Wilshire State Bank v Unger
Annotate this CaseDecided on December 16, 2009
Supreme Court, Queens County
Wilshire State Bank, Plaintiff,
against
Sally E. Unger, Defendant.
9736/09
Jaime A. Rios, J.
This is a motion by Wilshire State Bank for leave to sue the receiver, Sally Unger, and a cross-motion by Sally Unger to, inter alia, dismiss the complaint.
Wilshire is a commercial tenant at the premises which are the subject of a foreclosure action. Sally Unger is the receiver of rents appointed in the foreclosure action.
The substantive question presented, is whether a commercial tenant can, in contravention of their landlord's mortgage, obtain rent concessions and make advance payments when such tenant has no actual notice of the prohibition.
The motion and cross-motion were marked fully submitted on September 30, 2009 before the Honorable Orin R. Kitzes. Thereafter, on October 5, 2009, the motion and cross-motion were reassigned to this Court, based upon the fact that this Court appointed the named receiver in the underlying foreclosure action.
The following facts and arguments are presented by the parties:
On or about September 2, 2008, Wilshire State Bank (Wilshire) entered into a lease with Roosevelt Avenue Corp. (Roosevelt) for premises located at 150-24 Northern Boulevard, Unit G4, Flushing, New York (BLOCK 5032, LOT 16). These premises are being foreclosed in an action commenced by Intervest National Bank (Intervest) under Index Number 22488/08, on or about September 9, 2008 against, inter alia, Roosevelt, the owner and landlord of the premises. The lease between Roosevelt and Wilshire was for a term of 10 years, commencing on August 1, 2008 and expiring on July 31, 2018. Pursuant to the lease Wilshire was granted a three month's abatement of [*2]rent due to occupancy delays occasioned by construction at the rented premises.
According to Wilshire, Roosevelt failed to timely deliver possession of the premises because the prior tenant refused to vacate. Wilshire claims that Roosevelt requested of Wilshire an advance payment of the rents to assist in the relocation of the holdover tenant. On or about November 21, 2008, Wilshire and Roosevelt entered into the first amendment of their lease whereby Wilshire advanced six months fixed rent in the amount of $78,000.00 to Roosevelt in exchange for one month additional fixed rent abatement. Wilshire submits proof of the advance payment in the form of a copy of said check dated December 12, 2008. Pursuant to a "Commencement, Rent Commencement and Expiration Dates Agreement", December 20, 2008 was designated the new commencement date for the lease and rent was paid in advance through June 20, 2009, and there was to be an additional three month rent abatement until October 21, 2009.
Wilshire maintains it had no actual knowledge of the pending foreclosure action and it was never served with any summons and complaint. By order of this Court (Rios, J.) dated December 9, 2008 and entered December 18, 2008, Sally Unger, Esq. was appointed "Receiver of rents, issues and profits of the premises" in the foreclosure action. The order, inter alia, authorized the receiver to collect and receive from the tenants in possession all rents now due and unpaid or that become due, directed the tenants or owner in possession to attorn to said receiver and pay to said receiver all rents now due and unpaid or that become due, enjoined and restrained the tenants from paying rents to the defendants, their agents, servants or attorneys, or any person other than the receiver, authorized the receiver to commence any legal proceeding necessary to recover rents now due or that become due, enjoined and restrained defendants from collecting the rents and from interfering in any manner with the premises, and directed the defendants to deliver to the receiver all leases and all papers affecting the operation of the premises, all rent lists, and all monies now on deposit with it as rent security.
On or about March 1, 2009, Unger sent a rent notice to Wilshire demanding $43,485.00. On or about April 6, 2009, Unger sent a three day notice to Wilshire demanding $75,325.00. On or about April 15, 2009, Wilshire commenced this action, without leave, to sue the receiver. Wilshire demanded judgment declaring and determining December 20, 2008 as the lease commencement date and October 22, 2009 as the first date that plaintiff is required to pay rent to the receiver. Wilshire also sought an injunction against Unger from initiating eviction proceedings against it for nonpayment of rent. On or about May 13, 2009, Unger filed a notice of appearance and answer with counterclaims, including that the complaint failed to state a cause of action, that plaintiff failed to obtain permission to sue her and that she was wrongly named in her personal capacity.
Wilshire currently moves for leave to sue Unger, nunc pro tunc. Wilshire contends that it did not initially obtain leave to sue Unger, as is required, because of the urgency to prevent eviction proceedings following the three day notice from Unger.
Unger cross moves for (1) summary judgment dismissing the complaint and (2) a judgment on her counterclaim for rent due and unpaid common area maintenance and late charges from [*3]Wilshire in the amount of $90,090.00. In her affidavit in support of her motion, Unger notes (1) that the lease amendment was entered into less than a month before the receiver was appointed in the foreclosure action and over two months after the lis pendens had been filed and the foreclosure action commenced and (2) that there was a prohibition against the pre-payment of rents in the underlying mortgage. Unger relies on RPL 291-f to support her claim that the recording of the underlying mortgage is deemed notice to the tenants of the prohibition against pre-payment of rent. Thus, Unger argues that the agreement to pre-pay the six months rent is voidable due to Wilshire's knowledge of the prohibition against it. Unger also states that Wilshire's obligation to pre-pay six months rent was subject to "the simultaneous execution of a subordination, non-disturbance and attorney agreement with landlord's mortgagees" and that since no agreements were signed by Intervest, the condition precedent did not occur, and the pre-payment of rent must be voided. Therefore, Unger argues since Wilshire's action is based upon a voidable transaction between it and Roosevelt, the complaint fails to state a cause of action and must be dismissed and the counterclaim for $90,090.00 must be granted.
Also in opposition to the motion and in support of the cross-motion, Unger submits an affidavit of Lowell Dansker, the Chairman and CEO of Intervest. Dansker states that at the time Roosevelt accepted pre-payment of the six months rent, it was in default under the mortgage, the foreclosure proceedings had already been commenced and the lis pendens was filed and the "[r]eceiver was days away from being appointed". Moreover, Dansker avers that Roosevelt had no right to collect six months pre-paid rent because it was in violation of Paragraph 21[d] of the mortgage and that Roosevelt had no right to use the rent to relocate another tenant as per paragraph 20[d] of the mortgage.
In opposition to the cross-motion, Wilshire argues that it entered into the lease agreement,
the first amendment of lease and the "Commencement, Rent Commencement and Expirations
Dates Agreement" with Roosevelt prior to the appointment of the receiver and that any
pre-payment was not done with the intent to defraud the receiver, but so that the money could be
used to oust the prior tenant. Wilshire also maintains that it did not have actual notice of the prior
mortgage recording. Wilshire further argues that RPL 291-f is inapplicable with respect to notice
of the prohibition about pre-payments because it had no privity with the prior tenant and did not
acquire the lease through assignment. Finally, Wilshire states that there is still outstanding
discovery which is necessary to determine whether or not it had sufficient notice prior to
re-negotiating the lease. In reply, Unger states that Wilshire misunderstands RPL 291-f and that
it is applicable because Wilshire is a new tenant. Unger also notes that Wilshire's intention or
lack of intention to defraud is of no significance.
Discussion
Under New York State law, the general rule is that a plaintiff must obtain leave of the appointing court in the original foreclosure action to sue a temporary receiver (see Copeland v Salomon, 56 NY2d 222 [1982]). This rule was intended to protect the receiver from any unnecessary and harassing litigation, and to "preserve the estate in the hands of the receiver for the benefit of all creditors equally" (Id.) The Court of Appeals has held that the failure to obtain [*4]permission from the appointing court to sue a temporary receiver does not affect the jurisdiction of the court to hear the case; it is rather, a condition precedent (Id.). Where a plaintiff fails to obtain permission from the appointing court, the court may allow the action to continue upon an application to the court for leave nunc pro tunc.
Real Property Law 291-f provides that the recording of a mortgage shall be, in and of itself notice of a restrictive agreement such as the prohibition against pre-payments of rent. Here, the mortgage between Intervest and Roosevelt was recorded on October 7, 2005 and thus, Wilshire was on notice of the prohibition against rent pre-payments at the time they entered into the lease amendment. Wilshire's contention that RPL 291-f is inapplicable to it because it had no privity with the prior tenant and did not acquire the lease through assignment is without merit (see Dime Savings Bank of New York FSB v Montague Street Realty Associates, 90 NY2d 539 [1997]).
In Bank of Manhattan Trust Co. v 571 Ave Corp. (263 NY 57 [1933]), the Court of
Appeals articulated the principle of law that agreements entered into by a mortgagor with respect
to the mortgaged premises are not conclusive upon the mortgagee, or a receiver, where such
agreement contravenes an express covenant or the necessary implication of a prior recorded
mortgage. The Court of Appeals further held that it is not necessary to find fraud or collusion "...
and that it is simply beyond the powers of the parties to agree to do anything expressly forbidden
by the mortgage, which impairs the lien of the mortgage upon the rents." (Id. at 63). Here,
Roosevelt's agreement with Wilshire was an impairment of the lien of the mortgage upon the
rents, and the question of fraud or collusion or intent is immaterial (see Colter Realty, Inc v
Primer Realty Corp., 262 AD 77 [1st Dept., 1941]; Dickens v Smith, 14 Misc 2d
1088 [NY Sup., 1958]). In addition, the lease amendment relied upon by Wilshire permitting
pre-payments contained a condition precedent, to wit, the simultaneous execution of a
subordination, non-disturbance and attornment agreement with landlord's mortgagees. There is
no proof that this condition precedent was met.
Conclusion
Based upon the foregoing appellate authority as applied to the facts at bar, it follows that the portion of the Wilshire lease amendment permitting rent abatements through October 21, 2009 and the pre-payment of six months of rent should be voided, Wilshire's complaint should be dismissed and the receiver granted a final order and judgment against Wilshire for the relief demanded in the receiver's cross-motion. The motion by Wilshire for leave to sue the receiver, nunc pro tunc, is dismissed as moot.
Settle Order and Judgment.
Dated: December 16, 2009_________________________
Index No.: 9736/09J.S.C.
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