MCC Funding LLC v Diamond Point Enters., LLC

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[*1] MCC Funding LLC v Diamond Point Enters., LLC 2012 NY Slip Op 51212(U) Decided on June 25, 2012 Supreme Court, Kings County Hinds-Radix, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law ยง 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 25, 2012
Supreme Court, Kings County

MCC Funding LLC, Plaintiff,

against

Diamond Point Enterprises, LLC; Shaun C. Andersen; New York City Transit Adjudication Bureau; NYC Environmental Control Board; New York State of Taxation and Finance; New York City Department of Finance; the City of New York; and John Does nos. 1-10, Defendants.



500815/11



Levett Rockwood, P.C.

By: Robert Laplaca

Attorneys for Plaintiff

33 Riverside Avenue

Westport, CT 06880

Lazer, Aptheker, Rosella & Yedid, P.C.

Melville Law Center

Attorneys for Defendant

Diamond Point Enterprises, LLC

225 Old Country Road

Melville, New York 11747

Sylvia O. Hinds-Radix, J.



Upon the foregoing papers, in this action by plaintiff MCC Funding LLC (plaintiff) against defendant Diamond Point Enterprises, LLC (Diamond Point) and others to foreclose certain mortgages on commercial real property located at 91-93 Diamond Street, in Brooklyn, New York (Block 2651, Lots 23 and 24) (the premises), plaintiff moves for an order: (1) pursuant to CPLR 3211 (a) (1), (6), and/or (7), dismissing the counterclaims asserted by Diamond Point based upon the ground that such counterclaims are barred by the waiver provisions in the operative loan documents which are the subject of this action, or, alternatively, (2) pursuant to CPLR 3211 (a) (4), dismissing the counterclaims asserted by Diamond Point based upon the ground that substantially similar claims have been asserted in a prior action entitled Diamond Point Enterprises, LLC v Mercury Capital U.S.A., LLC (Sup Ct, Kings County, index No. 28021/09) (the prior action). Diamond Point cross-moves for an order, pursuant to CPLR 602 (a), consolidating this action with the prior action.

BACKGROUND

In 2007, the children of non-party Mary Zubrovich inherited the premises, which was the Zubrovich family home and its surrounding land. The Zubrovich family decided to construct condominiums on the premises, and, in 2008, the Zubrovich family formed Diamond Point, a limited liability company. In March 2008, Diamond Point entered into an agreement with West End/Mercury Short Term Mortgage Fund, LP (the Short Term Fund) for approximately $3.7 million in construction loans in order to complete this

condominium project, which Diamond Point was to repay with the profits realized by the sale of the condominiums. This transaction was split between three simultaneous loans, namely, the Senior Loan, the Construction Loan, and the Project Loan.

In connection with the Senior Loan, the Construction Loan, and the Project Loan, Diamond Point, by defendant Shaun C. Andersen, as its member, executed mortgage notes dated March 20, 2008 for each of these loans, i.e., the Senior Loan Note, the Construction Loan Note, and the Project Loan Note, in which Diamond Point promised to pay Short Term Fund the principal sum of $650,752, $2,223,500, and $825,748, respectively, together with interest thereon at the rate of 12 1/4% per annum, in installments on the first day of each month thereafter through and including September 1, 2009. The Senior Loan Note, the Construction Loan Note, and the Project Loan Note were each secured by a mortgage lien, encumbering the premises, evidenced by a Mortgage, Security Agreement, Assignment of Rents and Financing Statement with respect to each of these notes, i.e., the Senior Loan [*2]Mortgage, the Construction Loan Mortgage, and the Project Loan Mortgage, which were also dated March 20, 2008. The Senior Loan Mortgage, the Construction Loan Mortgage, and the Project Loan Mortgage were recorded on May 8, 2008 in the Office of the City Register, Kings County. By three Assignments of Mortgage, each dated March 20, 2008, the Short Term Fund assigned all three of these mortgages and their underlying notes to plaintiff.

As required by the parties' loan agreements, Diamond Point sought the required permits for the project, and began demolition of the existing Zubrovich family house on

the premises on March 21, 2008. Diamond Point claims, however, that when the Short Term Fund assigned the three notes to plaintiff on the day of the closing, it did not assign to plaintiff its interests in the loan agreements or its obligation to make distributions to it in accordance with the draw schedule. According to Diamond Point, in November 2008, after the Short Term Fund had only made its initial distribution of the funds at the closing, the Short Term Fund notified it that it would not make any of its required distributions under the draw schedule.

Diamond Point asserts that as a result of the Short Term Fund's refusal to provide the construction funding, the project came to a halt. Diamond Point claims that its representatives were told that the changes in the market had prevented any distributions, and that while its representatives spoke to the Short Term Fund's representatives in an attempt to restart the funding, these efforts were futile. Diamond Point further claims that it needed to timely begin construction before a change in the zoning law, which would limit the scale of the project, went into effect. It also claims that after beginning the demolition, with no further funds to continue the project, it was left with a hole in the ground, which would have been in violation of local ordinances if left in its existing state. It maintains that it was, therefore, forced to incur unnecessary expenses in addressing the state of the premises at the time when funding was cut off by the Short Term Fund.

With respect to the Short Term Fund's alleged failure to provide the required funding for the project, Diamond Point claims that the three mortgage loans were actually the product of a complex investment scam perpetrated by William Landberg (Landberg), along with several of his accomplices. Landberg was the president of Sentinel Investment Management Corp., an SEC registered investment advisor. Diamond Point explains that through a network of over 30 entities, Landberg sought funding from innocent investors for three bogus investment funds, one of which was the Short Term Fund, which was marketed as providing short term commercial loans. Diamond Point asserts that Landberg then purported to extend various loans to unwitting third party borrowers, including the construction loans made to it.

According to Diamond Point, Landberg secured financing from two German banks, one of which was WestLB, which funded the Short Term Fund. Diamond Point alleges that Landberg also created plaintiff, which is a wholly owned subsidiary of the Short Term Fund, in order to serve as the conduit through which Landberg could access the WestLB investment funds. Diamond Point claims that Landberg would cause the Short Term Fund to make a funding request to WestLB for the funds it needed to distribute pursuant to a particular loan [*3]agreement, that these advances would then be made by WestLB to plaintiff, but that, unbeknownst to WestLB, plaintiff would transfer the funds to Landberg to be used as he saw fit, rather than to the borrower.

Diamond Point asserts that the Short Term Fund never intended to fund the loans to it, but, instead, sought to induce it, among other innocent third-party borrowers, to enter into a loan agreement for the purpose of creating a basis for obtaining funds from WestLB, and for the purpose of obtaining notes that could then be transferred to plaintiff, who would then seek to enforce the notes as a purported holder in due course. Diamond Point alleges that the Short Term Fund and plaintiff were under the control of Landberg and were instrumentalities of his fraud against it and other investors.

Diamond Point further alleges that when Landberg was unable to pay his investors and took money out of interest reserve accounts that were set up as part of the loan transactions with the German banks, the German banks cut off funding and his fraudulent scheme collapsed. According to Diamond Point, in March 2011, the Short Term Fund and several of Landberg's other entities filed for bankruptcy, and, on November 18, 2011, Landberg pleaded guilty to securities fraud and is awaiting sentencing. Diamond Point claims that the loans which plaintiff now seeks to enforce were obtained as part of this massive fraud, and that the construction funding was never provided to it.

On November 5, 2009, prior to the time that Landberg was charged with securities fraud, Diamond Point filed the prior action against plaintiff, the Short Term Fund, and Mercury Capital U.S.A. LLC (Mercury) (which allegedly issued a written commitment letter to make the loans). In its complaint in the prior action, Diamond Point alleged that on November 20, 2008 and thereafter, representatives of the Short Term Fund advised it that no further draws of the loans would be made, and that the Short Term Fund repudiated its obligation to provide funding under the loan agreements. Diamond Point further alleged that the condominium project has been at a standstill since October 2008, and that at the time of maturity of the loans in September 2009, plaintiff attempted to compel it to execute extension documents, granting it a six-month extension in exchange for granting it a general release from culpability for failure to fund the loans as required under the loan agreements, and to waive any and all affirmative defenses, set-offs, claims, and counterclaims. Diamond Point refused to agree to these terms. Diamond Point's prior action sought damages of at least $2 million against plaintiff, the Short Term Fund, and Mercury based upon their alleged breach of the loan agreements.

On September 21, 2011, plaintiff filed this action against Diamond Point, seeking to foreclose the three mortgages on the premises. Plaintiff alleges that Diamond Point is in default under the Senior Note and Senior Mortgage, the Construction Note and Construction Mortgage, and the Project Loan and Project Mortgage by failing to pay the outstanding principal amount, accrued interest, late charges, and all other sums due thereunder on or by the maturity date of these loans, which was September 13, 2009.

On January 20, 2012, Diamond Point interposed an answer, which sets forth denials and affirmative defenses, and contains three counterclaims. Diamond Point's counterclaims [*4]seek damages of at least $2 million against plaintiff, claiming that plaintiff is responsible for Short Term Fund's alleged failure to fund the project which was the subject of the loans.

Specifically, Diamond Point's first counterclaim asserts that the Short Term Fund held itself out to potential borrowers, including it, as a legitimate lending institution, and through the various loan documents, it made representations to it that it would provide financing for the condominium project under the terms set forth in those documents. Diamond Point alleges, however, that, in actuality, the Short Term Fund had no intention of ever distributing the promised funds, but intended to use the promise of lending as justification to withdraw funds from the WestLB reserve accounts, thereby allowing Landberg to misappropriate those funds without raising any suspicion. Diamond Point claims that the Short Term Fund also intended to use the promise of lending as a ploy to obtain notes from it, which the Short Term Fund intended to transfer to plaintiff with the goal of enforcing the notes as a holder in due course, notwithstanding the fact that the proceeds were never distributed. Diamond Point alleges that it executed the three mortgages in reliance upon the Short Term Fund's promise to provide the construction financing. Diamond Point further alleges that plaintiff and the Short Term Fund were instrumentalities of Landberg's fraud and that, as a result of this fraud, it has been harmed by, among other things, the down-zoning of the premises, the unnecessary expenses incurred as a result of the cutting off of funding, and the loss in market value of the premises.

Diamond Point's second counterclaim alleges that by failing to provide distributions in accordance with the draw schedule, the Short Term Fund breached the loan agreements. Diamond Point's third counterclaim alleges that by accepting the purported assignment of the Senior Note, the Construction Note, and the Project Note, plaintiff aided and abetted Landberg and/or the Short Term Fund's fraud.

DISCUSSION

Plaintiff, by its instant motion, seeks dismissal of Diamond Point's counterclaims pursuant to CPLR 3211 (a) (1), (6), and (7). A plaintiff may use CPLR 3211 (a) to dismiss counterclaims.

CPLR 3211 (a) (1) provides that "[a] party may move for judgment dismissing one or more causes of action asserted against [it] on the ground that . . . a defense is founded upon documentary evidence." A dismissal of a counterclaim pursuant to CPLR 3211 (a) (1) would be warranted on the ground that a defense based upon documentary evidence exists where the documentary evidence submitted "definitively contradicts" the defendant's factual allegations and conclusively disposes of the defendant's counterclaim (Berardino v Ochlan, 2 AD3d 556, 557 [2d Dept 2003]; see also Leon v Martinez, 84 NY2d 83, 87 [1994]; Forftis Fin. Servs.v Fimat Futures USA, 290 AD2d 383, 383 [1st Dept 2002]). The documentary evidence submitted must conclusively establish a defense to the asserted counterclaim as a matter of law and utterly refute the counterclaims' factual allegations (see Leon, 84 NY2d at [*5]88).

CPLR 3211 (a) (7) provides for dismissal of a pleading where "the pleading fails to state a cause of action." "It is well settled that, as a general rule, on a motion to dismiss [a counterclaim] for failure to state a cause of action under CPLR 3211 (a) (7), the [counterclaim] must be construed in the light most favorable to the [defendant]" (Gruen v County of Suffolk, 187 AD2d 560, 562 [2d Dept 1992]; see also Rosen v Watermill Dev. Corp.,1 AD3d 424, 425 [2d Dept 2003]). The court must also accept the facts as alleged in the counterclaim and submissions in opposition to the motion as true and accord the defendant "the benefit of every possible favorable inference" (Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414 [2001]).

CPLR 3211 (a) (6) permits dismissal where "with respect to a counterclaim, it may not properly be interposed in the action." This ground for dismissal applies where a counterclaim may not be interposed in a particular action such as when a fiduciary brings an action and a counterclaim has been improperly interposed against him or her in his or her personal capacity and not in the capacity in which he or she has sued. Although this section is cited by plaintiff, it does not assert any grounds which would support dismissal of Diamond Point's counterclaims on this basis.

In support of its motion pursuant to CPLR 3211 (a) (1) and (7), plaintiff argues that Diamond Point waived any right to assert set-offs or counterclaims. Plaintiff relies upon section 7.6 of the Senior Note, the Project Note, and the Construction Note, which provides: "the maker and each endorser also waive (I) the right to interpose any set-off or counterclaim of any nature or description." Plaintiff further relies upon section 24 of the Senior Mortgage, the Project Mortgage, and the Construction Mortgage, which provides that "[n]o action for the enforcement of the lien and security interests created by this Mortgage or of any provision hereof shall be subject to any defense which would not be good and available to the party interposing same in an action at law upon the Note."

Plaintiff contends that it is not against public policy to enforce this waiver of the right to interpose counterclaims. However, while it is true that a waiver of counterclaims is generally not against public policy, it will only be enforced in the absence of fraud (see North Fork Bank v Computerized Quality Separation Corp., 62 AD3d 973, 974 [2d Dept 2009]; Fleet Bank v Petri Mech. Co., 244 AD2d 523, 524 [2d Dept 1997]). Indeed, where the mortgagee is alleged to have wrongfully caused the mortgagor's default or some other condition that led to the foreclosure action, this constitutes a viable defense and/or counterclaim (see Red Tulip, LLC v Neiva, 44 AD3d 204, 210 [1st Dept 2007], lv dismissed 10 NY3d 741 [2008]; Canterbury Realty & Equip. Corp. v Poughkeepsie Sav. Bank, 135 AD2d 102, 107-108 [3d Dept 1988]; Bank of Smithtown v 219 Sagg Main LLC, 2011 NY Slip Op 32197[U], 2011 WL 3565787 [Sup Ct, Suffolk County 2011]; 10 Connor Lane v C. Connor Lane Associates, LLC, 2011 NY Slip Op 31439[U], 2011 WL 2283791 [Sup Ct, Suffolk County 2011]).

In the recent case of Archer Capital Fund, L.P. v GEL, LLC (95 AD3d 800 [2d Dept 2012]), the Appellate Division, Second Department, held that in a mortgage foreclosure [*6]action, where, in the mortgage and loan documents, the mortgagor had waived its right to assert defenses or counterclaims in response to any action commenced by the mortgagee to enforce the mortgagor's obligations thereunder and to recover the debt, the mortgagor's counterclaim alleging fraud would survive such a waiver. " [A] written waiver in any form cannot operate to shield a party from [its] own fraud'" (Pike v New York Life Ins. Co., 72 AD3d 1043, 1051 [2d Dept 2010], quoting Sterling Natl. Bank & Trust Co. of NY v Giannetti, 53 AD2d 533, 533 [1st Dept 1976]; see also European Am. Bank v Mr. Wemmick, Ltd., 160 AD2d 905, 907 [2d Dept 1990]). To enforce a waiver provision to bar a defendant from interposing a counterclaim against a plaintiff based upon fraud would allow the plaintiff to shield itself from its own tortious conduct (see European Am. Bank, 160 AD2d at 906-907; Bayside Fuel Oil Depot Corp. v Savino Oil & Heating Co., 133 AD2d 658, 659 [2d Dept 1987]; Federal Deposit Ins. Corp. v Marino Corp., 74 AD2d 620, 620-621 [2d Dept 1980]; Sterling Natl. Bank & Trust Co. of NY, 53 AD2d at 533).

The cases relied upon by plaintiff in an effort to support its motion are inapposite. Plaintiff relies upon the case of Red Tulip, LLC (44 AD3d at 209-210), in which the Appellate Division, First Department, held, in a mortgage foreclosure action, that an unconditional guaranty and waiver of defenses signed by the defendant in connection with a commercial mortgage loan barred her from asserting her affirmative defenses and counterclaim in that action. However, Red Tulip, LLC (44 AD3d at 210) did not involve a counterclaim alleging fraud, and the Appellate Division, First Department, specifically noted that the record in that case did not support a finding that the lender had wrongfully caused the default or some other condition precedent that led to acceleration of the debt.

Plaintiff also relies upon Citibank v Plapinger (66 NY2d 90, 92 [1985], rearg denied 67 NY2d 647 [1986]), where the Court of Appeals held that "[f]raud in the inducement of a guarantee by corporate officers of the corporation's indebtedness is not a defense to an action on the guarantee when the guarantee recites that it is absolute and unconditional irrespective of any lack of validity or enforceability of the guarantee, or any other circumstance which might otherwise constitute a defense available to a guarantor in respect of the guarantee," since "those recitals [were] inconsistent with the guarantors' claim of reliance upon an oral representation that the lending banks were committed to extend to the corporation an additional line of credit." Here, however, Diamond Point does not claim that it was fraudulently induced to sign the loan agreements in reliance upon a separate oral agreement, but, rather, it claims that the loans were part of a fraudulent scheme, which resulted in funding never being provided to it in accordance with the terms of the loan agreements.

Plaintiff's reliance upon VNB NY Corp. v M. Lichtenstein LLC (32 Misc 3d 1240[A], *10-11, 2011 NY Slip Op 51652[U] [Sup Ct, Kings County 2011]) is also misplaced. In that case, the Supreme Court, Kings County, held that a waiver of defenses or counterclaims contained in a loan modification agreement, which extended the loan and reaffirmed the debt, foreclosed the defendants' reliance on the claim that they were fraudulently induced to sign that loan modification agreement by the bank's alleged oral promise of a restructuring of the [*7]loan (id.). Here, in contrast, Diamond Point is not contending that it relied upon oral representations not reflected in the signed documents, and the general language of waiver contained in the notes does not specifically pertain to the fraudulent conduct alleged.

Plaintiff also cites to JPMCC 2007-CIBC19 Bronx Apts., LLC v Fordham Fulton LLC (84 AD3d 613, 613 [1st Dept 2011]), where the Appellate Division, First Department, citing Red Tulip, LLC (44 AD3d at 209), found that the defendants therein "faced an insurmountable obstacle" because they "expressly waived any defense to foreclosure on the mortgage and the note, they agreed in the first and second prenegotiation agreements that they were barred from bringing any claim or raising any defense to foreclosure arising out of the parties' postdefault communications regarding a potential restructuring of the loan, and they entered into a stipulation of discontinuance of their affirmative defenses." That case is likewise distinguishable from the case at bar since the plaintiff therein did not allege that the defendant's fraud or wrongful conduct had caused its default.

While plaintiff additionally contends that the holding in Quest Commercial, LLC v Rovner (35 AD3d 576, 576 [2d Dept 2006]) shows that a broad waiver clause, such as the clause at issue, will be enforced, plaintiff's reliance upon Quest Commercial, LLC (35 AD3d at 576) is misplaced. In Quest Commercial, LLC (35 AD3d at 576), the Appellate Division, Second Department, in an action to recover on a promissory note brought by a motion for summary judgment in lieu of complaint pursuant to CPLR 3213, granted that motion where the defendant raised defenses of forgery, duress, and fraud, and asserted a claim for setoff. Although the Appellate Division, Second Department, in Quest Commercial, LLC (35 AD3d at 576-577), observed that, in the note, which the defendant never expressly denied signing, he validly waived all defenses, counterclaims, and set-offs, except the defense of payment, it further found that all of these supposed defenses were supported only by the defendant's conclusory allegations which were insufficient to defeat the plaintiff's motion. Here, Diamond Point's counterclaims raise specific allegations of fraud which, it alleges, resulted in the default upon which plaintiff bases its present action.

Plaintiff's contention that the proposition that a written waiver cannot operate to shield a party from its own fraud does not apply to commercial loan transactions is devoid of merit (see Archer Capital Fund, L.P., 95 AD3d at 800; European Am. Bank, 160 AD2d at 907; Bayside Fuel Oil Depot Corp., 133 AD2d at 659; Federal Deposit Ins. Corp., 74 AD2d at 620-621). Thus, since Diamond Point's counterclaims alleging fraud survive the waiver contained in the notes (see Archer Capital Fund, L.P., 95 AD3d at 800; Pike, 72 AD3d at 1051), plaintiff's motion to dismiss Diamond Point's counterclaims must be denied.

Plaintiff, in its motion, alternatively seeks dismissal of this action, pursuant to CPLR 3211 (a) (4), based upon the pendency of the prior action. CPLR 3211 (a) (4) provides that "[a] party may move for judgment dismissing one or more causes of action asserted against [it] on the ground that . . . there is another action pending between the same parties for the same cause of action in a court of any state or the United States; the court need not dismiss upon this ground but may make such order as justice requires."

Plaintiff contends that since there is a substantial identity of the parties and causes of [*8]action in this action and the prior action, dismissal is warranted under CPLR 3211 (a) (4). Plaintiff asserts that in the prior action, Diamond Point has asserted claims against it, along with Mercury, and the Short Term Fund, based upon the identical loan documents which are the subject of the present action. Plaintiff further asserts that in the prior action, Diamond Point seeks damages against it as a result of the failure of its assignor, the Short Term Fund, to fund the loans, and that, in this action, Diamond Point likewise seeks damages by way of its counterclaims by alleging that it is responsible for the Short Term Fund's failure to fund the loan. Plaintiff states that Diamond Point's complaint in the prior action contains the same allegations that it now makes in its counterclaims in this action, i.e., that the Short Term Fund was obligated to fund the loans, that the Short Term Fund repudiated its obligation to fund the loans, that plaintiff is responsible for the Short Term Fund's failure to fund the loans, that Diamond Point has been damaged as a result of the Short Term Fund's failure to fund the loans for which plaintiff is liable, and that Diamond Point lost profits from the sale of the condominium units which it could have made if the loans were funded. Plaintiff further states that there is a substantial identity of the parties and that similar legal theories have been alleged in this action and the prior action.

Diamond Point, in its cross motion, seeks to consolidate this action with the prior action pursuant to CPLR 602 (a). CPLR 602 (a) provides that "[w]hen actions involving a common question of law or fact are pending before a court, the court, upon motion, may order a joint trial of any or all the matters in issue, may order the actions consolidated, and may make such other orders concerning proceedings therein as may tend to avoid unnecessary costs or delay."

A common disposition on a motion under CPLR 3211 (a) (4) "is not to dismiss the present action, but to consolidate it with the other action" (Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3211:19, at 33). Here, since it is plaintiff who has brought this action seeking to foreclose the mortgages, which is not sought in the prior action, and Diamond Point has brought counterclaims directly pertaining to these mortgages, consolidation, rather than dismissal, is appropriate (see Gutman v Klein, 26 AD3d 464, 465 [2d Dept 2006]; Lemos v Marketos,13 AD2d 767, 767-768 [1st Dept 1961]).

"[C]onsolidation is favored by the courts in serving the interests of justice and judicial economy" (Government Empls. Ins. Co. v Bailey, 251 AD2d 627, 628 [2d Dept 1998]). " [T]he interests of justice and judicial economy are better served by joint trials wherever possible'" (Waldbaum's Supermarkets, 134 AD2d 568, 569 [2d Dept 1987], quoting Megyesi v Automotive Rentals, 115 AD2d 596, 596 [2d Dept 1985]). "Absent a showing of prejudice to a substantial right by a party opposing the motion, consolidation should be granted where common questions of law or fact exist" (Mattia v Food Emporium, 259 AD2d 527, 527 [2d Dept 1999]; see also Mas-Edwards v Ultimate Servs., Inc., 45 AD3d 540, 540 [2d Dept 2007]; Perini Corp. v WDF, Inc., 33 AD3d 605, 606 [2d Dept 2006]).

Plaintiff, in opposition to Diamond Point's cross motion for consolidation, relies upon American Holdings Inv. Corp. v Josey (71 AD3d 927, 931 [2d Dept 2010]), where consolidation of a foreclosure action and an action sounding in fraud and to impose a [*9]constructive trust was denied. However, such reliance is misplaced since, in that case, there were no common issues of fact or law (id.). Plaintiff further cites to cases where courts have severed foreclosure claims from unrelated counterclaims, and contends that these cases constitute a basis to deny consolidation of this action with the prior action (see e.g. Neighborhood Hous. Servs. of NY City, Inc. v Meltzer, 67 AD3d 872, 874 [2d Dept 2009]; First Union Mtge. Corp. v Fern, 298 AD2d 490, 491 [2d Dept 2002]; Tri-Land Props. v 115 W. 28th St. Corp., 238 AD2d 206, 206 [1st Dept 1997]; Norton Co. v C-TC 9th Ave. Partnership,198 AD2d 696, 698 [3d Dept 1993]). However, these cases relied upon by plaintiff involved counterclaims that did not affect the validity of the right of the plaintiff to foreclose on the mortgage and would have caused unnecessary burdens with respect to discovery (see Neighborhood Hous. Servs. of NY City, Inc., 67 AD3d at 874; First Union Mtge. Corp., 298 AD2d at 491; Tri-Land Props., 238 AD2d at 206; Norton Co.,198 AD2d at 698). Such circumstances are not present here since Diamond Point's counterclaims are not unrelated to plaintiff's claim for foreclosure, and the discovery necessary to resolve Diamond Point's counterclaims and the claims asserted in the prior action is the same.

This mortgage foreclosure action and the prior action alleging the failure of Short Term Fund to properly fund the mortgages involve common questions of law and fact which should be joined for trial. Such joinder is supported by case law. Notably, in First Natl. Bank of Nev. v Williams (74 AD3d 740, 742 [2d Dept 2010]), the Appellate Division, Second Department, consolidated for joint trial an action to foreclose a mortgage and an action to set aside the mortgage on the grounds of fraud since it found that those actions involved common questions of law and fact. In Samworth v Frankenhoff (272 App Div 831, 831 [2d Dept 1947]), the Appellate Division, Second Department, consolidated a foreclosure action with a fraud action involving the property sought to be foreclosed. In Biscone v Carnevale (186 AD2d 942, 944 [3d Dept 1992]), the Appellate Division, Third Department, held that it was proper to consolidate a mortgage foreclosure action and an action by the mortgagors seeking reformation of the note and mortgage based on a mutual mistake of fact as to the repayment schedule for the loan, since the alleged mutual mistake was both an affirmative defense in the foreclosure action and the basis for the relief requested in the reformation action.

Plaintiff argues, however, that consolidation cannot be granted because of the additional parties in the prior action. This argument is rejected. If it is otherwise proper, a consolidation will not be denied because the parties involved are not identical (see Philip Shlansky & Bro., Inc. v Grossman, 273 App Div 544, 546 [1st Dept 1948]).

Plaintiff further argues that consolidation should be denied because the Short Term Fund is currently in bankruptcy. This argument is unavailing since the bankruptcy stay only affects the Short Term Fund, and does not constitute a bar to consolidation. "The automatic stay provisions of the Federal bankruptcy laws do not extend to non-bankrupt codefendants," and an action may proceed as against them (Rosenbaum v Dane & Murphy,189 AD2d 760, 761 [2d Dept 1993]; see also Moy v St. Vincent's Hosp. & Med. Ctr. of NY, 92 AD3d 651, 651 [2d Dept 2012]; Torre v Fay's, Inc., 259 AD2d 896, 897 [3d Dept 1999]). Moreover, [*10]Diamond Point asserts that upon consolidation, it will move to lift the bankruptcy stay.The court notes, however, that since in a true consolidation of actions, as opposed to a consolidation for joint trial, the captions merge and only one action and one caption remains, such a consolidation would be inappropriate here since plaintiff would be a defendant in the prior action (see Rogin v Rogin, 90 AD3d 507, 508 n [1st Dept 2011]; Geneva Temps, Inc. v New World Communities, Inc., 24 AD3d 332, 335 [1st Dept 2005]; Bass v France, 70 AD2d 849, 849-850 [1st Dept 1979]; Padilla v Greyhound Lines, 29 AD2d 495, 497-498 [1st Dept 1968]). Instead, a joint trial should be granted (see CPLR 602 [a]; Rogin, 90 AD3d at 508 n; First Natl. Bank of Nev.,74 AD3d at 742; Geneva Temps, Inc., 24 AD3d at 335; Bass, 70 AD2d at 850; Padilla, 29 AD2d at 497-498). Thus, although Diamond Point cross-moved to consolidate the actions, the more appropriate method of achieving that purpose is a joint trial (see Mas-Edwards, 45 AD3d at 541).

Therefore, since both this action and the prior action "involve common questions of law and fact and a joint trial will avoid unnecessary duplication of proceedings, save unnecessary costs and expenses and prevent the injustice which would result from divergent decisions based on the same facts" and since plaintiff, in opposing Diamond Point's cross motion, has failed to establish that a joint trial would prejudice a substantial right, an order granting a joint trial is warranted (Mas-Edwards, 59 AD3d at 540-541; see also Gutman v Klein, 26 AD3d 464, 465 [2d Dept 2006]; Mattia, 259 AD2d at 527). In consolidating these actions for joint trial, these actions shall retain their separate captions and separate index numbers, and separate notes of issue shall be filed for each action.

CONCLUSION

Accordingly, plaintiff's motion to dismiss Diamond Point's counterclaims is denied in its entirety. Diamond Point's cross motion is granted to the extent that a joint trial of this action and the prior action is granted.

This constitutes the decision and order of the court.

E N T E R,

J. S. C.

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