Axos Bank v. Michael Gangi Plumbing & Heating Contractors, Inc.

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2022 NY Slip Op 32597(U)

AXOS BANK F/K/A BQFI FEDERAL BANK, Plaintiff, v. MICHAEL GANGI PLUMBING AND HEATING CONTRACTORS, INC. D/B/A GANGI PLUMBING AND HEATING CONTRACTORS, ROSARIO GANGI, JOSEPHINE GANGI A/K/A JOSEPHINE THEISEN, LEONORA GANGI, NEW YORK STATE DEPARTMENT OF TAXATION AND FINANCE AND JOHN DOE ONE THROUGH JOHN DOE TEN, Defendants.

Index No. 502392/20

Supreme Court, Kings County

July 29, 2022

Unpublished Opinion

PRESENT: HON. LAWRENCE KNIPEL, JUSTICE

LAWRENCE S. KNIPEL, JUDGE

The following c-filed papers read herein:

NYSCEF Doc Nos.:

Notice of Motion/Order to Show Cause/Petition/Cross Motion and Affidavits (Affirmations)

71-83, 166-168, 95-126

Opposing Affidavits (Affirmations)

88-93, 130-139; 142-151, 155-164

Reply Affidavits. (Affirmations)

130-139, 142- 151, 170-174

Upon the foregoing papers in this, action to foreclose commercial mortgages on the properties at 1002 Bay Ridge Avenue in Brooklyn (Block 5880, Lot 7) (Bay Ridge Ave. Property) and 983 76^th Street in Brooklyn (Block 5945, Lot 55) (76^th Street Property) (collectively, the Properties), defendant Josephine Gangi a/k/a Josephine Theisen (Josephine) moves (in motion sequence [mot. seq.] five) for an order: (1) dismissing the complaint, pursuant to CPLR 306-b and 3211 (a) (1), (a) (7) and (a) (8), based on documentary evidence, failure to state a cause of action and lack of personal jurisdiction; (2) dismissing the complaint pursuant to Business Corporation Law (BCL) § 1312; (3) extending her time to move to dismiss pursuant to 3211 (e) if it was not already suspended; (4) granting her summary judgment, pursuant to CPLR 3212; and (5) disqualifying her former counsel, Adam Roth, Esq., from representing her co-defendants, pursuant to Rule 1-7 of the New York Rules of Professional Conduct, 22 NYCRR § 1200.7, on the ground that he has a conflict of interest.

Plaintiff Axos Bank f/k/a BOFI Federal Bank (Axos) cross-moves (in mot seq. six) for an order: (I) granting it summary judgment on its first cause of action to foreclose the July 5, 2018 mortgage in the amount of $450/000.00 encumbering the Bay Ridge Ave. Property, pursuant to CPLR 3212 (a); (2) granting it summary judgment on its first cause of action to foreclose the October 12, 2018 mortgage in the amount $160,000.00 encumbering the 76^lh Street Property, pursuant to OPR 3212 (a); (3) granting it summary judgment on its third cause of action for an award of attorney s' fees and expenses, pursuant to CPLR 3212 (a); (4) dismissing defendants' affirmative defenses, pursuant to CPLR 3212 (a) and 3211 (b); (5) granting it a default judgment against non-appearing defendant NYS Department of Taxation and Finance, pursuant to CPLR 3215; and (6) granting it an order of reference.

Background

On January 30, 2020. Axos commenced this foreclosure action by filing a summons, a verified complaint and a notice of pendency against the Properties. The complaint alleges that: (1) on or about July 5, 2018, Michael Gangi Plumbing and Heating Contractors, Inc. d/b/a Gangi Plumbing and Heating Contractors (MGPHC or borrower) executed a $450,000.00 promissory note in favor of BOPI Federal Bank (BOFI) (Note #1), which was secured by a mortgage executed by defendants Rosario Gangi (Rosario) and his sister, Josephine, on the Bay Ridge Ave. Property (Loan #1), and (2) on or about October 15, 2018, MGPHC executed a $160,000.00 promissory note in favor of BOFI (Note #2), which was secured by a mortgage on the 76^th Street Property (Loan #2) (NYSCEF Doc No. 2, complaint at ¶¶ 14, 16, 21 and 23). The complaint alleges that defendant Rosario guaranteed the loans (id. at ¶¶ 15 and 22). The complaint alleges that defendant Josephine "is an individual who currently resides at [the 76^th Street Property] and is named as a party Defendant in Order to foreclose her interest in the mortgaged premises as a tenant^[1] (id. at ¶ 7 [emphasis added]), Notably, paragraph 16 of the July 5, 2018 and the October 15, 2018 notes, both of which were entitled "Business Promissory Note and Security Agreement," contained identical choice of law and venue provisions which provide that:

"(c) Lender is an FDIC insured, federal savings association and this Loan Agreement is approved, and the proceeds are disbursed, by Lender in Nevada. CONSEQUENTLY, THIS LOAN AGREEMENT WILL BE GOVERNED BY FEDERAL LAW APPLICABLE TO AN FDIC INSURED INSTITUTION AND TO THE EXTENT NOT PREEMPTED BY FEDERAL LAW, THE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO CONFLICT OF LAW RULES. The legality, enforceability and interpretation of this Agreement and the amounts contracted for, charged and reserved under this Loan Agreement will be governed by such laws.

"(d) Borrower and Lender agree that any action or proceeding to enforce any rights or obligations arising out this Loan Agreement shall be commenced in the state (or commonwealth, as the case may be) of Borrower's address set forth in Section 1 above ('Borrower's State') and Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served by registered or certified mail to Borrower at the address specified by Borrower above in Section 1, or as otherwise provided by the laws of the Borrowers State or the United States of America. Borrower and Lender agree that venue is proper in Such courts, .

(NYSCEF Doc Nos. 3 and 6 at ¶ 16 [c] and [d]).

The Business Promissory Note and Security Agreements are annexed collectively to the complaint as Exhibits A and C with the respective "Business Loan Summary" stating that "[i]f there is any conflict between the terms of this Business Loan Summary and the related Business Promissory Note and Security Agreement entered into by borrower, the terms of the Business Promissory Note and Security Agreement shall govern" (id.).

The Business Promissory Notes and Security Agreements are secured by the first and second mortgages on the Bay Ridge Ave. and 76 ^th Street Properties, both of which provide that the "enforcement" of the first and second mortgages "shall be governed" by the laws of the State of New York:

"Governing Law. The creation, perfection, priority and enforcement of the security interest created pursuant to this Mortgage shall be governed by, arid construed, and interpreted in accordance with, the laws of the Stale of blew York ('Property Jurisdiction') without regard to the conflict of laws provisions of the Property Jurisdiction. The provisions of this Security instrument relating to the obligations secured hereby or to any agreement, instrument or document giving rise to the obligations secured hereby shall be governed by and Construed and interpreted in accordance with, the governing law of the Note. Nothing in this Mortgage shall be construed or interpreted to provide that any other agreement, instrument or document shall be governed by the laws of the Property Jurisdiction. . . ." Gee NYSCEF Doc Nos. 5 and 8 at page 8 [emphasis added]).

The complaint alleges that MGPHC and Rosario "failed to make payment under Note #1 and Continuing Guaranty #1 beginning on or about March 28, 2019 and continuing each day thereafter . . and "failed to make payment under Note #2 and Continuing Guaranty #2 beginning on of about October 12, 2018 and continuing each day thereafter ..." (id. at ¶¶ 18 and 25). The complaint asserts: (1) the first cause of action to foreclose on the first and second mortgages and guarantees; (2) the second cause of action against MGPHC to foreclose on collateral, including equipment and machinery; and (3) a third cause of action for an award of attorneys' fees.

On February 6, 2020, all of the defendants with the exception of the. New York State Department of Taxation and Finance (which never answered), collectively answered the complaint, asserted affirmative defenses/including lack of personal jurisdiction, and two counterclaims for: (1) a judgment declaring that the loans are usurious, and (2) violation of GBL § 349 (h) (see NYSCEF Doc No. 10).

On February 18, 2020, Axos e-filed an affidavit of service of the pleadings upon MGPHC by delivering the documents to the New York Secretary of State on February 7, 2020 (NYSCEF Doc No. 11).

Axos' First Dismissal Motion

On August 7, 2020, during the Covid-19 pandemic,^[2] Axos moved to dismiss defendants' counterclaims. By an October 21, 2020 stipulation, the parties agreed that "[t]he defendants' first counter-claim of usury A dismissed with prejudice[,]" "[t]he defendants' second counter-claim is dismissed without prejudice pursuant to CPLR 3217 with leave to re-plead within 15 days" and "[t]he defendants will Amend its Answer within 15 days" (see NYSGEF Doc No. 102 [emphasis added]).

Defendants' Amended Answer

On November 4, 2020, defendants (with the exception of the New York State Department of Taxation and Finance) collectively e-fiied an amended answer asserting affirmative defenses, including lack of personal jurisdiction,^[3] criminal usury and unclean hands. Defendants also asserted counterclaims for: (1) violation of GBL § 349 (h) and (2) fraud by allegedly misrepresenting to Josephine in the HUD-1 statement that there was no pre-payment penalty (see NYSCEF Doc No. 30, amended answer at ¶¶ 16-27 and 28-37).

Axos' Second Dismissal Motion

On February 12, 2021, also during the Covid-19 pandemic, Axos moved to dismiss the counterclaims in defendants' amended answer. By a May 28, 2021 decision and order, this court granted Axos' dismissal motion (see NYSCEF Doc No. 53). Defendants' counterclaim for violation of GBL § 349 was dismissed because the allegedly deceptive acts were not directed towards a "consumer" such as a homebuyer, but rather towards a....