Zara Realty Holding Corp. v E & J Deli & Grocery, Inc.

[*1] Zara Realty Holding Corp. v E & J Deli & Grocery, Inc. 2012 NY Slip Op 50364(U) Decided on February 29, 2012 Supreme Court, Queens County Markey, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 29, 2012
Supreme Court, Queens County

Zara Realty Holding Corp., Plaintiff,

against

E & J Deli and Grocery, Inc., ENA SHEWMANGAL, CECILIA BOODHOO, et al., Defendants.



23906/2010



Appearances of Counsel:

For the Plaintiff: Law Offices of Michael G. Mc Auliffe, by Michael G. Mc Auliffe, Esq., 48 South Service Rd., Melville, New York 11747

For Defendant Cecilia Boodhoo: Joseph F. Kasper, Esq., 94-09 101st Avenue, Ozone Park, New York 11416

For Defendants Ena Shewmangal and E & J Deli and Grocery, Inc.: Keith Singh, Esq., 107-29 Liberty Avenue, Ozone Park, New York 11417

Charles J. Markey, J.

Notice of Motion - Affidavits - Exhibits .........................................................................1-6

Notice of Cross Motion - Affidavits - Exhibits ...............................................................7-11

Answering Affidavits - Exhibits ..................................................................................12-20

Reply Affidavits ...........................................................................................................21-28

Among the issues raised in this mortgage foreclosure action is the argument by one defendant, seeking permission to file a late answer, is whether her inactivity was excusable since she relied on ongoing settlement discussions and negotiations. As discussed herein, not all court rulings in this State are consistent, thus requiring an IAS court confronted with the question to distinguish contrary precedents.

The plaintiff commenced this action for foreclosure and to obtain a deficiency judgment against defendants E & J Deli Grocery, Inc. (E & J Deli), Ena Shewmangal ("Shewmangal"), and Cecilia Boodhoo ("Boodhoo'). The plaintiff alleges that defendants E & J Deli, Shewmangal, and Boodhoo (collectively referred to as "defendant borrowers") obtained a [*2]building loan in the principal amount of $250,000.00, plus interest, from it and that the loan was secured by a mortgage against real property known 88-18 209th Street, Hollis, in Queens County, New York and 3229 Fulton Street, Brooklyn, in Kings County, New York (collectively, the mortgaged premises), owned by defendant E & J Deli. The note evidencing the building loan allegedly was executed on behalf of defendant E & J Deli by Shewmangal, as E & J Deli's president, and was also individually signed by defendants Shewmangal and Boodhoo.

The plaintiff moves for leave to appoint a referee to compute the amounts due and owing plaintiff, to examine and report whether the mortgaged premises can be sold in one parcel, to enter a default judgment against defendants, and to amend the caption by deleting "John Doe No.1" through "John Doe #5" as party defendants and substituting, in their place and stead, Margarita Flores, Joey Sanchez, Noelle Ortiz, Barbara Dominquez, and Ilene Figueroa, and deleting "John Doe #6" through "John Doe #12."

Defendant Cecilia Boodhoo cross moves, pursuant to CPLR 3012(d), for leave to serve a late answer.

To establish entitlement to a default judgment, a plaintiff is required to submit proof of service of the summons and the complaint, of the facts constituting the claim, and of the default (see, CPLR 3215[f]). In support of its motion for leave to enter a default judgment as against defendants, plaintiff offered various affidavits of service, including certain affidavits of service of process upon defendant borrowers, an affirmation by its counsel of regularity, a copy of the mortgage and note, and an affidavit of Ken Subraj, a vice president of plaintiff, attesting to the default in payment under the mortgage and note by defendant borrowers.

The affidavit of service dated January 21, 2011, indicates that defendant E & J Deli was served on that date by delivery of duplicate copies of the summons and complaint to the Secretary of State together with the statutory fee.

The affidavit of service dated November 17, 2010, indicates defendant Shewmangal was served by service of a copy of the summons and complaint upon "JUGNARAIN SHEWMANGAL, HUSBAND" on November 13, 2010 at 11:45 A.M. at 87-71 98th Street, Woodhaven, Queens County, New York, the dwelling place or usual place of abode of defendant Shewmangal and a subsequent mailing of a copy of the summons and complaint to defendant Shewmangal at the same address.

The affidavit of service dated November 19, 2010, indicates that defendant Boodhoo was served by service of a copy of the summons and complaint upon "LUCILLE BOODHOO, SISTER" on November 15, 2010 at 9:45 A.M. at 106 Schenck Avenue, 1st Floor, Brooklyn, Kings County, New York, the dwelling place or usual place of abode of defendant Boodhoo, and a subsequent mailing of a copy of the summons and complaint to defendant Boodhoo at the same address. [*3]

Defendant Boodhoo initially opposed the motion by plaintiff on July 6, 2011, asserting, among other things, that she was not properly served with process in this action. She averred that her married name is "Boodhoo," her maiden name was "Cyril," and she has no sister named "Lucille Boodhoo," and asserted there is no person named "Lucille Boodhoo." She admitted that she nevertheless became aware of the pendency of this action. She stated she became confused as to whether she needed to serve an answer, because she was in negotiations with plaintiff at the time, regarding the subject mortgage loan, and previously had been served with a copy of a summons, bearing a caption with a title identical to the instant action but with a different index number, i.e., Index No. 15620/2009 .

Defendant Boodhoo asserted that as a result of her inquiries at the court, she learned that the caption on the summons filed in the action under Index No. 15260/2009 actually read Zara Realty Holding Corp. v Savory Construction, LLC, (Supreme Court, Queens County, Index No. 15620/2009), she was not a named defendant in that action and the action had nothing to do with her, or the subject mortgage or premises. Defendant Boodhoo indicated that notwithstanding she was not properly served with process in this action, she, in a measure of caution, served and filed, on February 6, 2011, an answer, including an affirmative defense based upon lack of jurisdiction, to the complaint. She stated that plaintiff never rejected the answer. Defendant Boodhoo also stated that her husband was hospitalized several times during the year of 2010 and that she was accordingly preoccupied.

Thereafter, the return date of the motion was adjourned, and defendant Boodhoo cross moved for leave to serve a late answer, reiterating her assertions of lack of proper service of process, and explanations for her delay in serving her answer.

Plaintiff opposes the cross motion, denying receipt of any answer from defendant Boodhoo, and maintains that such answer, if served, was untimely in any event. Defendants E & J Deli and Shewmangal oppose the motion, and request that their time to answer the complaint be extended. The remaining defendants do not appear in relation to the motion or cross motion.

With respect to the cross motion by defendant Boodhoo, "[a] defendant who has failed to timely appear or answer the complaint must provide a reasonable excuse for the default and demonstrate a meritorious defense to the action, when opposing a motion for leave to enter judgment upon its failure to appear or answer and moving to extend the time to answer or to compel the acceptance of an untimely answer" (Lipp v Port Auth. of NY & N.J., 34 AD3d 649, 649 [2nd Dept. 2006] [failed to provide reasonable excuse]; accord, Bank of New York v Espejo, ____ AD3d _____, 2012 WL 503661, 2012 NY Slip Op 01200 [2nd Dept. 2012] [failed to provide reasonable excuse]; Targee St. Internal Med. Group, P.C. v Deutsche Bank Nat. Trust Co., ___ AD3d ____, 2012 WL 502601, 2012 NY Slip Op 01240 [2nd Dept. 2012] [same]; Palmer Ave. Corp. v. Malick, 91 AD3d 853 [2nd Dept. 2012]; Juseinoski v Board of Educ. of City of NY, 15 AD3d 353, 356 [2nd Dept. 2005] [same]; Ennis v Lema, 305 AD2d 632, 633 [2nd Dept. 2003] [same]). [*4]

The determination of what constitutes a reasonable excuse for a default in answering lies within the sound discretion of the IAS court (see, Adolph H. Schreiber Hebrew Academy of Rockland, Inc. v Needleman, 90 AD3d 791 [2011]; Maspeth Fed. Sav. & Loan Assn. v McGown, 77 AD3d 889 [2010]; Grutman v Southgate At Bar Harbor Home Owners' Assn., 207 AD2d 526, 527 [1994]). The review of the discretionary exercise is subject to appellate review and may be reversed (see, e.g., Ramirez v Islandia Executive Plaza, LLC, ____ AD3d _____, 2012 WL 502692, 2012 NY Slip Op 01230 [2nd Dept. 2012] [lower court erred in vacating default and permitting late answer]; Tribeca Lending Corp. v Correa, ____ AD3d _____, 2012 WL 502467 [2nd Dept. 2012]; Swedbank, AB v Hale Ave. Borrower, LLC, 89 AD3d 922, 924 [2nd Dept. 2011] [reversing IAS court's vacatur of default]).

The affidavit of service dated February 6, 2011, of Joseph A. Cullina, indicates service of defendant Boodhoo's answer by mailing to plaintiff's counsel at "48 South Service Road, Melville, New York 11747" on the same date. The address on the summons and complaint for plaintiff's counsel, however, includes a reference to "Suite 102," which may explain the claimed nonreceipt of the answer by plaintiff. Nevertheless, the confusion raised in defendant Boodhoo's mind, by plaintiff's prior service of the copy of the summons displaying "Index No. 15620/2009," and defendant Boodhoo's reliance upon settlement negotiations with plaintiff, are substantiated, and constitute a reasonable excuse for her failure to serve an answer before February 6, 2011.

Defendant Boodhoo, in addition, was unaware that plaintiff claimed she had never answered the complaint, until she received a copy of plaintiff's motion papers, sometime after May 4, 2011.[FN1] Plaintiff's motion was adjourned for the purpose of settlement discussions, and when settlement was not achieved, defendant Boodhoo served her cross motion.

Regarding defendant Boodhoo's argument that she relied on ongoing settlement discussions and negotiations, the cases are mixed. A number of cases show a great reluctance, if not loathing, for such a defense as an excuse for not taking concrete action in a litigation, such as filing an answer (see, e.g., Community Preservation Corp. v Bridgewater Condominiums, LLC, 89 AD3d 784 [2nd Dept. 2011] [reliance on settlement discussions does not constitute reasonable excuse]; Mellon v Izmirligil, 88 AD3d 930 [2nd Dept. 2011] [motion to vacate was properly denied]; Maspeth Fed. Sav. & Loan Assn. v McGown, 77 AD3d 889, supra [purported reliance on settlement discussions was unsubstantiated]; Jamieson v Roman, 36 AD3d 861 [2nd Dept. 2007] [upholding denial of motion to vacate default despite party's claim of ongoing settlement discussions, since party delayed in appearing after being served with a copy of the judgment]; Flora Co. v Ingilis, 233 AD2d 418 [2nd Dept. 1996] [reliance on settlement discussions was questionable at best]; Bank of New York v Jayaswal, 33 Misc 3d 1214(A), 2011 WL 5061626, 2011 NY Slip Op 51922(U) [Sup Ct Suffolk County 2011] [Whelan, J.] [denying motion to file [*5]a late answer, court stated that "the mere engagement in discussions aimed at a potential modification of the subject mortgage loan may not serve as a means to open up an otherwise inexcusable default in answering the summons and complaint by the defendant/mortgagor."; discussing the competing cases and reasoning that defendant's conversation with the plaintiff bank's "operations consultant" could not be reasonably characterized as "legal advice" that "allegedly duped defendant . . . into not answering the complaint in a timely manner.").

The defense or excuse of a party's abstaining from taking any action in good faith reliance on ongoing settlement discussions and negotiations has, nevertheless, been sustained by other cases, if the underlying facts and circumstances are substantiated and reasonable (see, e.g., Performance Constr. Corp. v Huntington Bldg., LLC, 68 AD3d 737, 738 [2nd Dept. 2009] [record revealed that party was actively engaged in settlement negotiations, and adversary unfairly and manipulatively failed to disclose plan to enter default judgment]; Scarlett v McCarthy, 2 AD3d 623 [2nd Dept. 2003]; HSBC Bank USA, N.A. v Cayo, ____ Misc 3d, 934 NYS2d 792, 794 [Sup Ct Kings County 2011] [party presented meritorious defense and substantiated belief that action was stayed pending settlement talks]; Emigrant Mortgage, Inc. v Abbey, 2011 WL 972555, 2011 NY Slip Op 30600(U) [Sup Ct Queens County 2011] [McDonald, J.]).

This Court, in the present action, concludes that defendant Boodhoo's reliance upon settlement negotiations is substantiated and constitutes a reasonable excuse for her failure to serve an answer. Under these circumstances, defendant Boodhoo has offered a reasonable excuse for her delay in seeking leave to serve a late answer.

A strong public policy, furthermore, exists favoring the disposition of matters on their merits (see, Berardo v Guillet, 86 AD3d 459, 459 [1st Dept. 2011]; Yu v Vantage Mgt. Servs., LLC, 85 AD3d 564[1st Dept. 2011]; Billingly v Blagrove, 84 AD3d 848, 849 [2nd Dept. 2011]; Khanal v Sheldon, 74 AD3d 894, 896 [2nd Dept. 2010]; Rakowicz v Fashion Institute of Technology, 65 AD3d 536, 537 [2nd Dept. 2009]; Reed v Grossi, 59 AD3d 509, 511-512 [2nd Dept. 2009]; Bunch v Dollar Budget, Inc., 12 AD3d 391 [2nd Dept. 2004]).

Defendant Boodhoo, moreover, has a potentially meritorious defense to the action based upon improper service of process (CPLR 308[2]).

The cross motion by defendant Boodhoo for leave to serve a late answer is granted and the proposed answer annexed to the cross motion papers shall be deemed served upon plaintiff upon service of a copy of this order, with notice of entry. That branch of the motion by plaintiff for leave to enter a default judgment against defendant Boodhoo is denied.

To the extent that defendant E & J Deli asserts the Court lacks personal jurisdiction over it, the affidavit of service dated January 21, 2011 demonstrates that plaintiff properly effected service of process upon it pursuant to Business Corporation Law section 306 (see, Shimel v 5 S. Fulton Ave. Corp., 11 AD3d 527 [2nd Dept. 2004]; Green Point Sav. Bank v 794 Utica Ave. [*6]Realty Corp., 242 AD2d 602 [2nd Dept. 1997], lv. to appeal dismissed, 91 NY2d 957 [1998]). Defendant Shewmangal, the alleged sole shareholder of defendant E & J Deli, makes no claim that the address on file with the Secretary of State for defendant E & J Deli was incorrect.

To the extent that defendant Shewmangal also asserts that the Court lacks personal jurisdiction over her, the affidavit of service dated November 17, 2010, constitutes prima facie evidence of proper service pursuant to CPLR 308(2) (see, New York v Espejo, ____ AD3d _____, 2012 WL 503661, 2012 NY Slip Op 01200 [2nd Dept. 2012]; Gray-Joseph v Shuhai Liu, 90 AD3d 988, 990 [2nd Dept. 2011]; Beneficial Homeowner Service Corp. v Girault, 60 AD3d 984 [2nd Dept. 2009]).

Defendant Shewmangal, significantly, fails to swear to specific facts to rebut the statements in the process server's affidavit relative to the delivery of the process to Jugnarain Shewmangal (see, U.S. Natl. Bank Ass'n as Trustee v Melton, 90 AD3d 742, 743 [2nd Dept. 2011]; U.S. Bank v Arias, 85 AD3d 1014, 1015-1016 [2nd Dept. 2011]; Scarano v Scarano, 63 AD3d 716, 716-717 [2nd Dept. 2009]; Simonds v Grobman, 277 AD2d 369, 370 [2nd Dept. 2000]), and the subsequent mailing of the copy of the summons and complaint (see, Engel by Engel v Lichterman, 62 NY2d 943 [1984], aff'g 95 AD2d 536 [2nd Dept. 1983]). Thus, defendant Shewmangal's unsubstantiated denial of service of the summons and complaint upon her is insufficient to warrant a hearing on the issue of the propriety of the service (see, Deutsche Bank Nat. Trust Co. v. Hussain, 78 AD3d 989, 990 [2nd Dept. 2010]; Remington Investments, Inc. v Seiden, 240 AD2d 647 [2nd Dept. 1997]; Sando Realty Corp. v Aris, 209 AD2d 682 [2nd Dept. 1994]).

To the extent that defendants E & J Deli and Shewmangal seek leave to serve a late answer, asserting they first learned of the pendency of this action after statutory time-period for a response had expired, they have failed to adequately demonstrate a meritorious defense. Defendant Shewmangal states that she was induced by plaintiff to transfer the subject properties into defendant E & J Deli as a condition of the granting of the mortgage loan, and that plaintiff failed to disclose to her the fees charged in relation to the mortgage loan. She also states that she closed the loan transaction "under duress, because I fe[lt] I had no other option." Such statements are conclusory and insufficient to show a potential meritorious defense based upon fraudulent inducement or duress. Defendants E & J Deli and Shewmangal have failed, furthermore, to demonstrate that plaintiff was legally obligated to make any disclosure of fees to them in advance of making the loan.

To the extent that they claim plaintiff has failed to join the holders of the first mortgages against the property as party defendants, defendants E & J Deli and Shewmangal have made no showing that the senior mortgages are subject to plaintiff's interest and that the holders of the senior mortgagees are necessary party defendants (see generally, Private Capital Group, LLC v Hosseinipour, 86 AD3d 554, 555 [2nd Dept. 2011]; Glass v Estate of Gold, 48 AD3d 746 [2nd Dept. 2008]; Scharaga v Schwartzberg, 149 AD2d 578 [2nd Dept. 1989]; see also, Jacobie v Mickle, 144 NY 237, 239 [1894]; Stevens v Breen, 258 App Div 423 [2nd Dept. 1940]). To the [*7]extent that defendants E & J Deli and Shewmangal assert that plaintiff "may" have acted as a bank or lender in making the mortgage loan without requisite authority and, therefore, violated banking laws, such assertion is not supported by any evidence.

Defendants E & J Deli and Shewmangal claim the loan is usurious or "excessive." Defendant E & J Deli has failed to show it is entitled to raise a defense based upon civil usury (see, General Obligations Law § 5-521), and defendant Shewmangal has failed to present any evidence to show that the note calls for an interest rate which exceeded the interest rate allowed by law at the time of the making of the loan. The note bears a contract interest rate of 14% per annum, which is not usurious (see, General Obligations Law § 5-501; Banking Law § 14-a). In addition, that the note and mortgage call for a default rate of interest of 24% per annum, it is well settled that "the defense of usury does not apply where . . . the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity" (Miller Planning Corp. with Delta Funding Corp. v Wells, 253 AD2d 859, 860 [2nd Dept. 1998]). Furthermore, such rate is not criminally usurious (see, Penal Law §§ 190.40, 190.42; General Obligations Law § 5-501[6]).

Finally, the assertion by defendants E & J Deli and Shewmangal that plaintiff improperly placed venue of this action in Queens County is without merit (see, CPLR 507; Dollar Dry Dock Bank v Piping Rock Bldrs., 181 AD2d 709 [2nd Dept. 1992]).

The branch of the motion by plaintiff for leave to amend the caption as proposed is granted.

That branch of the motion by plaintiff for leave to enter a default judgment against defendants E & J Deli, Shewmangal, City of New York, New York State Environmental Control Board, Flores, Sanchez, Ortiz, Dominquez and Figueroa is granted.

That branch of the motion by plaintiff for leave to enter a default judgment against defendants State of New York and New York City Department of Finance is denied without prejudice to renewal. Although counsel for plaintiff asserts that defendants State of New York and New York City Department of Finance filed notices of appearance, it has failed to submit a copy of such notices, and the notices are not on file in the records maintained by the County Clerk.

That branch of the motion by plaintiff for leave to appoint a referee is denied at this juncture.

The foregoing constitutes the decision, order, and opinion of the Court.

__________________________________

Hon. Charles J. MarkeyJustice, Supreme Court, Queens County [*8]

Dated: Long Island City, New York

February 29, 2012



Footnotes

Footnote 1:

The affidavit of service of the notice of plaintiff's motion and supporting papers indicates the motion was made on April 15, 2010, notwithstanding the notice of motion, and the affirmation of regularity are dated May 4, 2011, and the affidavit of Mr. Subraj is dated April 27, 2011.