Fieldpoint Priv. Bank & Tr. v. 78 Realty Holdings

211 N.Y.3d 186

227 A.D.3d 777

FIELDPOINT PRIVATE BANK & TRUST, appellant,

v.78 REALTY HOLDINGS, LLC, respondent, et al., defendants.

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

Argued—November 28, 2023

May 8, 2024

Berlandi Nussbaum & Reitzas LLP, New York, NY (John P. O’Brien of counsel), for appellant.

Craig Stuart Lanza, PLLC, Brooklyn, NY, for respondent.

ANGELA G. IANNACCI, J.P., ROBERT J. MILLER, LILLIAN WAN, CARL J. LANDICINO, JJ.

DECISION & ORDER

In an action to foreclose a mortgage, the plaintiff appeals from an order of the Supreme Court, Kings County (Lawrence Knipel, J.), dated July 11, 2022. The order granted the motion of the defendant 78 Realty Holdings, LLC, pursuant to CPLR 3211(a) to dismiss the complaint insofar as asserted against it for failure to comply with RPAPL 1301 and denied the plaintiff’s cross-motion, inter alia, for summary judgment on the complaint.

ORDERED that the order is modified, on the law, by deleting the provision thereof granting the motion of the defendant 78 Realty Holdings, LLC, pursuant to CPLR 3211(a) to dismiss the complaint insofar as asserted against it for failure to comply with RPAPL 1301, and substituting therefor a provision denying the motion; as so modified, the order is affirmed, without costs or disbursements.

In April 2016, the defendant 78 Realty Holdings, LLC (hereinafter 78 Realty), executed a promissory note in favor of the plaintiff, Fieldpoint Private Bank & Trust, for a loan in the sum of $3.5 million. The note was secured by a mortgage on certain real property located in Brooklyn and a guaranty by the defendant Michael Israel.

On January 12, 2018, the plaintiff sent a notice of default to, among others, 78 Realty and Israel, claiming that amounts due on December 1, 2017, and January 1, 2018, were not paid and that such nonpayment constituted an event of default under the note.

The plaintiff thereafter commenced an action in the Supreme Court, New York County, against 78 Realty and Israel, seeking to recover payment on the note. In May 2018, a judgment was entered in favor of the plaintiff and against 78 Realty and Israel in the total sum of $3,702,352.24 (hereinafter the New York County judgment).

On April 22, 2019, the plaintiff commenced this separate action against, among others, 78 Realty and Israel in the Supreme Court, Kings County, to foreclose the mortgage. The plaintiff alleged in the complaint that, although a judgment had been entered in the New York County action, "after due diligence," the plaintiff was not "able to collect under that judgment."

In lieu of an answer, 78 Realty moved to dismiss the complaint insofar as asserted against it, arguing that the instant action was barred by RPAPL 1301. Specifically, 78 Realty contended that because the plaintiff had already elected its remedy by commencing an action in New York County to recover under the note, RPAPL 1301(3) required that the plaintiff could only commence a subsequent foreclosure action after seeking leave of the court in the New York County action. The plaintiff opposed the motion and cross-moved, inter alia, for summary judgment on the complaint. In an order dated July 11, 2022, the Supreme Court granted 78 Realty’s motion and denied the plaintiff’s crossmotion. The plaintiff appeals.

[1] "Pursuant to RPAPL 1301, ‘[t]he holder of a note and mortgage may proceed at law to recover on the note or proceed in equity to foreclose on the mortgage, but must only elect one of these alternate remedies’ " (VNB N.Y. Corp. v. Paskesz, 131 A.D.3d 1235, 1235, 18 N.Y.S.3d 68, quoting Gizzi v. Hall, 309 A.D.2d 1140, 1141, 767 N.Y.S.2d 469). "Courts have recognized that RPAPL 1301 should be strictly construed since it is in derogation of a plaintiff’s common-law right to pursue the alternate remedies of foreclosure and recovery of the mortgage debt at the same time" (VNB N.Y. Corp. v. Paskesz, 131 A.D.3d at 1236, 18 N.Y.S.3d 68 [internal quotation marks omitted]; see Stone Mtn. Holdings, LLC v. Spitzer, 186 A.D.3d 520, 521, 129 N.Y.S.3d 426).

[2] RPAPL 1301(1) provides, in relevant part, " ‘[w]here final judgment for the plaintiff has been rendered in an action to recover any part of the mortgage debt, an action shall not be commenced or maintained to foreclose the mortgage, unless an execution against the property of the defendant has been issued … and has been returned wholly or partly unsatisfied’ " (Sabbatini v. Galati, 14 A.D.3d 547, 548, 789 N.Y.S.2d 504, quoting RPAPL 1301[1]; see VNB N.Y. Corp. v. Paskesz, 131 A.D.3d at 1236, 18 N.Y.S.3d 68). "RPAPL 1301(3), on the other hand, prohibits a party from commencing an action at law to recover any part of the mortgage debt while the foreclosure proceeding is pending or has not reached final judgment, without leave of the court in which the foreclosure action was brought" (VNB N.Y. Corp. v. Paskesz, 131 A.D.3d at 1236, 18 N.Y.S.3d 68 [internal quotation marks omitted]; see Marine Midland Bank v. Lake Huntington Dev. Group, 185 A.D.2d 395, 396, 585 N.Y.S.2d 836).

[3] Contrary to 78 Realty’s contention, RPAPL 1301(3) did not act to bar the plaintiff from commencing this foreclosure action, since RPAPL 1301(3) only applies to bar the commencement of a separate action to recover any part of the mortgage debt "while a foreclosure action is pending" or after final judgment for the plaintiff in such a foreclosure action (HSBC Bank USA, N.A. v. Kading, 204 A.D.3d 649, 651, 165 N.Y.S.3d 595 [emphasis added and internal quotation marks omitted]; see VNB N.Y. Corp. v. Paskesz, 131 A.D.3d...