NYCTL 1998-2 Trust v Kahan

[*1] NYCTL 1998-2 Trust v Kahan 2005 NY Slip Op 51677(U) [9 Misc 3d 1119(A)] Decided on October 17, 2005 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 17, 2005
Supreme Court, Kings County

NYCTL 1998-2 TRUST AND THE BANK OF NEW YORK, as collateral Agent and Custodian, Plaintiff,

against

MORDECHAI KAHAN, et.al., Defendants.



36815/01



Owen Robinson, Esq. and Sherril-Ann Cleveland, Esq. of Rosicki & Rosicki Associates, One Old Country Road, Carle Place, New York 11514 represented Plaintiffs. Defendant Mordechai Kahan, 279 Rutledge Street, Brooklyn, New York 11211, appeared pro se. The Referee to Sell was Fern J. Finkel, Esq., 41 Pierrepont Street, Brooklyn, New York 11201.

Carolyn E. Demarest, J.

The Referee To Sell in this tax lien foreclosure has moved this Court for an award of additional compensation for her services in performing her duties relating to the subject property. This application is, in effect, an invitation to revisit this Court's prior decision dated March 31, 2005,(7 Misc 3d 1002(A), 2005WL 735863) in which this Court found that voluntary payments exceeding $500 made to the Referee by Plaintiff upon the cancellation of scheduled sales without Court authorization or written agreement are not allowed by statute. It is noted, as it was in that decision, that the Referee was not a participant in the trial of the foreclosure action and had no prior notice of the issues decided therein with respect to her fees. This Court welcomes the opportunity to expand upon the issues raised and to clarify and correct my prior Decision and Order.

Following her appointment as Referee to Compute the sums due to Plaintiff, Movant [*2]took evidence and reported on July 29, 2002, that $3,322.23, plus additional prospective interest, was due. In accordance with CPLR §8003(a), Movant was paid $50 by Plaintiff for what was presumed to be one day's work.

CPLR §8003(a) governs the compensation to be awarded referees in general and provides: "A referee is entitled, for each day spent in the business of the reference, to fifty dollars unless a different compensation is fixed by the court or by the consent in writing of all parties not in default for failure to appear or plead." This section is applicable to all kinds of references in which an attorney is enlisted by the court to resolve a limited issue upon evidence submitted, including proceedings involving, e.g., the assessed value of property (O'Dwyer v. Robson, 103 AD2d 1036 (4th Dep't, 1984)), the determination of counsel fees (Albano v. Albano, 2003 WL 21911128), an accounting upon the dissolution of a business relationship (Pittoni v. Boland, 278 AD2d 396 (2d Dep't, 2000), as well as the sale of real property in foreclosure actions. The proceedings before a referee may consume several full days. As noted in O'Dwyer, "it is inconceivable that the parties [or the court] would have intended that the referee, who is a practicing attorney, would conduct the equivalent of a full-scale trial at the rate of $50 per day." In anticipation of such inequity, the statute provides that a "different compensation" may be fixed by the court or by written agreement of all parties appearing in the action.

Although, based upon the statutory language, a Referee to Compute has customarily been paid a flat fee of $50 upon completion of his or her report, and, as is the case here, courts have not generally addressed the amount of compensation in the orders appointing the Referee to Compute (see CPLR §4321), it is apparent that $50 is inadequate to compensate an attorney for even one hour of time given the current going rate of between $200 and upwards of $500 per hour. See Mortgage Electronic Registration Systems, Inc. v. Victor, 2005 NY Slip Op 25287. As previously noted in my decision of March 31, 2005, a referee is the surrogate of the Court and performs the duties of the Court on its behalf. It is essential that such duties be conscientiously and diligently performed so as to preserve the integrity of the Court itself. It is unfair to expect a member of the bar to perform such duties in conformity with the highest standards of the legal profession without adequate compensation. Therefore, this Court finds that $50 for the services of a Referee to Compute is invariably inadequate and will henceforth routinely provide in the Order of Reference, as do the judges of Bronx County (See Order of Victor, J. in Alegra Financial, LLC v. Santos, Bx Co Ind. No. 15701/04 dated August 5, 2004), for compensation of $250 for computing the sum due.

An issue arises, however, with respect to the instant application, concerning the timing of an award in excess of $50 per day. The Second Department Appellate Division, in contrast to the Third and Fourth Departments (see Blake Terrace Assoc. v. Sommer, 176 AD2d 394 (3rd Dep't 1991) and O'Dwyer v. Robson, supra), has consistently ruled that under CPLR §8003 (a) the Referee is limited to $50 per day where no other fee has been specified in the order of the court in advance of the reference and there is no written stipulation by the parties agreeing to a different sum. See Al Moynee Holdings, Ltd. v. Deutsch, 254 AD2d 443 (2d Dep't, 1998); Pittoni v. Boland, supra, 278 AD2d at 397; Matter of Charles F., 242 AD2d 297 (2d Dep't, 1997); Scher v. Apt, 100AD2d 582 (2d Dep't, 1984). Granting the instant application to award a different sum by amendment of the Order of Reference nunc pro tunc would circumvent this rule. In Scher v. Apt, the Court explained its concern, citing 4 Weinstein-Korn-Miller, NY Civ Prac, [*3]par 4321.02 pp 43-65- 43-66, that the fee might become a "subconscious element in the referee's decision" if not fixed in advance. See id. par 4321.04 pp 43-91-43-92 of the Second Edition (2003); see also, National Bank of No. America v. New Paltz Growers, Inc., 89 AD2d 647 (3d Dep't, 1982), wherein the coercive effect of the referee's demands for compensation was directly at issue and the referee was disqualified as a result.

Movant suggests that the additional compensation originally paid to her upon cancellation of the scheduled sales was implicitly made with the consent of the only party appearing (defendant was in default). However, CPLR §8003(a) is unequivocal in requiring that such consent be "in writing" and no such document has been proffered. Moreover, this Court finds such reasoning problematic in that in the vast majority of foreclosure actions, referees are appointed upon the default of the fee owner, but it is the fee owner who will ultimately bear the additional fees paid to the referee, not the "consenting" plaintiff who will pass such payments along as disbursements recoverable against the proceeds of any future sale or in a deficiency judgment against the defaulting property owner. (See CPLR § 8301; National Bank of No. America v. New Paltz; Bergman on NY Mortgage Foreclosures, § 20.09(2) pp 20-125-20-126). Thus, this Court declines to treat Plaintiff's unilateral payment in excess of $50 per day, made to the Referee without written agreement or prior court authorization, as permissible under CPLR §8003(a). [FN1]

Movant seeks $950 in additional compensation for her services as a Referee in this matter pursuant to CPLR §8003(a) and (b). The services recited in her Affirmation include activities related to her duties as a Referee to Compute beginning with the review of documents on June 28, a consultation on July 17 with Plaintiff's counsel regarding the items listed in the submission and concluding with the execution of her Report on July 29, 2002. Although she was paid a total of $50 for these services, she was actually entitled, pursuant to CPLR §8003(a), without further court authorization, to receive $50 for each day she spent in the business of the reference, for a total of $150.00.

While Movant's authority to act under the Court's Order of March 26, 2002, appointing her to compute expired upon the execution of her Report ( see Al Moynee Holdings Ltd. v. Deutsch, supra, 254 AD2d 443 (the scope of the referee's duties are defined by the order of appointment)), by Judgment of Foreclosure and Sale dated September 3, 2002, Movant was appointed Referee to Sell. Consistent with the history described in my Decision of March 31, Movant indicates her efforts to perform the duties conferred upon her by this Order began on September 30 when she scheduled a sale for November 19, 2002. That sale did not proceed due to a petition in bankruptcy filed by Defendant, who was still in default. On March 10, 2003, the Referee rescheduled the sale for April 28, 2003, setting aside such date in order to be available. [*4]On March 11, she confirmed the April 28 date and on April 25 reviewed documents and prepared for the sale. On April 28, the Referee appeared but the sale was cancelled due to a second bankruptcy filing. On November 10, 2003, Movant reviewed documents related to this matter and, on December 18, 2003, rescheduled the sale for February 4, 2004, again holding the date open. This third sale was also cancelled at the last possible moment when Plaintiff agreed to accept $6000 from Defendant and allow 30 days for payment of the balance. When Defendant failed to make the additional payment, at Plaintiff's request, Movant again scheduled the sale for June 24, which was confirmed on May 24 and again, at 2:35 p.m. on June 23, but was again cancelled upon payment to Plaintiff of $3400. A fifth sale was scheduled on September 15 for October 27, 2004. That sale, though not stayed by the Court, was aborted when Plaintiff was unprepared to respond to the Defendant's Order to Show Cause claiming payment, returnable in the morning of the scheduled date of sale, and the matter was adjourned before the Court. Subsequent to the Court's Decision and Order of March 31, 2005, the matter was settled. No sale has or will therefore take place. However, the Referee invested at least part of fourteen days in the business of the reference subsequent to her appointment as Referee to Sell, without consideration of the additional time she has expended in seeking compensation.

CPLR §8003(b) provides:

Upon Sale of real property. A referee appointed to sell real property

pursuant to a judgment is entitled to the same fees and disbursements as

those allowed to a sheriff. Where a referee is required to take security

upon a sale, or to distribute, apply, or ascertain and report upon the

distribution or application of any of the proceeds of the sale, he or she

is also entitled to one-half of the commissions upon the amount secured,

distributed or applied as are allowed by law to an executor or administrator

for receiving and paying out money. Commissions in excess of fifty

dollars shall not be allowed upon a sum bid by a party, and applied upon

that party's judgment, without being paid to the referee. A referee's

compensation, including commissions, upon a sale pursuant to a

judgment in any action cannot exceed five hundred dollars, unless the

property sold for fifty thousand dollars or more, in which event the

referee may receive such additional compensation as to the court may seem

proper.

This statute is of ancient origin in substance and has been frequently interpreted and applied. See Harrington v. Bayles, 40 Misc. 388 (App. T., NY Co., 1903); Schorner v. Schorner, 128 Misc 2d 415 (Sup. Ct., Nassau Co., 1985). It is well-settled that a referee appointed to sell real property in a foreclosure action is entitled to receive the same fees to which a sheriff is entitled pursuant to CPLR §8011(g) and, in addition, upon consummation of the sale, is entitled to one-half of the commission authorized to an executor or administrator pursuant to SCPA §2307 upon any money collected by the referee and subsequently distributed. However, unless the selling price of the property (the amount of the successful bid) exceeds $50,000, such compensation, inclusive of both fees and commissions, may not exceed $500. U.S. Mortgage v. Almeida, 8 Misc 3d 694 (Sup. Ct., Bronx Co., 2005). Although the present statute has received little direct interpretation, having been recently amended in 1996, the caselaw interpreting the analogous language of its [*5]precursors is consistent with such interpretation. See, e.g., Race v. Gilbert, 102 NY 298 (1886); Harburger v. St. John's African M.E. Church, 87 Misc. 227 (Sup.Ct., Kings Co., 1914); Harrington v. Bayles, supra; Ryan v. Majestic Home Builders, Inc., 238 AD 167 (2d Dep't, 1933); Bronx Savings Bank v. Levin, 153 Misc. 616 (Sup. Ct. ,Bronx Co., 1934).

The challenge presented by the instant case is to decipher the correct formula under CPLR § 8003 for compensating a referee who has been appointed to sell real property, and who has made diligent efforts to perform, but whose ultimate performance is frustrated by the settlement of a case. In U.S. Mortgage v. Almeida, supra, my colleague in the Bronx recently addressed the question of compensation for adjourned sales, noting that the practice, which occurred here, of Plaintiff's paying $500 to the referee for each cancelled or adjourned sale, is common, at least throughout New York City. As Justice Victor observed, the awarding of any compensation in excess of $500 for a sale "must await the conclusion of the sale, as the power of the court to award additional compensation is dependent on the sale of the property in an amount of $50,000 or more." But, in this case, no sale will ever take place and the question becomes what, if any, compensation is appropriate and whether the $500 cap is applicable since the formula set forth in CPLR § 8003(b) clearly anticipates a sale. Where no sale occurs, the provisions of CPLR § 8003(a) are appropriately applied, together with the more explicit fee provisions of CPLR § 8003(b) for actual specific services rendered. [FN2]

Pursuant to CPLR §8003(b), Movant Referee to Sell is entitled under CPLR §8011(g) (1) to be compensated $15 for noticing each of the five sales that were scheduled. In addition, she is entitled under CPLR §8011 (g) (3) to $15 for each sale attended though no sale took place. According to her Affirmation, the Referee actually attended one scheduled sale on April 28, 2003, and was given last-minute notice of cancellation of three other sales. It is not clear whether Movant actually attended the sale scheduled for November 19, 2002, but this Court infers that she did attend. Since no commissions are recoverable where no sale has taken place and no sums have been collected or distributed (see Prudential Savings Bank v. Kleinfeld ,supra; Race v. Gilbert, supra; Harrington v. Bayles, supra), no other compensation is provided under CPLR § 8003(b). Any further compensation would only be available under CPLR § 8003(a), which does not contain any cap.

The sum requested by the Referee, $950 for time spent in the performance of her duties, far exceeds the cap of $500 upon any sale in which the selling price does not exceed $50,000.[FN3] It is noted, as it was in this Court's prior decision of March 31, that the estimated value of the vacant lot at issue is approximately $12,000, although this sum does seem unrealistically low for real property located in the City of New York. However, the statute is clear that the Court does not have discretion to authorize more than $500, unless the selling price exceeds $50,000 (see [*6]Ryan v. Majestic Home Builders, supra, 238 AD167), and even then, and even where the statutorily-authorized commissions exceed $500, additional compensation above $500 is not automatic but remains within the Court's discretion. See East River Savings Bank v. Steingut, 160 AD2d 345 (1st Dep't, 1990); Osborn v. DeGraaf Bldg. Corp., 236 AD 172 (3d Dep't, 1932); Harburger v. St. John's African M.E. Church, supra. The concern motivating this limitation is that the costs of the action be controlled and additional compensation only be awarded, in the Court's discretion, commensurate with the value of services actually rendered and not based exclusively on the value of the property. Id. Given the nature of the services performed here, none of which ultimately required the Referee to undertake any fiduciary responsibilities or account for any sums after the initial computation, it would be anomalous to authorize compensation in excess of $500 where no sale occurred.

Traditionally, Orders of Final Judgment and Sale, in which a Referee to Sell is appointed, have arbitrarily provided for payment to the Referee to Sell of a flat fee of $500 as full compensation in every case. Obviously this erroneous use of the cap provided in CPLR § 8003(b) as prescribing the total amount of authorized compensation is not in conformity with the statute which provides for fees and commissions related to actual services performed. Henceforth, this Court will require that orders of sale submitted by plaintiffs in foreclosure actions conform to the new form order promulgated in Kings County which accurately reflects the proper formula for compensation of the Referee to Sell.

There are, of course, foreclosures in which plaintiffs are the successful bidders and the sale price equals the sum due to plaintiff so that there is no basis for the referee to recover commissions upon monies actually collected and disbursed above the $50 authorized by the statute; the referee merely conducts the auction, transfers a deed and files a Report of Sale. (See Bronx Savings Bank v. Levin, supra, 153 Misc 616). The $500 absolute cap on compensation may not appear unreasonable under such circumstances, though it is doubtful that, even for this most basic transaction, a practicing attorney could be fairly compensated by such sum for the several hours spent in scheduling and conducting the sale and then preparing and filing a report. Moreover, while the commissions provided in addition to fees may be adequate to compensate an attorney when a sale takes place to a third party and the price is far in excess of $50,000, the time expended and professional care required is generally the same for a third-party purchase of less than $50,000 where money is collected and disbursed and a formal closing of title is necessary. In such circumstances, $500 is grossly inadequate to compensate the referee. (And, in the situation here, where an attorney has reserved time for a scheduled sale and has prepared therefor, the minimal fees awarded pursuant to CPLR §8011(g) are clearly grossly inadequate.) Nonetheless, this Court notes that CPLR § 8003 (b) was most recently amended in 1996 by increasing the cap to $500 from $200 upon a sale price increased from $10,000 to $50,000 (L. 1996, c.225), indicating a clear legislative intent to limit the cost of foreclosure litigation. Accordingly, this Court is constrained to find that the $500 cap provided in CPLR § 8003 (b) "upon sale of real property" is equally applicable to any compensation awarded under CPLR § 8003(a) to a referee appointed to sell when no sale takes place.

This Court joins those many other judges who have bemoaned the inadequacy of the compensation provided to referees pursuant to CPLR §8003 in urging the Legislature to revamp the entire statutory formula for compensation of referees, perhaps uncoupling it from sheriff's [*7]fees since sheriffs are salaried employees of the State, whereas court-appointed referees are independent professionals who receive no compensation for their time and efforts other than that awarded by the courts in accordance with the statute. It may be appropriate to provide for a specific hourly rate for all services rendered similar to that authorized under Article 18-B of the County Law.

The judiciary depends upon the assistance of court-appointed referees to efficiently deal with the ever-increasing volume of mortgage foreclosures and to ensure that the rights of all parties are properly protected. This is especially true in Kings County which has the greatest number of foreclosures in the nation and where predatory lending practices flourish in an unsophisticated and impoverished population. Added to this is the confusion generated by the expanding secondary mortgage market where mortgages are assigned and reassigned, often to "servicers", without a transfer of necessary documentation or any notice to the mortgagor. The courts rely on appointed referees to diligently scrutinize each transaction so as to protect the integrity of title to real property and avoid fraud. Recognizing that much of the paperwork required for the transactions at issue is prepared by counsel for plaintiffs, the Court must trust its appointed referee to check the figures and the proof of claims, and to afford all parties the opportunity to be heard. Such responsibility will not be undertaken by a competent professional without reasonable compensation.

There is, however, some relief available to Movant pursuant to CPLR § 8003(a) for her days spent in the performance of her duties as Referee to Sell, notwithstanding that no sale took place. In addition to the aforementioned fees to which she is entitled under CPLR § 8003(b), under CPLR § 8003(a), Movant would be entitled to $50 per diem for each of the fourteen days she performed some aspect of her duties as Referee to Sell. While I decline to follow the decision of my brother Justice Kramer in Mortgage Electronic Registration Systems, Inc. v. Victor, 2005 NY Slip Op 25287, in which "a fee of $250.00 for each adjournment and cancellation of the sale" is awarded in a Supplemental Order of Sale without regard to the $500 limitation that, upon reading the provisions of CPLR § 8003 in pari materia (McKinney's Cons. Laws of NY, Book 1, Statutes § 97), I find is applicable here, I will award $50 for each day spent in preparing for and/or attending the cancelled and adjourned sales up to $500, including any relevant fees. Although I do agree with Justice Kramer that "the realities of legal practice in the year 2005. . . render the $50 dollar [sic] per diem statutory fee entirely unrealistic" and indeed "insulting", and the limited recovery of fees due to a sheriff permitted under § 8003(b) totally inadequate, I believe I am prevented by the legislative purpose reflected in the statute from authorizing more.

In accordance with this decision then, I am granting the Referee's Motion to the extent that my prior Decision of March 31, 2005, is amended to delete the erroneous conclusion that " any payment made to the Referee is illegal" in the absence of a sale and/or application to the Court, and that "In the absence of a sale, no fee has been earned." In fact, upon closer analysis of the statute and extensive research , I have concluded that even without a sale, the Referee herein would be entitled to the per diem fee provided in CPLR § 8003(a) for each day spent in the business of the reference which, up to $500 including fees authorized under CPLR § 8011(g), could be paid directly to her by Plaintiff without express Court authorization. While it is true that CPLR § 8003(b) contemplates, and the Judgment provides, that the payment of [*8]compensation to the Referee will be out of the proceeds of the sale for her services in conducting the sale, collecting and disbursing funds, establishing a bank account, transferring title and providing a full accounting of the entire transaction (see e.g. Harrington v. Bayles, supra and Race v. Gilbert, supra), the parties are not precluded from compensating the Referee in accordance with the statutory formula in advance of the sale or where a sale does not occur. It is clear, however, that in any case,the statutory cap may not be exceeded so that the entire amount that may be paid to the Referee in advance of the sale is limited to $500 and any sum paid in advance must be taken into account in determining the appropriate compensation to be paid upon sale out of the proceeds. See U.S. Mortgage v. Almeida, supra.

Moreover, compliance with Rule 36 of the Rules of the Chief Judge is mandatory in every case involving a fiduciary appointment. Although Rule § 36.4(d) provides that the filing and approval requirements do not apply to referees to compute or sell real property where the total compensation does not exceed $550, the correct application of CPLR § 8003 so as to fully compensate such referees for "the fair value of services rendered" (Rule §36.4(b) (4)) will almost invariably result in the need to file and seek judicial approval in compliance with the Rule. Accordingly, all my orders involving the appointment of a Referee to Sell must be processed through the Fiduciary Clerk.

Movant is hereby awarded $500, inclusive of $105 in fees pursuant to CPLR §8011(g) and per diem allowances pursuant to CPLR § 8003(a), for services rendered as Referee to Sell. She is also awarded an additional $100 in per diem fees for two days service as a Referee to Compute for which she was not previously compensated, for a total of $600. All of the sums hereby awarded are to be paid by Plaintiff in light of the fact that at least half of the scheduled sales were cancelled upon Plaintiff's acceptance of part payment or upon the failure of Plaintiff to be prepared to prove its case, and without advance notice to the Referee. Compensation for the computation of the sum due to Plaintiff is always a charge to Plaintiff. Although Plaintiff will no longer be able to recoup these sums from the Defendant, this Court does not find inequity in such result since Defendant ultimately paid over $14,000 to Plaintiff to satisfy the original tax lien of $2286.23.

In light of the fact that the compensation awarded herein, together with the $50 initially paid for computation, will exceed $550, the Referee is directed to comply with all filing and certification requirements of Rule 36 of the Chief Judge.

The foregoing constitutes the decision and order of the Court.

E N T E R :

J.S.C. Footnotes

Footnote 1:It has come to the attention of this Court, though not related to the instant case, that complaints have been made by members of the plaintiffs' bar in foreclosure actions, alleging that apparently gratuitous payments are actually being "extorted" by referees as a condition to rescheduling a cancelled sale. Such practice would exemplify the concerns expressed in the decision of the Appellate Division in Scher v. Apt, supra, 100AD2d at 583, wherein the Court declined to deviate from the statutory $50 per day despite the inadequacy of the compensation where the court had not "sua sponte set the rate of compensation at the time of directing the reference."

Footnote 2:But see, Prudential Savings Bank v. Kleinfeld, 264 AD 726 (2d Dep't, 1942), and Daly v. Bacz Holding Corp., 168 Misc. 493 (Sup. Ct., Queens Co, 1938), in which the referee was denied compensation for time devoted to the prospective sale when the sale never took place.

Footnote 3:The Court recognizes that $100 of the $950 request is attributable to services rendered as a Referee to Compute, compensable entirely under CPLR § 8003 (a). Even deducting this sum, however, the requested compensation for services pursuant to the appointment as Referee to Sell exceeds the cap.