Wilmington Tr. v. 31 Prince St., LLC

1

WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE BENEFIT OF THE REGISTERED HOLDERS OF WELLS FARGO COMMERCIAL MORTGAGE TRUST 2018-C44, COMMERCIAL MORTGAGE PASS-THROUGH CERIFICATES, SERIES 20, Plaintiff, v. 31 PRINCE STREET, LLC, ET AL., Defendants.

No. 22-cv-5855 (JGK)

United States District Court, S.D. New York

May 25, 2023

MEMORANDUM OPINION AND ORDER

John G. Koeltl United States District Judge

The plaintiff, Wilmington Trust, brought this action against the defendants, 31 Prince Street, LLC, Wah Kok Realty Corp. Edmond Li, the New York City Office of Administrative Trials and Hearings, and any unknown tenants, occupants, persons, or corporations having or claiming an interest in the premises at issue in the litigation, in order to foreclose on a mortgage for a principal amount of $41,000,000 that is secured by certain of the Borrowers' properties and the rents and leases associated with those properties. On January 25, 2023, this Court granted the plaintiff's motion to appoint a receiver to manage the properties at issue in this case during the pendency of this litigation. See Wilmington Tr., Nat'l Assoc, v. 31 Prince Street LLC, No. 22-CV-5855, 2023 WL 414249, at *5 (S.D.N.Y. Jan. 25 2023) ("Receivership Opinion").

The plaintiff now moves for summary judgment pursuant to Federal Rule of Civil Procedure 56 seeking: (1) to foreclose on the properties at issue in this case and to strike certain affirmative defenses asserted by the defendants; (2) to enter a default judgment against defendant New York City Office of Administrative Trials and Hearings; (3) to refer the calculation of the amount owed by the defendants on an outstanding loan in this case (the "Loan") to the Magistrate Judge; and (4) to sever Count Five of the complaint, which asserts a claim for breach of contract against the Guarantor.

I.

The Court assumes familiarity with the facts of this case, which are set out in greater detail in the Receivership Opinion, 2023 WL 414249, at *1-2.

II.

The standard for granting summary judgment is well established. "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the materials in the record that "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). At the summary judgment stage, the court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the moving party meets its burden, the nonmoving party must produce evidence in the record and "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible." Ying Jing Gan v. City of N.Y., 996 F.2d 522, 532 (2d Cir. 1993).

III.

A.

The plaintiff has demonstrated its entitlement to foreclosure in this action. Under New York law, "in a foreclosure action, ... a plaintiff establishes its prima facie entitlement to summary judgment by producing evidence of the mortgage, the note, and the [defendants'] default." Gustavia Home, LLC v. Rutty, 785 Fed.Appx. 11, 14 (2d Cir. 2019). The plaintiff has already "produced documents demonstrating the assignment of the Note and Mortgage to the plaintiff," thereby "showing that it holds both the Note and the Mortgage," and those documents have also been produced as exhibits on this motion for summary judgment. See Receivership Opinion, 2023 WL 414249, at *4; ECF No. 74-1, Exs. 3, 4. In addition, there is no dispute that the defendants have defaulted on the Loan, which the Receivership Opinion sets out in greater detail. See Receivership Opinion, 2023 WL 414249, at *3-4. The plaintiff has thus demonstrated its prima facie entitlement to foreclosure.

The defendants dispute that the plaintiff has standing to seek foreclosure. "Where, as here, the defendant contests standing to foreclose, the plaintiff must prove its standing as part of its prima facie showing. A plaintiff establishes its standing in a mortgage foreclosure action by demonstrating that, when the action was commenced, it was either the holder or assignee of the underlying note." Gustavia, 785 Fed.Appx. at 14. In this case, the plaintiff has produced evidence that it is the holder of the relevant Note. See ECF No. 74-1, Ex. 3. Because "the transfer of the promissory note to the plaintiff before the action has commenced is sufficient to demonstrate standing because the mortgage passes incident to the note," the defendants' argument that the plaintiff lacks standing is without merit. Gustavia, 685 Fed.Appx. at 14.

The defendants' only response to the plaintiff's production of the relevant documents is to protest that the documents. cannot be considered on this motion for summary judgment because they are not presented in admissible form. "The evidence considered on summary judgment must generally be admissible evidence." LaSalle Bank Nat'l Ass'n v. Nomura Asset Cap. Corp., 424 F.3d 195, 205 (2d Cir. 2005). The defendants argue that the documents are not sufficiently authenticated as business records pursuant to the business records exception to the rule against hearsay provided by Federal Rule of Evidence 803(6) because the plaintiff has failed to lay a proper foundation for the admission of the documents.

"New York courts have repeatedly held that proof of physical possession ... is sufficient on its own to prove a plaintiff's standing to foreclose on the mortgage associated with the note." OneWest Bank, N.A. v. Melina, 827 F.3d 214, 223 (2d Cir. 2016). In this case, the plaintiff has provided proof of physical possession of the underlying Note and Mortgage. The plaintiff has also shown that the documents are sufficiently authenticated. The plaintiff has provided a declaration by Joao Gauer, the Vice President of Asset Management with the Special Servicer to the plaintiff, declaring that, based on Gauer's personal knowledge, the Note and Mortgage were maintained in the ordinary course of the Special Servicer's business. Gauer Deci., ECF No. 74, ¶ 3. The declaration also provides that "all the exhibits attached to the complaint and/or this declaration were received, created, or otherwise generated at or near the dates reflected on such documents . . . [and that the] exhibits . . . are true and correct copies of the corresponding documents in the Special Servicer's business records that are in the custody and control of the Special Servicer." Id. "Rule 803(6) allows business records to be admitted if witnesses testify that the records are integrated into a company's records and relied upon in its day to day operations," and "[e]ven if the document is originally created by another entity, its creator need not testify when the document has been incorporated into the business records of the testifying entity." United States v. Jakobetz, 955 F.2d 786, 801 (2d Cir. 1992). In this case, the Special Servicer relied on the documents provided during its day to day operations acting as the plaintiff's agent, and the documents were incorporated into its business "to a sufficient degree to permit an inference" as to their authenticity. Id. Accordingly, the plaintiff has established the authenticity of the documents sufficient to support standing in this action. See OneWest Bank, N.A. v. Guerrero, No. 14-cv-3754, 2018 WL 2727891, at *4 (S.D.N.Y. June 6, 2018) (finding that proof of physical possession by affidavit of the plaintiff's Assistant Secretary was sufficient to support standing in a mortgage foreclosure action).

Moreover, the plaintiff has also produced the assignments of the mortgage which detail the chain of ownership of the mortgage from the original lender to the plaintiff. See ECF No. 74-2, Ex. 9; ECF No. 74-3, Exs. 13, 17. The provided mortgage assignments are self-authenticating documents pursuant to Federal Rule of Evidence 902(1) because they are "attached to the recorded filing made with the New York City Department of Finance, which bears the appropriate seal and signature of a government official." CIT Bank, N.A. v. Schiffman, No. 16-cv-5772, 2022^: WL 912520, at *2 (E.D.N.Y. Mar. 29, 2022). And the mortgage assignments are covered by an exception to the rule against hearsay for records of documents that affect an interest in property under Federal Rule of Evidence 803(14). Id.

To establish standing to foreclose, the plaintiff needs to prove only that "it was either the holder or assignee of the underlying note." Gustavia, 785 Fed.Appx. at 14. "The plaintiff has produced documentary evidence demonstrating that the plaintiff is the assignee of the Note by virtue of assignments of the Mortgage, which reference the underlying Note." Wilmington Tr., Nat'l Ass'n v. Winta Asset Mgmt. LLC, No. 2 0 - c v -5309, 2022 WL 2657166, at *6 (S.D.N.Y. July 8, 2022). A "mortgage assignment referencing the transfer of the mortgage together with the notes and bonds or obligations described in the Mortgage is sufficient to assign both the Mortgage and the underlying Note." Id. Accordingly, the plaintiff has established that it is the assignee of the Mortgage, and thereby the assignee of the Note.

In any event, on a motion for summary judgment, the plaintiff needs to show only that the evidence provided "would be admissible at a trial." See Lyons v....