Akasa Holdings, LLC v 214 Lafayette House, LLC
Annotate this CaseDecided on March 5, 2018
Supreme Court, New York County
Akasa Holdings, LLC, Plaintiff,
against
214 Lafayette House, LLC, Defendant.
155738/16
Joshua Kimerling, Esq.
Cuddy & Feder LLP
Attorneys for Plaintiff
445 Hamilton Avenue, 14th Fl.
White Plains, NY 10601
(914) 761-1300
Casey Laffey, Esq.
Reed Smith LLP
Attorneys for Plaintiff
599 Lexington Ave.
New York, NY 10022
(212) 549-0389
Claudia Jaffe, Esq.
Butler, Fitzgerald, Fiveson & McCarthy
Attorneys for Defendant
9 East 45th Street, 9th Fl.
New York, NY 10017
(212) 615-2200
Kathryn E. Freed, J.
In this action to quiet title pursuant to Article 15 of the Real Property Actions and Proceedings Law (RPAPL), defendant 214 Lafayette House, LLC (214 Lafayette) moves, pursuant to CPLR 3212, for summary judgment dismissing the complaint. Plaintiff Akasa [*2]Holdings, LLC (Akasa) cross-moves, pursuant to CPLR 3212 (f) and 3124, to compel discovery. After oral argument, and after a review of the motion papers and the relevant case law, the motions are decided as follows.
Akasa seeks to invalidate a July 1, 1981 declaration of easements (Krantz aff, exhibit 3)(the Declaration). Akasa owns a multi-floor unit at 55 Crosby Street (55 Crosby) in Manhattan. Akasa also owns the adjoining vacant lot to the north at 57 Crosby Street (57 Crosby), which abuts the rear wall of 216 Lafayette Street, as set forth in a schematic diagram (Krantz aff, exhibit 1). 214 Lafayette St. abuts 55 Crosby St. to the west, and 216 Lafayette to the north.
Akasa purchased 55 Crosby and 57 Crosby (collectively the Crosby St. properties) on March 31, 2011. 214 Lafayette House LLC (214 Lafayette) purchased 214 Lafayette St. on January 13, 2012.
The Declaration, which states that it runs with the land, contains three easements: 1) a height limitation easement for any building that might be built on the 216 Lafayette St. parcel, relative to the height of the building at 214 Lafayette St.; 2) a non-exclusive pedestrian emergency egress easement from the roof of 214 Lafayette St., burdening 216 Lafayette St.; and 3) a non-exclusive pedestrian easement in favor of 214 Lafayette, burdening a six-foot strip of land on the south side of 57 Crosby St.
In 1981, at the time that the Declaration was executed and duly recorded, all four properties were owned by nonparty Spacemakers Two (Spacemakers), a Massachusetts limited partnership. Spacemakers is the grantor of the Declaration.
When the Declaration was recorded in 1981, all four of the properties were part of Block 482, Lot 30. In 1984, as a result of a subdivision of Lot 30, a new Lot 9 was created in Block 482, which included only 57 Crosby. Akasa alleges that it had neither actual nor constructive knowledge of the existence of the Declaration in 2011, when it purchased 57 Crosby, because the Declaration allegedly is not in Akasa's chain of title, and is not listed on Akasa'a deed or in its title insurance policy.
It is undisputed that, after 1984, the Declaration was not listed under Block 482, Lot 9 by the Register of the Department of Finance of the City of New York (the Register), up to and including the 2011 purchase of 57 Crosby by Akasa. As stated in the remarks section of a document captioned "Detailed Document Information" for Block 482, Lot 9, in the "Automated City Register Information System" (ACRIS) record of the City of New York (the Inadvertent Omission Remarks): "BLOCK CORRECTION. CORRECTED TO ADD 1/482/9. LOT 9 WAS INADVERTENTLY OMITTED AT TIME OF DELIVERY. UPDATED 67/1/16. HEH" (Beck reply aff, exhibit W). A substantially identical entry in the remarks section of an ACRIS document is dated August 20, 2014 and pertains to Lots 28 (214 Lafayette St.) and 9 (Krantz aff, exhibit 8).
On August 20, 2014, 214 Lafayette recorded the Declaration against Lot 9. Akasa had already purchased the Crosby Street properties on March 31, 2011. Akasa contends that this 2014 recording is "egregious and unlawful misconduct" that has substantially damaged the value of its property (complaint, ¶ 1), and that 214 Lafayette was seeking to "retroactively fix the prior recording omission after [Akasa] had already bought Lot 9" (Krantz aff, ¶ 13). Akasa seeks $10 million in damages for trespass and diminution in value of its premises, as well as a declaration [*3]that the easement is ineffective against 57 Crosby.
For the reasons set forth below, this Court holds that the recording of the Declaration against Lot 9 by 214 Lafayette in 2014 was not in any way improper once the inadvertent omission came to light (see Del Pozo v Impressive Homes, Inc., 95 AD3d 1263, 1265 [2d Dept 2012]) (holding that notice of pendency was ineffective for time between its erroneous filing and its correct refiling). As a matter of law, the 2014 recording of the Declaration would have no retroactive effect on a bona fide purchaser for value without notice, as Akasa represents itself to be, but 214 Lafayette, as a result of recording the Declaration in 2014, would be protected against any claim by a subsequent purchaser from Akasa that it lacked constructive notice of the Declaration. The constructive notice effect of the Declaration, as against Akasa, can only stem from the initial recording in 1981.
The parties do not dispute that, on July 10, 1981, Spacemakers recorded the Declaration with the Register, and that it was properly entered in the Register's records for Block 482, Lot 30, which was then comprised of the Crosby St. properties, as well as 214 and 216 Lafayette St. Thus, unlike in Del Pozo, there was nothing erroneous in the initial filing of the Declaration. The only thing erroneous was the inadvertent omission of the Declaration from the Register's record for the newly created Lot 9, which apparently occurred at the time of the subdivision of Lot 30 in 1984.
Prior to purchasing the Crosby Street properties, Akasa obtained a title insurance policy from Fidelity National Title Insurance Company (Fidelity). Fidelity has filed an action against Akasa styled Fidelity National Title Insurance Company v Akasa Holdings LLC, Supreme Court, New York County Index Number 154711/17 (the Fidelity action)(Jaffe reply affirmation, exhibit FF), in which it seeks a declaration that it is entitled to deny coverage to Akasa and withdraw funding of Akasa's representation in this action.
According to the complaint in the Fidelity action, Fidelity identified a number of encumbrances on 57 Crosby prior to Akasa closing on its purchase, including a 1999 easement granting 216 Lafayette Street two pathways for deliveries by hand-truck (id., ¶¶ 18-19). Fidelity's complaint also cites a survey, included with the 1999 easement, which was conducted prior to the closing and identified "a metal ladder in the rear southeast corner of 55 Crosby Street which provides emergency egress from 214 Lafayette (as well as egress from the roof of 216 Lafayette)" (id., ¶ 24). That ladder "overhangs [57 Crosby], and would drop any person using the 214 Lafayette Fire Escape onto [57 Crosby]" (id., ¶ 25), and any person using the 214 Lafayette Fire Escape would have to walk across 57 Crosby in order to reach the public sidewalk (id., ¶ 26).
Instead of searching the chain of title back 40 years, and listing in its policy all of the encumbrances relating to 57 Crosby, which would have included the Declaration, Fidelity merely excluded coverage for claims related to 214 Lafayette's fire ladder.[FN1]
In its first cause of action, Akasa seeks a declaration, pursuant to RPAPL Article 15, that [*4]it holds title to 57 Crosby free and clear of the Declaration, because it purchased 57 Crosby for value, without actual or constructive notice of the Declaration, which, Akasa alleges, is absent from its chain of title (complaint, ¶ 15). The remaining causes of action are for trespass, unjust enrichment, and injunctive relief, which must be dismissed if Akasa is charged with constructive notice of the Declaration as a matter of law. This motion does not involve issues of actual notice or inquiry notice.
In support of its motion for summary judgment, 214 Lafayette submits the affirmation of Claudia G. Jaffe, annexing as exhibits the pertinent instruments and recording records, as well as surveys, and a transcript of the deposition testimony of Tony Krantz (Krantz), a principal of Akasa.
By submitting uncontroverted documentary evidence that the Declaration was duly recorded with the Register against Block 482, Lot 30, at a time when it is not disputed that Lot 30 included the Crosby St. properties, as well as 214 and 216 Lafayette St., 214 Lafayette has met its initial burden of demonstrating its entitlement to judgment as a matter of law, shifting the burden to Akasa to come forward with sufficient evidence to demonstrate the existence of a material issue of fact requiring a trial (CPLR 3212 [b]; see GTF Marketing, Inc. v Colonial Aluminum Sales, Inc., 66 NY2d 965 [1985]; Zuckerman v City of New York, 49 NY2d 557 [1980]).
In opposition to 214 Lafayette's motion, Akasa argues that it is a bona fide purchaser for value of 57 Crosby because it purchased the property without actual or constructive knowledge of the Declaration. Akasa submits the Krantz affidavit, annexing exhibits including Akasa's deed to 57 Crosby Street, which contains no reference to the Declaration; Akasa's title insurance policy from Fidelity; the Register's identifier of the 2014 filing of the Declaration against Lot 9; a June 12, 2016 email from Marcus Nispel (Nispel), a principal of 214 Lafayette, to Krantz, as well as Nispel's deposition transcript, a Register's detailed document information for Lot 9 indicating the Inadvertent Omission Language regarding Lot 9; Nispel's deposition transcript; an aerial view of the four premises that was filed with the Register; an August 9, 2017 search result from the Register for Lot 9 listing the Declaration; an ACRIS detailed document information from the Register dated August 9, 2017 for Block 9, listing the Declaration, with the remarks noted above about the inadvertent omission.
Akasa also submits the affidavit of David J. Carroll (Carroll), annexing numerous exhibits, including some duplicative searches of records of the Register, as well as a deed pursuant to which Consolidated Edison of New York, Inc. (Con Ed) conveyed the Crosby St. properties to Aaron and Roslyn Epstein (the Con Ed deed). The Epsteins, in turn, conveyed the properties to Spacemakers.
Carroll, the president of S.J. Carroll Jr., Inc., which performs property and title searches, represents that he does not agree that the recording of the Declaration against "the original lot 30 should be deemed to constitute an encumbrance in the chain of title of Lot 9 as of March 2011" (Carroll aff, ¶ 21). In making this assertion, Carroll primarily contends that the Lot 9 designation was reused in 1984, and that 57 Crosby had previously been assigned the designation of Lot 9 before 1971, when it was merged into Lot 30 (Carroll aff, ¶ 11). Carroll maintains that the practice of reusing a lot number is "not appropriate, is avoided and is exceedingly rare" (id., ¶ 14). Carroll supports his allegation of reuse of the Lot 9 designation solely by referring to the [*5]Con Ed deed (Carroll aff, exhibit 3).
However, the only indication on the Con Ed deed that it was Lot 9 is a partially crossed-out and handwritten entry for the block and lot that is illegible, and part of it is too faint to read. It does not clearly state "9," and there is no indication of when or by whom it was written.
Carroll further asserts that, "according to commonly accepted standards of the title search industry," (id., ¶ 15), title examiners search by the block and lot number, and that search of the index for Lot 9 would not pull up any encumbrance that is not indexed against Lot 9. Additionally, Carroll represents that the industry practice is to search back 40 years. He further maintains that there would have been no indication that the Declaration was indexed against Lot 9 during the 40 years before Akasa acquired 57 Crosby.
Carroll's opinion of industry practice rests on his contention that Lot 9 was reused, as well as on the unexplained, inadvertent omission of the Declaration from Lot 9 in 1984.
In reply, 214 Lafayette submits the affidavit of Christopher M. Beck (Beck), the director of operations at Ridge Abstract Corp. (Ridge Abstract), which is licensed as a title insurance agent by New York State pursuant to Insurance Law §§ 2101 and 2102. Beck represents that he is a sublicensee authorized to evaluate title in accordance with Insurance Law § 2101 (y) (1), and to certify title to real property. Additionally, Beck maintains that neither Carroll nor his (Carroll's) employer are licensed to certify title.
Beck disagrees with Carroll's conclusion that the 1981 recording of the Declaration against Lot 30 did not constitute an encumbrance against Lot 9. Beck states: "[r]ecordation of the 1981 easement against the parent lot is deemed recordation against all parcels that comprised that lot on the date of recordation" (Beck aff, ¶ 28). Beck states:
"[b]ecause 57 Crosby Street was part of Original Lot 30 as of July 10, 1981, the recordation of the 1981 Easement, an easement appurtenant, on that date in the public record for Original Lot 30, constitutes record notice to all persons acquiring an interest in 57 Crosby Street . . ."(id., ¶ 30).
Beck agrees with Carroll that a proper title search should date back for a period of 40 years. However, Beck opines that, to establish good title in the party from whom Akasa purchased 57 Crosby in 2011, "the title examiner would have had to examine ACRIS records for Block 482, Lot 30" (id., ¶ 38), as well as Lot 9, back to 1971, when Con Ed owned it, and then from 1971 forward to 2011. Beck states that this is required because, "as of 2011, ACRIS records for Lot 9 did not show how title came to be vested in Spacemakers Two" (id., 53), because the deed to Spacemakers was recorded in Lot 30 before the subdivision in 1984. Beck maintains that a title examiner searching 57 Crosby in 2011, when Akasa purchased it, would not have discovered the deed to Spacemakers by searching only Lot 9, and that this gap in the chain of title required an "ACRIS grantor/grantee search" which would have taken the title examiner "outside Lot 9 records" (id., ¶ 49).
One final ground upon which Beck disputes the validity of Carroll's conclusion is the existence of an April 9, 1999 easement recorded against Lot 9, which contains a schematic showing an emergency egress easement over the roof of 216 Lafayette from a door on 214 Lafayette with an arrow pointing across the roof (id., ¶ 64). Beck states that:
"a title examiner would conclude that the public record for Block 482, Lot 9, included the [*6]1999 easement recorded May 21, 1999, and all matter disclosed by the 1999 easement, including the prior Easement benefitting the 214 Lafayette Street parcel"(id., ¶ 65).
Although Akasa argues that 214 Lafayette is not an intended beneficiary of the 1999 easement, the issue here is not the enforceability of the 1999 easement, but whether its recordation on Lot 9 constitutes constructive notice to Akasa of 214 Lafayette's easement.
214 Lafayette also submits a reply affirmation in which Jaffe argues that neither Carroll nor S.J. Carroll, Inc. claims to be a title insurance agent licensed by the State of New York, and that the Carroll affidavit does not include a "search affecting real property made and certified to by a title insurance, abstract or searching company" pursuant to CPLR 4523 (Jaffe affirmation, ¶ 7). Jaffe annexes search results from the New York Department of Financial Services indicating that neither Carroll, nor S.J. Carroll, Inc., has any current license (id., ¶ exhibits CC-EE).
CPLR 4523, captioned "Search by title insurance or abstract company," provides:
"[a] search affecting real property, when made and certified to by a title insurance, abstract or searching company, organized under the laws of this state, may be used in place of, and with the same legal effect as, an official search."Jaffe also submits, as exhibit FF, the complaint filed by Fidelity against Akasa in the Fidelity action, and notes that the said complaint alleges that the Declaration was "timely recorded against the original parent Lot 30," which in 1984 was "subdivided and/or redesignated into separate lots, one of which was [57 Crosby], known as Lot 9" (id., ¶ 16). Fidelity then alleges that the Declaration was not recorded against Lot 9, but remained recorded against Lot 30.
It is evident that the Declaration could not have been recorded against Block 482, Lot 9 in 1981 because Block 482, Lot 9 did not then exist. There was no error by the grantor of the Declaration at the time the document was filed with the Register. Nor was there any error, nonfeasance or misfeasance by the Register in the initial recording of the Declaration. The Declaration was deemed recorded upon delivery to the Register (Real Property Law 317; see The Bank of New York v Resles, 78 AD3d 469 [1st Dept 2010]).
The omission was only in the apparent failure to include the Declaration in the Register's records for the newly created Lot 9 at the time of the subdivision in 1984.
Akasa argues that, due to the inadvertent omission of a notation of the Declaration from the ACRIS records of Lot 9, it cannot be charged with constructive notice of the Declaration.In making this argument, Akasa relies mainly on cases holding that "[a]n error in indexing a notice of pendency prevents a record of that instrument from constituting constructive notice from the time that the notice of pendency is filed through the period that the indexing error remains uncorrected" (Del Pozo v Impressive Homes, Inc., 95 AD3d at 1265; CPLR 6501). It further relies on Coco v Ranalletta, (305 AD2d 1082, 1083 [4th Dept 2003]), which held that a purchaser could not be charged with constructive notice of a mortgage that was improperly indexed due to a misspelling of the mortgagor's name. Coco bases its holding on the principle that a purchaser "is not required to search outside [his] direct chain of title" (id. at 1083 [internal quotation marks and citation omitted]).
As Beck asserts, a search of Akasa's direct chain of title, after discovering the gap in title between Con Ed and Spacemakers, would have revealed the Declaration.
Akasa has not submitted any New York case holding that an instrument that is duly recorded and properly entered on the Register's records against the appropriate block and lot, at the time of recording, can be defeated by a ministerial error committed years later in the maintenance and updating of the Register's records. Allowing for such a result could potentially undermine the registry system or lead to abuse thereof.
This Court holds that the Beck affidavit establishes, as a matter of law, that a reasonable search of the chain of title of 57 Crosby would have discovered the recorded Declaration.
New York authorities tend to favor giving effect to constructive notice where an instrument was properly recorded, although there is a split in authority among the States on the issue of the effectiveness of constructive notice where there is a defect or irregularity in the indexing of a duly recorded instrument.
In Federal Natl. Mtge. Assn. v Levine-Rodriguez (153 Misc 2d 8 [Sup Ct, Rockland County 1991]), the court held that a mortgage, which was misfiled because a hyphenated name was missing the hyphen, causing it to be filed under an incorrect name at the time of recording, lacked priority over a subsequently recorded mortgage. Justice Lefkowitz described the development of the New York law of priority under the recording statutes, noting the split of authority among the states, with New York holding the view that "the recorder's mistakes on indexing do not defeat constructive notice of the record" (id., at 10). At the time of the decision, Rockland County did not utilize a block and lot index system.
In so holding, Justice Lefkowitz noted that, under California law, where an instrument is "improperly indexed and not locatable by a proper search, mere recordation is insufficient to charge a subsequent purchaser with notice" (id. at 11 [citation omitted]).
New Jersey follows the same rule, holding that "an instrument . . . could not be considered duly recorded so as to provide constructive notice in the absence of proper indexing" (Manchester Fund, Ltd. v First Am. Title Ins. Co., 332 NJ Super 336, 345 [Law Div 1999]), and a "subsequent purchaser will be bound only by those instruments which can be discovered by a 'reasonable' search of the particular chain of title" (Palamarg Realty Co. v Rehac, 80 NJ 446, 456 [1979]).
Justice Lefkowitz quotes Professor Merrill who, writing in 1952, after observing that the Recording Acts were designed to protect both prior and subsequent encumbrancers, called for legislation "to decide among competing interests which are too 'nicely balanced' since, whichever rule is adopted, 'some innocent people are going to be hurt'" (Federal Natl. Mtge. Assn v Levine-Rodriguez, 153 Misc 2d at 11).
Baccari v De Santi (70 AD2d 198 [2d Dept 1979]), involved a mortgage that was properly recorded, but improperly indexed in the wrong town. The Appellate Division, Second Department, held that because
"the index has, by statute, been made part of the record of filed instruments, an erroneous indexing by the clerk fails to give constructive notice of the existence and contents of the instrument"(id. at 203).
Baccari involved an error in the initial indexing by a private company under contract to maintain the index. The Baccari court held that the County Clerk was vicariously liable for misfeasance arising from the indexing of the mortgage in the wrong town.
The Baccari court distinguished misfeasance by the Clerk in erroneously indexing the mortgage from nonfeasance "where the clerk entirely fails to record or fails to index an instrument duly delivered to him for recording, [and] the instrument is nevertheless deemed recorded upon delivery and the world is put on constructive notice of is contents [citations omitted]" (id. at 202).
The nonfeasance of the Register, in failing to properly include the Declaration on its records in connection with the new Lot 9 at the time of the subdivision, constitutes a ministerial error that did not void the 1981 recording (id.), thus rendering the Baccari rule inapplicable. This Court holds that Akasa has failed to meet its burden of demonstrating the existence of a factual question on the issue of constructive notice of the Declaration (see Homeowners Loan Corp. v Recckio, 45 AD3d 1322, 1323 [4th Dept 2007]).
This Court further notes that the Declaration, which clearly affects the value and potential development of 57 Crosby, a rare vacant lot in a desirable neighborhood, was executed by sophisticated real estate professionals, including the noted architect Frank Gehry, then a principal of Spacemakers. The Declaration was intended to protect the emergency egress of 214 Lafayette St., and prevent any significant height disparity between 214 and 216 Lafayette, thus preserving the architectural quality of the neighborhood. Such important rights should not be abrogated lightly because of government office failure.
In light of this finding, Akasa's cross motion seeking discovery is denied as moot.
Therefore, in light of the foregoing, it is hereby:
ORDERED that the motion of defendant 214 Lafayette House, LLC for summary judgment, pursuant to CPLR 3212, dismissing the complaint, is granted, and the complaint is dismissed, with costs and disbursements to defendant, as taxed by the Clerk of the Court, upon presentment of an appropriate bill of costs; and it is further
ORDERED that the cross motion by plaintiff Akasa Holdings, LLC is denied as moot; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly; and it is further
ORDERED that this constitutes the decision and order of the court.
DATED: March 5, 2018
E N T E R:
_____________________________
HON. KATHRYN E. FREED, J.S.C. Footnotes
Footnote 1:Paragraph 58 of Fidelity's complaint reads as follows: "[s]chedule B of the Policy, entitled 'Exceptions from Coverage' states: in addition to the exclusions, you are not insured against loss, costs, attorney's fees, and expenses resulting from the 214 Lafayette Fire Escape" (id.).
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