City of Newburgh v Marina Ops LLC
Annotate this CaseDecided on May 15, 2009
Supreme Court, Orange County
City of Newburgh, Plaintiff,
against
Marina Ops, LLC, THOMAS GLENDENING, and FRONT STREET ON THE HUDSON, LLC, Defendants.
9221/2008
TARSHIS, CATANIA, LIBERTH, MAHON & MILLIGRAM, PLLC
STEVEN I. MILLIGRAM, ESQ.
Attorneys for Plaintiff
Post Office Box 1479
Newburgh, New York 12551
ISEMAN, CUNNINGHAM, RIESTER and HYDE, LLP
Attorneys for Defendants
9 Thurlow Terrace
Albany, New York 12203
Robert A. Onofry, J.
Upon the foregoing papers it is ORDERED that plaintiff's motion is granted
in its entirety and defendant's cross-motion is denied in its entirety.
PROCEDURAL
HISTORY
This is an action commenced by
Plaintiff, City of Newburgh,
against Defendants, Marina Ops, LLC, Thomas Glendening, and Front Street on the
Hudson, LLC in which Plaintiff seeks a monetary judgment in the amount of $1,852,229.80,
consisting of $1,500,000.00 in principal repayment together with interest accruals through
calendar year 2008, of $352,229.80. Plaintiff further seeks an award of attorney's fees in the
amount of $10,000.00 incident to the collection of the judgment.
This action was commenced by the filing of a summons and verified complaint on August 26, 2008, which summons and verified complaint were thereafter personally served upon all party defendants on August 29, 2008. In response to the service of the summons and complaint, neither Defendant Marina Ops, LLC, Thomas Glendening, nor Front Street on the Hudson, LLC filed a notice of appearance, an answer or an application extending their time to file same. Subsequent thereto, and on October 10, 2008, plaintiff, through its legal counsel, served an additional copy of the summons upon each of the party defendants in conformity with CPLR § 3215, together with its notice and demand that their failure to answer the summons and complaint be cured within "twenty days of the date of this letter". The letter further provided that the failure to cure the default would [*2]result in a default judgment being filed against them. Over the course of the next four (4) months, defendants again failed to enter a notice of appearance, answer or otherwise seek an extension from plaintiff's counsel.
Thereafter, and on or about January 30, 2009, Plaintiff filed the within motion pursuant to CPLR § 3215, seeking a default judgment against each of the party defendants in the amount of $1,852,299.80, predicated upon their joint and several liability, together with interest thereon at the rate of 9% from October, 2007, and attorney's fees in the amount of $10,000.00.
Defendant's appearing through counsel, and in response to plaintiff's motion, filed a
cross-motion pursuant to CPLR § 2004 seeking, inter alia, the following: (1) granting
defendants' application for an extension of time to respond to plaintiff's verified complaint; (2)
directing plaintiff to accept service of that answer; and (3) awarding to defendants such other and
further relief as to the Court may deem just and proper.
FACTUAL
BACKGROUND
This action arises out of
Defendant, Marina Ops, LLC's, alleged
breach and default of its repayment obligations under a certain Loan Agreement
dated March 22, 2002 entered into by and between the City of Newburgh (the "City") and
Marina Ops, LLC (the "Developer") under the terms of which the City agreed to loan to the
Developer the sum of $1,500,000.00; $1,000,000.00 of which was derived from a Section 108
Economic Development Loan (the "Section 108 Loan") initially received by the City from the
United States Department of Housing and Urban Development ("HUD") and $500,000.00 of
which was derived from an Economic Development Initiative Grant (the "EDI Loan") which
funds were initially received by the City as a participating member of the Hudson River
Partnership 2000.
Pursuant to the terms of the Loan Agreement, the City agreed to make available to the
Developer the aggregate sum of $1,500,000.00 which sum was to be used, together with
Developer's equity funds of $300,000.00, for the installation and construction of an approximate
142 slip marina consisting of a combination of floating piers/wave attenuation device, floating
pier assemblies and sixty (60) finger piers, comfort station, marine septic pump out facility and
related utilities and other infrastructure, which improvements were to be located at 40-50 Front
Street in the City of Newburgh, Orange County, New York. These improvements were,
collectively, to be known as the Front Street on the Hudson Waterside Marina (the "Marina").
The Developer, together with the City, were also required to use their best efforts to create
forty-three (43) permanent jobs within a four year period from the date of the Agreement.
The Loan Agreement, by its terms, provided that disbursement
of
the loan proceeds would commence no later than March 22, 2002
and that such disbursements would end upon the completion of the construction project but in no
event later than January 1, 2003. The Loan Agreement further provided that the "interim loan"
(those funds advanced during the period of construction) would then be automatically converted
to a "permanent loan" from the City to Defendant, Marina Ops, LLC, which would then be
repaid over a ten (10) year term commencing January 1, 2003 (the "commencement date").The
Section 108 loan was to be repaid with interest at an interest rate equal to the City's cost of funds
plus 1%, together with repayment of principal, which was to be paid together with and in
addition to the accrued interest, in accordance with the following schedule:
-Year one [2003] - zero dollars. [*3]
-Year two [2004] - $25,000.00, payable in equal monthly installments of $2,083.33;
-Years three through five [2005-2007] - $75,000.00, payable in equal monthly installments of $6,250.00; and
-Years six through ten (2008-2012) - $100,000.00, payable in equal monthly installments of $8,333.33.
The EDI loan was to be repaid in monthly installments of interest only commencing one month from the commencement date, coupled with the payment of the entire outstanding principal balance which was to be repaid at the maturity date of the loan.
For the purpose of implementing the Loan Agreement, Defendant, Marina Ops, LLC, also executed on March 22, 2002, Notes memorializing the $1,000,000.00 and $500,000.00 loans respectively, a Leasehold Mortgage, Security Agreement, Guaranty, Collateral Assignment of Interests and Licences, Permits and Agreements and an Assignment of Leases and Rents (collectively the "Loan Documents"). In conjunction therewith and as an apparent condition precedent to the execution of the Loan Documents, each member of Marina Ops, LLC executed their written consent to the undertaking of the obligations contemplated by the Loan Agreement and the authorization for Thomas Glendening and Walter Lambert to execute all Loan Documents on behalf of the LLC (the "Company").
As a further inducement to the City entering into the loan transaction, LLC member, Thomas Glendening, executed, acknowledged and delivered his personal guaranty dated March 22, 2002 "irrevocably and unconditionally" guaranteeing to the City full and prompt performance of the LLC's obligations. Simultaneously therewith, Front Street on the Hudson, LLC also executed its unconditional and irrevocable guaranty of Marine Ops, LLC's obligations, secured by a second mortgage lien on its property located in the City of Newburgh.
It is undisputed that Plaintiff, City of Newburgh, disbursed and advanced to Marina Ops aggregate loan proceeds of $1,500,000.00 from May 2002 to August 2003, nor is it disputed that Marina Ops failed to pay either principal or interest during calendar years 2003, 2004, 2005, 2006, 2007 and 2008 with the notable exception of a Twenty Seven Thousand Five Hundred and No/100 ($27,500.00) Dollar payment from defendant, Marina Ops, to Plaintiff on or about May 17, 2007, which payment was ostensibly intended to be applied toward the 2003 interest obligation due under the Section 108 loan.
On December 4, 2007,the City of Newburgh transmitted to Marina Ops, LLC a letter demanding that all outstanding payments and arrearages (then calculated at $457,355.09) were to be paid no later than 9 a.m. on January 2, 2008. There is no evidence to indicate whether Marina Ops, LLC, responded in any fashion to the City's letter. It is, however, undisputed that Marina Ops failed to bring the account current.
Thereafter, and on March 10, 2008, the City of Newburgh acting by and through its legal counsel sent written communication to Defendant, Marina Ops, LLC, notifying defendant of its default under the Loan Agreement and related Loan Documents further accelerating the entire unpaid principal balance and interest, demanding the repayment of the principal balance of $1,500,000.00 together with interest accrued through calendar year 2007 totaling $282,355.10 for the aggregate sum [*4]of $1,782,355.10. Interest for calendar year 2008 was excluded from the demand.
In response to the March 10, 2008 communication, Thomas Glendening, in his capacity as Managing Member of Marine Ops, LLC, authored an April 16, 2008 letter to plaintiff's legal counsel in which he acknowledged receipt of the March 10th acceleration letter and stated, in relevant part, the following:
"We are also aware of the large outstanding balance owed by Marina Ops, LLC . . . the Marina is currently in contract to be sold . . . as money comes into the bank accounts I will begin to pay down the interest. You should expect to receive the first interest payment by the end of May."
No such payment was ever received by plaintiff, City of Newburgh, nor is there any
evidence presented to the Court which indicates any subsequent payments were received up to
the date of the within motion.
DISCUSSION/LEGAL ANALYSIS
Considering and evaluating the contentions of the Plaintiff and Defendants, respectively, the Court is compelled to address a number of issues which include whether the appropriate jurisdictional predicate exists entitling plaintiff to a default judgment, whether plaintiff has satisfied all conditions precedent to the acceleration of the loan, whether defendant has defaulted in its answer, and if so, whether such default is excusable, and if it is, whether any corresponding prejudice will attach to the plaintiff. Lastly, the Court must determine whether defendant has offered a meritorious defense.
Turning first to the issue of jurisdiction, the Court is satisfied that the requisite jurisdictional predicate has been established over each of the party defendants. Personal service was effected on each of the party defendants on August 29, 2008. Further, supplemental notice, as required by CPLR § 3215[f], has likewise been complied with. Moreover, the Court notes that rather than adhering to the twenty (20) day time line set forth in plaintiff's 3215[f] notice of October 10, 2008, it afforded defendants nearly four months before initiating its application for a default judgment. Moreover, defendants neither dispute that personal service was in fact effected, as alleged by plaintiff, nor do they dispute that jurisdiction is properly conferred. Therefore, the Court is satisfied (and so finds) that service is proper, the requisite jurisdictional predicate has been established and all statutory requirements to enable the plaintiff to proceed to a default judgment have been satisfied.
Similarly, Defendants do not dispute that they have defaulted in their obligation to appear and/or answer the summons and complaint previously served upon them on August 29, 2008. Nor do they dispute or deny their receipt of the supplemental notice served on October 10, 2008, notifying them of their omission and affording them an additional twenty (20) day period to cure the default, or that an additional four months elapsed since the date of the supplemental notice without any responsive pleadings being filed. Therefore, it is clear defendants have defaulted in their obligation to timely respond to the summons and complaint.
Turning the Court's attention to the issue of whether Plaintiff has satisfactorily satisfied all conditions precedent to its acceleration of defendant's loan, the Court concludes that it has. Correspondingly, the Court finds defendants' contentions that the March 10, 2008 acceleration letter, authored by plaintiff's legal counsel, on behalf of plaintiff - City of Newburgh, to be insufficient as a matter of law, to be without merit, particularly when viewed in the context of the City's prior actions and actions undertaken subsequent to the March 10th communication. In so finding, the [*5]Court notes that the City, itself, communicated with defendants on December 4, 2007, notifying defendant Marina Ops, of its default, further demanding that all arrearages be brought current. Moreover, the City's prior communication was referenced in counsel's demand/acceleration letter of March 10, 2008. Further, there is no evidence to suggest that defendant was confused or otherwise unaware of the connection between the City of Newburgh and its legal counsel since Mr. Glendening, acting in his capacity as Managing Member of Marian Ops, LLC, directed his April 16, 2008 communication to Attorney Simpson, who authored the March 10th communication. Defendant's position that the City, and only the City, could demand and/or accelerate the loan is simply not supported by the Loan Documents themselves. Further, the Court finds the supportive authority cited by defendants unpersuasive and inapplicable to the current factual context.
Even assuming the merit of defendant's argument, the City nevertheless properly accelerated the loan balance by the filing and service of its summons and verified complaint. See, Logue v. Young, 94 AD2d 827, 463 NYS2d 120 [3d Dep't-1983]; Home Savings of American, FSB v. Isaacson, 240 AD2d 633, 659 NYS2d 94 [2d Dep't-1997] citing Albertina Real Co. v. Rosbro Realty Corp., 258 NY2d 472 [1932]; New York Guardian Mortgagee Corp. v. Olexa, 176 AD2d 399, 574 NYS2d 107 [3d Dep't-1991].
The law merely requires that the exercise of the right to accelerate be fashioned in clear and unequivocal terms. See, Chase Morgan Co. v. Fowler, 280 AD2d 892, 721 NYS2d 184 [4th Dep't-2001]. The City's acceleration letter of March 10, 2008, authored by legal counsel, was not only clear and unambiguous in its terms but also referenced the City's prior communication of December 4, 2007. Accordingly, the Court determines, and so finds, that plaintiff properly satisfied all conditions precedent to the acceleration of the loan and that the manner of acceleration was likewise proper.
Turning the Court's attention to the issues of whether an excusable default exists, whether defendant should be excused of that default and, if any, the resulting prejudice to the plaintiff and whether a meritorious defense exists, the Court, as a preliminary matter, is cognizant of the stated public policy favoring resolution of disputes on their merits (Lawrence v. Palmer, 2009 NY Slip Op 651; 59 AD3d 394 [2d Dep't-2009]; Falla v. Keel Holdings, LLC 50 AD3d 844 [2d Dep't-2008]). Those cases finding excusable default are accompanied by a finding that a potentially meritorious defense exists coupled with no resulting prejudice to the plaintiff as a result of the delay. See, Yonkers Rib House, Inc. v. 1789 Central Park Corp., 19 AD3d 687, 799 NYS2d 62 [2d Dep't-2005]; Goodman v. City Health and Hospital Corp., 2 AD3d 581, 768 NYS2d 365 [2d Dep't-2003]. The law is equally clear, however, that a defendant who has failed to timely appear and answer a complaint (and desires to be relieved of that default), must satisfy a two pronged requirement and demonstrate that a reasonable excuse exists for the default as well as a meritorious defense to the pending action. See, CPLR 5015[a][1]; Peterson v. Lysaght, Lysaght & Kramer, P.C., 47 AD3d 783 [2d Dep't-2008]; Lipp v. Port Authority of NY & NJ, 2006 NY Slip Op 8746, 34 AD3d 649 [2d Dep't-2006]; Traore v. Nelson, 277 AD2d 443 [2d Dep't-2000]; Putney v. Perlman, 203 AD2d 333 [2d Dep't-1994]; Ortega v. Bisogno & Myerson, 38 AD3d 510, 511 [2d Dep't-2007].
Applying the above enunciated principles, to the present factual context, the Court can discern no factual basis that would warrant a finding of reasonable excuse for defendant's default. On the contrary, a review of the record, as a whole, reveals a course of conduct spanning, as a minimum, a fourteen (14) month period over which the defendant not only ignored the demands of [*6]the City itself but also the communications and pleadings from the City's attorney. As early as December, 2007, Defendant was advised of the substantial arrearages that had accrued and took no action. Even defendant's April 16, 2008 letter, sent in response to the March 10, 2008 acceleration letter, provides little assistance. Further, there is no proof to suggest that the defendant in any way, during the four months immediately preceding the commencement of the action, sought to respond in any meaningful fashion to the City. Defendant's failure to respond to the summons and complaint over the course of the five months preceding the filing of this motion was but a continuation of defendant's neglect.
Defendants, in their cross-motion, and as a basis for excusable default, assert that they have focused their efforts on selling the marina property, which "would provide defendants with the sums necessary to repay the sums loaned by the City, thereby effectively mooting this litigation. Focused on these efforts, they neglected for a few months to respond to the City's Verified Complaint (Culnan Affirmation p.2)." Defendants further assert that they have now reached agreement in principle with a buyer and have scheduled a closing to occur on or before May 11,2009. However, defendants have failed to show any causal connection between their pursuit in selling the property and their omission in answering the summons and verified complaint.
The Court further finds that defendants have failed to demonstrate a meritorious defense to the pending action. First, resort to the Loan Documents themselves affords defendants with little or no "safe harbor". Neither tender nor payment has been asserted or in fact been made by defendants. See, New York Guardian Mortgage Corporation v. Olexa, 176 AD2d 399, 574 NYS2d 107 [3d Dep't-1991]; Home Savings of America, FSB v. Isaacson, 240 AD2d 633, 659 NYS2d 94 [2d Dep't-1997]. The repayment obligations of principal and interest under both the "Section 108 loan" and the EDI loan are clear and unambiguous, and enforceable according to their terms. Moreover, defendant does not dispute that it failed and neglected to make any payments of principal and interest for calendar years 2004, 2005, 2006, 2007 or 2008. Defendant's partial payment of $27,500.00 in no way insulates defendant, Marina Ops, LLC, from plaintiff's acceleration of the loan. Defendant, Marina Ops, LLC's default under the Loan Documents also derivatively triggers defendants, Glendening and Front Street on the Hudson, LLC's, liability pursuant to their respective guaranties, which guaranties, insofar as they are relevant to this matter, provided for the following:
"The guarantor irrevocably and unconditionally guarantees to the City the full and prompt payment when due . . . of all obligations of the borrower [Marina Ops, LLC] to the City under or in connection with the Agreement and the Notes, leasehold mortgage and other documents and instruments executed in connection with the Agreement and the due and punctual performance and discharge by the borrower of all of its covenants, agreements, obligations and liabilities . . . executed in connection with the Agreement."
Defendants' assertion that the City's delay in finalizing the financing, as a meritorious defense, is likewise unpersuasive. The alleged delays complained of occurred between 1999 and 2002, dates which precede the March 22, 2002 execution of the loan documents. The record is also devoid of any evidence that suggests that this defense was "reserved" by the defendants at the time they executed the Loan Documents. On the contrary, each of the members of the defendant, Marina Ops, LLC, executed its consent for its members to execute and bind the LLC with respect to the obligations embraced within the Loan Documents. The Loan Documents which are complete, clear [*7]and unambiguous on their face, may not be contradicted, varied or explained by what was communicated between the parties, either prior to or at the execution of the instrument. See, W.W.W. Associates, Inc. v. Giancontieri, 77 NY2d 157, 565 NYS2d 440 [1990]; Totum Homes, Inc. v. Freidus, 55 AD2d 640, 390 NYS2d 9 [2d Dep't 1976]. Accordingly, the Court, "having searched the record" can discern no meritorious defense accruing to the benefit of the defendant that would otherwise warrant excusing defendant's default.
Lastly, it is asserted that excusing defendant's default would not result in prejudice to the plaintiff; an argument the Court likewise finds unpersuasive. The adoption of defendant's position would necessitate a finding and determination by this Court that the failure to repay the loans to the City, the derivative liability that may be imposed upon the City with respect to its primary obligations to HUD and the resulting prejudice to the City that may accrue with respect to future HUD funding for projects of a same or similar nature will not prejudice the City; a determination that the Court is not prepared to make.
For the reasons hereinbefore set forth, the Court concludes and it is hereby
ORDERED, that plaintiff's Motion seeking a default judgment against defendants, Marina Ops, LLC, Thomas Glendening and Front Street on the Hudson, in the amount of One Million Eight Hundred Fifty Two Thousand Two Hundred Ninety Nine Dollar and 80/100 ($1,852,299.80) together with interest thereon at the judgment rate is granted; and it is further
ORDERED, that Plaintiff be and is hereby awarded legal fees in the sum of Ten Thousand and No/100 ($10,000.00) Dollars, which compensation the Court finds to be fair and reasonable and in accordance with plaintiff's entitlement pursuant to the Loan Documents, and which fees are to be paid to plaintiff's legal counsel by defendants together with and in addition to the judgment ordered herein.
The foregoing constitutes the decision and order of the court.
Dated: May 15, 2009
Goshen, New York
E N T E R_______________________________ HON. ROBERT A. ONOFRY, A.J.S.C.
TO:
TARSHIS, CATANIA, LIBERTH, MAHON & MILLIGRAM, PLLC
STEVEN I. MILLIGRAM, ESQ.
Attorneys for Plaintiff
Post Office Box 1479
[*8]
Newburgh, New York 12551
ISEMAN, CUNNINGHAM, RIESTER and HYDE, LLP
Attorneys for Defendants
9 Thurlow Terrace
Albany, New York 12203
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