John P. Gulino, P.C. v Norton
Annotate this CaseDecided on February 6, 2014
Civil Court of the City of New York, Richmond County
John P. Gulino, P.C., Plaintiff,
against
Linda Norton, Defendant.
17558/07
PLAINTIFFS ATTORNEY
Howard M. File
260 Christopher Lane
Staten Island, New York
DEFENDANTS ATTORNEY
Kevin B. Zazzera
182 Rose Avenue
Staten Island, New York
Philip S. Straniere, J.
Plaintiff, John Gulino, an attorney at law, representing himself, commenced this action against the defendant, Linda Norton, alleging that the defendant owed plaintiff money for legal services rendered pursuant to a written retainer agreement. Plaintiff commenced this action in August 2007. The defendant defaulted in appearing and answering.
Plaintiff sought the entry of a default judgment against the defendant in October 2007. The court initially determined that the amount being sought was not a sum certain and required the plaintiff to submit to an inquest by the court on papers [CPLR §3215(b)]. After providing sufficient documentation to substantiate plaintiff's cause of action, a judgment was entered against the defendant on January 4, 2008 in the amount of $11,875.25.
The judgment was docketed with the Richmond County Clerk on January 16, 2008 creating a lien upon any real property owned by the defendant in Richmond County [CPLR §5018].
On January 8, 2008, Edward Norton and defendant, obtained a $675,000.00 mortgage from Hudson City Savings Bank, secured by the premises 19 Fayette Avenue, Staten Island, New York, the premises listed as the residence of defendant, Linda Norton. On the date of the [*2]mortgage loan, plaintiff's judgment had been entered in Civil Court, Richmond County and a transcript of judgment had been issued. But the judgment was not docketed with the Richmond County Clerk until January 16, 2008.
However, the Hudson City mortgage was not recorded with the county clerk until February 1, 2008. This means that as of the date of recording of the mortgage, plaintiff's judgment having been properly docketed, was a lien prior to the mortgage. As New York is a "race notice" state, the first lien recorded in time has priority. The mortgage was now a lien subordinate to plaintiff's judgment.
Plaintiff alleges that he filed a claim against Stewart Title, the title company that insured title to Hudson City, asserting that his judgment was a prior lien and should have been satisfied at the closing. To settle this claim, plaintiff accepted $9,000.00 in full settlement and assigned the judgment to Stewart Title.
On October 23, 2008 defendant, represented by counsel, filed a motion seeking to vacate her default in this action. The motion was returnable on November 18, 2008. Plaintiff filed opposition to the motion. Counsel for defendant failed to appear on the return date and the motion was denied for failure of the moving party to appear.
Thereafter, defendant again through counsel, filed another motion returnable January 8, 2009 seeking the same relief. Plaintiff again filed opposition to the motion and cross-moved for sanctions. Defendant filed papers to be considered both in opposition to plaintiff's motion for sanctions and in reply to defendant's motion. Plaintiff submitted a reply in support of his motion for sanctions.
By written decision dated February 9, 2009 the court denied defendant's motion without prejudice on the ground there was no affidavit of merit from the defendant. The only documentation was by counsel for defendant and counsel did not have the requisite personal knowledge of the facts. In that decision the court also denied plaintiff's application for sanctions.
On March 18, 2011 a written assignment of the judgment to Stewart Title in White Plains, New York was executed by the plaintiff. There is no indication that plaintiff either recorded the assignment of the judgment or notified the defendant.
On May 7, 2011 it is asserted that defendant and Edward Norton filed a Chapter 7 Bankruptcy in the Eastern District of New York. Defendant alleges that the plaintiff was listed as a creditor in the bankruptcy proceeding, that the defendant was discharged by the Bankruptcy Court, and that the discharge included plaintiff's judgment.
Currently before the court is a motion by defendant's new counsel, returnable initially on October 28, 2013 and adjourned until November 18, 2013 for opposition, seeking an order vacating plaintiff's judgment, canceling the lien and dismissing the underlying action. Plaintiff, through counsel, filed opposition and cross-moved for sanctions and attorney's fees. Defendant failed to oppose the cross-motion. Owing to the age of this litigation, the court file was in [*3]storage, and it had to be ordered so that the court could determine the history of the litigation and render a decision on the motions.
Defendant asserts that the plaintiff never received notice of the assignment of the debt from plaintiff to Stewart Title and therefore when plaintiff was listed in the bankruptcy, plaintiff and the debt was covered by the discharge. The court notes that this application, like the prior ones submitted on behalf of the defendant, lacks an affidavit of facts or merit from the defendant. Only counsel has submitted an affirmation.
Plaintiff asserts that he should not be a party to this application as Stewart Title now owns the debt, and as the owner of the debt, Stewart Title is a necessary party.
A. Was Defendant Required to Receive Notice of the Assignment?
Prior to defendant filing for bankruptcy, plaintiff resolved his claim with Stewart Title and in exchange for payment from Stewart Title, assigned his judgment against defendant to Stewart Title.
New York follows the common law rule of not requiring any notice be given by the creditor to the debtor of the assignment of a claim or a judgment. Such a rule causes numerous problems in litigation, especially in the area of consumer credit where debt sometimes appears to move from one assignee to another faster than a virus on a cruise ship. The failure to give any debtor notice of an assignment makes no sense. Because there is no requirement of giving notice to the debtor, debtors interested in resolving claims against them often do not know with whom to make contact to enter into payment plans.
On the other hand the New York common law rule creates a situation where payment may be tendered to the assignor who no longer owns the debt. Under the common law, payment to the creditor of record will discharge the debt, if there was no notice of the assignment to the debtor. This of course creates the problem of the debtor trying to obtain a satisfaction of the judgment or the debt from the assignor, when the assignor no longer owns the debt. Trying to obtain such an instrument from the assignee, after the fact, may also be difficult especially if the assignor does not forward payment to the assignee. Other than creating confusion and more litigation what does not requiring giving notice of the assignment to the debtor accomplish?
The common law rule also is that the assignee "steps into the shoes" of the assignor. This creates the issue of what to do "when the shoe don't fit?" One possibility is chopping off part of your foot as did Cinderella's step sisters in the original version of the story and as depicted in Stephen Sondheim's "Into the Woods." The other is to find you have shoes way to big causing you to stumble as did Amos in the original production of Kander and Ebb's, "Chicago" in the song "Mr. Cellophane."
However, when the "shoe does fit" and you have to "wear it" as in litigation, the assignee is subject to all of the defenses that exist against the original assignor. Because there was no notice of the assignment of the judgment to Stewart Title, defendant had no choice but to list plaintiff as the judgment creditor when she filed for bankruptcy. Therefore, Stewart Title as the [*4]holder of the debt is subject to the jurisdiction of the Bankruptcy Court. After all, it could have given the defendant notice that it had purchased the judgment from plaintiff and it apparently chose not to do so. The action of the Bankruptcy Court discharges the "debt" [11 USC §524]. Therefore the listing of the debt in the bankruptcy petition, should be sufficient to discharge it, even if the actual holder of the debt has changed, especially because the plaintiff has the original creditor failed to notify the defendant-debtor of the assignment.
The court noted in In re Osofsky, 50 F2d. 241, 243 (SDNY 1931), a case dealing with the debtor's notice of an assignment of a debt that: In a case of this sort, there is a clashing between the two purposes sought tobe accomplished by the Bankruptcy Act, a discharge of the debts of the honest debtor who is engulfed and an equitable distribution of his estate among his creditors. To hold that the bankrupt is not discharged is to defeat the former purpose. To hold that he is discharged is to deprive the creditor of his right to participate in the administration of the estate and in the proceeds. In this dilemma the law favors the bankrupt. It does not call upon him to run down all his obligations and name the present holders of them, at the risk of having his discharge held ineffective against them. Such a task would often be a formidable one. But this does not mean that the bankrupt may list the original creditor, when he knows, or ought to know, that another is the holder of his obligation....
The bankruptcy seeks to discharge the debt of the defendant. It is not contested that the defendant gave notice to the plaintiff of the bankruptcy filing, the person whom defendant believed owned the debt. There is nothing in the papers to indicate that the plaintiff ever gave notice of the bankruptcy proceeding to Stewart Title in the event Stewart Title wanted to contest the then pending discharge. Nor is there any indication that Stewart Title ever gave the defendant notice that it had acquired the judgment. Likewise there is no showing that the plaintiff notified the Bankruptcy Court that the debt had been assigned.
Based on the record from the bankruptcy court, defendant's debt was discharged at some point in 2011. Defendant's counsel did not attach a copy of the discharge order to his papers.
The above being said, it is also obvious that the defendant needs to give notice to Stewart Title of this litigation and her intention to have the judgment discharged on the judgment records of the Civil Court. Stewart Title is the owner of the judgment debt. It is also clear, that absent Stewart Title having taken some steps to protect its rights in bankruptcy court, the discharge of the debt in bankruptcy makes the debt uncollectible as the defendant no longer has personal liability.
B. Defendant Has Not Indicated What Type of Discharge is Being Sought?
Debtor and Creditor Law §150 sets forth the procedure for "cancellation of record of judgment discharged in bankruptcy." It permits a debtor discharged in bankruptcy to apply "any time after one year has elapsed...to the court in which the judgment was rendered...for an order, directing that a discharge or a qualified discharge of record be marked upon the docket of the judgment." [*5]
Defendant has not specifically asked for this relief of cancellation in its motion. However, because the court should "liberally construe" papers and pleadings it will deem defendant's motion as one for cancellation of the judgment pursuant to the Debtor and Creditor Law. The relief being asked for, vacating the judgment and dismissing the action, will not accomplish what defendant seeks.
There is another procedural problem with this application. Case law has held that the proper procedure is for a debtor to use a "special proceeding" pursuant to Article 4 of the CPLR [Guasti v Miller, 203 NY 259 (1911)]. The defendant has not established that a motion in the underlying action is a permissible method of addressing this issue. Neither has the court found case law permitting that practice.
Defendant in bringing a proceeding must seek either a "qualified discharge" or an "unqualified discharge." A qualified discharge serves notice on third parties that notwithstanding the existence of a discharge in bankruptcy, real property owned by the debtor may still be burdened by liens, as is the real property of the defendant in this case.
A debtor seeking to have the judgment docket marked with an "unqualified discharge" has the burden of establishing to the satisfaction of the court, that the lien in question was nullified in the bankruptcy proceeding [Carman v European American Bank & Trust Co., 78 NY2d 1066 (1991)]. A discharge in bankruptcy does not discharge a lien. It discharges the debtor from personal liability on pre-existing debts [Carman @1067]. The discharge in and of itself does not terminate the creditor's right to enforce its lien [Carman @1068] the lien survives bankruptcy [Jacobs v Allen, 22 Misc 3d 1117(A) (2009)].
Defendant has not submitted sufficient documentation for this court to conclude that even if the motion was procedurally permitted as a means of canceling the judgment, insufficient evidence has been provided to establish that the Bankruptcy Court canceled the lien of record when it discharged the debtor in bankruptcy.
What makes this application even more interesting is that the defendant and her husband apparently sold the premises 19 Fayette Avenue to a bona fide purchaser in June 2013. Counsel may want to inquire if either plaintiff, as the record owner of the judgment debt, or Stewart Title were paid monies at that closing to satisfy the debt as it is still of record both in the Civil Court and with the County Clerk.
Conclusion:
Defendant is entitled to have the judgment discharged however, defendant must name both plaintiff and Stewart Title as parties to an proceeding to accomplish this. The proper proceeding in a special proceeding pursuant to Debtor and Creditor Law §150 and not this motion in the original civil action.
Defendant's motion to vacate the default and dismiss this action is denied without prejudice to renew. Plaintiff's application for legal fees and sanctions is denied. Plaintiff created the situation by not filing the assignment of the judgment or notifying the defendant of the [*6]assignment of the debt and must bear the expenses of having to participate in this litigation.
The foregoing constitutes the decision and order of the court.
Dated: February 6, 2014
Staten Island, NYPHILIP S. STRANIERE
Judge, Civil Court
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