board and its by-laws.

NY RPL §339-z provides that upon the sale or conveyance of a unit, unpaid common charges must be paid out of the sale proceeds by the grantee. The term sale or conveyance has been deemed to refer to a sale or voluntary transfer of the condominium unit rather than to the [*7]foreclosure of a first mortgage (see Bakers Trust Co. v. Board of Managers of Park 900 Condominium, 81 NY2d 1033, 600 NYS2d 191; Dime Sav. Bank of New York, FSB v. Kakar, 203 AD2d 50, 610 NYS2d 33 [1st Dept., 1994]). In addition, any grantor or grantee is entitled to a statement from the manager or board of managers, setting forth the amount of the unpaid common charges accrued against the unit, and neither the grantor nor grantee will be liable for, nor may the unit conveyed be subject to a lien for, any unpaid common charges against that unit accrued prior to the conveyance in excess of the amount set forth in the board's statement. Inasmuch as Mr. Burton acknowledges that he acquired the subject unit at a time when the board was not in operation, it would appear that he made the purchase without having availed himself of "a statement from the manager or board of managers, setting forth the amount of the unpaid common charges accrued against the unit."

Mr. Buton relies on the matter of Swersky v. Dreyer & Taub, 219 AD2d 321, 643 NYS2d 33 (1st Dept., 2003), to make clear the point that in the absence of a fiduciary relationship, an affirmative duty to disclose arises when one party's knowledge of the facts renders the transaction inherently unfair unless those facts are disclosed. Indeed no fiduciary relationship existed in the matter sub judice; however, it is equally true that neither the NYCDOF nor Mr. Burton were parties to the action. In any event, the question of whether a duty to disclose exists has been deemed to be a question of law to be determined by the court (see Industrial Risk Insurers v. Ernst, 224 AD2d 389, 638 NYS2d 109 [2d Dept., 29004]). A fortiori, the plain fact is that "New York adheres to the doctrine of Caveat Emptor and imposes no duty on the seller or the seller's agent to disclose any information concerning the premises when the parties deal at arms length, unless there is some conduct on the part of the seller or the seller's agent which constitutes active concealment." (see Jablonski v. Rapalje, 14 AD3d 484, 788 NYS2d 158 [2d Dept., 2005]). The Appellate Division, First Department, has further clarified that the seller's conduct must consist of active concealment and not mere silence (see Stambovsky v. Ackley, 169 AD2d 254, 572 NYS2d 671 [1st Dept., 1991]; compare Savasta v. Duffy, 257 AD2d 435, 682 NYS2d 511 [1st Dept., 1999] wherein sellers's failure to disclose to plaintiff buyer $4,400.00 assessment leveled against apartment by coop found not to be a ground for failure to close on purchase). Additionally, while it is true that Caveat Emptor does not apply if the purchaser could not have discovered the condition upon due inquiry or inspection (see Richardson v. United Funding, Inc., 16 AD3d 570, 792 NYS2d 511 [2d Dept., 2005]), in this instance it has not been conclusively demonstrated that any party to the foreclosure action had any exclusive or particularized undisclosed knowledge that rendered the same inherently unfair. To the contrary, it appears that the lien in question was discernable directly from the NYCDOT (a non-party) or from the condominium board, albeit Mr. Burton asserts that the latter was inactive at the time that he nonetheless elected to proceed with the transaction. This court fails to see how his election to go forward under such circumstances is attributable to any other person or entity, other than himself or his wholly owned corporation, or circumvents the applicability of Caveat Emptor.

This court also finds that Mr. Burton failed to properly commence a cause of action against the NYCDOF by summons and complaint, pursuant to CPLR §304; to have conferred jurisdiction over the NYCDOF, pursuant to CPLR §32 11( a) (8), since it was not named in the foreclosure action or this motion or served in either. In the event that an action had been properly commenced, it would appear that Mr. Burton's failure to have included his [*8]condominium board as a necessary party would have warranted dismissal, pursuant to CPLR §32 11( a) (10). To make that determination, this court would have been required, pursuant to CPLR 1001 (b), to consider, 1. whether the plaintiff has another effective remedy in case the action is dismissed on account of the nonjoinder; 2. the prejudice which may accrue from the nonjoinder to the defendant or to the person not joined; 3. whether and by whom prejudice might have been avoided or may in the future be avoided; 4. the feasibility of a protective provision by order of the court or in the judgment; and, 5. whether an effective judgment may be rendered in the absence of the person who is not joined. Unfortunately, these considerations were not addressed by the parties herein concerned (and would have needed amplification); however, it does appear that the condominium board's non-inclusion could have prejudicially affected its ability to defray costs through the appropriation of common charges to individual unit owners, pursuant to its by-laws, thereby impacting on its operational costs.

WHEREFORE, on the basis of all of the foregoing, Mr. Burton's motion to compel repayment of undisclosed NYC water and sewer taxes by NYSDT & F or NYCDOF is denied on the ground of caveat emptor. Both the City's motion dismissing Mr. Burton's motion and dropping the NYCDOF from the proceeding are granted, along with NYCDOF's cross-motion to dismiss. This constitutes the decision and order of this Court.

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