Bardi v Estate of Morgan

[*1] Bardi v Estate of Morgan 2009 NY Slip Op 50955(U) [23 Misc 3d 1127(A)] Decided on May 19, 2009 Supreme Court, Kings County Kramer, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 19, 2009
Supreme Court, Kings County

Davoud Bardi, Plaintiffs,

against

Estate of Audley Morgan, ESTATE OF JOYCE BANJAMIN, INTERNATIONAL FIDELITY INSURANCE COMPANY BROOKLYN UNION GAS CO., NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY PARKING VIOLATIONS BUREAU, ANDREW SMITH, Defendants.



23795/95



Plaintiff was represented by Michael T. Sucher, Esq., 26 Court St., Brooklyn, NY 11242.

The Estate of Audley Morgan was represented by Dennis Gayle, Esq., 2915 Glenwood Rd., Brooklyn, NY 11210.

The Estate of Joyce Benjamin was represented by Harvey Sorid, Esq., 358 RXR Plaza, Uniondale, NY 11556.

Herbert Kramer, J.

1. This Court holds that in awarding legal fees in a foreclosure action where the mortgagee is the purchaser a distinction must be made between legal services provided in connection with the foreclosure action and those provided in connection with the purchase of the property.

2. This Court further holds that where a defaulting bidder's deposit is forfeited to the mortgagee under the Terms of Sale as liquidated damages which contemplate losses that cannot not yet be determined; [FN1] the fund thus established is intended to provide a set off against the various charges and expenses actually paid by the plaintiff-mortgagee. Ordinarily, this set off would apply to charges and expenses that accrue between the initial default and the final successful closing. However, here, because of the lengthy delay between the auction and the [*2]closing, the operative date is the auction sale.[FN2] These charges consist of interest on the mortgage debt that ran from the initial bid to the final declaration of default; legal fees; referee fees; taxes and insurance, expanding this Court's holding in its prior decision.[FN3] Bardi v. Morgan, 17 Misc 3d 927, 930 aff'd ___A.D.3d___, 877 NYS2d 142 (2d Dept. 2009)

In this fourteen year old foreclosure action the property had been bid and rebid several times and the last successful bid made by the mortgagee finally closed on November 10, 2008. The last reference was made in 1995. Thus, in this Court's recent decision, an updated reference was ordered. Id.

The supplemental accounting was completed in October of 2008. It did not account for attorney's fees and credits claimed for the payment of certain taxes and insurance, properly awaiting this Court's guidance in these matters. The parties stipulated to conduct a closing based upon the accounting that was submitted and such was held in November of 2008. The plaintiff has now moved inter alia for an award of attorney's fees and reimbursement for taxes and insurance payments and the defendant moves to reargue some aspects of this Court's previous decision and opposes the plaintiff's requests.

Attorney's Fees

In the original 1996 judgment of foreclosure and sale that issued in this case, legal fees in the amount of $3,625.00 were awarded. There has been substantial litigation in this matter including appellate practice. Plaintiff's counsel currently seeks legal fees in an amount that is nearly twenty times the 1996 award.

"As a general rule counsel fees are recoverable in a foreclosure action if the [foreclosure] agreement authorizes them." Watertown Sav. Bank v. Delaney, ___Misc 3d___,876 NYS2d 603 (NY Sup 2009). The agreement must be specific in authorizing legal fees rather than costs.

The mortgage in this matter obligates the borrower to pay reasonable lawyer's fees incurred in connection with "any lawsuit commenced in connection with the mortgage." [FN4] Thus, any legal fees to be awarded here must have been billed for that purpose and no other and only those legal fees that have been paid by the plaintiff or his predecessor mortgagees would be [*3]allowable upon presentation of appropriate proof of payment.

Significantly, in the extensive litigation undertaken here, the plaintiff played two roles — he was both the assignee of the original mortgagee/lender and the successful bidder/purchaser of the mortgaged property. As the mortgagee the plaintiff may well be entitled to claim certain sums paid out as legal fees in the prosecution of the foreclosure action, however, as the successful bidder he cannot recover legal fees incurred in furtherance of his purchase of the property. Sibley Mortg. v. Sobotka, 155 Misc 2d 616 (N.Y.Sup.,1992),(attorney's fees are only "recoverable if there exists a statutory provision or an agreement between the parties providing for such payment).

Hence this Court holds that in awarding legal fees in a foreclosure action where, as here, the mortgagee or an assignee is also the purchaser, a distinction must be made between legal services provided in connection with the foreclosure action and those provided in connection with the purchase of the property.

For example, in Bardi v. Morgan, 17 Misc 3d 927, 931, this Court made certain rulings with respect to the obligations of the successful bidder. The matter went up on appeal and thus the briefs in this appeal must be scrutinized to parse the work done so that issues raised in regard to determinations that affected the plaintiff in his guise as bidder are segregated and the fees charged for that legal work ,disallowed. [FN5] This direction would apply equally to all of the work done in this case including the briefs submitted on an earlier appeal of its previous decision in this case.

Finally, the mortgage allows for "reasonable" lawyer's fees. " [A]n award of attorney's fees should bear "a reasonable relation to the time and effort expended by the plaintiff's attorney[ ] in the . . . . foreclosure action', taking into account such factors as the customary fee charged for similar services." Manufacturers & Trader's Trust Co v. Dougherty, 11 AD3d 1019(4th Dept. 2004). In making that determination, "the "type of action, the lack of novelty of issues, the experience of counsel, [and] the time expended" are all factors to be considered. Watertown Sav. Bank v. Delaney, supra .876 NYS2d 603.[FN6] Specifically, non-legal work which could have been [*4]handled by non-legal staff such as clerical work, billing summaries, file organization and the like should not be billed as attorney's fees. See Macnish-Lenox, LLC v. Simpson, 17 Misc 3d 1118(A); Matter of Estate v. McCranor, 176 AD2d 1026*3d Dept. 1991).[FN7] For, "[i]t is unfair and unjustified that mortgagors who, for whatever reasons, default in foreclosure actions be subject to unwarranted counsel fees." Manufacturers & Trader's Trust Co v. Dougherty, 192 Misc 2d 365, modified on other grounds, 11 AD3d 1019(4th Dept. 2004).

Taxes

This Court holds that the liquidated damages forfeited by the bidder serve as a set off for the taxes that came due before the auction sale and were paid by the plaintiff after the sale.[FN8]Ordinarily, as plaintiff correctly argues, upon proof of payment of same, the plaintiff would be entitled to an allowance for those payments as against the surplus since these taxes, which were unpaid as of the time of the sale, were liens on the premises as that term is used in the judgment of foreclosure and sale.[FN9]

However, here, as between an innocent creditor entitled to surplus funds and the mortgagee who has retained damages forfeited by defaulting bidders, this Court holds that equity requires that these taxes which are to be prorated to the date of the auction sale, be set off against the liquidated damages fund rather than charged against the surplus.

Finally, in addition to seeking legal fees, Plaintiff challenges the referee's conclusion that "plaintiff's penalty should run on the total amount of the bid, not just on the cash portion. Justice Kramer's order specifically states that the plaintiff-purchaser is chargeable with judgment interest on the bid amount less the bidder's deposit." This determination is confirmation as it is precisely consistent with this Court's holding.

Since the sale has been conducted and at this juncture there remains a considerable [*5]surplus, this Court is hereby sua sponte deeming the plaintiff's motion as one for an order appointing a referee to conduct the surplus money proceeding. The referee appointed by this court will in addition to his or her other duties hold a hearing and make findings with regard to the award of attorneys fees in accordance with the guidelines set forth above. He or she will also make findings with respect to the documentation offered in support of the claims for the payment of taxes, water insurance and the like.[FN10]

Thus the plaintiff's motion is determined as indicated above. The remaining issues not herein discussed that were raised in the defendant's motion are denied. The referee's supplemental report is affirmed with the exception of the determination of the credit for the emergency repair lien which shall be made by the referee in the surplus money proceeding.

This constitutes the decision and order of the Court.

Submit order for the appointment of a referee in the surplus money proceeding.

J.S.C. Footnotes

Footnote 1: The time line for the various events is as follows. The first unsuccessful bidder defaulted in June of 2005, when the second bidder failed to close, the referee declared him in default in October of 2005..

Footnote 2: The judgment of foreclosure and sale currently in use in this Court directs that a closing be conducted within forty five days of the auction sale. When such is the case than the operative date would be the date of the closing rather than the date of the auction sale. Here, this was not the case and the closing took place well after the auction sale occasioning this result.

Footnote 3: In Bardi, supra , at pp. 928-929, this Court held: "Additionally, this Court holds that bid deposits which may constitute liquidated damages when a bidder defaults under the notice of sale provisions are intended to provide a set off against the damages incurred by the plaintiff in the form of additional legal fees, referee fees and the interest running on the mortgage debt from the time of the auction until the declaration of default."

Footnote 4:The mortgage at par. 12 recites: "I must pay for costs of law suits: If any lawsuit is started in connection with this mortgage all sums paid by you for this purpose including reasonable lawyer's fees shall be paid by me together with interest at the same rate as in the Note. In any lawsuit to foreclose this Mortgage or to collect the unpaid balance owed under the Note, the laws concerning the recovery of costs, disbursements and allowances shall remain in effect and shall not be affected by this promise."

Footnote 5: The parties by stipulation may parse the legal fees variously chargeable to these factors and arrive at a mutually agreeable determination as long as the other criteria for assessing the reasonableness of the fees are met.

Footnote 6: With respect to the sum of $10, 945.17 purportedly due to the predecessor attorneys for the period through April 1, 2006, the issues to be explored are

What is the nature of the charges of $4,044.13 that were "paid by the borrower" and how were those distinguished from the remaining charges. Predecessor counsel submitted two letters with attachments both indicating the same totals, however one contained entries dating back to 1995. There is no indication of whether any of these items have previously been paid and by whom. There is no indication of a credit allowed for the legal fees awarded in the 1996 judgment. How were those fees applied? There is no indication of the amount if any that had been billed to the original mortgagee, Green Point Bank for legal services nor is there any indication of the "prevailing hourly rate for similar legal work in the community." SO/Bluestar, LLC v. Canarsie Hotel Corp., 33 AD3d 986 (2d Dept. 2006).Indeed, this question would have to be explored in light of the extended time line involved in this matter.

Footnote 7: With respect to the sum of $12,245 billed by current attorneys for legal fees through November 28, 2007, the issues to be explored are:

The preparation of the "proposed supplemental referee's report" which consumed nearly twelve billable hours at the partner rate of $400 per hour and the preparation of the referee's oath and proposed report for which seven hours or so of partner time was billed under the post November 28, 2007 legal fee schedule.

A number of billable associate hours were consumed, inter alia, with the "packaging" of materials at a rate of $200 per hour. It is necessary to understand what the term "packaging" means and why associate hours were utilized for such tasks

Footnote 8: The auction was conducted on August 15, 2006. On July 1, 2007, the plaintiff made a payment for five tax periods, three of which fell before the date of this auction: July 1, 2005. January 1, 2006 and July 1, 2006.

Footnote 9:The judgment of foreclosure and sale requires the referee to pay from the proceeds of the sale the taxes and assessments . . . . which are, or may become liens on the premises at the time of sale. The judgment of foreclosure and sale further recites that where, as here, the plaintiff is the purchaser then the plaintiff need not pay the entire amount bid at the sale but must pay for the statutory fees of the referee, the expenses of the sale and those taxes which are or may become liens on the property at the time of sale which then are credited as allowances to the plaintiff.

Footnote 10: The emergency repair lien paid on February 18, 2004 is chargeable to the person/entity in possession at that time and should be accounted for accordingly.