Roys Realty Grp. v. Eighth Ave. 154

1

2023 NY Slip Op 32678(U)

ROYS REALTY GROUP LLC, Plaintiff, v. EIGHTH AVENUE 154 LLC, DAVID SHEMEL, NEW YORK STATE DEPT. OF TAXATION &FINANCE, NEW YORK CITY DEPT. OF FINANCE, JOHN DOE NOS. 1-25, Defendant.

Index No. 850022/2022, Motion Seq. No. 003, NYSCEF Doc. No. 107

Supreme Court, New York County

August 2, 2023

Unpublished Opinion

DECISION + ORDER ON MOTION

FRANCIS A. KAHN, III A.J.S.C.

The following e-fifed documents, listed by NYSCEF document number (Motion 003) 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100 were read on this motion to/for JUDGMENT - SUMMARY.

Upon the foregoing documents, the motion is determined as follows:

The within action is to foreclose on a mortgage encumbering a parcel of commercial real property located at 154 8th Avenue New York, New York given by Defendant Eighth Avenue 154, LLC ("Eighth") to non-party 154 Roys Realty, LLC ("154 Roys"). The mortgage secures a loan with an original principal amount of $4,750,000.00 which is memorialized by a mortgage note which was allegedly assigned via endorsement to Plaintiff. The note and mortgage, both dated January 12, 2016, were and were executed by Defendant David Shemel ("Shemel"), as Authorized Signatory of Eighth. Concomitantly with these documents, Shemel executed a carveout guaranty of the indebtedness.

Plaintiff commenced this action alleging, inter alia, Defendants defaulted in repayment under the note. Defendants Eighth and Shemel answered jointly and pled fifteen [15] affirmative defenses, including lack of standing as well as four [4] counterclaims. Now, Plaintiff moves for inter alia summary judgment against Eighth and Shemel, for a default judgment against the non-appearing parties, to strike the affirmative defenses, to appoint a referee to compute and to amend the caption. Defendants Eighth and Shemel oppose the motion.

In moving for summary judgment on its foreclosure cause of action, Plaintiff was required to establish prima facie entitlement to judgment as a matter of law though proof of the mortgage, the note, and evidence of Defendant's default in repayment (see U.S. Bank, N.A v James, 180 A.D.3d 594 [1^st Dept 2020]; Bank of NY v Knowles, 151 A.D.3d 596 [1^st Dept 2017]; Fortress Credit Corp., v Hudson Yards, LLC, 78 A.D.3d 577 [1^st Dept 2010]). Since Defendant Milner raised lack of standing and failure to provide a contractual pre-foreclosure notice in the answer, Plaintiff was required to demonstrate its standing (see eg Wells Fargo Bank, N.A. v Tricario, 180 A.D.3d 848 [2^nd Dept 2020]) as well as its substantial compliance with the requisites under paragraph 22 of the mortgage (see eg Wells Fargo Bank, N.A. v McKenzie, 186 A.D.3d 1582, 1584 [2d Dept 2020]). Similarly, Plaintiff was obliged to demonstrate its strict compliance with RPAPL §§1303 and 1304 (see U.S. Bank, NA v Nathan, 173 A.D.3d 1112 [2d Dept 2019]; HSBC Bank USA, N.A. v Bermudez, 175 A.D.3d 667, 669 [2d Dept 2019]).

Proof supporting a prima facie case on a motion for summary judgment must be in admissible form (see CPLR §3212[b]; Tri-State Loan Acquisitions III, LLC v Litkowski, 172 A.D.3d 780 [1^st Dept 2019]). A plaintiff may rely on evidence from persons with personal knowledge of the facts, documents in admissible form and/or persons with knowledge derived from produced admissible records (see eg U.S. Bank N.A. v Moulton, 179 A.D.3d 734, 738 [2d Dept 2020]). No particular set of business records must be proffered, as long as the admissibility requirements of CPLR 4518[a] are fulfilled and the records evince the facts for which they are relied upon (see eg Citigroup v Kopelowitz, 147 A.D.3d 1014, 1015 [2d Dept 2017]).

Plaintiffs motion was supported by an affidavit from Roy Savelli ("Savelli"), a member of Plaintiff. Savelli claims his affidavit was made based upon "review and upon my personal knowledge of the stated facts and circumstances and books and records which Plaintiff maintains and are in my possession". However, he does not indicate what information is based on personal observation or derived from records (see Bank of N.Y.Mellon v Gordon, 171 A.D.3d 197, 206 [2d Dept 2019] ["a witness may always testify as to matters which are within his or her personal knowledge through personal observation"]). Savelli established a foundation under CPLR §4518 for admission of his employer's documents as business records via his personal knowledge of the record-keeping procedures of Plaintiff (see Bank of N.Y.Mellon v Gordon, 171 A.D.3d 197 [2d Dept 2019]). However, the salient loan documents were created by 154 Roys and Savelli failed to show knowledge of any other entity's record keeping practices (see Berkshire Bank v Fawer, 187 A.D.3d 535 [1st Dept 2020]; IndyMac Fed. Bank, FSB v Vantassell, 187 A.D.3d 725 [2d Dept 2020]). Savelli also failed to attest that any records received from prior makers were incorporated into the records Plaintiff kept and were routinely relied on in its business (see U.S. Bank N.A. v Kropp-Somoza, 191 A.D.3d918 [2d Dept 2021]; Tri-State Loan Acquisitions III, LLC v Litkowski, 172 A.D.3d 780, 782-783 [2d Dept 2019]; cf. Bank of Am., N.A. v Brannon, 156 A.D.3d 1, 10 [1st Dept 2017]).

As to Defendants' default, it "is established by (1) an admission made in response to a notice to admit, (2) an affidavit from a person having personal knowledge of the facts, or (3) other evidence in admissible form" (Deutsche Bank Natl. Trust Co. v McGann, 183 A.D.3d 700, 702 [2d Dept 2020]). Since Savelli's knowledge of Defendants' default was admittedly based solely upon a review of documents, the records evidencing the default (ie. an account ledger or similar records) were required to be proffered (see U.S. Bank v Rowe, 194 A.D.3d 978 [2d Dept 2021]). The default notices annexed to Savelli's affidavit, even if admissible^[1], were insufficient to establish the default in payment (see Bank of N.Y. Mellon v Mannino, 209 A.D.3d 707 [2d Dept 2022]).

Accordingly, since none of the evidence proffered to demonstrate the note, mortgage and Defendants' default is in admissible form, Movant failed to establish any of the prima facie elements of the cause of action for foreclosure (see Federal Natl. Mtge. Assn., v Allanah, 200 A.D.3d 947 [2d Dept 2021]).

As to the guarantor's liability, typically, "[o]n a motion for summary judgment to enforce a written guaranty, all that the creditor need prove is an absolute and unconditional guaranty, the underlying debt, and the guarantor's failure to perform under the guaranty" (City of New York v Clarose Cinema Corp., 256 A.D.2d 69, 71 [1st Dept 1998]). Based upon the foregoing absence of admissible evidence, neither the guarantee nor the underlying debt has been proven.

As to standing in a foreclosure action, the note is the dispositive instrument (Aurora Loan Servs., LLC v Taylor, 25 N.Y.3d 355, 361-362 [2015]). "'Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident'" (U.S. Bank N.A. v Carnivale, 138 A.D.3d 1220, 1221 [2d Dept 2016], quoting Onewest Bank, F.S.B. v Mazzone, 130 A.D.3d 1399, 1400 [2d Dept 2015]). However, "mere physical possession of a note at the commencement of a foreclosure action is insufficient to confer standing or to make a plaintiff the lawful holder of a negotiable instrument for the purposes of enforcing the note" (U.S. Bank N.A. v Moulton, 179 A.D.3d 734, 737 [2d Dept 2020]). "Holder status is established where the plaintiff possesses a note that, on its face or by allonge, contains an indorsement in blank or bears a special indorsement payable to the order of the plaintiff' (Wells Fargo Bank, NA v Ostiguy, 127 A.D.3d 1375, 1376 [2d Dept 2015] [citations omitted]). The indorsement must be made either on the face of the note or on an allonge "so firmly affixed thereto as to become a part thereof' (UCC §3-202[2]). "The attachment of a properly endorsed note to the complaint may be sufficient to establish, prima facie, that the plaintiff is the holder of the note at the time of commencement" (Deutsche Bank Natl. Trust Co. v Webster, 142 A.D.3d 636, 638 [2d Dept 2016]; cf JPMorgan Chase Bank, N.A. v Grennan, supra).

Here, the note was attached to the complaint, but the endorsement is contained in an allonge on a separate page which reveals no discernable evidence of firm attachment from a visual inspection (cf. U.S. Bank NA v Hunte, 215 A.D.3d 887 [2d Dept 2023]). Resultantly, Plaintiff was required, but failed, to establish the allonge was "firmly affixed" to the original note (see 938 St. Nicholas Ave. Lender LLC v. 936-938 Cliffcrest Hous. Dev. Fund Corp., ____A.D.3d___, 2023 NY Slip Op 03885 [1^st Dept 2023]; Nationstar Mtge., LLC v Calomarde, 201 A.D.3d 940, 942 [2d Dept 2022]; JPMorgan Chase Bank, N.A. v Grennan, supra at 1516). Not every attachment can satisfy UCC §3-202[2] and Savelli offered no description of the nature of the attachment (see HSBC Bank, USA, N.A. v Roumianlseva, 130 A.D.3d 983 [2d Dept 2015]; Slutsky v Blooming Grove Inn, 147 A.D.2d 208 [2d Dept 1989]).

Accordingly, Plaintiff failed to establish, prima facie, it had standing when this action was commenced. To the extent Plaintiff may have attempted to cure these defects with a further affidavit submitted in reply is inappropriate and may not be considered by the Court (see Deutsche Bank Natl. Trust Co. v Adlerstein, 171 A.D.3d 868, 870 [2d Dept 2019]; see also Ditech Fin., LLC v Cummings, 208 A.D.3d 634, 636 [2d Dept 2022]).

As to the branch of Plaintiff s motion to dismiss Defendants' affirmative defenses, ...