Wilmington Trust, National Association v. Winta Asset Management LLC et al
Filing
136
MEMORANDUM OPINION AND ORDER re: 103 MOTION for Summary Judgment and Other Relief. filed by Wilmington Trust, National Association. The Court has considered all of the arguments raised by the parties. To the extent not specifically ad dressed above, the arguments are either moot or without merit. For the reasons explained above, the plaintiff's motion for summary judgment and other relief is granted in part and denied in part. The plaintiff's motion for summary judgmen t of foreclosure pursuant to count I is granted. The plaintiff's motion to dismiss the Answering Defendants' first and third counterclaims is granted. The plaintiff's motion to sever count III of the FAC and the Answering Defendants 39; second counterclaim for later determination is also granted. The plaintiff's motion for summary judgment on counts II and IV of the FAC, and the plaintiff's motion for a default judgment against DOF, are denied without prejudice. The pl aintiff should file a proposed order to show cause for a default judgment against DOF by July 25, 2022. If the plaintiff seeks a judgment of foreclosure before all claims are decided pursuant to Rule 54(b), then the plaintiff may present the Court with a proposed judgment of foreclosure or seek a reference to the Magistrate Judge for an inquest as to the proper judgment. The Clerk is directed to close Docket No. 103. SO ORDERED. (Signed by Judge John G. Koeltl on 7/8/2022) (ks)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
WILMINGTON TRUST, NATIONAL
ASSOCIATION, AS TRUSTEE FOR THE
REGISTERED HOLDERS OF WELLS FARGO
COMMERCIAL MORTGAGE TRUST 2015-NXS2,
COMMERCIAL MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 2015-NXS2,
acting by and through Rialto Capital
Advisors, LLC, as Special Servicer
under the Pooling and Servicing
Agreement dated as of July 1, 2015,
20-cv-5309 (JGK)
MEMORANDUM OPINION
AND ORDER
Plaintiff,
- against WINTA ASSET MANAGEMENT LLC, ET AL.,
Defendants.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
The plaintiff, Wilmington Trust, National Association, as
Trustee for the Registered Holders of Wells Fargo Commercial
Mortgage Trust 2015-NXS2, Commercial Mortgage Pass-Through
Certificates, Series 2015-NXS2, acting by and through Rialto
Capital Advisors, LLC, as Special Servicer under the Pooling and
Servicing Agreement dated as of July 1, 2015, commenced this
action against Winta Asset Management LLC (the “Borrower”), New
York City Department of Finance (“DOF”), and Shuigun Chen (the
“Guarantor”) to foreclose a Consolidated, Amended and Restated
Mortgage, Assignment of Leases and Rents and Security Agreement
dated April 29, 2015 (the “Mortgage”), ECF No. 105–4, in the
original principal amount of $15,000,000. The Mortgage is
secured by, among other things, real property and improvements
known as 70 Broad Street, New York, NY 10004 (the “Property”).
See Callejas Decl., ECF No. 105 ¶ 5.
The plaintiff has brought a motion seeking the following
relief: (1) an order pursuant to Federal Rule of Civil Procedure
56 granting the plaintiff summary judgment against the Borrower
on counts I, II, and IV of the First Amended Complaint (“FAC”),
striking the Answering Defendants’ Answer, and dismissing the
Answering Defendants’ first and third counterclaims; (2) a
default judgment pursuant to Rule 55(b)(1) against DOF on counts
I, II, and IV of the FAC; (3) an order referring the calculation
of the amount of the judgment of foreclose and sale to the
Magistrate Judge; (4) pursuant to Rule 21, severance of count
III of the FAC as against the Guarantor and the Answering
Defendants’ second counterclaim for later determination; and (5)
any other relief the Court deems just and proper. See ECF No.
107, at 2.
For the reasons explained below, the plaintiff’s motion is
granted in part and denied in part.
I.
By way of a loan agreement dated April 29, 2015 (the “Loan
Agreement”), ECF No. 105–2, the Borrower obtained a loan of
$15,000,000 (the “Loan”) from Silverpeak Real Estate Finance LLC
(the “Original Lender”). Callejas Decl. ¶ 6. As collateral
2
security for repayment of the Loan, the Borrower executed,
acknowledged, and delivered to the Original Lender, among other
things, the Mortgage and an Assignment of Leases and Rents dated
April 29, 2015 (the “ALR”). The Mortgage granted the Original
Lender a security interest in the Property, and the ALR granted
the Original Lender a security interest in all Rents 1 generated
from the Property. Id. ¶¶ 8–9. The Guarantor executed a Guaranty
of Recourse Obligations dated April 29, 2015 (the “Guaranty”),
pursuant to which the Guarantor irrevocably and unconditionally
guaranteed to the Original Lender the payment and performance of
certain guaranteed obligations. Id. ¶ 10. The plaintiff argues
that, by virtue of, among other things, a series of allonges 2 to
the Note, 3 assignments of the Mortgage, and assignments of the
ALR, the plaintiff became and currently is the holder and owner
of the Loan Documents. 4 See, e.g., ECF No. 107, at 4; Callejas
Decl. ¶¶ 11–12. The Borrower and the Guarantor (together, the
“Answering Defendants”) argue that the plaintiff has not
1
The term “Rents” is defined in the Loan Agreement. See ECF No. 105–2, at 12.
“An allonge is a document attached to a negotiable instrument to provide
space for additional endorsements when the original document no longer has
room for endorsements.” Wells Fargo Bank, N.A. v. 390 Park Ave. Assocs., LLC,
No. 16-cv-9112, 2018 WL 4373996, at *1 n.2 (S.D.N.Y. Sept. 12, 2018).
2
The “Note” refers to the Consolidated, Amended and Restated Promissory Note
dated April 29, 2015, in the original principal amount of $15,000,000, that
the Borrower executed and delivered to the Original Lender. Callejas Decl. ¶
7.
3
4 The “Loan Documents” refer to the Note, the Mortgage, the ALR, the Loan
Agreement, the Guaranty, and all other documents executed in connection with
the Loan. Callejas Decl. ¶ 11.
3
produced sufficient evidence to demonstrate that it is the
lawful holder of the Note. See ECF No. 120, at 3.
The plaintiff argues that the Answering Defendants are in
default of their obligations under the Loan Documents as a
result of, among other things, the following events of default:
(1) the Borrower’s continued failure to remit the Monthly Debt
Service Payment 5 on the April 2020 Monthly Payment Date and each
Monthly Payment Date thereafter (the “Payment Default”); (2) the
Borrower’s continued failure to uphold the Cash Management
Obligations 6 for ten days after notice (the “Cash Management
Default”); (3) the Borrower’s undertaking of activities other
than the continuance of its present business, as well as its
cessation of operations of the Property as a mixed use office
and residential property (the “Cessation of Operations
Default”); (4) the Borrower’s continued failure to deliver the
Missing Borrower Required Records 7 for thirty days after notice
5 The “Monthly Debt Service Payment Amount” is defined in Section 2.2.1 of the
Loan Agreement. See ECF No. 105–2, at 17.
6 The “Cash Management Obligations” refer to the obligations set forth in
Section 3.1 of the Loan Agreement, which provides that the Borrower is
obliged to, among other things, “cause all Rents to be transmitted directly
by the Tenants of the Property into [the Clearing Account]” and, “if Borrower
or Manager receive any Rents,” then “Borrower or Manager shall deposit such
amounts into the Clearing Account within one (1) Business Day of receipt.”
Callejas Decl. ¶ 18; Loan Agreement, at 22.
The “Missing Borrower Required Records” refer to certain records that the
Borrower was obliged to provide to the plaintiff pursuant to Sections 6.32
and 6.33 of the Loan Agreement: namely, quarterly reporting for 2017, 2018,
First Quarter of 2019, Second Quarter of 2019, and Year End Annual Reports
for 2017 and 2018. Callejas Decl. ¶ 30; Loan Agreement, at 55–56.
7
4
(the “Borrower Financial Reporting Default”); and (5) the
Guarantor’s continued failure to deliver the Missing Guarantor
Required Records 8 for thirty days after notice (the “Guarantor
Financial Reporting Default”).
This action was commenced on July 10, 2020 by the
plaintiff’s filing a complaint against the Answering Defendants.
ECF No. 1. On September 28, 2020, the Court appointed Ian v.
Lagowitz as the Temporary Receiver of the Borrower’s Assets, 9
including the Property. See ECF Nos. 41–42. With leave of the
Court, the plaintiff filed the FAC on February 1, 2021. ECF No.
57. In the FAC, the plaintiff named DOF as an additional
defendant. The plaintiff effectuated service of process upon DOF
on February 16, 2021. ECF No. 66. DOF never answered or
responded to the FAC. Brandofino Decl., ECF No. 104 ¶ 9. On
October 13, 2021, the Clerk of this Court issued a certificate
of default against DOF. ECF No. 94.
In a Memorandum Opinion and Order dated July 13, 2021, the
Court denied the Answering Defendants’ motion to dismiss. ECF
No. 80. On July 28, 2021, the Answering Defendants filed their
Answer to the FAC, asserting nine affirmative defenses and three
8 The “Missing Guarantor Required Records” refer to the Guarantor’s tax
return, together with certain certifications and certificates, that the
Guarantor was required to provide the plaintiff pursuant to Section 4 of the
Guaranty. Callejas Decl. ¶ 35; Guaranty, ECF No. 105–6, at 3.
9 The “Borrower’s Assets” are defined in the Order Appointing Receiver, ECF
No. 42, at 2–4.
5
counterclaims. ECF No. 81. On August 13, 2021, the plaintiff
filed a reply to the Answering Defendants’ counterclaims. ECF
No. 82. On July 6, 2021, the plaintiff filed a notice of
pendency against the Property with the New York County Clerk’s
Office. Brandofino Decl. ¶ 13; ECF No. 104–11.
II.
At the outset, the Answering Defendants argue that the
Court lacks subject matter jurisdiction over this case. The
plaintiff asserts that the Court’s basis for subject matter
jurisdiction is diversity of citizenship pursuant to 28 U.S.C. §
1332. The Answering Defendants argue that there is not complete
diversity of citizenship in this case because DOF is an “arm of
the state” and a state is not a citizen for purposes of
diversity jurisdiction. See RL 900 Park, LLC v. Ender, No. 18cv-12121, 2021 WL 738705, at *7 (S.D.N.Y. Feb. 25, 2021). 10
Whether DOF is an arm of the state “is a fact-intensive
question turning on the factors laid out in Moor.” Id. (citing
Moor v. Alameda Cnty., 411 U.S. 693, 719 (1973)). 11 The Second
Circuit Court of Appeals has noted that the question of whether
Unless otherwise noted, this Memorandum Opinion and Order omits all
alterations, citations, footnotes, and internal quotation marks in quoted
text.
10
Among the factors the Court considered in Moor are: whether the entity at
issue has corporate powers, whether it can sue and be sued, whether it is a
local public entity in contrast to the state and state agencies, whether it
is liable for judgments against it, and whether it can sell, hold, or deal in
property. See 411 U.S. at 719–20.
11
6
an agency can be considered a citizen for purposes of diversity
jurisdiction depends on “the level of autonomy enjoyed by the
agency.” World Trade Ctr. Props., L.L.C. v. Hartford Fire Ins.
Co., 345 F.3d 154, 162 (2d Cir. 2003), abrogated on other
grounds by Wachovia Bank v. Schmidt, 546 U.S. 303 (2006). An
agency with more autonomy is more likely to be considered an
entity separate from the state. See id. Courts also look to how
similar an agency is to a corporation: if an agency is
“sufficiently corporation-like,” then “the definition of
corporate citizenship under 28 U.S.C. § 1332(c) becomes
applicable, and the entity will have its own separate
citizenship.” Eastern Sav. Bank v. Walker, 775 F. Supp. 2d 565,
568 (E.D.N.Y. 2011).
While there is no binding precedent determining the
citizenship of DOF, “Courts in this Circuit regularly hold that
they have diversity jurisdiction even when [DOF] is a party.” RL
900 Park, 2021 WL 738705, at *7 (collecting cases). Some courts
have explicitly held that DOF is a citizen of New York. See,
e.g., SAC Fund II 0826, LLC v. Burnell’s Enters., Inc., No. 18cv-3504, 2019 WL 5694078, at *4 (E.D.N.Y. Sept. 7, 2019), report
and recommendation adopted, 2019 WL 5956526 (E.D.N.Y. Nov. 13,
2019). Courts have also concluded that other New York City
agencies – to the extent they are suable entities - are New York
citizens because they are agents of the City of New York, which
7
is itself a municipal corporation and a New York citizen for
purposes of diversity jurisdiction. See Gray v. Internal Affs.
Bureau, 292 F. Supp. 2d 475, 477 n.1 (S.D.N.Y. 2003); Eastern
Sav. Bank, 775 F. Supp. 2d at 567 n.1.
DOF is plainly an agent of the City of New York. According
to its website, DOF is “the central nervous system of New York
City government.” NYC Department of Finance, About,
https://www1.nyc.gov/site/finance/about/about-us.page (last
visited July 8, 2022). DOF, among other things, collects revenue
for the City, manages the City’s treasury, administers the
City’s tax laws, adjudicates and collects parking tickets, and
acts as the City’s chief civil law enforcer. See id. Moreover,
New York law expressly provides that DOF can be sued in cases
such as this one that affect real property: “‘any department,
bureau, board, commission, officer, agency or instrumentality’
of a city may be named a defendant in an action affecting real
property.” Eastern Sav. Bank, 775 F. Supp. 2d at 567 n.1.
(quoting N.Y. Real Property Actions and Proceedings Law
(“RPAPL”) 202–a). 12 DOF is therefore a “local public entity,”
“New York City agencies are generally not amenable to suit ‘except where
otherwise provided by law.’ N.Y.C. Charter § 396. Section 202-a of RPAPL,
however, expressly contemplates city agencies being named as defendants in
actions affecting real property.” Miss Jones, LLC v. Brahmadutta Bisram, Y &
S Dev. of NY, Inc., No. 16-cv-7020, 2018 WL 2074200, at *3 n.2 (E.D.N.Y. Feb.
5, 2018), report and recommendation adopted, 2018 WL 2074205 (E.D.N.Y. Feb.
22, 2018). Accordingly, DOF is a suable entity in this action. But see SAC
Fund II, 2019 WL 5694078, at *4 n.6 (concluding that DOF is not a suable
entity).
12
8
Moor, 411 U.S. at 719, and is sufficiently independent from the
State of New York to be considered a citizen for purposes of
diversity jurisdiction, see World Trade Ctr. Props., 345 F.3d at
162 (finding that the Port Authority is a citizen of New York
and New Jersey). 13
Accordingly, there is complete diversity of citizenship
among the parties and the Court has subject matter jurisdiction
over this action. 14
III.
The plaintiff has moved for summary judgment against the
Borrower on counts I, II, and IV of the FAC. “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.
While the court in RL 900 Park, 2021 WL 738705, at *7, concluded that it
lacked diversity jurisdiction, that case is readily distinguishable. There,
the plaintiff – despite being prompted by the court for more details – “made
no attempt to show that [DOF] is a citizen of New York beyond the conclusory
pleading in the Amended Complaint.” Id. Here, by contrast, the plaintiff
pointed to facts and law sufficient to establish that DOF is, for purposes of
this case, a citizen of New York.
13
It is undisputed that the plaintiff is a citizen of Delaware, Borrower is a
citizen of the People’s Republic of China and New York, and Guarantor is a
citizen of the People’s Republic of China. The amount in controversy exceeds
$75,000, exclusive of interest and costs. See 28 U.S.C. § 1332(a).
14
9
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
Elec. 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). The parties agree that the substantive law
of New York governs this action.
A.
The plaintiff seeks summary judgment against the Borrower
on counts I, II, and IV of the FAC. Count I seeks a judgment of
foreclosure.
In a foreclosure action, under New York law, a
plaintiff establishes its prima facie entitlement to
summary judgment by producing evidence of the
mortgage, the note, and the defendant’s default. Where
. . . 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 Home, LLC v. Rutty, 785 F. App’x 11, 14 (2d Cir. 2019).
“The lender is entitled to summary judgment if it establishes by
documentary evidence the facts underlying its cause of action
and the absence of a triable fact.” U.S. Bank, N.A. v. Squadron
VCD, LLC, 504 F. App’x 30, 32 (2d Cir. 2012).
10
The plaintiff has set forth facts establishing the
Mortgage, the Note, and the Borrower’s default. The plaintiff
has produced documentary evidence establishing that: (1) the
Borrower executed the Note in favor of the Original Lender,
Callejas Decl. ¶ 7; ECF No. 105–3; (2) the Original Lender
advanced the Loan to the Borrower pursuant to the terms of the
Loan Agreement and the Note, Callejas Decl. ¶¶ 6–7; ECF Nos.
105–2, 105–3; (3) as collateral security for the payment of the
Loan, the Borrower executed, acknowledged, and delivered the
Mortgage to the Original Lender, Callejas Decl. ¶ 8; ECF No.
105–4; (4) the plaintiff is the assignee of the Note by virtue
of assignments of the Mortgage, which reference the transfer of
the Mortgage together with the Note, Callejas Decl. ¶ 11; ECF
Nos. 105–7, 105–8, 105–9, 105–10; and (5) the Borrower is in
default of its obligations under the Loan Documents because at
least two events of default occurred, see Callejas Decl. ¶¶ 14–
17, 23–29.
1.
The Answering Defendants seek to challenge the plaintiff’s
standing to foreclose by arguing that the plaintiff is not the
lawful holder of the Note. See ECF No. 120, at 3. The plaintiff
argues that the Answering Defendants waived their standing
challenge by failing to raise it in the Answer or the pre-answer
motion to dismiss. See ECF No. 122, at 2. The plaintiff is
11
correct that the Answering Defendants did not raise the issue of
standing in the Answer or pre-answer motion to dismiss.
Moreover, courts applying New York law have consistently held
that, in a mortgage foreclosure action, “where the defendant
fails to affirmatively state the defense of lack of standing in
the answer or in a pre-answer motion to dismiss, the issue is
waived.” US Bank Nat’l Ass’n v. Nelson, 93 N.Y.S.3d 138, 144
(App. Div. 2019); see also Wells Fargo Bank Minn., Nat’l Ass’n
v. Mastropaolo, 837 N.Y.S.2d 247, 250–51 (App. Div. 2007). 15
Because the Answering Defendants did not raise the issue of the
plaintiff’s standing to foreclose in their Answer or the preanswer motion to dismiss, the Answering Defendants waived their
standing challenge. 16
15 The New York legislature enacted RPAPL 1302-a in December 2019. That
statute provides:
Notwithstanding the provisions of [CPLR 3211(e)], any objection
or defense based on the plaintiff’s lack of standing in a
foreclosure proceeding related to a home loan, as defined in
[RPAPL 1304(6)(a)], shall not be waived if a defendant fails to
raise the objection or defense in a responsive pleading or preanswer motion to dismiss. A defendant may not raise an objection
or defense of lack of standing following a foreclosure sale,
however, unless the judgment of foreclosure and sale was issued
upon defendant’s default.
However, because this statute only applies to residential mortgage
foreclosure actions involving a “home loan” as defined in RPAPL 1304(6)(a),
see GMAC Mortg., LLC v. Winsome Coombs, 136 N.Y.S.3d 439, 448 (App. Div.
2020), the statute does not affect this case.
At argument, the Answering Defendants argued that they did not waive their
standing challenge because they did not possess evidence concerning how the
allonges are affixed to the Note until after filing their Answer and motion
to dismiss. The plaintiff pointed out that the Answering Defendants in fact
possessed this evidence as early as July 2020 (more than six months before
the Answering Defendants filed their motion to dismiss and one year before
16
12
In any event, the Answering Defendants’ standing challenge
fails on the merits. The Answering Defendants argue that the
plaintiff has failed to prove that the plaintiff was the lawful
holder of the Note when this action was commenced because the
plaintiff failed to comply with NY UCC § 3–202(2), which
“provides that when an indorsement is written on a separate
piece of paper from a note, the paper must be ‘so firmly affixed
thereto as to become a part thereof.’” U.S. Bank NA as Trustee
of Holders of the J.P. Morgan Mortg. Trust 2007-S3 Mortg. PassThrough Certificates v. Cannella, 99 N.Y.S.3d 579, 586 (Sup. Ct.
2019) (emphasis omitted) (quoting UCC § 3-202(2)). Courts have
held that summary judgment of foreclosure is inappropriate where
the plaintiff does “not submit any evidence to establish that
the purported allonge was so firmly affixed to the note as to
become a part thereof.” Wells Fargo Bank, N.A. v. Maleno-Fowler,
144 N.Y.S.3d 618, 619 (App. Div. 2021); see also Nationstar
Mortg., LLC v. Calomarde, 158 N.Y.S.3d 593, 595 (App. Div.
2022). The plaintiff does not respond to this argument in reply.
In this case, as in Cannella, 99 N.Y.S.3d at 592, the plaintiff
states only that the proffered allonges are “affixed” to the
Note. ECF No. 107, at 7; see also Callejas Decl. ¶ 11 (referring
to “a series of allonges to the Note”). Because the plaintiff
the Answering Defendants answered). See ECF No. 12 ¶ 7; ECF No. 12–2 (copy of
the Note together with the allonges).
13
does not provide evidence establishing how the allonges are
affixed to the Note, it is not clear that the allonges are
affixed firmly enough to the Note to satisfy UCC § 3-202(2). See
Cannella, 99 N.Y.S.3d at 592. 17 Accordingly, it is disputed
whether the plaintiff was the lawful holder of the Note at the
time this action was commenced.
However, to establish standing to foreclose, the plaintiff
need only prove that “it was either the holder or assignee of
the underlying note” when the action was commenced. Gustavia
Home, 785 F. App’x at 14 (emphasis added); see also OneWest
Bank, N.A. v. Melina, 827 F.3d 214, 222 (2d Cir. 2016) (“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.”);
Wells Fargo Bank, N.A. v. 390 Park Ave. Assocs., LLC, No. 16-cv9112, 2018 WL 4373996, at *7 (S.D.N.Y. Sept. 12, 2018) (“Even if
Plaintiff could not establish its prima facie case via physical
possession, it can establish its prima facie case based on
written assignment.”). The plaintiff has produced documentary
evidence demonstrating that the plaintiff is the assignee of the
For example, it is possible that the allonges are affixed to the Note by a
paper clip, a method that courts have found insufficient to satisfy UCC § 3202(2). See Cannella, 99 N.Y.S.3d at 588, 592.
17
14
Note by virtue of assignments of the Mortgage, which reference
the underlying Note. See Callejas Decl. ¶ 11; ECF Nos. 105–7,
105–8, 105–9, 105–10. The Answering Defendants do not address
the plaintiff’s argument that the plaintiff is the assignee of
the Note. “No special form or language is necessary to effect an
assignment as long as the language shows the intention of the
owner of a right to transfer it.” 390 Park Ave. Assocs., 2018 WL
4373996, at *7. Courts have held that 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 underlying Note.”
Id. In this case, the assignments of the Mortgage contain clear
references to the Note. See ECF No. 105–7, at 5 of 11; ECF No.
105-8, at 4 of 9; ECF No. 105–9, at 5 of 9; ECF No. 105–10, at 5
of 7. Accordingly, the plaintiff has established that it is the
assignee of the Note.
In sum, on the issue of standing, (1) the Answering
Defendants waived their standing challenge, and (2) in any
event, the Answering Defendants’ standing challenge fails on the
merits because the plaintiff has demonstrated that it is the
assignee of the Note. Therefore the plaintiff has established
its prima facie entitlement to summary judgment of foreclosure.
15
2.
“If the plaintiff establishes a prima facie case, the
burden then shifts to the defendant to demonstrate the existence
of a triable issue of fact as to a bona fide defense to the
action, such as waiver, estoppel, bad faith, fraud, or
oppressive or unconscionable conduct on the part of the
plaintiff.” Gustavia Home, 785 F. App’x at 14. The Answering
Defendants argue that summary judgment of foreclosure is
inappropriate because there are issues of material fact relating
to each default alleged by the plaintiff. See ECF No. 120, at 6–
12. If the plaintiff establishes that any one of the alleged
events of default occurred, then it is entitled to summary
judgment.
The Answering Defendants argue that the Payment Default is
disputed because the parties established a course of dealing
whereby the plaintiff would withdraw monthly payments from the
Borrower’s bank account. The Answering Defendants argue that the
plaintiff inexplicably discontinued this course of dealing in
April 2020. Section 2.2.1 of the Loan Agreement makes clear that
the Borrower must remit the Monthly Debt Service Payment on each
Payment Date. ECF No. 105–2, at 17. Section 8.1(a) of the Loan
Agreement provides that an Event of Default shall occur if,
among other things, “any portion of the Debt is not paid when
due.” Id. at 64. The Answering Defendants’ course of dealing
16
argument fails because (1) no provision of the Loan Agreement
could be modified absent a writing signed by the party against
whom enforcement is sought, see id. at 79; and (2) any course of
dealing would not have existed after May 2020, 18 and the
Borrower’s failure to remit the Monthly Debt Service Payment is
continuing, see Callejas Decl. ¶¶ 16–17. Finally, even if the
Borrower eventually made payments for the months of April and
May 2020, as the Answering Defendants claim, that would not cure
the Payment Default because that default is continuing.
Accordingly, the Payment Default is undisputed.
The Answering Defendants also dispute the Cessation of
Operations Default. See ECF No. 120, at 9–11. Section 5.15 of
the Loan Agreement provides that “Borrower shall not . . .
undertake or participate in activities other than the
continuance of its present business or otherwise cease to
operate the Property as a mixed use office and residential
property . . . .” ECF No. 105–2, at 45. Section 8.1(h) provides
that an Event of Default shall occur if, among other things, the
Borrower breaches any covenant contained in Section 5.15. Id. at
64. The Rent Roll attached to the Loan Agreement demonstrates
that, when the Loan Agreement was signed in April 2015, the
Any course of dealing would not have existed after May 2020 because the
plaintiff did not make a withdrawal from the Borrower’s bank account in April
2020 or thereafter, and because the plaintiff sent the Borrower a notice of
default on April 14, 2020 regarding, among other things, the Payment Default,
see ECF No. 105–11.
18
17
Property was fully occupied by four tenants. Callejas Decl.
¶ 25; ECF No. 105–2, at Schedule 3. However, the Property has
been vacant since April 2017. Callejas Decl. ¶ 26. The Answering
Defendants respond by arguing that they diligently attempted to
re-let the Property. The only evidence the Answering Defendants
offer in support of this argument is a listing agreement the
Answering Defendants entered into with Cushman & Wakefield to
re-let the Property. See ECF No. 119–8. But the Answering
Defendants do not provide any evidence of any efforts made by
Cushman & Wakefield or anyone else to re-let the Property.
Moreover, the term of the proffered listing agreement expired in
May 2018, id., at 2 of 5, and therefore the agreement does
nothing to undercut the existence of the Cessation of Operations
Default after May 2018. Accordingly, the Cessation of Operations
Default is undisputed.
The Court need not consider the remaining alleged events of
default at this stage because the plaintiff has established
conclusively that at least two events of default occurred.
The Answering Defendants asserted nine affirmative defenses
in the Answer, and the plaintiff specifically addressed and
moved to strike those affirmative defenses in the plaintiff’s
motion for summary judgment. But the Answering Defendants waived
those affirmative defenses by not raising them in opposition to
the plaintiff’s motion for summary judgment. See Triodetic Inc.
18
v. Statue of Liberty IV, LLC, 582 F. App’x 39, 40 (2d Cir.
2014); Palmieri v. Lynch, 392 F.3d 73, 87 (2d Cir. 2004); Fed.
Nat’l Mortg. Ass’n v. Karastamatis, 36 N.Y.S.3d 360, 362 (Sup.
Ct. 2016). Accordingly, the Answering Defendants have failed to
demonstrate a triable issue of fact as to a bona fide defense to
the plaintiff’s foreclosure claim, and the plaintiff is entitled
to summary judgment of foreclosure. See Gustavia Home, 785 F.
App’x at 14. 19 Because the plaintiff is entitled to summary
judgment of foreclosure, the Answering Defendants’ first and
third counterclaims, which both seek a judgment that the
Answering Defendants are not in default, see Answer, at 16, 18,
fail as a matter of law. The plaintiff’s motion to dismiss the
The Answering Defendants argue that the Court should deny summary judgment
because any issues relating to credibility should be determined by a factfinder at trial. ECF No. 120, at 17. This argument fails because the
plaintiff has demonstrated its entitlement to summary judgment of foreclosure
by relying on documentary evidence that does not raise issues of credibility.
The Answering Defendants also argue that the Court should invoke its
equitable authority to “consider the alleged damages suffered (if any) by
bondholders of this CMBS trust before permitting foreclosure.” Id. at 17–18
(capitalizations omitted). The Answering Defendants appear to argue that,
because there is no evidence that the bondholders of the plaintiff trust have
suffered losses, this action was brought solely to benefit the special
servicer, Rialto Capital Advisors, LLC. “A court’s resort to equity to deny
the remedy of foreclosure is . . . limited to cases wherein there is clear
and convincing evidence of fraud, exploitive overreaching or unconscionable
conduct on the part of the obligee to exploit an inadvertent,
inconsequential, technical, non-prejudicial default by the mortgagor.”
Deutsche Bank Nat’l Trust Co. v. Pascarella, 971 N.Y.S.2d 70, 2013 WL
2129149, at *5 (Sup. Ct. 2013). The Answering Defendants cite no authority
supporting the proposition that the Court should deny the remedy of
foreclosure in cases that are brought to benefit the special servicer.
Accordingly, there is no justifiable reason to deny the plaintiff the
foreclosure remedy to which it is entitled.
19
19
Answering Defendants’ first and third counterclaims is therefore
granted.
B.
The plaintiff also moves for summary judgment on counts II
and IV of the FAC, which seek the appointment of a receiver and
an accounting, respectively. However, the plaintiff failed to
set out the legal standards applicable to these claims and
explain why those standards are satisfied in this case.
Accordingly, the plaintiff’s motion for summary judgment on
counts II and IV of the FAC is denied without prejudice. The
plaintiff may make another motion for summary judgment
explaining why the plaintiff is entitled to summary judgment on
these claims.
IV.
The plaintiff also moves for a default judgment against
DOF. Pursuant to the Court’s Individual Practice VII, the
plaintiff must move for a default judgment by order to show
cause. Accordingly, this portion of the plaintiff’s motion is
also denied without prejudice. The plaintiff should consult the
Court’s Individual Practices regarding the contents of the
proposed order to show cause.
The plaintiff also moves for severance of count III of the
FAC and the Answering Defendants’ second counterclaim for later
determination in the event a future auction of the Property
20
results in a deficiency. This portion of the plaintiff’s motion
is unopposed. In any event, the Court concludes that these
claims – which concern the alleged breach of the Guaranty should be severed for later determination. “The court may . . .
sever any claim against a party.” Fed. R. Civ. P. 21. “[T]he
decision whether to grant a severance motion is committed to the
sound discretion of the trial court.” In re Merrill Lynch & Co.,
Inc. Rsch. Reps. Sec. Litig., 214 F.R.D. 152, 155 (S.D.N.Y.
2003). In determining whether to sever a claim, courts should
consider, among other things, whether severance would facilitate
judicial economy or avoid prejudice. See id. at 154–55. In this
case, severance of count III of the FAC and the Answering
Defendants’ second counterclaim will allow the foreclosure to
proceed without unnecessary delay. Moreover, any deficiency
claims could be rendered moot depending on the results of the
foreclosure sale. Accordingly, the plaintiff’s motion for
severance of count III of the FAC and the Answering Defendants’
second counterclaim for later determination is granted.
CONCLUSION
The Court has considered all of the arguments raised by the
parties. To the extent not specifically addressed above, the
arguments are either moot or without merit. For the reasons
explained above, the plaintiff’s motion for summary judgment and
other relief is granted in part and denied in part. The
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plaintiff's motion for summary judgment of foreclosure pursuant
to count I is granted. The plaintiff's motion to dismiss the
Answering Defendants' first and third counterclaims is granted.
The plaintiff's motion to sever count III of the FAC and the
Answering Defendants' second counterclaim for later
determination is also granted. The plaintiff's motion for
summary judgment on counts II and IV of the FAC, and the
plaintiff's motion for a default judgment against DOF, are
denied without prejudice.
The plaintiff should file a proposed order to show cause
for a default judgment against DOF by July 25, 2022. If the
plaintiff seeks a judgment of foreclosure before all claims are
decided pursuant to Rule 54(b), then the plaintiff may present
the Court with a proposed judgment of foreclosure or seek a
reference to the Magistrate Judge for an inquest as to the
proper judgment. The Clerk is directed to close Docket No. 103.
SO ORDERED.
Dated:
New York, New York
July 8, 2022
(
John G. Koeltl
Uh-· ed States District Judge
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