Aspro Mechanical Contracting, Inc. v. New York Housing Authority

• Decision Date: 14 July 1997
• Citation: 663 N.Y.S.2d 477,174 Misc.2d 244
• Parties: , 1997 N.Y. Slip Op. 97,551 In the Matter of ASPRO MECHANICAL CONTRACTING, INC., et al., Petitioners, v. NEW YORK CITY HOUSING AUTHORITY, et al., Respondents.
• Court: New York Supreme Court

Page 477

663 N.Y.S.2d 477

174 Misc.2d 244, 1997 N.Y. Slip Op. 97,551

In the Matter of ASPRO MECHANICAL CONTRACTING, INC., et al.,

Petitioners, v. NEW YORK CITY HOUSING AUTHORITY, et al., Respondents.

Supreme Court, Kings County.

July 14, 1997.

Dewey Ballantine, New York City (Sean P. McGrath, of counsel), for Fleet Bank and another, respondents.

Norman C. Schwartz, New York City, for Aspro Mechanical Contracting, Inc., and another, petitioners.

Jeffrey Schanback, New York City (Stephanie Krieg, of counsel), for New York City Housing Authority, respondent.

GERALD S. HELD, Justice.

In this action petitioners allege that respondents have improperly diverted trust funds. Respondents Fleet Bank and Fleet Bank, N.A. move for an order, pursuant to CPLR 3211(a)(7), dismissing the complaint on the ground that the complaint fails to state a cause of action and awarding respondents costs on this motion. Petitioners cross-move for an order, pursuant to CPLR 3025, granting leave to amend the petition.

In support of the motion to dismiss, an affidavit is submitted by Peter Anzivino in which he states that he is a banking officer of Fleet Bank, the successor in interest to Norstar Bank. Norstar entered into a project loan mortgage and security agreement in the amount of $728,144, dated May 28, 1992, made by Berry Street Corp. as mortgagor, and Norstar as mortgagee, which agreement was later modified by an agreement dated August 9, 1994, by the parties. Norstar also entered into a building loan mortgage and security agreement in the amount of $11,771,856 dated May 28, 1992, made by Berry Street Corp. as mortgagor to Norstar Bank as mortgagee, which agreement was later modified by an agreement dated August 9, 1994, by the parties. All of the aforesaid agreements were duly recorded in the City Register's Office of Kings County. Each of the mortgages contained the following provision:

"32. Lien Law. This mortgage is subject to the trust fund provisions of section 13 of the Lien Law of the State of New York."

Prior to March 26, 1992, Berry Street Corporation, owner of the Berry Street Houses, and Aneiro/Berry Street Corp., the contractor, entered into a contract with respondent New York City Housing Authority (NYCHA) to transfer for value title to the Berry Street Houses to respondent NYCHA upon completion of improvements by the owner and contractor in accordance with the contract terms. The contract provided for periodic monetary advances to be made by NYCHA to the owner and contractor as certain portions of the improvements were completed until transfer of title. Petitioners Aspro Mechanical Contracting, Inc. (Aspro) and Charles Iannazzo d/b/a C & I Associates (C & I) are licensed plumbing and electrical concerns respectively. On July 7, 1992, petitioner Aspro contracted to provide labor, materials and plumbing at the buildings, and on March 26, 1992, C & I also contracted to provide labor, materials and electrical work at the buildings. Aspro completed all contract work and received payment except for $63,949.20 which remains unpaid. C & I completed all contract work and received payment except for $31,565 which remains unpaid. In May 1996, petitioners commenced an action in this court (Index No. 16281/96) against Berry Street Corp, Aneiro Concrete Co., Aneiro/Berry Street Corp., Fireman's Fund Insurance Company, and the Travelers Insurance Company to recover the aforesaid sums. On November 8, 1996, judgment was rendered in favor of the petitioners against Berry Street Corp. and Aneiro/Berry Street Corp., defaulting respondents in the prior action. Thereafter, this lawsuit was commenced in which it is claimed that funds that were paid or payable to Fleet Bank were improperly diverted trust funds.

Fleet Bank argues that: its only function in the transaction was that of a lender/mortgagee; the subject mortgage documents contained the provision required by Lien Law § 13, to wit, "this mortgage is subject to the trust fund provisions of section 13 of the Lien Law of the State of New York"; and the mortgages were duly recorded as provided by Lien Law § 22. In response to petitioners' claim that the funds that were repaid to Fleet Bank pursuant to the mortgages and funds owed to Fleet in an escrow account were and are "trust assets" pursuant to Article 3-A of the Lien Law §§ 70-79(a), Fleet argues that lenders are not trustees under sections 70-79(a) of the Lien Law and their provisions therefore do not apply to it. "[A] lender is not a statutory trustee within article 3-A of the Lien Law" (Caledonia Lbr. & Coal Co. v. Chili Hgts. Apts., 70 A.D.2d 766, 417 N.Y.S.2d 536). Moreover, Fleet Bank's mortgages are superior to petitioners' judgment liens which did not arise until over four years later (see, Home Fed. Sav. & Loan Assn. v. Four Star Hgts., 70 Misc.2d 118, 121, 333 N.Y.S.2d 334). Fleet Bank also alleges that it never assumed control of the proceeds of any of the periodic monthly payments made by NYCHA to Berry Street Corp. and/or Aneiro/Berry Street Corp., nor "directed to whom and what amounts payments for the costs incurred in improving Berry Street Houses were to be made." Further, Fleet never stepped into the shoes of those entities. Therefore, Fleet requests that: its motion for dismissal be granted; the court declare that its mortgage interest is superior to petitioners' judgment liens; and award Fleet its costs of this proceeding.

In opposition to respondent's motion and in support of their cross motion for leave to amend the petition, petitioners contend that as a result of the mortgagee's failure to file a notice of lending as provided by Lien...