Windward Bora, LLC v. Shami

1

Windward Bora, LLC, Plaintiff, v. Ezra Shami; Rachel Shami; Rachel Weiss; New York City Department of Transportation Parking Violations Bureau; “JOHN DOE” and “JANE DOE,” said names being fictitious, it being the intention of Plaintiff to designate any and all occupants, tenants, persons, or corporations, if any, having or claiming an interest in or lien upon the premises being foreclosed herein, Defendants.

No. 20-CV-3668

United States District Court, E.D. New York

January 10, 2024

Block J.

REPORT AND RECOMMENDATION

JOSEPH A. MARUTOLLO, UNITED STATES MAGISTRATE JUDGE:

Plaintiff Windward Bora, LLC filed this action on August 13, 2020 seeking to foreclose on a mortgage encumbering a property pursuant to New York Real Property Actions and Proceedings Law (“NY RPAPL”) §§ 1301 et seq. See Dkt No. 1 (“Compl.”). The Complaint names Ezra Shami, Rachel Shami, Rachel Weiss, the New York City Department of Transportation Parking Violations Bureau (“NYC PVB”), “John Doe,” and “Jane Doe” as Defendants. Defendants Ezra Shami and Rachel Shami passed away after litigation commenced and were subsequently dismissed from the action.^[1]See Dec. 6, 2021 Dkt. Order.

Currently pending before this Court, on a referral from the Honorable Frederic Block, United States District Judge, is Plaintiff's motion for default judgment against Defendant Weiss and Defendant NYC PVB. See Dkt. No. 44; see also May 12, 2023 and Jan. 3, 2024 Referral Orders.^[2] Defendant Weiss filed an opposition to Plaintiff's motion, see Dkt No. 45; Defendant NYC PVB did not.

For the reasons set forth below, this Court respectfully recommends that Plaintiff's motion for default judgment be denied and that the Clerk's entries of default be vacated and set aside.

I. Background

A. Factual Allegations

The following facts are taken from the Complaint and Plaintiff's motion for default judgment (Dkt. No. 44); the facts are assumed to be true for the purposes of this motion. See Esquivel v. Lima Rest. Corp., No. 20-CV-2914 (ENV) (MMH), 2023 WL 6338666, at *1 (E.D.N.Y. Sept. 29, 2023) (citing Bricklayers & Allied Craftworkers Loc. 2 v. Moulton Masonry & Constr., LLC, 779 F.3d 182, 187-90 (2d Cir. 2015)).

On January 3, 2007, Ezra and Rachel Shami opened an equity reserve line of credit with National City Bank for $350,000 (the “Note”). Compl. ¶ 12; see Dkt. No. 1-2 (the Note). The Note is entitled “Equity Reserve Agreement - National Home Equity,” and provides the borrower an “open-end line of credit . . . to obtain cash advances [] from time to time.” See Note, at 1. The Note allows the borrower to obtain a credit card to acquire cash advances on the line of credit. Id. The Note sets a credit maximum of $350,000, but the borrower is not obligated to use the entire line of credit. Id. The total amount due by the borrower under the line of credit depends on the previous monthly payments, the applicable interest rate, and related charges. Id. at 2-3.

Attached to the Note are four allonges. Id. at 8-11. An “allonge” is “defined in Black's Law Dictionary as ‘[a] slip of paper sometimes attached to a negotiable instrument for the purpose of receiving further indorsements when the original paper is filled with indorsements.'” Priv. Cap. Invs., LLC v. Schollard, No. 07-CV-757, 2011 WL 3176468, at n. 2 (W.D.N.Y. July 27, 2011) (citing BLACK'S LAW DICTIONARY 88 (9th ed. 2009)). The first allonge is endorsed to PNC Bank N.A., successor by merger to National City Bank. Id. at 8. The second is endorsed to RCS Recovery Services, LLC. Id. at 9. The third allonge, which was signed by RCS, is endorsed in blank (id. at 10), meaning it “specifies no particular indorsee.” N.Y. Uniform Commercial Code (“UCC”) § 3-204(2). The final allonge is endorsed to Miss Jones, LLC. Id. at 11. Plaintiff alleges that it is the “owner of the Note and is in possession of the wet-ink note with a proper allonge.” Compl. ¶ 20.

Defendants Ezra and Rachel Shami secured the Note by executing a mortgage (the “Mortgage”) on property located at 2083 East 1st Street, Brooklyn, New York 11223 (the “Property”). Id. ¶¶ 1, 13; see Dkt. No. 1-3 (Mortgage). The Mortgage contains a “due on sale” clause. See Dkt. 1-3 ¶ 6. The Mortgage was assigned to various lenders before eventually being assigned to Plaintiff by Miss Jones, LLC on November 7, 2019 pursuant to an assignment of mortgage (“AOM”). See Compl. ¶¶ 14-18; see Dkt. No. 1-4 (AOM). The AOM reflects a transfer of Miss Jones LLC's “interest under that certain Mortgage Dated 1/3/2007, in the amount of $350,000, executed by Rachel Shami to National City Bank and Recorded: 1/25/2007 . . .” See Dkt No. 1-4, at 13. Upon assignment of the Mortgage, Plaintiff claims it also came into possession of the Note. See Compl. ¶ 20.

On April 1, 2014, Ezra Shami allegedly defaulted on the Note, and since then, no payments have been made. Id. ¶ 19. According to a deed dated November 24, 2008 (the “Deed”), Ezra and Rachel Shami sold the Property to Defendant Weiss. See Dkt. No. 1-5 (the Deed). Plaintiff alleges that Defendant Weiss remains the owner of the Property and is thus entitled to the equity of redemption. See Compl. ¶¶ 6, 21. Defendant NYC PVB has a judgment docketed against the Defendants and/or the Property. Id. ¶ 7.

B. Procedural History

Plaintiff filed the Complaint on August 13, 2020, seeking to foreclose on the Property pursuant to NY RPAPL §§ 1301 et seq.^[3] See Compl. ¶¶ 12-25. Plaintiff served Defendant NYC PVB with the Complaint on October 1, 2020. Dkt. No. 12. Defendants Ezra Shami and Rachel Shami were served on October 5, 2020 (Dkt. Nos. 9-10), and Defendant Weiss was served on December 8, 2020 (Dkt. No. 13). On December 29, 2020, the Court issued an order directing Plaintiff to take action on the case. See Dec. 29, 2020 Order.

On January 5, 2021, Plaintiff requested certificates of default against each Defendant based on their “failure to plead or otherwise defend.” See Dkt. Nos. 15-19. The Clerk of Court granted Plaintiff's request and entered defaults against Defendants on January 11, 2021 pursuant to Fed.R.Civ.P. 55(a). See Dkt. Nos. 21-24. The next day, the parties filed a joint stipulation and motion wherein Defendants Ezra Shami, Rachel Shami, and Rachel Weiss (the “Appearing Defendants”) appeared in the case, consented to personal jurisdiction, and sought an extension of time to file an answer. See Dkt. Nos. 25-26. The Court granted the motion and ordered the Appearing Defendants to answer by February 12, 2021. See Jan. 12, 2021 Order. The Office of the Corporation Counsel has not appeared on behalf of NYC PVB.

On February 12, 2021, Appearing Defendants filed a letter requesting a pre-motion conference in anticipation of filing a motion to dismiss based on the expiration of the statute of limitations. See Dkt. No. 27. In their letter, Appearing Defendants reference an earlier action filed by Miss Jones, LLC, against Defendants for foreclosure of the Mortgage. See id. (citing Miss Jones, LLC v. Shami et al., 18-CV-3017 (ENV) (CLP) (“Miss Jones Action”)). According to Appearing Defendants, the Miss Jones Action and the instant action are “the same,” but in the complaint filed by Miss Jones, Defendants are alleged to have defaulted on the Note in 2007, not April 1, 2014, as Plaintiff alleges in the Complaint.^[4] Id. Based on these allegations, Appearing Defendants argue that Plaintiff's foreclosure claim is barred by New York's six-year statute of limitation. See Dkt. No. 27. On March 17, 2021, the Court held a pre-motion conference to address Defendant's letter. See Mar. 17, 2021 Minute Entry. Plaintiff and Appearing Defendants appeared at the conference; Defendant NYC PVB did not. See id. The Court referred the parties to mediation and ordered a stay of motion practice until after mediation was completed. See id.

On March 18, 2021, Defendant Ezra Shami passed away, and the case was automatically stayed pending a party substitution. See Dkt. No. 29; see also Mar. 31, 2021 Order. On August 8, 2021, Defendant Rachel Shami also passed away. See Dkt. Nos. 31, 33. On November 18, 2021, the Court held a teleconference with the parties in which both counsel for Plaintiff and Defendant Weiss appeared. See Nov. 18, 2021 Minute Entry. A discussion took place regarding the death of Defendants Ezra Shami and Rachel Shami and the resulting automatic stay. See id.; Dkt. No. 34. Following the conference, Plaintiff filed a letter seeking permission to dismiss the action against Defendants Ezra Shami and Rachel Shami, citing to delays in appointing an administrator for their estates. See Dkt. No. 34. Plaintiff explained that Defendants Ezra Shami and Rachel Shami were no longer considered necessary parties to the litigation because Plaintiff was not seeking a deficiency against their estates and had instead opted to recover the subject premises, which was owned by Defendant Weiss. Id. On December 6, 2021, the Court granted Plaintiff's request, dismissed Defendants Ezra Shami and Rachel Shami from the action, and lifted the stay on proceedings. See Dec. 6, 2021 Order.

On June 27, 2022, Plaintiff again filed a request for certificate of default against Defendant Weiss based on her alleged failure to “plead or otherwise defend.” See Dkt No. 35. That same day, Defendant Weiss filed a second letter seeking a pre-motion conference regarding a motion to dismiss for failure to join an essential party. See Dkt. No. 36. In her letter, Defendant Weiss claims that she is not a proper party to the foreclosure action because she is not alleged to be a party to the underlying indebtedness or to the original mortgage. See id. Defendant Weiss further contents that she was surprised by Plaintiff's motion, as she was “under the impression that the parties had settled this...