50-01 Realty LLC v Brooklyn Fed. Sav. Bank
Annotate this CaseDecided on March 28, 2012
Supreme Court, Kings County
50-01 Realty LLC, Plaintiff,
against
Brooklyn Federal Savings Bank, 50-01 LLC, Gideon Gil, David Brause and "John Doe 1" through John Doe 100," the names of the last 100, defendants being fictitious, said defendants' true names thereby intended to designate parties whose identities are unknown to plaintiff, Defendants.
8562/11
Plaintiff Attorney: Goldberg & Rimberg, 115 Broadway, New York, NY
Defendant Attorney: O'reilly, Marsh & Corteselli, 222 Old Country Rd., Mineola, NY
David Schmidt, J.
Upon the foregoing papers, defendant Brooklyn Federal Savings Bank (Brooklyn Federal) moves for an order pursuant to CPLR 3211 (a) (1) and (7) dismissing plaintiff 50-01 Realty LLC's (50-01 Realty) amended complaint in its entirety.
Background
Plaintiff 50-01 Realty owns a parcel of land located at 50-01 2nd Street in Long Island City(the property). In 2008, 50-01 Realty obtained financing from defendant Brooklyn Federal in the amount of $23.5 million for the development of the property, as well as another smaller parcel of land that 50-01 Realty owned located at 2-26 50th Avenue, in Long Island City (the smaller property). It was intended that these properties would be developed into residential apartment complexes. 50-01 Realty contends that the entire cost for development was projected to be $90 million and that the $23.5 million was only a partial construction loan to provide for [*2]demolition of the existing structures and for the early stages of construction.
In 2009, 50-01 Realty and Brooklyn Federal agreed to split the loan into two loans (one for the property and one for the smaller property) and, in conjunction with the severance, and, in consideration of it, Brooklyn Federal agreed to lower the interest rate on the new loans. As part of the refinancing 50-01 Realty conveyed the smaller property to TTSFA Realty LLC, an entity which shared common ownership with 50-01 Realty. The 50-01 Realty property was then encumbered with a $13.5 million mortgage lien and the TTSFA property was encumbered with a $6.0 million mortgage lien. Brooklyn Federal received $500,000 as a pay down on the loan and this refinancing was documented by a "Restated Substitute Mortgage Extension, Modification and Security Agreement."
50-01 Realty maintains that this modification was done to obtain financing from other sources to complete the project. To this end, 50-01 Realty obtained a $5 million loan and some additional financing from NCC Properties Group and it appears that TTSFA completed construction of the smaller property. As for the larger property, 50-01 Realty sought to borrow an additional $40 million to complete its' construction. However, each financial institution it approached sought to have Brooklyn Federal subordinate its' mortgage on the property to the loan it would provide.
50-01 Realty contends that in the summer of 2010, Brooklyn Federal agreed to subordinate its mortgage on the property and reduce the interest rate on the existing loan, if the $6 million loan on the smaller property was completely satisfied. 50-01 Realty also claims that Brooklyn Federal offered it a right of first refusal to purchase Brooklyn Federal's position on its' loan on the property. 50-01 Realty states that it paid a premium and associated fees for NCC to pay off the $6 million loan on the smaller property in order to receive this right of first refusal and to get Brooklyn Federal to agree to subordinate its' loan on the property.
Brooklyn Federal avers that 50-01 Realty was required to tender monthly payments to Brooklyn Federal pursuant to the terms of the loan agreement. However, it appears that on October 1, 2010, 50-01 Realty went into to default by failing to tender the requisite monthly payment.
50-01 Realty claims that in January 2011, Brooklyn Federal changed its' mind and declined to subordinate its loan unless 50-01 Realty made a $2 million pay down of principal from $13.5 million to $11.5 million, at an interest rate of 5.25 percent, for two years. 50-01 Realty alleges that it continued to negotiate with Brooklyn Federal until March 2011, in an attempt to get it to agree to subordinate its loan, but, that in mid-March Brooklyn Federal informed 50-01 Realty that it was in contract to sell its loan on the property and refused to further negotiate this issue.
50-01 Realty maintains that it informed Brooklyn Federal, and the purchasers of the loan, during an April 14, 2011 conference call, that it had a right of first refusal. However, on or about June 3, 2011, Brooklyn Federal assigned the loan to 50-01 LLC for $12.5 million. 50-01 Realty contends that it only learned about the assignment when 50-01 LLC commenced a foreclosure action against it. The foreclosure action was settled for $14,650,00 to 50-01 LLC.
50-01 Realty then commenced the instant litigation alleging three causes of action against Brooklyn Federal sounding in breach of contract, negligent misrepresentation, and fraudulent inducement.1
Brooklyn Federal's Motion
Brooklyn Federal moves, for an order pursuant to CPLR 3211 (a) (1) and (7), dismissing 50-01 Realty's amended complaint in its entirety. In support of its' motion, Brooklyn Federal submits affidavits from Joanne Gallo, a Senior Vice President of Brooklyn Federal and James G. Marsh, attorney for Brooklyn Federal. Initially, Brooklyn Federal argues that 50-01 Realty always had a right of redemption, permitting it to redeem the property by paying all the sums due and owing to Brooklyn Federal. It points out that Brooklyn Federal was operating under a Supervisory Agreement with the federal Office of Thrift Supervision, which as a matter of public policy, does [*3]not permit a financial institution to allow a defaulted borrower to benefit from its own misconduct in failing to repay a loan and then acquire it at a discount.
Applicable Law
A party seeking to dismiss pursuant to CPLR 3211(a)(1) on the ground that its defense is based on documentary evidence must submit documentary evidence that resolves all factual issues as a matter of law and conclusively disposes of the plaintiff's claim (Galvan v 9519 Third Avenue Restaurant Corp., 74 AD3d 743 [2010]; Elow v Svenningsen, 58 AD3d 674, 675 [2009]; see Leon v Martinez, 84 NY2d 83, 88 [1994]; Martin v New York Hosp. Med. Ctr. of Queens, 34 AD3d 650 [2006].
It is well-settled that on a motion to dismiss a complaint for failure to state a cause of action pursuant to CPLR 3211(a)(7), the pleading is to be liberally construed, accepting all the facts alleged in the complaint to be true and according the plaintiff the benefit of every possible favorable inference . . ." (Jacobs v Macy's East, Inc., 262 AD2d 607, 608 [2005]; Leon, 84 NY2d 83 [1994]). The court does not determine the merits of a cause of action on a CPLR 3211(a)(7) motion (see Stukuls v State of New York, 42 NY2d 272 [1977]; Jacobs, 262 AD2d at 608), and the court will not examine affidavits submitted on a CPLR 3211(a)(7) motion for the purpose of determining whether there is evidentiary support for the pleading (see Rovello v Orofino Realty Co., Inc., 40 NY2d 633 [1976]).
Breach of Contract
Brooklyn Federal argues that 50-01 Realty's complaint fails to state a cause of action for breach of contract and is nothing more than an attempt to avoid the application of the clear contractual provisions contained in the written agreement entered into by these two parties. Brooklyn Federal points out that 50-01 Realty's claim that an oral, undocumented agreement granting it a right of first refusal from Brooklyn Federal to purchase the loan note, and related loan documents, is precluded by the terms of the written agreement and note entered into by these parties. Brooklyn Federal points out that these documents specifically contain provisions preventing oral modification and contain a merger clause requiring all agreed upon terms to be contained in the writing. It is undisputed that there is nothing contained in the written contract granting 50-01 Realty a right of first refusal.
"A right of first refusal is preemptive right that requires the owner, when and if s/he or it decides to sell his/her or its property, to offer the property to the holder so that the holder may meet the offer by a third party or buy the property at some other price set by a previously stipulated method' (Jeremy's Ale House Also, Inc. v Joselyn Luchnick Irrevocable Trust, et al., 22 AD3d 6, 10 [2005] citing LIN Broadcasting Corp. v Metromedia, Inc., 74 NY2d 54 [1989] and other cases).
In opposition, 50-01 Realty contends that it sufficiently alleged breach of an oral agreement in paragraphs 36 through 43 of its complaint. Moreover, it contends that Brooklyn Federal's motion is incorrectly premised on the supposition that certain written loan agreements between 50-01 Realty and Brooklyn Federal are the agreements complained of in the action, rather 50-10 Realty contends the action is premised upon an oral agreement between the parties after the financing agreement had been entered into.
The court notes that the existence of the written financing agreement between these parties is precisely why defendants argue that 50-01 Realty's claims are contradicted by the documentary evidence. Brooklyn Realty points out that the loan documents agreed upon by these parties do not provide 50-01 Realty with a right of first refusal and that paragraph 38 of the "Restated substitute mortgage extension, modification and security loan No. 18-010647-6" specifically and clearly states:
No Oral Change. This Mortgage, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of the Mortgagor or Mortgagee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.
Moreover, Brooklyn Federal points out that paragraph 46 of the agreement states:
[*4]
The Loan Documents contain the entire agreement between Mortgagor and Mortgagee relating to or connected with the Loan. Any other agreements relating to or connected with the Loan not expressly set forth in the Loan Documents are null and void and superseded in their entirety by the provisions of the Loan Documents.
Brooklyn Federal argues that any alleged oral agreements, which it denies ever occurred, would be unenforceable based upon the express terms of paragraph 38 of the loan documents and would further be barred under General Obligations Law §15-301 which provides, in pertinent part that:
A written agreement or other written instrument which contains a provision to the effect that it cannot be changed orally, cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement of the change is sought or by his agent.
Brooklyn Federal points out that although this provision requires a writing, partial performance by the parties which is unequivocally referable to an alleged oral modification of the written agreement may obviate the need for a writing but only if the partial performance is unequivocally referable to the oral agreement. Brooklyn Federal points out that if partial performance can be reasonably explained by the possibility of other reasons for the conduct, the performance is equivocal and renders the oral modification unenforceable.
50-01 Realty argues that the fact that it caused TTSFA to pay off the $6 million loan prior to maturity unequivocally demonstrates its performance under the oral agreement. However, in reply, Brooklyn Federal points out that this does not demonstrate partial performance unequivocally referable to the alleged oral agreement inasmuch as this money was due to Brooklyn Federal under the express terms of the note and is consistent with 50-01 Realty's obligation pursuant to the terms of said note. They contend that the early payment was in fact attributable to the restructuring of the original loan. The court agrees that 50-01 Realty has failed to demonstrate that the early payment of the $6 million is unequivocally referable to the alleged oral modification. In fact, as pointed out by Brooklyn Federal, there are other reasonable explanations why this amount was paid off early (see Rose v Spa Realty Assoc., 42 NY2d 338, 341 [1977];Harlem Suites, LLC v 231 Norman Ave., LLC, 88 AD3d 532 [2011]; Community Prods., LLC v. Northvale Prop. Assoc., LLC, 61 AD3d 806 [2009]).
Accordingly, that branch of Brooklyn Federal's motion seeking to dismiss 50-01 Realty's claim for breach of contract based upon the documentary evidence is granted.
Negligent Misrepresentation
Brooklyn Realty argues that no negligent representation claim is, or can be, stated against it by 50-01 Realty pointing out that in order to sustain such a claim a party must plead: 1) the existence of a special or privity like relationship imposing a duty on the defendant to impart correct information to the plaintiff; 2) that the information was correct, and 3) reasonable reliance on the information (see J.A.O. Acquisition Corp. v Stavitsky, 8 NY3d 144 [2007]. Moreover, Brooklyn Federal points out that the cause of action is only sustainable if the negligent misrepresentation induced plaintiff to take an action it otherwise would not have which was the direct and proximate cause of the losses claimed (see Laub v Faessel, 297 AD2d 28 [2002]). Brooklyn Federal maintains that 50-01 Realty has failed to allege the existence of a "special relationship" between it and Brooklyn Federal and contends that the relationship between these parties was merely an arms-length transaction and, thus, cannot support a claim for negligent misrepresentation.
In opposition, 50-01 Realty claims that its' complaint adequately sets forth, in detail, the misrepresentation Brooklyn Federal made and, which, 50-01 Realty relied upon to its detriment. Specifically 50-01 Realty claims that Brooklyn Federal represented that if 50-01 Realty paid down the $6 million mortgage on the smaller property, Brooklyn Federal would grant it a right of first refusal on the loan on the property and would subordinate the loan to subsequent financing obtained by 50-01 Realty. Moreover, 50-01 Realty claims that a "special relationship" existed between these [*5]parties. Specifically, 50-01 Realty contends that Brooklyn Federal, with whom it already had extensive business dealings with, induced it to believe that it had a right of first refusal. Finally, it points out that whether a special relationship exists is usually a question of fact that cannot be resolved prior to discovery.
A special relationship exists when (1) the parties are in a relationship of trust and confidence, or (2) one of the parties has superior knowledge (see Kimmell v Schaefer, 89 NY2d 257, 263 [1996]). Generally, the requisite "special relationship" does not exist between sophisticated commercial entities that enter into an agreement through an arm's-length business transaction (Parisi v Metroflag Polo, LLC, 51 AD3d 424 [2008]; Atkins Nutritionals, Inc. v Ernst & Young, LLP, 301 AD2d 547, 548-49 [2003]). However, in Kimmell, the Court of Appeals recognized that a duty to speak with care may be imposed in a commercial transaction, but only "on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified." (Id. at 263).
Importantly, the relationship of trust and confidence must have existed prior to the very contractual relationship giving rise to the alleged wrong, and not as a result of it (Emigrant Bank v UBS Real Estate Securities, Inc., 49 AD3d 382, 385 [2008]; Elghanian v Harvey, 249 AD2d 206 [1998]).
Although the question of whether a special relationship exists to support a negligent misrepresentation claim "generally raises an issue of fact" (Kimmell, 89 NY2d at 264), where the plaintiff's allegations, accepted as true and given all favorable inferences, simply do not support the finding of a special relationship, the claim is subject to pre-answer dismissal (see Saunders v AOL Time Warner, Inc., 18 AD3d 216, 217 [2005]; Knight Securities, L.P. v Fiduciary Trust Co., 5 AD3d 172, 174 [2004]).
Here, the court finds that 50-01 Realty has failed to allege facts showing that these sophisticated commercial entities engaged in anything more than an arm's length business transaction (see MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 AD3d 287, 297 [2011];RNK Capital LLC v Natsource LLC, 76 AD3d 840, 842 [2010]; see also EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]; Northeast Gen. Corp. v Wellington Adv., 82 NY2d 158, 162 [1993]). Further, the court finds that the relationship between 50-01 Realty and Brooklyn Federal is solely a debtor and creditor relationship because it is based on the notes held by Brooklyn Federal . This is nothing more than an "ordinary business relationship" upon which a negligent misrepresentation claim may not be based (Auble v Doyle, 38 AD3d 1264, 1266 [2007]; Wright v Selle, 27 AD3d 1065, 1067 [2006]; H & R Project Assocs., Inc. v City of Syracuse, 289 AD2d 967, 969 [2001]; Banque Nationale de Paris v 1567 Broadway Ownership Assocs., 214 AD2d 359, 360 [1995]; Bank Leumi Trust Co. v Block 3102 Corp., 180 AD2d 588 [1992], lv denied 80 NY2d 754 [1992] [holding that the "legal relationship between a borrower and a bank is a contractual one of debtor and creditor and does not create a fiduciary relationship between the bank and its borrower or its guarantors"]). Moreover, the court notes that 50-01 Realty has failed to allege that it had a longstanding relationship of trust and confidence with Brooklyn Federal prior to the transaction at issue in this action to demonstrate the existence of a special relationship.
Based upon the foregoing, that branch of Brooklyn Federal's motion seeking to dismiss 50-01 Realty's negligent misrepresentation claim is granted and said claim is dismissed.
Fraudulent Inducement
Brooklyn Federal maintains that 50-01 Realty has failed to establish the elements to sustain a cause of action for fraudulent inducement. Brooklyn Federal contends that 50-01 Realty merely asserted that Brooklyn Federal fraudulently induced it to enter into an agreement whereby Brooklyn Federal would grant it a right of first refusal and would subordinate its loan. Brooklyn Federal argues that it cannot be concluded that even if it made these representations, that they were made with the intent to deceive 50-01 Realty. [*6]
To state a claim for fraudulent inducement, there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury (Sokolow, Dunaud, Mercadier & Carreras v Lacher, 299 AD2d 64, 70 [2002]).
50-01 Realty's complaint alleges that Brooklyn Federal fraudulently induced 50-01 Realty into an agreement whereby it would grant it a right of first refusal on the
loan on the property and would subordinate said loan to subsequent financing obtained by 50-01 Realty and that it misrepresented that no further negotiations would be necessary following the $6 million pay down. Additionally, the complaint alleges that Brooklyn Federal misrepresented that it would reduce the interest rate on the loan and that it had the authority to subordinate the loan on the property.
Brooklyn Federal maintains that plaintiff's complaint fails to allege the misrepresentation of a material existing fact, pointing out that the complaint alleges that Brooklyn Federal agreed to subordinate its mortgage on the property, and reduce the interest rate on the loan, only if the $6.0 million loan on the smaller property was paid off. Brooklyn Federal argues that this is not an allegation of the misrepresentation of a presently material existing fact but rather a prediction, or expectation, of what Brooklyn Federal would do in the future. Moreover, Brooklyn Federal argues that 50-01 Realty's early payment of the $6.0 million is consistent with its legal obligations under the note and thus, it cannot claim to have been defrauded into doing what it was already legally obligated to do.
The court finds that 50-01 Realty's fraudulent inducement cause of action should be dismissed as it fails to allege an intentional misrepresentation of any material existing facts (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 318 [1995]; Pacnet Network Ltd. v KDDI Corp., 78 AD3d 478, 479 [2010]), but rather contains only "statements of prediction or expectation" (Naturopathic Labs. Intl., Inc. v SSL Ams., Inc., 18 AD3d 404, 404 [2005]).
Based upon the foregoing, Brooklyn Federal's motion seeking to dismiss 50-01
Realty's claims as asserted against it is granted in its entirety and said complaint is hereby dismissed.
The foregoing constitutes the decision and order of the court.
E N T E R,
J. S. C.
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