Cdr Creances S.A. v. Euro-American Lodging Corp.

• Decision Date: 22 May 2007
• Docket Number: 8306.,8307.,8308A.,8306A.,8308.
• Parties: CDR CRÉANCES S.A., as Successor to SOCIÉTÉ DE BANQUE OCCIDENTALE, Respondent, v. EURO-AMERICAN LODGING CORPORATION et al., Appellants, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

43 A.D.3d 45

837 N.Y.S.2d 33

2007 NY Slip Op 04338

CDR CRÉANCES S.A., as Successor to SOCIÉTÉ DE BANQUE OCCIDENTALE, Respondent, v. EURO-AMERICAN LODGING CORPORATION et al., Appellants, et al., Defendants.

8306.

8306A.

8307.

8308.

8308A.

Appellate Division of the Supreme Court of the State of New York, First Department.

May 22, 2007.

Pavia & Harcourt LLP, New York City (Steven Skulnik of counsel), and Bryan Cave LLP, New York City (Suzanne M. Berger and Robert A. Wolf of counsel), for Euro-American Lodging Corporation, appellant.

Montclare & Wachtler, New York City (Paul D. Montclare of counsel), for Macson appellants.

Herrick Feinstein LLP, New York City (Scott T. Tross of counsel), for Atlantic Bank of New York, appellant.

Kellner Herlihy Getty & Friedman, LLP, New York City (Douglas A. Kellner, Arthur W. Greig and Bruce J. Bergman of counsel), for CDR Créances S.A., respondent.

OPINION OF THE COURT

CATTERSON, J.

In this appeal from an order and judgment of foreclosure on a hotel building located in midtown Manhattan, defendants-appellants Euro-American Lodging Corporation et al. (hereinafter referred to as EALC) assert that the motion for summary judgment of plaintiff CDR Créances S.A. (hereinafter referred to as CDR) should have been denied since a triable issue of fact exists as to the date when the cause of action accrued. For the reasons outlined below, this Court agrees. The order and judgment should be modified and the matter remanded for discovery to ascertain whether, in 1996, there was a renewal of the $82 million loan agreement between EALC and the plaintiff.

The answer to this seemingly simple question has been mired in 16 years of rancor and disagreement now spread before this Court in three different appeals which, for all their apparent multi-million dollar complexity, present issues no different than a garden-variety, single-residence foreclosure. The property at the center of the instant action is located at West 52nd Street. The conversion of this property into a Flatotel hotel is the business venture that brought together Société de Banque Occidentale (hereinafter referred to as SDBO), a wholly owned subsidiary of the French bank Crédit Lyonnais and predecessor-in-interest of CDR, and EALC, a United States corporation.

Initially, when EALC was incorporated in 1990, SDBO was one of its two shareholders, the other being SNC Coenson International et Cie (hereinafter referred to as SNC). As partners, SDBO and SNC had developed other Flatotel hotels in Paris with some success. As in those ventures, so in this one SDBO was to provide the financing of $56.4 million while SNC would provide the hotel industry expertise. The principal was to be repaid within several years based on the anticipated sale of the property which was purchased at a "distressed" price.

Subsequently, SDBO learned that foreign banks in the United States could not be shareholders in nonbanking businesses. So, while SNC nominally purchased SDBO's share in EALC for $50,000 (which, in fact, was never paid), a new loan agreement was drawn up in May 1991 with SDBO now providing financing of $82,704,990. The loan would mature in five years but could be renewed for a further five-year period if the lender found no violations of the agreement. Further, the loan funds were to be disbursed in stages conforming to a construction budget and plans and could be withheld in the event of failure to conform with the agreement.

Seventy-five million dollars of the loan was secured by mortgages (converted into two separate liens), a guaranty by two Coenson entities, the assignment of rents and leases, a security agreement and a pledge of 500 EALC shares each by Flatotel and Coenson. EALC was required to pay the taxes on the building. The loan agreement was governed by French law.

Very soon thereafter, in 1992, the relationship soured. Alleging that EALC was diverting funds to a software company housed in the new property, SDBO refused to disburse any more funds thereby allegedly delaying construction. In August 1992, EALC initiated an action to compel SDBO to perform under the agreement. The action was brought in the Court of Commerce in Paris. SDBO counterclaimed that EALC had defaulted, and sought to accelerate the loan.

In June 1993, the trial-level Paris Commercial Court ruled that the loan agreement was valid, dismissed SDBO's counterclaim and denied SDBO the right to terminate the agreement. It also directed disbursement of the balance of the loan funds of $8,390,091 to EALC along with payment of delay damages to EALC in the amount of $2 million. SDBO refused to honor the award. EALC proceeded to enforce the judgment and French authorities seized the funds due EALC in September 1993. SDBO appealed.

On July 3, 1996, the Paris Court of Appeal, in an interlocutory decision, affirmed the lower court in large part but ordered that the $2 million damages be reassessed by an expert. SDBO appealed to France's Supreme Court. In March 2000, the French Supreme Court rejected SDBO's petition, and the allegation that EALC had defaulted because of the amounts paid to the software company. In 2001, at both parties' request, the matter was temporarily suspended by the Paris Court of Appeal, but then was restored to the calendar in January 2002 with both parties raising new issues.

In February 2003, the Paris Court of Appeal ordered that CDR Créances (now successor-in-interest to SDBO) pay EALC $790,779 with interest in damages caused by interruption of construction. It also ordered EALC to repay the loan, which it declared matured as of May 2001, in the amount of $82,704,990 with interest as of the date of the loan, as well as $13,923,311 with interest in reimbursement for taxes paid to New York City. On May 23, 2003, EALC petitioned France's high court to review the judgment.

In the meantime, by summons and complaint dated May 8, 2003, CDR commenced an action in New York to foreclose the mortgages based on EALC's default on the same loan agreement at issue in the French action. Further, upon CDR's request, the New York court appointed a temporary receiver. EALC asserted in its answer, that, inter alia, the foreclosure action was barred under the provision for an election of remedies pursuant to RPAPL 1301.

RPAPL 1301 provides:

"1. Where final judgment for the plaintiff has been rendered in an action to recover any part of the mortgage debt, an action shall not be commenced or maintained to foreclose the mortgage, unless an execution against the property of the defendant has been issued upon the judgment to the sheriff ... and has been returned wholly or partly unsatisfied."

In addition, Atlantic Bank, the holder of another ($23 million) mortgage on the West 52nd Street property, intervened in the foreclosure action, and moved to dismiss under RPAPL 1301 on the grounds of the pendency of the French lawsuit. By order dated February 16, 2005, the first foreclosure action was dismissed.

In September 2003, while the first foreclosure action was pending, CDR commenced an action, by motion for summary judgment in lieu of complaint to recognize the French judgment (CPLR 5303) and to attach EALC's New York assets. The court held that an action to recognize a foreign judgment under CPLR 5303 during the pendency of a mortgage foreclosure action does not violate RPAPL 1301, reasoning that the CPLR 5303 action is not "to recover any part of the mortgage debt" but is founded on a judgment. Therefore, the court observed, the judgment creditor does not seek any new relief, but merely asks the court to ministerially recognize a foreign judgment and convert it to a New York judgment. By order entered March 22, 2005 (about a month after dismissal of the first foreclosure action), Supreme Court granted CDR's motion for summary judgment to recognize the French judgment and denied the cross motion to dismiss.¹

Given the CPLR's restriction on money judgments based on instruments secured by mortgage (see CPLR 5236 [b]), and the fact that the property on West 52nd Street is EALC's sole asset it is not surprising that the sheriff's execution was returned marked "unsatisfied."²

Eleven days later, on May 26, 2005, CDR commenced this second foreclosure action pursuant to RPAPL 1301, which permits an action for foreclosure once a money judgment is returned unsatisfied. EALC and defendants-appellants Macson and Atlantic Bank asserted, inter alia, the affirmative defenses of the six-year statute of limitations, laches and equitable estoppel. CDR moved for summary judgment in mid-July 2005 before any discovery.

On October 11, 2005, the motion court ruled that CDR was entitled to foreclosure on the hotel building. The motion court held that the French courts had "sole and exclusive" jurisdiction to determine any occurrence of an "Event of Default." Further, the court held:

"It is beyond peradventure that such an Event of Default was determined by Paris Court of Appeal in its February 12, 2003 Judgment, which found that the Loan became due on May 10, 2001, and ordered that EALC pay CDR the full amount of principal and additional advances for real property taxes ... . Thus, the debt was accelerated as of May 10, 2001, which triggered the accrual of plaintiff's claim under the Mortgage, which was timely interposed under the six years limitation period."

Setting aside the fact that it is semantically incoherent to state that a debt is accelerated as of the date of its maturity, the motion court erred in granting CDR's motion for summary judgment because it ignored the issue of fact arising as to whether the loan was, in fact, renewed in 1996. Instead, the motion court incorrectly construed the French court's ruling as an unequivocal determination that the loan became due as of May 10, 2001 and so erroneously applied collateral and judicial estoppel principles to the determination. Second, it compounded its error by holding that plaintiff's foreclosure cause of...