Courchevel 1850 LLC v. Alam

• Decision Date: 28 May 2020
• Docket Number: 17-CV-785 (RRM) (SMG)
• Citation: Courchevel 1850 LLC v. Alam, 464 F.Supp.3d 475 (E.D. N.Y. 2020)
• Parties: COURCHEVEL 1850 LLC, Plaintiff, v. Mohammed ALAM ; Koznitz I LLC; United States of America (Internal Revenue Service); NY State Department of Taxation and Finance; Citibank, N.A.; Citibank (South Dakota), New York City Environmental Control Board; New York City Transit Adjudication Bureau; New York City Parking Violations Bureau, Defendants.
• Court: U.S. District Court — Eastern District of New York

464 F.Supp.3d 475

COURCHEVEL 1850 LLC, Plaintiff,

v.Mohammed ALAM ; Koznitz I LLC; United States of America (Internal Revenue Service); NY State Department of Taxation and Finance; Citibank, N.A.; Citibank (South Dakota), New York City Environmental Control Board; New York City Transit Adjudication Bureau; New York City Parking Violations Bureau, Defendants.

17-CV-785 (RRM) (SMG)

United States District Court, E.D. New York.

Signed May 28, 2020

Filed June 1, 2020

Alan Smikun, The Margolin & Weinreb Law Group, LLP, Syosset, NY, for Plaintiff.

Solomon Rosengarten, Brooklyn, NY, for Defendant Koznitz I LLC.

Beth Patricia Schwartz, United States Attorneys Office, Brooklyn, NY, for Defendant United States of America (Internal Revenue Service).

MEMORANDUM AND ORDER

ROSLYNN R. MAUSKOPF, Chief United States District Judge.

In this foreclosure action, Defendant Koznitz I LLC ("Koznitz") is the current fee owner and occupant of the property, having purchased it from the original owner and mortgagor defendant Mohammed Alam (Def.’s Rule 56.1 Statement (Doc. No. 46) ¶ 1–2.) Koznitz objects to two recommendations from Magistrate Judge Gold's October 30, 2019, report and recommendation ("R&R"), which, among other things, recommended that the Court grant plaintiff Courchevel 1850 LLC ("Courchevel") summary judgment. For the reasons stated below, the Court denies the objections to the Report and Recommendation ("R&R"), grants Plaintiff summary judgment, and adopts the R&R in all respects.

I. Background

On August 18, 2008, Mohammed Alam executed a note to AmTrust Bank, along with a mortgage to Mortgage Electronic Registration Systems, Inc. as Nominee for AmTrust Bank, to purchase the property at 3228 97th Street, East Elmhurst, New York 11369 ("the Property"). (Compl. (Doc. No. 1) at ¶¶ 29–30; Answer (Doc. No. 30) at ¶ 3.) Defendant Koznitz became owner of record of this property by virtue of a Deed from Alam recorded on July 26, 2013. (Compl. at ¶ 10; Answer at ¶ 3.) Plaintiff alleges that the ownership of the note passed to it through a series of specific indorsements, first from AmTrust Bank to the Federal Home Loan Bank of Cincinnati, then to the Federal Deposit Insurance Corporation as Receiver for AmTrust Bank of Cleveland, Ohio, then to Bayview Loan Servicing, LLC, then by allonge to RCS Recovery Services, LLC, then by allonge to Blue Lagoon LLC, then by allonge to Plaintiff, Courchevel 1850 LLC. (Compl. at ¶32–7.) Plaintiff alleges that Alam is solely indebted to it on the loan, while Koznitz claims that it is a "successor-in-interest" to Alam. (Compl. at ¶ 43; Def.’s Rule 56.1 Statement at ¶ 2.)

Plaintiff Courchevel 1850 LLC brought this action on February 13, 2017 pursuant to New York Real Property Actions and Proceedings Law ("RPAPL") § 1301 et seq. , to foreclose the mortgage encumbering the Property, against Alam, Koznitz and seven alleged lienholders. (Compl.) Along with its complaint, Courchevel has submitted and Koznitz has personally inspected a note with allonges showing a series of indorsements beginning with the note's original owner and ending with Courchevel. (See Declaration in Supp. of Def.’s Cross-Mot. to Dismiss & for Summ. J. & in Opp. to Pl.’s Mot. for Summ. J. ("Decl. in Supp. of Def.’s Cross-Mot" (Doc. No. 47) ¶¶ 3–4); (Notes & Allonges (Doc. No. 1-2) at 5–8.)¹ The first two specific indorsements, (1) from AmTrust Bank to the Federal Home Loan Bank of Cincinnati, then (2) to the Federal Deposit Insurance Corporation as Receiver for AmTrust Bank of Cleveland, Ohio, appear beneath Alam's signature on page 3 of the Note. (Notes & Allonges at 4.) The third indorsement, (3) to Bayview Loan Servicing, LLC, appears to be on the back of the note. (Id. at 5.) The last three indorsements, (4) to RCS Recovery Services, LLC, then (5) to Blue Lagoon LLC, then (6) to Plaintiff, Courchevel 1850 LLC, were by allonges, all three of which specifically reference the note. (Id. at 5–8.) The allonges were fastened to the note with one staple on the upper left side, and, apart from the staple, there were no visible staple holes or tears on the documents. (See Decl. in Supp. of Def.’s Cross-Mot.) ¶¶ 6–7.) Courchevel has shown by an affidavit from its owner, Jared Dotoli, that, at the time the suit was filed, Courchevel had "possession of the original Note, with endorsements and allonges, as affixed thereto." (Aff. of Note Possession (Doc. No. 1-4) ¶ 7.) Courchevel also attached to its complaint a mortgage which, in pertinent part, describes the lender's obligation to provide the mortgagor, Alam, a notice in case of any default, with 30 days to cure. (Mortgage (Doc. No. 1-3) at 18–19.) In its answer, Koznitz raised (among other affirmative defenses) the defenses that the indorsements presented by Courchevel failed to establish Courchevel's standing, and that Courchevel could not prove that it had mailed the notice of default required by the terms of the mortgage. (See Answer at 1–2.)

Plaintiff moved for summary judgment against defendant Koznitz on June 18, 2018, (Mot. for Summ. J. (Doc. No. 38)), and Koznitz cross-moved on August 10, 2018, to dismiss the action pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, lack of standing to foreclose, and for lack of a contractually-required default letter to the original mortgage. (Mot. to Dismiss (Doc. No. 45).) Koznitz moved in the alternative for summary judgment on these issues. (Id. )

As to the issue of jurisdiction, Koznitz argued that because defendants included the United States and the state of New York, and because there was no evidence that defendant Citibank was a citizen of South Dakota, Courchevel had not carried its burden of proving diversity jurisdiction. (Mem. in Supp. of Mot. to Dismiss and for Summ. J. (Doc. No. 48) at 2–3.)² As to standing, Koznitz opposed summary judgment on the ground that Courchevel had not carried its burden of proving standing. (Id. at 4.) Koznitz argued that NYUCC § 3-202(2) requires that a transfer effected by delivery with indorsements must occur with all allonges "firmly affixed" at the moment of delivery. (Id. at 5.) Otherwise, Koznitz argued, the transferor or transferors would have failed the firm affixation requirement, meaning that they would have lacked capacity to assign the note. (See id. ) Since it was clear that the allonges had been stapled together only once, after execution of the final indorsement to plaintiff, then prior transferors must have failed the "firm affixation" requirement and therefore must have lacked capacity to assign the note. (Id. ) As to the default notice, Koznitz opposed summary judgment on the ground that Koznitz had not carried its burden of proving mailing of the default notice. (Id. at 7.) Koznitz argued that the mailing was a condition precedent to foreclosure, but that the proofs offered by Courchevel failed to establish the fact of mailing, and failed to establish that the mailing complied with the terms of the mortgage, that such a mailing be sent with thirty days to cure the default described. (Id. at 7–9.)

On November 6, 2018, Courchevel moved for the appointment of a receiver to collect rents due from the Property during the pendency of this action pursuant to Rules 64 and 66 of the Federal Rules of Civil Procedure. (Mot. to Appoint Receiver (Doc. No. 58).) Following a hearing regarding whether the plaintiff had manufactured diversity jurisdiction, on May 28, 2019, Koznitz moved once more to dismiss the action pursuant to Rule 12(b)(1), (Mot. to Dismiss (Doc. No. 83)), and separately moved for sanctions pursuant to Federal Rule of Civil Procedure 11. (Mot. for Sanctions (Doc. No. 84).)

On October 30, 2019, Magistrate Judge Steven M. Gold issued an R&R, pursuant to Judge Weinstein's referral order dated March 23, 2017, recommending that plaintiff's motion for summary judgment be granted in its entirety; that Koznitz's cross-motion to dismiss and for summary judgment, second motion to dismiss, and motion for sanctions be denied; and that plaintiff's motion to appoint a receiver be denied. (R&R (Doc. No. 95).) Magistrate Judge Gold further recommended that the Department of Taxation and the IRS be dismissed from this action, and that Koznitz be permitted to take additional discovery on the issue of subject matter jurisdiction, provided it is not duplicative of discovery it has already conducted. (Id. )

As to the issue of standing, Judge Gold found that plaintiff had carried its burden of proving standing to foreclose. (Id. at 23.) Judge Gold found that mere possession of the note was insufficient to confer standing, because NYUCC 3-202(2) also required that specific indorsements, as the indorsements in this case, be firmly affixed to the note. (Id. at 20.) Judge Gold found "not implausible" Koznitz's argument that the prior allonges were unaffixed at the time of delivery. (Id. at 21.) However, Judge Gold also found that it was clear from the record that the allonges were firmly affixed at the time of the commencement of foreclosure. (Id. )

Judge Gold also pointed out that the allonges specifically referred to the note. (Id. at 22.) He reasoned that 3-202(2) should be read in light of NYUCC § 1-103(a)(1) ’s policy of simplifying and clarifying "the law governing commercial transactions." (Id. at 22.) Read thus, it is clear 3-202(2) was meant only to ensure that allonges relate to the note. (Id. ) Since the allonges specifically referenced the note, the allonges were "firmly affixed" under 3-202(2), and summary judgment for plaintiff was appropriate. (Id. )

As to the issue of the default notice, Judge Gold agreed with Courchevel that Koznitz, not being a party to the Mortgage, lacked standing to assert noncompliance with its terms. (Id. at 23.) Judge Gold reasoned that, unlike the assignee of a contract, the purchaser of a property does not become liable to pay the debt on the house it purchases. (Id. at 24.) Therefore, Koznitz could not raise the defense of...