1180 President Funding, LLC v 2201 7th Ave. Realty LLC

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1180 President Funding, LLC v 2201 7th Ave. Realty LLC 2017 NY Slip Op 31454(U) July 7, 2017 Supreme Court, New York County Docket Number: 650956/2010 Judge: Marcy Friedman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 1] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 SUPREME COURT OF THE STATE OF NEV/ YORK COUNTY OF NEW YORK- PART 60 1180 PRESIDENT FUNDING, LLC, Plainttff; Index No.: 650956/2010 --- against --2201 7TH AVENUE REALTY LLC, TREVOR WHITTINGHAM, GLOBAL INVESTMENT STRA. TEGIES TRlJST, \VA INTEGRITY TRUST, GALAXY GENERA.L CONTRACTING CORP., INDUSTRIAL FIRE DOOR & HARDWARE SUPPLY, INC., ALL CITY GLASS & MIRROR CORP., NORTHERN BUILDING PRODUCTS, INC,, JNP CONTRA.CfORS, LTD., RELIANT ELECTRIC CONTRACTING, INC,, KATZ j\/IETAL FABRICATORS, INC., INDEPENDENT TEMPERATURE CONTROL SERVICES, INC., BORD KITCHEN CABINETS, lNC, ARCHITECTURAL ENTRACE SYSTEMS, INC., CORE TECH ASSOCIATES CORP., METALOCKE INDUSTRlES INC., TWO A'S MECHNICAL INC, SPECTOR GROUP II, LLP, JG ELEVATOR, LLC, TREVOR \~lHITTINGHAM, INC, NEW YORK CITY DEPARHv1ENT OF FINANCE, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, DECISION/ORDER Defendants. Pursuant to an Interim Decision and Order, dated February 22, 2017 (the Interim Decision), this court held an evidentiary hearing on June 12, 2017 in this commercial mortgage foreclosure proceeding brought by plaintiff 1180 President Funding, LLC ( 1180 President), the successor of the lender, The issues addressed at the hearing were (a) v.rhether 1180 President and/or its counsel, lVlr, Kenneth P. Hon.l\vitz, should be sanctioned, pursuant to 22 NYCRR 130~ 2 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 2] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 l. l, for engaging in conduct undertaken primarily to harass or maliciously injure defendant 2201 7th Avenue Realty LLC (Seventh), including but not limited to representing in this proceeding that Seventh had a right to redeem the mortgaged premises until a foreclosure sale, while fa.iling to disclose the pendency of an application k1r a judgrnent of foreclosure and sale in a related mechanic's lien foreclosure proceeding; and (b) whether 1180 President and/or its counsel perpetrated a fraud upon the court by means of the aforesaid representations and omissions. The facts and circumstances wan-anting the hearing are detailed in the Interim Decision and are summarized briefly as follows: In July 2015, Seventh moved for an order compelling 1180 President to issue a payoff letter and to accept redemption. (~-~~ NYSCEF No. 360 [the motion to compel redemption_].) In support of the motion, Seventh claimed that i 180 President was frustrating Seventh's right to redeem the mortgaged premises. In opposition, Mr. Horowitz and Mr. Moishe "Mark" Tress, a member and manager of 1180 President, represented to the m1dersigned that injunctive relief was unnecessary because, among other things, Seventh had ''"a right to redeem the Prope1iy in this foreclosure action at any time prior to the acceptance of the final bid by the court-appointed Referee at a foreclosure sale,'" (Interim Decision, at 2.) At the time, a motion by 1180 President for a judgment of foreclosure and sale had been submitted to, but not yet decided by, the undersigned. There thus did not appear to be any imminent possibility of a "final bid ... at a foreclosure sale" that would cut offSeventh's redemption rights. Seventh also failed to show that 1180 President had refused to issue a payoff letter or to accept redemption. By Decision and Order dated March 10, 2016, the undersigned accordingly denied Seventh's motion to compel redemption. (March 10, 2016 Decision, at 4; Interim Decision, at 1-2.) 2 3 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 3] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 As set forth in detail in the Interim Decision, without notice to the undersigned, during the pendency of Seventh's motion to compel redemption and prior to the filing of the aflinnations in which J'vk Horowitz and Mr. Tress made the representations described above, Harlem Contracting LLC (Harlern)-another entity managed by .Nk Tress-applied to Justice Edmead of this Court for a judgment of foreclosure and sale of Seventh's premises. This application was made in a related mechanic's lien foreclosure proceeding (the mechanic's lien proceeding), commenced in 2010 in the name of the original plaintiff/lienholder, Galaxy General Contracting Corp. (Galaxy). 1 As further set tl)rth in the Interim Decision, in 2012, Justice Edmead had transferred the rnechanic's Hen proceeding to Justice Fried of this Court (whose docket the undersigned subsequently assumed), pursuant to a stipulation in which the parties agreed to consolidate the instant mortgage foreclosure proceeding and the mechanic's lien proceeding for joint discovery and triaL (Interim Decision, at 3:-4; Order, dated Mar. 26, 2016, mechanic's lien proceeding [NYSCEF No. 42].) Afler the transfer, the parties to the mechanic's lien proceeding continued to litigate an appeal to the Appellate Division of a 2011 order by Justice Edmead denying the plainti1I1lienholder's motion for a default judgment against Seventh. In 2012, the Appellate Division reversed the order and directed entry of a judgment for the Dept 2012_!.) In July 2015, three years aft.er the Appellate Division's decision, and notwithstanding the transfer of the mechanic's lien proceeding and the pendency of the instant mortgage foreclosure proceeding before the undersigned, Harlem filed the proposed judgment of foreclose and sale 1 The mechanic's lien proceeding was originally captioned G_gl_g?;.)_G~:rw.r!i.l.C9.TIIT"A~t1!!X..(:9EfL.Lfll2LZ!h.AYf, Es:_1Jt-:,:__Lt£ (Index No. 102131120 iO). Harlem acquired the lien from Galaxy in 2012, (Stipulation, dated Feb. J, 2016, at 1, mechanic's lien proceeding fNYSCEF No. 67j.) Harlem \Vas not formally substituted in the caption of the mechanic's lien proceeding until February 3, 2016. (Id.) 3 4 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 4] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 before Justice Edmead. (Interim Decision, at 2-3.) At that time, the mechanic's lien proceeding had been dormant fi1r nearly ti.vo years. Mr. Andre R Soleil, Seventh's counsel of record in the instant mortgage foreclosure proceeding as of July 2015, had never filed a notice of appearance in or registered for NYSCEF notifications in the mechanic's lien proceeding. Despite their involvement in the mt~chanic's lien proceeding, neither Mr. Horowitz nor Mr. Tress informed the undersigned of Harlem's application for a judgment of foreclosure and sale in that proceeding, which led to an auction sale of the property on Decernber 23, 2015----again, ·without notice to the undersigned. (Id,, at 2, 4.) Subsequent to the foreclosure sale, Seventh again moved before the m1dersigned for an undated payoff letter and for other relief related to the premises (motion sequence 20), 2 In response to that motion, the details oft.he December 23, 2015 fi1redosure sale for the first tirne came to the undersigned's attention, as 1180 President opposed the motion on the grounds that the foreclosure sale had extinguished Seventh's right to redeem. Seventh then brought paxallel rnotions in the instant proceeding (motion sequence 22) and the mechanic's lien proceeding for sanctions and relief from Justice Edmead'sjudgment of foreclosure and sale. 3 The undersigned referred the motion in the mechanic's lien proceeding to Justice Edmead, and held motion sequences 20 and 22 in abeyance pending her decision. Justice Edrnead denied the referred motion, reasoning that the mechanic's lien proceeding had not been subsumed by the instant proceeding, and that she had been obligated by the Appellate Division decision to enter a defa.ult judgment against Seventh. (Interim Decision, at 5.) Seventh subsequently moved again, on 2 In motion sequence 20, Seventh and defendant Trevor Whittingham moved for an order granting them access to the premises, directing 1180 President to issue an updated payoff letter, and staying auction proceedings for four months to allow Seventh to redeem the mrntgage debt In motion sequence 22, Seventh and defendants Trevor Whittingham, Glohal Investment Strategies Trust, and Trevor Whittingham, In<:. moved for sanctions and vacatur of the judgment of foreclosure and sale in the mechanic's lien proceeding based on fraud, undean hands, and civil contempt 3 4 5 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 5] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 different grounds, for relief from the foreclosure sale in the mechanic's lien proceeding. The undersigned again refoITed the motion to Justice Edmead, who, following an application by Seventh to withdrav·/ the motion without prejudice, issued an order providing that the motion was withdrnwn with prejudice, and that the matter was closed. G~~e Order, dated June 6, 2017, mechanic's lien proceeding [NYSCEF No. 175],) The above orders by Justice Edmead plainly preclude the undersigned from granting Seventh any relief from the judgment of foreclosure and sale in the mechanic's lien proceeding. The Interim Decision, h(nvever, held that Justice Edmead's detem1ination did not bar this court's consideration of the separate issue of Vv'hether 1180 President and/or its counsel engaged in sanctionable or other othenvise improper conduct by .m.eans of their representations to the undersigned regarding Seventh' s right of redemption and their failure to ket.~p the undersigned apprised of the status of the mechanic's lien proceeding. The Interim Decision therefi1re directed an evidentfary hearing on the issues described at the outset of this decision, (Interirn Decision, at 5.) At the evidentiary hearing, Mr. Horov.ritz testified that, although he was counsel of record for 1180 President in the mechanic's lien proceeding and registered for NYSCEF notifications in that proceeding, he was not folkn:ving the docket in July 2015, when the proposed judgment was filed, or at any time leading up to the foreclosure sale. Mr. Hormvitz explained that, in his view, he had accomplished everything he \vanted in the mechanic's lien proceeding when he secured a stipulation, dated August l, 2013 (the Stipulation), vdth the original plaintiff and holder of the mechanic's lien, Galaxy. This Stipulation provided that 1180 President's mortgage liens had priority over Galaxy's mechanic's lien, and that the sale of the property in the mt:chanic's lien proceeding would "not affect the lien status of 1180 President .... " (Stipulation of Settlement 5 6 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 6] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 as to Priority of Liens, ~il 2-3, mechanic's lien proceeding [NYSCEF No. 571") According to Mr. Horowitz, following the Stipulation, there was no reason for him to pay attention to the n1echa.nic's lien proceeding, because no further acts could be taken in that proceeding that could adversely affect 1180 President's interest in the premises. Mr. Hormvitz further testified that, although he was retained by and dealt primarily with l'vfr. Tress in con11ection with his representation of 1180 President in the instant and mechanic's lien proceedings, he has never represented Har!ern and had no knowledge of the application to Justice Edmead for a judgment of foreclosure and sale in the mechanic's lien proceeding. Finally, Mr. Horowitz argued that his representation to the undersigned concerning Seventh' s right of redemption was not untme. Although Mr. Horowitz's representation to the undersigned that Seventh \vould have a right to redeem the premises in the instant proceeding until acceptance of a final bid at ''a foreclosure sale" may not, strictly speaking, have constituted an inaccurate statement, there can be no genuine disi1ute that the statement left out the crndal detail that a foreclosure sale of the premises was likely to be ordered by another justice of this Court In a very short period of time. This detail was reasonably ascertainable by Mr. Horowitz, given his appearance in the mechanic's lien proceeding. This court cannot condone Mro Horm"Vitz's decision to ignore NYSCEF notifications related to the mechanic's lien proceeding. Even assuming that no further acts in that proceeding could have harmed 1180 President's interest in the premises, Mr. Horowitz, as an officer of the court, was obligated to infonn himself of critical and reasonably ascert.ainabk facts before making representations to the court about Seventh' s redemption rights. His failure to do so was unjustifiable. The court nonetheless finds credible Mr. Horovvtiz's testimony that he was unaware of Harlem's application for a judgment in the mechanic's lien proceeding at the time of his representation. Consequently, the court does not find that he 6 7 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 7] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 engaged in any act or omission with intent to mislead the court or to harass or maliciously injure [2014].) It bears noting that Seventh has never claimed that it was una\va.re of the Appellate Division decision against it in the mechanic's lien proceeding (95 AD3d 789, supra), which directed entry of a default judgment against Seventh in that proceeding, The Appellate Division's decision indicates that Seventh was represented by separate appellate counsel in that appeaL Seventh fails to explain why it could not have kept itself apprised of proceedings to enter judgment based on the Appellate Division Decision. 4 Under these circumstances, the representations ofl'.Vk Horowitz and Mr. Tress cannot be found to have been the sole contributing factor to confosion over Seventh' s right to redeem. As to 1180 President, despite an extended opportunity to subpoena Mr. Tress or any other witness to provide testimony at the hearing, Seventh failed to do so. There does not appear to be any dispute that Mr, Tress manages both 1180 President and Harlem, although there is evidence that the two entities do not have identical members. rnf,'.\','. AfC of Charles \Vertman, Officer of Harlem, dated September 8, 2016 [NYSCEF No. 581].) Mr. Tress's managerial role in both 1180 President and Harlem supports an inference that he was aware, or should have been aware, of Harlem's application to Justice Edmead for a judgment of ft)redosure and sale at the time of his representation to the undersigned about Seventh's right of redemption. It is undisputed, however, that Harlem was represented by its own, separate counsel in the mechanic's lien 4 Electronic notice of the filing of the proposed judgment in the mechanic's lien proceeding was given to Mr. Joseph Sanchez, Seventh 's forn1er attorney, whose motion for leave to withdraw had been denied by the undersigned in early 2013 due to noncompliance with the conditions for withdrawal, and who therefore remained Seventh's counsel of record in the mechanic's lien proceeding. (Interim Decision, at 4.) Seventh had, however, previously accused Mr. Sanchez of malpractice in this litigation, and does not assert that it took any steps to keep apprised of proceedings following the Appellate Division decision. 7 8 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 8] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 proceeding. There is no evidence that Mr. Tress apprised Mr. Hormvitz of the application for a judgment of foreclosure and sale at or before Mr. Horowitz prepared ML Tress's affirmation regarding Seventh' s right to redeem, or that ML Tress himself is familiar with legal nuances of the right to redeem. Although the surrounding circumstances raise a spectre of fraudulent intent on l\ifr. Tress's part, Seventh fails to subrnit evidence that Mr. Tress in fact held such intent, or that would support a deterrnination that 1180 President acted in this proceeding to maliciously injure Seventh's rights, The court accordingly declines to award sanctions against 1180 President and/or its counsel. The balance of the relief sought in motion sequence 22, including but not limited to relief frorn the judgment of foreclose and sale issued by Justice Edmead in the mechanic's lien proceeding, is foreclosed by Justice Edmead's recent orders" Motion sequence 22 will therefore be denied in its entirety. As to motion sequence 20, the parties agree that the December 23, 2015 foreclosure sale terminated Seventh's right to redeem, 1180 President \.Vill, however, be directed to provide Seventh with an accurate and up-to-date payoff letter. Moreover, on its own motion, the court detem1ines that relief should be afforded Seventh in the form of a further discharge of interest on the mortgage debt. As explained in the undersigned's Decision and Order dated March 10, 2016, "!_ijn an action of an equitable nature, the recovery of interest is \Vi thin the court's discretion. The exercise of that discretion Vv'ilI be governed by the particular facts in each case, including any wrongful conduct by either party." 01-<'tl1t~~QWi£b..YJ:IlJ, Dev._, 292 AD2d 414, 415 [2d Dept 2002].) Although the undersigned does not find that 1180 President or its counsel acted maliciously in connection with the litigation of this proceeding, and although Seventh may hear some responsibility for confusion over its right to redeem, the highly unusual circmnstances 9 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 9] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 detailed above warrant a iUrther discharge of interest on the mortgage debt In the March 10, 2016 decision, the undersigned limited the accmal of interest to the statutory rate of nine percent (9%) per annum from January 5, 2015 unti I the date of entry of the judgment of foreclosure and sale. The undersigned nmv modifies that decision to the extent of holding that 1180 President shall not be entitled to any interest from January 5, 2015 until the date of entry of the judgment of foreclosure and sale. ln addition, 1180 President has represented that, "if the sale proceeds arising from the foreclosure sale of the Property in this Action do not satisfy, in foll, the amorn1t set forth in the submitted judgment of foreclosure and sale herein ... , Plaintiff 1.vill not seek any such deficiency judgment .. , .''5 (PL's Hearing Memo,, at 5 [internal citation omitted].) Even if this statement did not constitute a waiver of 1180 President's interest in or entitlement to a deficiency judgment, the undersigned finds that a deficiency award would not, under the usual circumstances presented, he "just and equitable." (S~~ NY RPAPL § 1371 (1].) It is accordingly hereby ORDERED that the motion of defondant 2201 7th Ave. Realty, LLC (Seventh) and Trevor Whittingham frlr a payoff letter and fur other relief (motion sequence 20) is granted to the extent that it is ORDERED that plaintiff 1180 President Funding, LLC ( 1180 President) shall provide to Seventh an accurate and complete payoff letter within seven days of service of a copy of this order with notic(~ of entry; and it is further ORDERED, upon the court's ow11 motion, that 1180 President shall not be entitled to any interest on the mortgage debt from January 5, 2015 until the date of entry of the judgment of foreclosure and sale; and it is further 5 1] 80 President stated that this concession was based upon its "understanding that [defendants) are essentially and that any effort to collect such deficiency would be futile:' (PL's Hearing Memo., at 5.) judgment~proof, 9 10 of 11 [*FILED: NEW YORK COUNTY CLERK 07/10/2017 11:00 AM 10] NYSCEF DOC. NO. 622 INDEX NO. 650956/2010 RECEIVED NYSCEF: 07/10/2017 ORDERED that 1180 President shall not be entitled to a deficiency judgment; and it is further ORDERED that the motiou of defondants Seventh, Trevor Whittingham. Global Investment Strategies Trust, and Trevor W11ittingham, Inc. to vacate the July 28, 2015 judgment in Hm:kn:t_CQn1rn£tirigJLC __ _y _22.0J..7..m__ A_~:~_J3&?ltv LLC (Index No. 102 l 31i20 l O) and for other relief (motion sequence 22) is denied; and it is further This constitutes the decision and order of the court, Dated: New York, New York July 7, 2017 10 11 of 11

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