Kurland Grp. v. FNBN I, LLC (In re Ramirez)
| Decision Date | 27 March 2015 |
| Docket Number | Case No. 12–12467 SMB,Adv. P. No. 14–01798 SMB |
| Citation | 528 B.R. 580 |
| Parties | In re: Indhira G. Ramirez, Debtor. The Kurland Group and Gregory Messer, as Trustee of the Estate of Indhira G. Ramirez, Plaintiffs, v. FNBN I, LLC, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
THE KURLAND GROUP, Attorneys for Plaintiff The Kurland Group, 160 Broadway—East Building, 11th Floor, New York, New York 10038, Yetta G. Kurland, Esq., Of Counsel.
LAMONICA HERBST & MANISCALCO, LLP, Attorneys for Plaintiff Gregory Messer, 3305 Jerusalem Avenue, Wantagh, New York 11793, Gary F. Herbst, Esq., Of Counsel.
FRENKEL LAMBERT WEISS WEISMAN & GORDON, LLP, Attorneys for Defendant FNBN I, LLC, One Whitehall Street, New York, N.Y. 10004, Barry M. Weiss, Esq., Of Counsel.
This adversary proceeding centers on a dispute among the estate of Indhira G. Ramirez, (the “Debtor”), the Kurland Group (“Kurland”) her former attorneys, and FNBN I, LLC (the “Defendant”), the putative first mortgagee, to the proceeds of the sale of property located at 11 Rainbow Court, Middle Island, New York 11953 (the “Property”). The Defendant has moved to dismiss Count I of the Second Amended Complaint for Declaratory Relief and Equitable Subordination, dated June 4, 2014 (“SAC”) (ECF Doc. # 16)),1 and both sides have moved for summary judgment on some or all of the Plaintiffs' claims. For the reasons discussed below, the Defendant's motion to dismiss Count I of the SAC is granted with leave to replead, and its motion for summary judgment dismissing Count III is granted. All other motions are denied.
The facts relating to the motion to dismiss are derived from the non-conclusory, factual allegations in the SAC, the documents attached to the SAC and those documents on which the Plaintiffs' claims are based. The facts relating to the cross-motions for summary judgment are taken from the parties' submissions in connection with those motions and are discussed separately in a later section of this decision.
Kurland is a New York law firm that formerly represented the Debtor. (SAC ¶ 13.) It asserts a charging lien against the proceeds of the Property. (SAC ¶¶ 17, 48.) The Plaintiff Gregory Messer is the trustee of the Debtor's estate (the “Trustee”). (SAC ¶ 14.) The Defendant purports to be the holder of a note secured by a mortgage on the Property. (SAC ¶ 15.) In substance, the Plaintiffs contend that the Debtor was the victim of predatory and fraudulent lenders who induced the Debtor to sign a mortgage on a home in which she never intended to live and does not currently reside. (SAC ¶¶ 2–4, 8.)
The unusual tale begins with Joseph and Myrna James. On or around December 12, 2002, the Jameses, the owners of the Property at the time, conveyed the Property to their daughter Keisha McCloud, (SAC ¶ 38),2 but the deed was not recorded until August 20, 2003. (SAC, Ex. B.) McCloud subsequently took out a mortgage financed by First Mutual Corporation. (SAC ¶ 38.) By the middle of 2003, the First Mutual debt was approximately $282,000. (See SAC ¶ 39 & Ex. J.)
First Mutual was not licensed to make loans in New York State, (SAC ¶ 39), and had to be taken out. According to the SAC, a “team” of three individuals—then-attorney, Matthew Blank, who resigned from the New York State Bar rather than face charges of professional misconduct, Frank P. Ciano, an unlicensed mortgage broker who served prison time for his role in a fraudulent scheme involving the financing of speculative residential real estate and Deen Salami, an employee of First Mutual and later the First National Bank of Arizona (“Bank Arizona”)—orchestrated a scheme to dupe the Debtor in order to take out the First Mutual debt. (SAC ¶¶ 40–42.) The scheme involved several steps. First, on or about May 20, 2003, the Jameses entered into a contract of sale with the Debtor to sell the Property (previously transferred to McCloud) for a price of $365,000. The Debtor's signature on the contract misspelled her first name and was obviously forged. (SAC, Ex. D.) Second, the Debtor borrowed the purchase price from Bank Arizona and executed a note dated July 18, 2003 in the sum of $346,750 (the “Note”) payable to Bank Arizona and a mortgage on the Property (the “Mortgage”) securing the Note. Although the Note was payable to Bank Arizona, the Mortgage was granted to the Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for Bank Arizona. Third, the proceeds of the loan were used to pay the purchase price, and in the process, satisfy the First Mutual debt. According to the closing documents, (see SAC, Ex. J), the Jameses received net proceeds in the sum of $351,855. First Mutual agreed to accept $229,000 in satisfaction of its debt.3
The deed delivered to the Debtor, presumably at the closing, was not recorded until May 7, 2004, or after McCloud recorded her deed. (SAC Ex. B.) McCloud subsequently conveyed the Property to the Jameses, as husband and wife, and the Debtor, and that “no consideration deed” was recorded on November 4, 2004. (Id. ) As a result of these various transactions, the Jameses were part owners of and continued to reside at the Property, they were relieved of their personal obligations on the First Mutual debt, the Debtor retained only a partial interest in the Property and lived elsewhere, but the Debtor was solely responsible for repayment of the Note.
The Debtor filed this chapter 7 case on June 6, 2012 and has received her discharge. (Discharge of Debtor, dated Dec. 27, 2012 (ECF Case Doc. # 18).) Thus, she has no personal liability for the obligation evidenced by the Note. In addition, the Trustee has sold the Property for a gross purchase price of $255,000 and holds the balance of the purchase price pending further order of the Court. (Order Confirming the Chapter 7 Trustee's Public Sale of the Debtor's Real Property, dated Feb. 18, 2015 (ECF Case Doc. # 69).) The liens asserted by the Defendant and Kurland in the Property have attached to the proceeds with the same priority they had in the Property as of the date that the bankruptcy case was commenced. (Order: (I) Authorizing and Scheduling the Public Auction Sale of Debtor's Real Property Located at 11 Rainbow Court, Middle Island, New York 11953, Free and Clear Of All Liens, Claims and Encumbrances; and (II) Approving the Terms and Conditions of Sale, dated Dec. 22, 2014 (ECF Case Doc. # 65).) At this point, this is a fight over the proceeds.
Kurland filed this adversary proceeding prior to the sale on January 30, 2014, and the Trustee subsequently joined as a plaintiff. The SAC asserted three Counts. Count I sought a judgment that the Defendant's mortgage lien was invalid because the Defendant cannot establish ownership of the alleged Mortgage. (SAC ¶ 55.) The SAC did not allege that the Defendant was not the holder of the Note and Mortgage or challenge the assignments of the Note and Mortgage, described below, into the hands of the Defendant although the Plaintiffs did allege “upon information and belief” that the Defendant had not shown that it was the lawful holder of the Mortgage. (SAC ¶ 33.) Instead, the theory of Count I was that the Defendant was precluded from claiming that it was the holder of the Note and Mortgage because the state court had dismissed a prior foreclosure suit brought by J.P. Morgan Chase Bank, N.A. (“Chase”), the Defendant's predecessor in interest, for want of prosecution and had denied the Defendant's motion to be substituted for Chase. (See SAC ¶¶ 24–32.)
Count II sought an order denying and/or subordinating the Defendant's interest to Kurland's attorney charging lien. (SAC ¶ 57.)
Count III sought a judgment that Kurland held a charging lien in the sum of $126,300 plus statutory interest that was secured by the Property and was superior to the Defendant's alleged mortgage. (SAC ¶ 59.)
The Defendant moved to dismiss Counts I and III and moved for summary judgment on all claims. The Plaintiffs cross-moved for summary judgment on Counts I and II. The Court reserved decision on Count I pending further briefing on two issues: the effect of the dismissal of the Chase foreclosure suit for want of prosecution, and assuming it precluded another foreclosure suit, did the dismissal bar the Defendant from asserting its status as the holder of a claim in this bankruptcy case secured by a lien on the Property. The Court also reserved decision on Count III. Finally, the Court denied the motion and cross-motion for summary judgment directed at Count II. The Court directed the parties to settle a proposed order memorializing the rulings, but they never did.
An understanding of the arguments and disposition of the motions relating to Count I requires a discussion of the prior state court proceedings as reflected in the two opinions attached to the SAC.
Chase commenced a foreclosure action on January 17, 2006 in the Supreme Court, Suffolk County following the Debtor's default. Standing to foreclosed required Chase to hold the Note and Mortgage at the time it commenced the foreclosure suit. U.S. Bank, N.A. v. Collymore, 68 A.D.3d 752, 890 N.Y.S.2d 578 (2009). At some point, First National Bank of Nevada (“Bank Nevada”) allegedly acquired the Note and Mortgage. It thereafter moved to be substituted for Chase and sought summary judgment. Although Chase was by then gone from the picture, Bank Nevada's motion still depended on Chase's standing at the time it commenced the foreclosure action.
The state court denied both aspects of the motion by Order of Justice Peter H Mayer, dated June 25, 2009 (“Mayer Decision”).4 The court observed that the papers submitted by Bank Nevada included inconsistencies, and failed to demonstrate that Chase, the original plaintiff, owned the Note at the time it commenced the...
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