381 Broadway Lender LLC v 381 Broadway Realty Corp.
Annotate this CaseDecided on September 24, 2020
Supreme Court, New York County
381 Broadway Lender LLC, Plaintiff,
against
381 Broadway Realty Corp., Gary Tse, Titan Capital ID, LLC, New York State Department of Taxation and Finance, New York City Department of Finance, New York City Environmental Control Board, Caden LLC, Codesmith LLC, Jatin Patel, Tribeca Global Holdings, LLC, Sky Ting Yoga, LLC, Designer's Management Agency, Inc. D/B/A DMA United, Upfluence, Inc., Stephen Phan, White on White Cleaners Corp., and Joey Pepperoni's Broadway Inc., Defendants.
653018/2018
Morrison Cohen LLP, New York, NY (Gayle Pollack of counsel), for plaintiff.
Peter Hanschke, Esq., for receiver pro se.
No appearance for defendant 381 Broadway Realty Corp.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 011) 258, 259, 260, 261, 262, 263, 264, 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281, 282, 286, 287, 288, 289, 290, 291 were read on this motion to REMOVE RECEIVER.
This motion arises out of an action to foreclose on improved commercial property located at 381 Broadway in Manhattan. The predecessor of plaintiff 381 Broadway Lender LLC brought the current commercial foreclosure action in 2018 against defendant 381 Broadway Realty Corp. (borrower); that corporation's manager, Gary Tse; and other defendants.[FN1]
Plaintiff later moved for the appointment of a receiver for the premises. In March 2019, this court appointed a receiver, Peter Hanschke, Esq. Plaintiff now moves under CPLR 6405 to remove the current receiver, appoint a replacement receiver, and surcharge the receiver for expenses incurred by the property due to the receiver's alleged neglect.
The branches of the motion seeking removal of the current receiver and appointment of a new receiver are granted; the branch of the motion seeking to surcharge the receiver is denied without prejudice to renew.
DISCUSSION
CPLR 6405 provides that "the court which appointed a receiver may remove him at any time," whether on motion or sua sponte. A receiver may be removed by the appointing court on properly supported allegations of mismanagement and neglect. (See Matter of Whalen v Barlow, 114 AD2d 623, 624 [3d Dept 1985].) Plaintiff contends that it has established mismanagement and neglect here on the receiver's part. This court agrees.
First, it is undisputed that for at least two quarters in 2019 the receiver failed to pay property taxes for 381 Broadway, leading to the assessment of interest on unpaid taxes, until plaintiff's counsel informed him of the outstanding tax bill. (See NYSCEF Nos. 259 at 7, 263.) The receiver's explanation is that he had not realized that property tax was outstanding and that the tax bill had not shown up on the website for the New York City Department of Finance that he had been monitoring. (See NYSCEF No. 286 at5-9.) But the fact that the information on the particular city website monitored by the receiver did not reflect complete property-tax information did not relieve the receiver of his responsibility to remain aware of—and current on—the property tax bills for the property.
Second, the receiver paid expenses arising from his appointment as receiver out of the property's receivership bank account without court approval, in violation of his appointment order. The appointment order provides that the receiver shall deposit money received by him under the receivership in a dedicated bank account "and that no withdrawals be made therefrom (apart from the payment of ordinary recurring expenses) except as directed by the Court or as otherwise expressly provided in this Order." (NYSCEF No. 242 at 4.) Yet without notifying the court (or plaintiff), the receiver wrote checks on that account in order to pay the initial and renewal fees for the bond that he was required to put up in order to be appointed. (See NYSCEF Nos. 259 at 17, 286 at 11, 293 at 8.) The receiver could have brought an interim application to this court to permit him to pay the renewal fee from funds of the property (which this court likely would have granted); or he could have waited to seek reimbursement of that receivership expense from the property's funds at the conclusion of the receivership, following a proper accounting (see Beirne v Habel, 20 AD2d 891, 891 [1st Dept 1964]; City of NY v Big Six Towers, Inc., 59 Misc 2d 839, 841 [Sup Ct, Queens County 1969], affd 33 AD2d 658 [2d Dept 1969]). But he did neither.
The receiver's explanation is that "the insurance broker that has been dealing with receiver bonds for decades told me that the bond fee gets paid out of the funds of the property"; and he suggests that this court's order provided that "all expenses below $3,000 made for the benefit of the property do not in fact require any separate approval." (NYSCEF No. 293 at 8.) Even taking this response on its own terms, it is unclear why the receiver would take his insurance broker's word for it without reviewing the terms of his appointment order (or for that matter seeking guidance from the parties or this court). Additionally, the receiver is not empowered to spend any funds from the receivership account without court approval except as [*2]affirmatively and expressly authorized by the appointment order.[FN2] (See NYSCEF No. 242 at 4.) And the order does not, as the receiver suggests, permit payment of any expenses "made for the benefit of the property." Rather, it authorizes the receiver to "pay the normal operating expenses necessary for the care and protection of the mortgaged premises." (NYSCEF No. 242 at 5.) Expenses incurred by the receiver as part of the normal upkeep of the property are one thing; expenses that the receiver must satisfy to remain a properly appointed receiver are quite another.
The issue here is less the amounts spent by the receiver on these receivership expenses (which are not substantial) than the receiver's apparent lack of knowledge of the terms of an appointment order that has now been in effect for 18 months.
Third, the receiver concedes that most of the commercial tenants in 381 Broadway have ceased to pay rent—some doing so as early as September or October 2019. Yet he does not dispute plaintiff's allegations (see NYSCEF No. 259 at 5-7) that (i) he failed to notify plaintiff until April 2020 that two tenants had ceased paying rent in the fall of 2019; (ii) he failed to notify plaintiff in April or May 2020 that all but one of the remaining tenants had failed to pay any rent in April (and failed to provide plaintiff's counsel with the April rent report at all until she sought a conference with this court in late May over that issue); and (iii) he then repeatedly failed or refused to respond to plaintiff's repeated inquiries about whether he had taken any steps either to evict non-paying tenants prior to the pandemic or resolve nonpayment of rent from the other tenants since then.
Nor indeed does the receiver now provide meaningful information about his efforts to address the loss of rent from the building's tenants. At most, he states (without providing detail) that he evicted one tenant and signed a contract with a realtor to market the former tenant's space; that at some unspecified time he "sent out several rent demand notices" to other non-paying tenants, "advised the tenants that the receiver reserves the right to start a proceeding" in the future, and inquired of a realtor whether the realtor was aware of any potential replacement tenants; and that "as long as rent obligations accrue . . . the building is best served as is." (NYSCEF No. 286 at 4.)
Fourth, the receiver has failed to comply with the requirements of his appointment order to provide monthly financial and receiver reports to plaintiff and defendant borrower, and to file those reports electronically with this court. (See NYSCEF No. 260 at 5.) No such report has ever been e-filed with the court. The record also reflects that the receiver's failure in the fall of 2019 to provide the required monthly reports to the plaintiff and the borrower led in January 2020 to this court's entering a conference order specifically reminding the receiver of his obligation "to provide monthly reports" and "include all invoices and other documents for support." (NYSCEF No. 237.) Even after entry of that order, plaintiff's counsel repeatedly and unsuccessfully asked the receiver to send her the required reports (see NYSCEF No. 266)—leading plaintiff to move by order to show cause to compel the receiver to file the reports (see NYSCEF No. 249). And the receiver failed over the course of six months to provide plaintiff and the borrower with any statement from the bank account that he was using as receiver for the property. (See NYSCEF No. 287 at 2-3.)
In his affirmation opposing the motion to remove, the receiver contends that he had failed to provide timely reports to the plaintiff only because "the original property manager did not properly maintain the records," requiring "everything . . . to be redone by the receiver"; that he had informed plaintiff of that fact; and that "the reports were sent to counsel after the order of the court came in."[FN3] (NYSCEF No. 286 at 26.) He also criticizes plaintiff's counsel for assertedly having then told him that his documentation "was not a proper report," without providing "any further guidance or . . . a sample."[FN4] (Id. at 27.)
The receiver does not say, however, why reports had been provided to the plaintiff prior to the property manager's departure but not after, or why it then took him months to compile the necessary information for purposes of providing financial reports to plaintiff and the borrower. He does not indicate what information he had provided to plaintiff's counsel when—nor contest counsel's representation that he failed to give her any information until after she resorted to motion practice. The receiver has not contradicted plaintiff's contention that the information he did provide lacked basic information for the property about income received and expenses sustained and paid. (See NYSCEF No. 287 at 4.)[FN5] And he does not dispute that he failed for six months to provide plaintiff and the borrower with bank statements for the property.
For all these reasons, this court agrees with plaintiff that removal of the current receiver is necessary to preserve the value of the subject property pending resolution of the foreclosure proceeding now on hold due to the pandemic. And this court concurs with plaintiff's recommendation of Alan Tantleff as a replacement receiver from the Part 36 fiduciary list.
Plaintiff also seeks an order requiring the current receiver to reimburse the property for the amount of interest incurred due to his failure to pay property taxes for the building, and for the costs of the initial and renewal bond fees. (See NYSCEF Nos. 259 at 2, 287 at 8.) This court concludes that this issue is better addressed in the context of a motion to settle the receiver's accounts and fix his compensation. Plaintiff's reimbursement request is denied without prejudice to its later renewal.
Settle Order.
Dated: September 24, 2020
Hon. Gerald Lebovits
J.S.C. Footnotes
Footnote 1:Plaintiff has since obtained a judgment of foreclosure against the borrower, and an agreed-to referee's report; but the foreclosure sale itself is on hold due to the COVID-19 pandemic. (See NYSCEF No. 259 at 24.)
Footnote 2:Additional approvals are required for otherwise-authorized "improvements or substantial repairs to the property" that cost "in excess of $5,000"—not, as the receiver suggests, $3,000. (NYSCEF No. 242 at 6.)
Footnote 3:The court notes that shortly after she was fired by the receiver, the property manager sent an email to counsel for plaintiff and counsel for the borrower, describing in detail how the receiver's allegedly unprofessional behavior and conduct, including his refusal to permit her to spend more than one hour a day on work related to the property, had undermined her ability to fulfill properly her responsibilities as property manager. (See NYSCEF No. 262.) The receiver does not address these allegations in his opposition papers.
Footnote 4:The receiver's opposition papers do not discuss his failure to provide copies of the monthly reports to this court in compliance with his appointment order.
Footnote 5:Plaintiff's identification of specific inadequacies in the receiver's reports was not made until reply. But the receiver received permission from this court to file a brief surreply; and his surreply papers did not address plaintiff's assertions on this point. (See NYSCEF No. 293.)
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
