JDM Capital Funding, LLC v Old Field Props., LLC

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JDM Capital Funding, LLC v Old Field Props., LLC 2011 NY Slip Op 32472(U) August 16, 2011 Sup Ct, Suffolk County Docket Number: 10-15352 Judge: Joseph Farneti Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] INDEX NO. SUPREME COURT I.A.S. PART 37 - 10-15352 STATE OF NEW YORK SUFFOLK COUNTY @* q : %; c4 f r. 0.r .b PRESENT: Hon. JOSEPH FARNETI Acting Justice Supreme Court MOTION DATE 9- 1 - 10 ADJ. DATE 6-2-1 1 Mot. Seq. # 001 - MD CELLEN & ZI r-liiviAN LLP Plaintiff, - Attorneys for Plaintiff 100 Quentin Roosevelt Boulevard Garden City, New York 1 1530-4850 against - OLD FIELD PROPERTIES, LLC, JOYCE E. MANCINI LIVING TRUST, THE PHEN GROUP, LLC, EUGENE FERNANDEZ, AS TRUSTEE OF THE : EUGENE FERNANDEZ REVOCABLE LIVING : TRUST U/A/D 11/18/04, LAKE AVENUE PROPE,RTIES, LLC, GLOBAL HOME 11, LLC, HALF HOLLOW ESTATES, LLC, HORSEBLOCK ROAD PROPERTIES, LLC, C.A.S.S. HOLDINGS, LLC, JPEC LAND DEVELOPMENT, LLC, DEBRA FERNANDEZ, EUGENTO FERNANDEZ, RICHARD W EINSTEIN. NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE, THALER & GERTLER LLP, JOHN DOE NO. 1 to JOHN DOE NO. XXX, : inclusive, the last thirty names being fictitious and : unknown to plaintiff, the persons or parties : intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest : i n or lien upon the premises described in the complaint, Defendants. BECKER & POLIAKOFF, LLP Attorneys for Defendants Old Field Properties, LLC, Joyce E. Mancini Living Trust, The Phen Group, LLC, Eugene Fernandez, Lake Avenue Properties, LLC, Global Home 11, LLC, Half Hol1o.w Estates, LLC, Horseblock Road Properties, LLC, C.A.S.S. Holdings, LLC, JPEC Land Development, LLC, Debra Fernandez, Eugenio Fernandez, Richard Weinstein 45 Broadway New York, New York 10006 THALER & GERTLER, LLP Attorneys for Defendant Thaler & Gertler, LLP 90 Merrick Avenue, Suite 400 East Meadow, New York 11554 [* 2] .II>M ( apital Funding Index No 10- 15352 Pase No. 3 11 Old Field Properties I ;poi1thc lbllowiiig papel-s nunibered 1 to 3 1 read on this motion fix a11 order ofrcfel-ence : Notlcr of Motion: Order Show C ause and supportin!; papers 1 - 20 ; Notice of Cross Motion and supporting papers -; Answering Afficlavlts and supporting papei-s 2 1 - 24; 25 3; Replying Affidavits and supporting papers 30 - 3 1 ; Other -; - - ( p it is, ) 10 ORDERED that this motion by plaintiff for an order of default against non-appearing defendants, an order granting summary judgment on its complaint on the issue of liability and striking the answers of the appearing defendants, an order of reference appointing a referee to compute, and an amendment of the caption of this action is denied. This is an action to foreclose three mortgages on commercial property. Plaintiff allegedly extended ioans i n tne oulstanding principai amount o f $ i 2,8UU,uOU.uU to ciefendants Tne Giobai Home Group, L i z ( Global Home Group ), The Phen Group, LLC ( Phen Group ), Eugene Femandez, as Trustee of the Eugene Fernandez Revocable Living Trust U/A/D 1 1/18/04 ( Trust ), Old Field Properties, LLC ( Old Field ), Lake Avenue Properties, LLC ( Lake Avenue ), Global Home 11, LLC ( Global Home II ), Half Hollow Estates, LLC ( Half Hollow ), and Horseblock Road Propertjes, LLC ( Horseblock ) that are the subject of this action and two other related actions. Said loans were made pursuant to a Loan Agreement, dated August 4, 2006, which was amended by a First Amendment to Loan Agreement dated March 22, 2007. The loan agreements were further amended by an Amended and Restated Master Loan Agreement, dated February 25, 2009, between plaintiff and the borrower defendants Global Home Group, Phen Group, Trust, Oldfield, Lake Avenue, Global Home 11, Half Hollow, and Horseblock ( borrower defendants ) and the guarantor defendants Horse Block, C.A.S.S. Holdings, LLC, JPEC Land Development, LLC, Debra Fernandez, Eugenio Fernandez and Richard Weinstein ( guarantor defendants ). Plaintiff has comrnenced three separate foreclosure: actions with respect to mortgages obtained through these agreements, JDlM Capital Funding, LLC v HalfHollow Estates, LLC under Index Number I535012010, JDM Capitul Funding, LLC v Hovsehlock Road Properties, LLC under Index Number 1535 112010, and JDM Capital Funding, LLC v Old Field Properties, LLC under Index Number 15352/2010. In the instant action, plaintiff seeks to foreclose a first mortgage dated August 4, 2006 securing a note allegedly in the sum of $1,849,000.00, a second mortgage dated October 8, 2008 securing a second note allegedly in the sum of $200,000.00, and a third mortgage dated November 26, 2008 securing a third note allegedly in the sum of $150,000.00, all executed by defendant Old Field in favor of plaintiff. All three mortgages are secured by property located in Hauppauge, New York and were modified by Mortgage Modification Agreements; dated February 25, 2009 and filed in the Suffolk County Clerk s Office on April 23, 2009. Defendant Old Field allegedly defaulted on its payments due on May 1, 2009 and thereafter. The borrower and guarantor defendants allegedly failed to cure the default and plaintiff elected to accelerate the loan. Plaintiff subsequently commenced the instant action for a judgment of foreclosure against the borrower and guarantor defendants, the New York State Department of Taxation and Finance for possible unpaid franchise taxes, Joyce E. Mancini Living Trust as a subordinate mortgagee, and Thaler & Gertler, LLP as subordinate judgment holder. The borrower and guarantor defendants served an answer denyng, among other things, their default. They also asserted affirmative defenses including that the global economic collapse of 2008 to 2009 was a force majeure that none of the parties to the subject agreements could reasonably have anticipated and [* 3] . D M Capital Funding v Old Field Propcrties I Index N o . 1 0 - 1 5352. Pagc Lo. 3 which excused defeiidaiits performance of their obligations under said agreements; and that plaintiff failed to negotiate with defendants in good faith to most fairly mitigate each party s damages. Some of their other affirmative defenses were: failure to state a cause of action, unclean hands, and the doctrines of waiver, estoppel and laches. Defendant Thaler & Gertler, LLP ( T & G ) served its answer admitting that i f holds judgment as against certain defendants in this action and seeking surplus monies from a mortgage (oreclosure sale of the mortgaged premises. Plaintiff now moves for an order of default against non-appearing defendants, summary judgment on its complaint on the issue of liability and striking the answers of the appearing defendants, an order of reference appointing a referee to compute, and an amendment of the caption of this action deleting 4 f, ,, I T I-.B o c ? I to Johr, Doe >?a.X X X ! G . n J-17 CLLIbIIkUCLLILJ / - .IvLlll In order to establish prima facie entitlement to summary judgment in a foreclosure action, a plaintiff must submit the mortgage and unpaid note, along with evidence of default (see Capstone Business Credit, LLC v Imperia Family Realty, LLC, 70 AD3d 882, 883, 895 NYS2d 199 [2d Dept 20101). The burden then shifts to the defendant to demonstrate the existence of a triable issue of fact as to a bona fide defense to the action, such as waiver, estoppel, bad faith, fraud, or oppressive or unconscionable conduct on the part of the plaintiff (id. quoting Malzopac Natl. Bank v Baisley, 244 AD2d 466, 467, 664 NYS2d 345 [ 2d Dept 19971, lv dismissed 91 N f2d 1003, 676 NYS2d 129 [ 19981). Plaintiffs submissions in support of its motion include the promissory notes, mortgages, mortgage modification agreements, the amended loan agreement of February 25,2009, the summons and complaint, the aforementioned answers, and affidavits of service of the summons and complaint. In addition, plaintiff submitted the affidavit dated August 5,2010 of Diczok, as plaintiffs vice president, indicating that plaintiff is the owner and holder of the subject notes secured by mortgages which were modified by the Mortgage Modification Agreements,. Diczok states in his affidavit that due to default in payment beginning with the payment due on May I , 2009, all three mortgage debts were accelerated by plaintiff; the mortgage debts remain in default; and there is presently due and owing to plaintiff on the first mortgage loan the sum of $1,849,000.00 plus interest, on the second mortgage loan the sum of $200,000.00 plus interest, and on the third mortgage loan the sum of $l50,000.00 plus interest. Here, plaintiff met its pvima facie burden by submitting the loan and guarantee documents, mortgage documents, and the affidavit of merit to establish that the borrower and guarantor defendants were in default (see Wells Fargo Bank Minnesota Natl. Assn. v Perez, 41 AD3d 590, 837 NYS2d 877 [2d Dept 20071, Iv dismissed 10 NY3d 791, 857 NYS2d 25 [2008]; see also InlandMtge. Capital Corp. v Realty Equities NM, LLC, 71 AD3d 1089,900 NYS2d 79 [2d Dept 20101). The burden then shifted to the borrower and guarantor defendants to raise a triable issue of fact regarding their defenses (see Household Fin. Realty Corp. of New York v Winn, 19 AD3d 545, 546, 796 NYS2d 533 [2d Dept 2005]). In opposition to the motion, the borrower and guarantor defendants challenge the validity of the promissory notes by arguing that their face amounts exceed the actual amounts lent to defendant borrowers. They submit the affidavit dated October 19, 2010 of Eugene Femandez ( Femandez ) indicating that he is an individual defendant in this action as well as the managing member of defendants Horseblock, JPEC, [* 4] I D M Capital Funding v Old Field Properties Index No. 10-1 5352 Page No. 4 ( ASS, Phen Group, Oldfield, Lake Avenue, Global 11, and Half Hollow. Femandez explalns that in 2006, defendants requested financing from plaintiff in the sum of $15 million for development of real estate i n Suffolk County and that plaintiff agreed to lend $10 million at 12 percent annual interest but that 111 the summer of 2006 about one week before the scheduled closing plaintiff informed defendants of new terms. According to Fernandez, 1 he new terms were that defendants would be required to enter a credit facility comprised of seven separate notes and mortgages to the borrower defendants that provided for up to the sum of $1 5 million even though plaintiff would advance only $10 million; defendants would be required to post collateral i n excess of $15 million; defendants would be required to pay fees on the sum of $ I 5 million even though plaintiffwould not advance more than $10 million; and the interest rate would be 13 percent. He states that, Defendants had no choice but to agree to JDM s new and oppressive terms b b inc!iding rztirinn m n r ~ 3 Jec:i~sev7~ei d a!readyi Wiade arrannements concerninn the m e cf the !gan prcc~eds, k than $6 million in debt to Defendants prior lender. J ILL.4 z l . - i - Fernandw fiirther explains in his affidavit that as of March 22, 2007 only $13.3 million had been advanced to defendants iinder a $19.95 million facility and plaintiff held a mortgage security of $22.7 million. He adds that after lengthy negotiations in January and February 2009 for plaintiff to provide additional financing to defendants to carry the mortgaged properties, the parties entered into the Amended and Restated Master Loan Agreement of February 25, 2009 which provided for an additional $4.5 rriillion loan secured by a note and another mortgage on defendants properties as well as a cross-collateralization agreement. According to Fernandez, with the 2009 Agreement, the plaintiff had extended $17.3 million secured by mortgages and notes in excess of $27 million. Fernandez argues that plaintiffs repeated refusal to extend additional credit under the existing lines and insistence of further collateral and notes made it impossible for defendants to obtain financing from other sources and was designed to enrich plaintiff at defendants expense and was unconscionable. He further argues that plaintiff has failed to account for and provide a detailed compu1,ation to defendants and the Court of the loan payments defendants have made to plaintiff. T & G indicates in its opposition to the motion that it adopts and incorporates by reference any arguments and papers submitted by its codefendants in opposition to plaintiffs motion. By its reply, plainliff fails to address the allegations of the borrower and guarantor defendants that the amounts actually lent to defendant borrowers was much less than the amounts reflected in the promissory note and fails to detail the funds that were actually lent and the sums that were repaid by defendant Old Field prior to default. Instead, plaintiff contends that none of the arguments of the borrower and guarantor defendants specifically relate to the Old Field mortgages, only to the Horseblock Road mortgages in the related proceeding, and that the answer of T & G does not refute the default or offer any defenses such that plaintiff is entitled to summary judgment. A mortgage is merely security for a debt or other obligation and cannot exist independently of the debt or obligation (see FGB Realty Advisors, Iizc. v Parisi, 265 AD2d 297, 696 NYS2d 207 [2d Dept 19991). Whether a contract or clause is unconscionable is to be decided by the court against the background of the contract s commercial setting, purpose and effect (see Wilson Trading Corp. v David Fergusorz, Ltd., 23 NY2d 398,403, 297 NYS2d 108 [1968]). An unconscionable contract is one which is so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms (Gillnzarz v Chase Manhattan Bank, 73 NY2d 1, 10, 537 [* 5] SDM Capital Funding \ Old Field Properties J d c x No. 10- 15353 Page No. 5 NYS2d 787 [ 19881 [internal quotations and citations omitted]). A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made, fbr examplc, some showing of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party (id.[internal quotations and citations omitted]). A transaction is usurious under civil law when it imposes an annual interest rate exceeding 16% (see General Obligations Law ij 5-501 [ 11; Banking Law 5 14-a [ l]), and is usurious under criminal law when it imposes an annual interest rate exceeding 25% (see Penal Law i j i j 190.40, 190.42) (Abir v Mulky, Inc., 50 AD3d 646, 649, 873 NYS2d 350 [2d Dept 20091). A usurious contract is void and relieves the . . -Ctl,3h1 f ,- t repay pyincipa! and intcrest thcreon (scc General 0 S l i g ~ t : m s uI:guL~uII , Lc , Lan, 5 5 1 1 ; id.; ~ilso see VeizabfesvS agoizu,85 AD3d 904, 925 NYS2d 578, 580 [2d Dept 201 11). L,uLIv Ll A,- L1lb Here, the borrower and guarantor defendants have raised issues of fact including, whether the alleged agreements to extend loans in return for required promissory notes with face amounts far greater than the actual loan sums received were unconscionable and rendered the promissory notes usurious,, and whether the promissory notes and mortgages extended in this complex series of loan transactions are valid (see Zaizjini v Chandler, 79 AD3d 1031, 912 NYS2d 911 [2d Dept 20101; GendotAssoc., Inc. vKaufoZd, 56 AD3d 421,424, 866 NYS2d 361 [2d Dept 20081; see also Lugfi v Johnston, 78 AD3d 1133,912 NYS2d 108 [2d Dept 20101). Accordingly, the instant motion is denied. Dated: August 16, 201 1 - FINAL DISPOSITION X NON-FINAL DISPOSITION

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