Bank of N.Y. Mellon v. Dematteis

222 A.D.3d 1

199 N.Y.S.3d 79

BANK OF NEW YORK MELLON, etc., respondent,

v.Joseph DEMATTEIS, etc., et al., appellants, et al., defendants.

2022–00522

Index No. 54252/21

Supreme Court, Appellate Division, Second Department, New York.

Argued—June 5, 2023

October 18, 2023

Galgano Sharp, LLP, White Plains, NY (Eric R. Sharp of counsel), for appellants.

Woods Oviatt Gilman, LLP, Rochester, NY (David B. Wildermuth of counsel), for respondent.

HECTOR D. LASALLE, P.J., FRANCESCA E. CONNOLLY, CHERYL E. CHAMBERS, JANICE A. TAYLOR, JJ.

OPINION & ORDER

CONNOLLY, J.

This appeal requires us to examine whether the stay provided by section 362 of the 1978 Bankruptcy Code ( 11 USC § 362 [a]) operates as a "statutory prohibition" under CPLR 204(a) to toll the statute of limitations to commence a mortgage foreclosure action against a defendant debtor who no longer owns the property that is the subject of the mortgage foreclosure action. We hold that the bankruptcy stay pursuant to subsection 362(a)(1) (see 11 USC § 362 [a][1]) tolls the statute of limitations for commencing a mortgage foreclosure action against the defendant debtor, regardless of whether that defendant owns the property at the time of the bankruptcy filing.

This appeal also requires us to determine whether the bankruptcy stay pursuant to subsection 362(a) applies to a nondebtor codefendant to which the defendant debtor transferred the property years before filing for bankruptcy. On the record before this Court, the plaintiff failed to meet its burden of raising a question of fact as to whether the bankruptcy stay applied to the nondebtor codefendant.

I. Factual and Procedural Background

On November 17, 2006, the defendant Joseph DeMatteis executed a note that was secured by a mortgage on certain real property located in Ossining (hereinafter the subject property). In 2012, DeMatteis deeded the subject property to the defendant Hunter Street Properties, LLC (hereinafter Hunter, and together with DeMatteis, the defendants).

On June 19, 2014, the Bank of New York Mellon f/k/a the Bank of New York, as trustee for the certificateholders of the CWABS, Inc., asset-backed certificates, series 2006–23 (hereinafter BONY Mellon), alleging that it was the holder and owner of the note and mortgage, commenced an action against the defendants, among others, to foreclose the mortgage (hereinafter the 2014 foreclosure action). The complaint in the 2014 foreclosure action alleged that DeMatteis defaulted under the terms of the note and mortgage by failing to make the payment due on December 1, 2008, and all subsequent payments thereafter, and the complaint elected to call due the entire unpaid balance. Thereafter, BONY Mellon moved in the 2014 foreclosure action for an order of reference, and Hunter cross-moved to dismiss the complaint insofar as asserted against it for lack of personal jurisdiction. Following a hearing, the Supreme Court held that BONY Mellon failed to establish by a preponderance of the evidence that Hunter was properly served with process, and granted Hunter's cross-motion to dismiss the complaint in the 2014 foreclosure action insofar as asserted against it. By order dated March 15, 2018, the court dismissed the 2014 foreclosure action based on BONY Mellon's failure to prosecute.

On October 20, 2020, DeMatteis filed a voluntary chapter 7 petition in bankruptcy in the United States Bankruptcy Court for the District of Arizona (hereinafter the bankruptcy proceeding). DeMatteis asserted in his bankruptcy petition that he did not have a legal or equitable interest in any real property as of October 20, 2020. The bankruptcy petition further provided that DeMatteis lived in Arizona. Neither the note nor the mortgage were listed on the bankruptcy petition. On February 2, 2021, DeMatteis received a discharge in the bankruptcy proceeding. The bankruptcy proceeding was closed on February 11, 2021.

By summons and complaint filed on April 8, 2021, the plaintiff, the Bank of New York Mellon, f/k/a the Bank of New York as trustee for registered holders of CWABS, Inc., asset-backed certificates, series 2006–23, alleging, inter alia, that it was the owner and holder of the note and mortgage, commenced this action against the defendants, among others.¹ The first cause of action alleged, among other things, that DeMatteis failed to repay the installment payment due on August 1, 2015, and subsequent payments, and that a principal balance of $485,618.82, together with accrued interest from July 1, 2015, and certain costs, expenses, taxes, charges, and fees, were due and owing. The first cause of action sought to foreclose the mortgage. The second cause of action sought reformation of the legal description of the subject property in the mortgage, and the third cause of action sought, inter alia, to quiet title to the subject property.² The defendants interposed an answer, asserting various affirmative defenses, including that the action was barred by the statute of limitations.

The defendants moved pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against them as time-barred. Among other things, the defendants contended that BONY Mellon accelerated the loan in the complaint for the 2014 foreclosure action, and therefore, the six-year statute of limitations for this foreclosure action began to run when BONY Mellon commenced the 2014 foreclosure action. As this action was commenced in April 2021, the defendants contended that it was untimely.

The plaintiff opposed the defendants’ motion, contending that the statute of limitations to commence this action against DeMatteis and Hunter was tolled. First, the plaintiff contended that the statute of limitations was tolled by a series of executive orders issued by then-Governor Andrew Cuomo in response to the COVID–19 pandemic (see Executive Order [A. Cuomo] Nos. 202.8 [9 NYCRR 8.202.8], 202.14 [ 9 NYCRR 8.202.14 ], 202.28 [ 9 NYCRR 8.202.28 ], 202.38 [ 9 NYCRR 8.202.38 ], 202.48 [ 9 NYCRR 8.202.48 ], 202.55 [ 9 NYCRR 8.202.55 ], 202.55.1 [9 NYCRR 8.202.55.1], 202.60 [ 9 NYCRR 8.202.60 ], 202.63 [ 9 NYCRR 8.202.63 ], 202.67 [ 9 NYCRR 8.202.67 ], 202.72 [ 9 NYCRR 8.202.72 ]) (hereinafter collectively the COVID–19 executive orders). The plaintiff further contended that the statute of limitations was tolled by the automatic bankruptcy stay of subsection 362(a) of the 1978 Bankruptcy Code (see 11 USC § 362 [a]). According to the plaintiff, this action was timely based upon the collective effect of the tolls pursuant to the COVID–19 executive orders and the automatic bankruptcy stay.

In the reply affirmation of their attorney, the defendants contended, inter alia, that the automatic bankruptcy stay did not toll the statute of limitations to commence this action because DeMatteis did not own the subject property at the time he filed his bankruptcy petition, and, as such, the subject property was not a part of the bankruptcy estate. The defendants further contended that, even if the automatic bankruptcy stay tolled the statute of limitations to commence the action against DeMatteis, it did not toll the statute of limitations to commence the action against Hunter because Hunter did not file for bankruptcy.

In an order dated December 2, 2021, the Supreme Court, among other things, granted that branch of the defendants’ motion which was to dismiss the second cause of action, for reformation of the mortgage, insofar as asserted against them. However the court denied those branches of the defendants’ motion which were to dismiss the remainder of the complaint insofar as asserted against them. The court did not address the effect of the COVID–19 executive orders or the automatic bankruptcy stay. Instead, the court held, inter alia, that, because the 2014 foreclosure action had been dismissed for lack of personal jurisdiction against Hunter, that action had not been commenced against Hunter, the debt had not been accelerated against Hunter, and the statute of limitations had not started to run. The court also held, in effect, that, because the 2014 foreclosure action had been discontinued against DeMatteis due to failure to prosecute, the statute of limitations had not started to run as against him. The defendants appeal. We modify.

II. Standard for CPLR 3211(a)(5) Motions

"A party may move for judgment dismissing one or more causes of action asserted against it on the ground that the cause of action may not be maintained because of the statute of limitations" ( HSBC Bank USA, N.A. v. Francis, 214 A.D.3d 58, 60–61, 185 N.Y.S.3d 173 ; see CPLR 3211[a][5] ). " ‘On a motion to dismiss a complaint pursuant to CPLR 3211(a)(5) on the ground that the statute of limitations has expired, the moving defendant must establish, prima facie, that the time in which to commence the action has expired’ " ( HSBC Bank USA, N.A. v. Francis, 214 A.D.3d at 61, 185 N.Y.S.3d 173, quoting Cadlerock Joint Venture, L.P. v. Trombley, 189 A.D.3d 1157, 1158, 134 N.Y.S.3d 236 ). " ‘If the defendant satisfies this burden, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period’ " ( HSBC Bank USA, N.A. v. Francis, 214 A.D.3d at 61, 185 N.Y.S.3d 173, quoting Barry v. Cadman Towers, Inc., 136 A.D.3d 951, 952, 25 N.Y.S.3d 342 ).

III. The Effect of the 2014 Foreclosure Action

Pursuant to CPLR 213(4), an action to foreclose a mortgage is subject to a six-year statute of limitations (see Bank of N.Y. Mellon v. Stewart, 216 A.D.3d 720, 190 N.Y.S.3d 80 ; GMAT Legal Title Trust 2014–1 v. Kator, 213 A.D.3d 915, 916, 184 N.Y.S.3d 805 ). " ‘When a mortgage is payable in installments, which is the typical practice, an acceleration of the entire amount due begins the running of the statute of limitations on the entire debt’ " ( Deutsche Bank Natl. Trust Co. v. Lubonty, 208 A.D.3d 142, 146, 171 N.Y.S.3d 556, q...