Museum Bldg. Holdings, LLC v Schreiber
Annotate this CaseDecided on June 1, 2023
Supreme Court, New York County
Museum Building Holdings, LLC, Plaintiff,
against
Joel Schreiber, Defendant.
Index No. 653485/2022
Duane Morris LLP, New York, NY (David T. McTaggart of counsel), for plaintiff.
Goldberg Weprin Finkel Goldstein LLP, New York, NY (Kevin J. Nash of counsel), for defendant.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 2, 21, 26, 29, 57, 58, 59, 60, 61 were read on this motion for SUMMARY JUDGMENT IN LIEU OF COMPLAINT.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56 were read on this motion for LEAVE TO FILE UNTIMELY OPPOSITION.
Plaintiff, Museum Building Holdings, LLC, is the current holder of two promissory notes given in 2018 by non-party Broadbridge LA, LLC, that evidence a large loan to Broadbridge in connection with a real-estate-development deal on a commercial-office building in Los Angeles. The loan is secured by that building and by a personal guarantee executed by defendant, Joel Schreiber.
The original maturity date of the loans was in June 2020. Broadbridge failed to pay the amounts due on the loan at maturity. Broadbridge and plaintiff's predecessor-in-interest then executed multiple agreements extending the period in which Broadbridge could pay the amount owed without the lender seeking to obtain a judgment for the amount of that debt. The extended period ran until December 31, 2021. Broadbridge did not make the required payments.
In March 2022, plaintiff brought a foreclosure action in a California court. A foreclosure sale was set for August 9, 2022. That day, Broadbridge commenced a Chapter 11 bankruptcy proceeding in federal bankruptcy court. Broadbridge's bankruptcy stopped the foreclosure sale [*2]from occurring on August 9. In addition, under the terms of the guarantee, filing of the bankruptcy proceeding also triggered defendant's personal liability under the guarantee for the amounts owed under Broadbridge's promissory notes—at the time, about $271 million.
In September 2022, plaintiff brought this motion-action under CPLR 3213 (mot seq 001) to collect on the sums owed under the guarantee (the $271 million owed as of August 9, plus additional accrued interest). Plaintiff's notice of motion set a December 2, 2022, return date. (See NYSCEF No. 2.) Defendant did not appear or respond by that return date.
On December 5, 2022, Broadbridge, having been unable to find a buyer for the underlying property while in bankruptcy, dismissed the bankruptcy proceeding on consent. On December 6, 2022, plaintiff went forward with the foreclosure sale. The property sold at foreclosure for $200 million, leaving defendant allegedly liable for the difference.
In January 2023, defendant appeared and moved by order to show cause under CPLR 3012 (d) (mot seq 002) to compel plaintiff to accept defendant's untimely opposition papers to plaintiff's CPLR 3213 motion.
Motion sequences 001 and 002 are consolidated here for disposition. Plaintiff's motion is granted. Defendant's motion is denied.
DISCUSSION
I. Defendant's CPLR 3012 Motion (Mot Seq 002)
A. Defendant's Challenge to the Validity of Service
Ordinarily, a court considering a CPLR 3012 (d) application should weigh factors such as "the length of the delay, the excuse offered, the extent to which the delay was willful, the possibility of prejudice to adverse parties, and the potential merits of any defense." (Emigrant Bank v Rosabianca, 156 AD3d 468, 472-473 [1st Dept 2017]; accord Gordon Law Firm, P.C. v Premier DNA Corp., 205 AD3d 416, 417 [1st Dept 2022] [same].) Here, however, defendant's motion papers also raise a challenge to the validity of service, and thus to this court's personal jurisdiction. Absent personal jurisdiction, there is no basis on which to grant plaintiff's summary-judgment motion. This court therefore addresses that issue first. (Cf. Tuttnauer USA Co., Ltd. v Russo, 2023 NY Slip Op 02555, at *1 [2d Dept May 10, 2023] [holding that if a defaulted party seeks both discretionary vacatur of the default under CPLR 5015 [a] [1] and raises a jurisdictional ground for vacatur under CPLR 5015 [a] [4], the jurisdictional argument must be addressed first].)
Plaintiff's affidavit of service represents that defendant was served by the nail-and-mail method under CPLR 308 (4). (NYSCEF No. 21.) Plaintiff's process server resorted to nail-and-mail only after three unsuccessful attempts to serve defendant at his place of business, as well as four attempts, made at different times of day, to serve defendant at his home. (See id.) These efforts are sufficient to establish due diligence for purposes of CPLR 308 (4).[FN1] (See Brafman & Assocs., P.C. v Balkany, 190 AD3d 453, 453 [1st Dept 2021] [holding that three service attempts, made on different weekdays at different times of day, established due diligence].)
The affidavit of service establishes a rebuttable presumption that service was proper. In opposition, defendant offers a bare denial of receipt. That is not sufficient to rebut the presumption of proper service. (See Tuttnauer USA, 2023 NY Slip Op 02555, at *1; State Farm Mut. Auto. Ins. Co. v Dr. Ibrahim Fatiha Chiropractic, P.C., 147 AD3d 696, 697 [1st Dept 2017].) Defendant also raises the possibility that plaintiff's process server erroneously affixed process to the front door of his residential dwelling (used by defendant's neighbor), rather than the back door (used by defendant). (NYSCEF No. 32 at 1-2 ¶ 1.) But defendant does not assert that plaintiff's process server did, in fact, use the wrong door; or that defendant's neighbor definitely failed to redeliver process affixed to that door. In any event, the record reflects that in June 2022, the same process server had used the correct door at defendant's dwelling to serve defendant by personal delivery in a related action (see NYSCEF No. 48 at 2). That instance of service undercuts defendant's suggestion that the process server used the wrong door in September and October 2022.
B. Whether to Compel Plaintiff to Accept Defendant's Late-Filed Opposition Papers
Plaintiff has established that it properly served defendant. The question, then, is whether to grant defendant's request under CPLR 3012 (d) for leave to oppose belatedly plaintiff's summary-judgment motion. This inquiry overlaps heavily with consideration of the merits of that motion, because it must take into account the potential merits of the defense that defendant would raise if permitted to do so. This court concludes that defendant lacks any potentially meritorious defense to plaintiff's summary-judgment motion. Defendant's CPLR 30212 (d) motion is denied; and plaintiff's CPLR 3213 motion is granted.
1. Whether Defendant's Guarantee is an Instrument for the Payment of Money Only
The accelerated procedure provided for by CPLR 3213 is available only for "instruments for the payment of money only" (or for payments on judgments). An "absolute and unconditional guarantee of payment" will constitute an instrument for the payment of money only for CPLR 3213 purposes. (Punch Fashion, LLC v Merchant Factors Corp., 180 AD3d 520, 521 [1st Dept 2020].) A guarantee of both payment and performance, on the other hand, does not necessarily qualify for CPLR 3213 treatment. (See iPayment, Inc. v Silverman, 192 AD3d 586, 587 [1st Dept 2021] [discussing this distinction]; 29th St. Assocs. LLC v Syed, 78 Misc 3d 874, 875 [Sup Ct, NY County 2023] [same].)
Defendant argues that because he agreed also to guarantee the performance of the borrower's obligations, in addition to payment, his guarantee does not qualify as an instrument for the payment of money only. On the facts of this case, defendant's argument is unpersuasive.
The terms of defendant's guarantee make clear that the obligations to be performed are obligations to pay money. Indeed, the guarantee expressly defines "Guaranteed Obligations" as "(a) the payment of all Borrower Recourse Liabilities under Section 19.1 of the Loan Agreement, and (b) the payment of the full amount of the Debt upon the occurrence of any Springing Recourse Event under Section 19.1 of the Loan Agreement." (NYSCEF No. 8 at 2.) Thus, read in context, defendant's guarantee of performance is nothing more than a guarantee of payment. The guarantee may still be enforced by a CPLR 3213 summary-judgment motion. (See 27 W. 72nd St. Note Buyer LLC v Terzi, 194 AD3d 630, 632 [1st Dept 2021].)
2. Whether Plaintiff's Entitlement to Payment on Defendant's Guarantee Can Be Determined Without Resort to Extrinsic Evidence
A document "does not qualify for CPLR 3213 treatment if the court must consult other [*3]materials besides the bare document and proof of nonpayment, or if it must make a more than de minimis deviation from the face of the document." (PDL Biopharma, Inc. v Wohlstadter, 147 AD3d 494, 495 [1st Dep't 2017].)
Defendant contends that determining the extent of his liability under the guarantee requires not only examination of the guarantee itself, but also evidence establishing the fair-market value of the underlying property. Defendant asserts that the amount of the promissory notes should be set off this fair-market value, not the amount for which the property sold at foreclosure. This assertion is foreclosed by the terms of the guarantee itself.
Section § 6.20 (b) (i) (B) of the guarantee provides that "if the creditor forecloses on any real property collateral pledged by the debtor . . . the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price."[FN2] (NYSCEF No. 8 at 17 [emphasis added].) And examining the foreclosure-sale documents to verify the Property's sale price does not constitute a resort to outside proof that would bar CPLR 3213 treatment for the guarantee. (See Bank Leumi Trust Co. of New York v Rattet & Liebman, 182 AD2d 541, 542 [1st Dept 1992] [holding that a note and guarantee are entitled to CPLR 3213 treatment, notwithstanding that the court's determining of the amount owed under the instruments entails consulting interest rates not set forth in the instruments themselves].)
Defendant also claims that this court cannot address whether he is liable for the post-sale deficiency without first considering the filings in the California foreclosure action. According to defendant, that consideration is necessary to determine whether plaintiff has complied with the preconditions for obtaining a deficiency judgment that are set forth in RPAPL 1301 and 1371.[FN3] This argument is without merit. The Appellate Division has consistently held instead that the requirements of RPAPL 1301 and 1371 do not govern deficiency-judgment actions arising from foreclosures on real property located outside New York. (See Lombardo v Fielding, 225 AD2d 672, 672-673 [2d Dept 1996]; Fielding v Drew, 94 AD2d 687, 687 [1st Dept 1983]; see also SPCP Group, LLC v Russell, 2010 WL 3958641, at *4 [SD NY Sept. 29, 2010] [rejecting argument that RPAPL 1301 applies to mortgage notes on property located outside New York merely because those notes provide that they are governed by New York law].)
In short, defendant lacks any potentially meritorious defenses to plaintiff's CPLR 3213 motion. As a result, permitting defendant to vacate his default would serve no purpose. Defendant's CPLR 3012 (d) motion is denied.
II. Plaintiff's CPLR 3213 Motion (Mot Seq 001)
As discussed above, plaintiff has established that defendant's guarantee is an instrument for the payment of money only. Plaintiff has shown that it has a right to payment on the guarantee. And the affidavits of plaintiff's agent (plus supporting documentation) sufficiently [*4]establish (i) the amount of defendant's liability on the guarantee as of August 9, 2022, as offset by (ii) the amount that the underlying property sold for at foreclosure.[FN4] (See NYSCEF Nos. 3, 58 [affidavits].) Plaintiff is entitled to summary judgment in lieu of complaint.
Plaintiff also seeks leave to collect the additional interest that has accrued under the terms of the promissory notes since guarantor's liability was triggered on August 9, 2022, by Broadbridge's bankruptcy petition. That request is granted; the amount of additional contractual interest to which plaintiff is entitled shall be determined by a motion made on notice.
Accordingly, it is
ORDERED that defendant's motion under CPLR 30212 (d) (mot seq 002), which seeks to compel plaintiff to accept defendant's untimely opposition to plaintiff's CPLR 3213 summary judgment motion, is denied; and it is further
ORDERED that plaintiff's CPLR 3213 motion (mot seq 001) is granted, and plaintiff is awarded a judgment for $78,747,204.99, with interest at the statutory rate running from December 6, 2022; and it is further
ORDERED that plaintiff may enter a supplemental judgment for (i) the amount of contractual interest that accrued on the underlying promissory notes between August 9, 2022, and June 1, 2023; and (ii) the amount of plaintiff's reasonable attorney fees; with those amounts to be determined by motion on notice; and it is further
ORDERED that plaintiff shall serve a copy of this order with notice of its entry on defendant and on the office of the County Clerk, which shall enter judgment accordingly.
Dated: June 1, 2023
Hon. Gerald Lebovits
J.S.C. Footnotes
Footnote 1:Although the record reflects that defendant is a religiously observant Orthodox Jew, and the attempts to serve defendant at his home "fell around the High Holy Day Season" between Rosh Hashanah and Simchat Torah (NYSCEF No. 32 at 2 ¶ 1 [defendant's affidavit]), this court takes judicial notice that none of the attempts were made on one of the High Holidays themselves (see NYSCEF No. 21 at 1 [listing dates of service attempts]).
Footnote 2:For the same reason, there is no merit to defendant's contention that the foreclosure-sale price of the property cannot be used to determine the amount of his liability due to the price being (assertedly) depressed by shortcomings in the way the foreclosure sale was scheduled and conducted.
Footnote 3:A deficiency judgment represents the difference between the amount of indebtedness on a mortgage loan and the value of the property. (See Flushing Sav. Bank, FSB v Bitar, 25 NY3d 307, 312 [2015].)
Footnote 4:Defendant does not dispute the accuracy of plaintiff's calculations with respect to the pre-offset amount of his liability; only the proper size of the offset.
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