Cit Lending Servs. Corp. v 654 Broadway Partners LLC

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Cit Lending Servs. Corp. v 654 Broadway Partners LLC 2010 NY Slip Op 34102(U) November 23, 2010 Supreme Court, New York County Docket Number: 112833/2009 Judge: Carol R. Edmead Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW'YORK COUNTY OF NEW YORK: PART 35 ---------------------------------------------------------------------~--x CIT LENDING SERVICES CORPORATION, Index No. 112833/2009 Plaintiff, -against- DECISION/ORDER 654 BROADWAY PARTNERS LLC, KYLE RANSFORD, TREVOR STAHELSKI, GRUBB & ELLIS NEW YO~ INC., NEW YORK CITY ENVIRONMENTAL CONTROL BOARD. NEW YORK ClTY DEPARTMENT OF . ENVIRONMENTAL PROTECTION, NEW YORK CITY . DEPARTMENT OF FINANCE, AND JOHN DOE #1 THROUGH JOHN DOE #10, Defendants. -----------------------------------------------------------------------:--X HON. CAROL ROBINSON EDMEAD, J.S.C. MEMORANDUM DECISION I Plaintiff, CIT Lending Services Corporation ("CIT") moves for an Order confinning the Report of Court Appointed Referee Roberta Ashkin, Esq., dated October 11, 2010 (the "Referee's Report"). I On July 7, 2010, this Court granted CIT's motion I fo~summary judgment against defendants 654 Broadway Partners LLC ("654 Broadway"), Kyle Ransfo;d, and Trevor Stahelski's (collectively, "defendants") and directed the Refdree to ascertain and compute the I amount due to CIT upon the Note and Mortgage being forec~oscd upon in this action (the i "Order"). The Order also directed the panies to furnish the ~eferee with all documents necessary to perform the computations. The Referee "computed and ascertained the amount 4ue to CIT" based upon the "Loan I Documents upon which this action was brought, the Affidavit of Sums Due, sworn to by Bobby C. Kim of Parallel Asset Management, LLC ... with exhibits annexed fr ereto (the "Kim [* 2] Affidavit"), and the Affirmation of Charles Biener [Mr. Biener] ... with exhibits annexed thereto (the "Biener Affirmation") ...." Attached to the .R~port is ..Schedule A," which •tconsists of a Statement of Sums Due" and shows "the am~unt due for principal and interest respectively, together with the other sums secured by the said mortgage, [and] the period of the computation of the interest and its rate, as detailed in the accompanying Kim Affidavit and Biener Affim1ation. In support of its motion, CIT contends that on SepteFber 2, 2010, it submitted to defendants a copy of the proposed Referee's Report, along with the documents supporting the calculations (the "September 2, 2010 Letter"). In the Septerpber 2, 20 I 0 Letter, CIT informed I defendants that it was their "intention that Ms. Ashkin sign the Referee's Oath and Report of I 11 Amount Due in the form that is being submitted with th[e] letter. CIT requested defendants to "advise us and Ms. Ashkin in writing, within five business days of the date of this letter (i.e., I September 9], whether [defendants] believe there are any e~ors contained in the papers and the I nature of any alleged errors." On September 8, 2010, defendants requested an extension of time i to respond to the September 2, 2010 Letter. CIT granted defendants an extension until I September 15, 2010 to r~ond to the September 2, 2010 Letter. Defendants did not respond to the September 2, 2010 Letter. Thus, CIT requested the Referee to review the proposed Referee's Report, which she signed on October 11, 20 I0. In opposition, defendants argue that a referee's reporl should not be confirmed unless its findings are supported by the record. Even where there is support for such findings in the record, "the court is not bound by the referee's recommendation and !his/her determination. The I Referee's Report lacks any analysis of the computations provided by plaintiff. Instead of holding 2 [* 3] a hearing to determine the amounts due. as required under ~PLR 4313, the Referee rubber stamped plaintiffs calculations. The Referee adopted plaintifrs interest calculations in their entirety even though the interest rate applied by plaintiff is 11ot the LIBOR-based rate set forth in the applicable Loan Agreement, but rather the prime rate, a rate designated as the allcmative interest rate under that agreement. Neither the plaintiff nor~the Referee provide any analysis of l whether or why the alternative rate is applicable here. Nor ~oes the Referee's Report demonstrate whether prime rate-based charges were permitted, and whether notice was required of same and/or provided to the borrower. Data publically available during the applicable period under the I Loan Agreement indicates that the prime rate was higher than LIBOR, based upon any one of the LJBOR-based criteria (i.e., 1, 3. 6, 12 months). There is also no support or analysis for the inclusio~ of the so called "Exit Fee." The only I i reference to this fee appears in Section 1.1 of the Loan Agreement and the Referee makes no effort determine its applicability in a foreclosure setting. The Referee's Report also adopts plaintiffs $311.288.14 claim for attorney's fees despite ; the fact that plaintiff did not provide itemized bills. the affi4avits submitted by plaintiff are I insufficient to determine whether the fees incurred are reasonable and at least two of the motions plaintiff seeks fees on, one of which resulted in a full day c9urt hearing, were denied by this Court. Mr. Biener provides non-detailed summaries that d<>; not explain the work performed by I each biller. The bill summaries annexed thereto are likewisf inadequate in that they provide only dollar amounts and no insight as to the work actually performed. While plaintiff provided defendants with notice ofttje proposed Referee's Report and I inviled comment, the nature of the issues raised above do not present themselves to a consensual 3 [* 4] ! resolution in the limited period of time afforded by plaintiff, Defendants are entitled to a hearing I and to present evidence on the amounts due under the loan documents and a referee's report should not be confirmed in the absence of such a hearing. I In reply. CIT contends that caselaw holds that defe~<lants waived any right to a hearing. ! Defendants fail to fu))y explain that they were provided am~Je notice and an opportunity to object to the proposed Referee's Report and to request that the Referee conduct a hearing, but they opted not to object or request such hearing. Defendants even failed to object after CIT granted the defendants' request for an extension of time to submit such pbjections. CIT argues that the : i Referee's Report can be confirmed in the absence of a heari?g, even if a hearing was not conducted, because defendants waived their right to a heari~g. The cases cited by defendants in opposition are inapposite, in that they do not concern situati~ns where a party was provided with advance notice and an opportunity to object to a proposed R~feree's report. Discussion CPLR 4403 provides that the court has the power to. confirm or reject "in whole or in ! part ... the report of a referee to report; may make new findlngs with or without taking I additional testimony; and may order a new trial or hearing,. (In the Maller of the Applica1io11 of RBC Capital Markets Corp., 24 Misc 3d 728, 877 NYS2d 877 [Sup. Ct., New York County 2009) citing Matter ofGaliber v Previte, 40 NY2d 822, 824j[t976] and Barrett v Stone. 236 AD2d 323, 324 [1st Dept 1997]). The report and recomme+ations of a Special Referee should I be confirmed if its findings are supported by the record (Sichel v Polak, 36 AD3d 416, 828 NYS2d 310 [I" Dept 2007} citingBakerv Kohler, 28 AD3d;37S, 814 NYS2d 121 [l" Dept i 2006)). However, the court is not bound by the Referee's reqommendation or his or her I 4 [* 5] .------determination (In the Matter of the Application of RBC Capital Markets Corp.). According to the Kim Affidavit, upon which the Referee's Report was partly based, Broadway Partners made and delivered to CIT a Loan A~ment and a Note, both dated August ; 15, 2007. Under the Note, CIT agreed to advance up to thd maximum principal amount of I i $12,000,000.00 and Broadway Partners unconditionally promised to pay to CIT (i) the principal sum of the Note, (ii) interest on the unpaid principal sum o~the Note from time to time outstanding, and (iii) additional interest (if any), at the rat~ and at the times and in the manner specified in the Loan Agreement (as that tenn is defined he{ein); and (iv) the outstanding balance j of the principal sum of the Note, and all accrued and unpai~ interest and all other charges relating thereto, on August 13, 2009 (the "Maturity Date"). On Augi.st 15, 2007, as collateral security for the payment, fulfillment and perfonnance of its obligations evidenced by the Loan Agreement, the Note and the other Loan Documents, Broadway Partne~ executed and delivered to CIT a ! Mortgage, Assignment of Leases and Rents and Security Agreement, dated August 15, 2007 (the j "Mortgage"). granting CIT a security interest in the Mortgaged Property, pursuant to which Broadway Partners mortgaged, among other things, the Mortgaged Property to CIT. Pursuant to I the tenns of the Note, CIT advanced $11,999,927.61 to Bro4dway Partners (the "Loan"). This ! "'i entire amount is currently due and ou_tstanding. The Loan ~greement details that the interest rate on the Loan shall be payable on the unpaid principal on the first business day on the first calendar i month following August 15, 2007 (the 11 Closing Date") and. ~hereafter, monthly on the first l business day of each calendar month during the term of the 11.oan at the prime .rate, plus the I Reference Rate Margin. See Loan Agreement at§ 2.2. [Emp~is added) Post default, t~e interest rate accrues at a contractual default rate of the prime, rate, plus an additional 5%. See I. I s [* 6] [Emphasis added]. Broadway Partners is also responsible for a monthly late fee equivalent to 5% of the monthly interest due for that particular month.§ 2.4.3. The Loan Agreement also I provides that Broadway Partners will pay on the Maturity date an Exit Fee in the amount of one I quaner of one percent {.25%) of the principal amount of the loan due. § 1.1 The Loan Agreement further provides that the Exit Fee will be deemed to be interest on the principal balance of the loan. § 2.4.2. The Affidavit also explained t:pe details contained in a spreadsheet, which was also submitted to the Referee, of the calculation$ of the interest on the Loan, the ' . resulting late fees for non-payment, and the Exit Fee. The tptal interest due as of August 1, 2010, plus the one time Exit Fee of$29,999.82 were calculated as:$1,975,412.94. The total late charges due were calculated as $98, 770.65. Finally, the property tax detail from the New York City Department of Taxation, indicated the amount of unpa(d property taxes for the period of July l, 2009 through July 1, 2010, as $95,675.34. Therefore, the Referee's findings as to the amounts 4ue under the Note and Mortgage, including interest and the Exit Fee, were supported by the record. Further, the Referee's Report was also based on the affirmation of Mr. Biener. Mr. Biener, the attorney overseeing this matter I for CIT, details the monthly legal fees and expenses CIT paid pursuant to invoices attached to his affinnation. It bears noting that although the invoices only ~etail the numbers of hours each ; attorney worked, and the billable rate, CIT paid the legal fe~ it incurred as a result of defendants' default. i I The cases cited by defendants are factually distingui~able (Donovan v Empire Ins. ! Group, 49 AD3d 589, 591. 856 NYS2d 139 [2d Dept 2008] (holding that plaintiff's delay in I notifying insurer of the occurrence after receipt of the claim Jetter violated the insurance policy; 6 [* 7] referee's report was not supported by the record where pJai~tifrs belief in nonliability after receiving the claim letter, which clearly stated that that attorneys were retained to pursue a claim against the plaintiff, was unreasonable); Surgical Design Corp v Correa, 21 ADJd 409, 799 NYS2d 584 [2d Dept 2005] (referee's report that was not s4pported by the record where all but i the three letters were related to the rendering of"sound legal advice," and, thus, the Referee should not have directed the plaintiff to produce them; Referee also erred in directing plaintiff to produce the three letters of client communications in furtherance of a frdudulent scheme, not protected by the attorney-client privilege, since the collatenil issue of the plaintiff's fraudulent scheme is not material and relevant to the remaining issues in the litigation)). It has been held that it is error to confirm a referee's report without either conducting a hearing on notice or otherwise affording the contesting party an opportunity to present its own proof or challenge the referee's computations (Sears v First Pioneer Farm Credit, 46 AD3d 1282, 850 NYS2d 219 (3d Dept 2007] citing Shultis v Wootfstock Land Dev. Assoc., 195 AD2d : I 677, 678-679 [1993]; 243 West 9811 Co11dominium v Shapiro, 12 AD 3d 591, 592, 786 NYS2d 67 [2d Dept 20041 (holding that it was "error for the referee.to compute the amount due to the I plaintiff without holding a hearing on notice to the appellants'")). I However here, such caselaw is inapplicable. First, t~e Court's July 10, 2010 order directing the appointment of the Referee did not direct a hearing, but instead, provided as follows: ORDERED that Roberta Ashkin, Esq., 580 Broadway, Suite 906, New York, New York I 0012, (212) 965-0010 is hereby appointed ref~ree to ascertain and compute the amount due upon the Note and Mortgage being foreclosed upon in this action. The parties are directed to cooperate with the referee and furnish him/her with all documents necessary to perfonn the computations. lfpon a successful motion to confirm ! 7 [* 8] the referee's report, CIT may move for summary judgment on damages and a final judgment of foreclosure .... Second, defendants did not appeal, or seek leave to renew or reargue the branch of the Court's order to the extent it did not grant a hearing. Third, the failure of the Referee to hold a hearing prior to the issuance of her Report is not automatic~lly fatal to an application to confirm the Report (see Blueberry Investors Company v Ilana Realty, Inc., 184 AD2d 906, 585 NYS2d 564, 566 (3d Dept 1992) (rejecting defendants' claim that S~preme Court erred by confinning the Referee's report because the Referee failed to hold a hearin~ prior to issuance of the report; such hearings are appropriate to settle disputed facts and defendants admitted in their answer that they owed plaintiff$1,350,000 "with interest from November I, 1989".). Moreover, it is undisputed ' defendants were given ample opportunity to submit evidence and its objections to the Referee ! prior to her Report, and failed to avail themselves of such opportunity. Citibank v Grunfield (188 Misc 2d 327, 328, 728 NYS2d 632, 633 (Sup. Ct., Kings County 200l) is instructive. Citibank involved plaintiffs motion for a judgment of foreclosure. and sale and a confirmation of the Referee's report dated Oc~ober 26, 2000. Summary judgment was granted, and the matter was referred to Robert P. Kem, as Referee, "to ascertain and compute the amount due to plaintiff for principal, interest aryd other disbursements advanced as provided in the note and mortgage which this action brought.'' Defondants requested, by letter to Mr. Kem, dated September 3, 2000, that a trial/hearing be s~heduled on the issues set forth in the iI order of reference, pursuant to CPLR 4318 and 4320. A letter, dated October 20, 2000, was sent to defendants, which contained a proposed report of the amount due, along with an affidavit in support thereof. "The letter advised defendants that they sh~uld notify plaintiff if there were any 8 [* 9] errors in the papers. If plaintiff did not receive a writing wfthin five days of the date of the letter, it indicated that it would proceed on the assumption that d,fendants agreed with the computation as set forth in the proposed report and letter." On October 24, 2000, defendants faxed a letter to i plaintiff, demanding a hearing and objecting to proposed Rrferee's report, and claiming that they I did not believe that Citibank would be able to meet its burden of proof with respect to the notification of the interest rate changes and calculations of the interest rate charges. On October 26, 2000, Mr. Kem signed the Referee's report. Defendan,. unaware that Mr. Kem signed the Referee's report, faxed a letter to plaintiff, indicating that they wanted a hearing to be scheduled. Plaintifl's motion was granted. The Court held that "Since t~e defendants failed to timely reply to the plaintiff in response to its October 20, 2000 letter and p~oposed Referee's report, they waived their right to a hearing. Thus, the Referee's report need not be vacated on the ground that no i hearing was held. I ! Here, on September 8, 2010, defendants requested an extension of time to respond to the i September2, 2010 Letter, which was granted until September 15, 2010. It is undisputed that I defendants did not respond to the September 2, 2010 Letter.! There is no indication that i defendant ever sought a bearing or sought further time to submit objections or evidence disputing I the amounts sought. Having failed to object to the contents bf the proposed Referee's Report, I I and having failed to request any hearing before the Referee, k:iefendants cannot now argue that the I Referee's Report is unsupported by the record before the Referee, or should otherwise be rejected. Defendant's belated objections to the Referee's Rtort, at this juncture, are insufficient. l 9 [* 10] Conclusion Based on the foregoing, it is hereby ORDERED that the motion by plaintiff to confinn ~e Report of Court Appointed Referee Roberta Ashkin, Esq., dated October 11, 20 I 0 is granted; and it is further ORDERED that the Clerk of the Court is directed t~ enter judgment in favor plaintiff and against respondent pursuant to the Report of Court Appointed Referee Roberta Ashkin, Esq., lj dated October 11, 2010. I This constitutes the decision and order of the Court. I Dated: November23, 2010 ~~&L;!(:m~ HON. ~AROL EDMEAD ! IO

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