MCC Funding LLC v. Diamond Point Enters., LLC

• Decision Date: 25 June 2012
• Docket Number: No. 500815/11.,500815/11.
• Citation: 36 Misc.3d 1206,2012 N.Y. Slip Op. 51212,954 N.Y.S.2d 760
• Parties: MCC FUNDING LLC, Plaintiff, v. DIAMOND POINT ENTERPRISES, LLC; Shaun C. Andersen; New York City Transit Adjudication Bureau; NYC Environmental Control Board; New York State of Taxation and Finance; New York City Department of Finance; the City of New York; and John Does nos. 1–10, Defendants.
• Court: New York Supreme Court

36 Misc.3d 1206

954 N.Y.S.2d 760

2012 N.Y. Slip Op. 51212

MCC FUNDING LLC, Plaintiff,

v.DIAMOND POINT ENTERPRISES, LLC; Shaun C. Andersen; New York City Transit Adjudication Bureau; NYC Environmental Control Board; New York State of Taxation and Finance; New York City Department of Finance; the City of New York; and John Does nos. 1–10, Defendants.

No. 500815/11.

Supreme Court, Kings County, New York.

June 25, 2012.

Levett Rockwood, P.C. by Robert Laplaca, Westport, CT, Attorneys for Plaintiff.

Lazer, Aptheker, Rosella & Yedid, P.C., Melville Law Center, Diamond Point Enterprises, LLC, Melville, Attorneys for Defendant.

SYLVIA O. HINDS–RADIX, J.

Upon the foregoing papers, in this action by plaintiff MCC Funding LLC (plaintiff) against defendant Diamond Point Enterprises, LLC (Diamond Point) and others to foreclose certain mortgages on commercial real property located at 91–93 Diamond Street, in Brooklyn, New York (Block 2651, Lots 23 and 24) (the premises), plaintiff moves for an order: (1) pursuant to CPLR 3211(a)(1), (6), and/or (7), dismissing the counterclaims asserted by Diamond Point based upon the ground that such counterclaims are barred by the waiver provisions in the operative loan documents which are the subject of this action, or, alternatively, (2) pursuant to CPLR 3211(a)(4), dismissing the counterclaims asserted by Diamond Point based upon the ground that substantially similar claims have been asserted in a prior action entitled Diamond Point Enterprises, LLC v. Mercury Capital U.S.A., LLC (Sup Ct, Kings County, index No. 28021/09) (the prior action). Diamond Point cross-moves for an order, pursuant to CPLR 602(a), consolidating this action with the prior action.

BACKGROUND

In 2007, the children of non-party Mary Zubrovich inherited the premises, which was the Zubrovich family home and its surrounding land. The Zubrovich family decided to construct condominiums on the premises, and, in 2008, the Zubrovich family formed Diamond Point, a limited liability company. In March 2008, Diamond Point entered into an agreement with West End/Mercury Short Term Mortgage Fund, LP (the Short Term Fund) for approximately $3.7 million in construction loans in order to complete this condominium project, which Diamond Point was to repay with the profits realized by the sale of the condominiums. This transaction was split between three simultaneous loans, namely, the Senior Loan, the Construction Loan, and the Project Loan.

In connection with the Senior Loan, the Construction Loan, and the Project Loan, Diamond Point, by defendant Shaun C. Andersen, as its member, executed mortgage notes dated March 20, 2008 for each of these loans, i.e., the Senior Loan Note, the Construction Loan Note, and the Project Loan Note, in which Diamond Point promised to pay Short Term Fund the principal sum of $650,752, $2,223,500, and $825,748, respectively, together with interest thereon at the rate of 12 1/4% per annum, in installments on the first day of each month thereafter through and including September 1, 2009. The Senior Loan Note, the Construction Loan Note, and the Project Loan Note were each secured by a mortgage lien, encumbering the premises, evidenced by a Mortgage, Security Agreement, Assignment of Rents and Financing Statement with respect to each of these notes, i.e., the Senior Loan Mortgage, the Construction Loan Mortgage, and the Project Loan Mortgage, which were also dated March 20, 2008. The Senior Loan Mortgage, the Construction Loan Mortgage, and the Project Loan Mortgage were recorded on May 8, 2008 in the Office of the City Register, Kings County. By three Assignments of Mortgage, each dated March 20, 2008, the Short Term Fund assigned all three of these mortgages and their underlying notes to plaintiff.

As required by the parties' loan agreements, Diamond Point sought the required permits for the project, and began demolition of the existing Zubrovich family house on the premises on March 21, 2008. Diamond Point claims, however, that when the Short Term Fund assigned the three notes to plaintiff on the day of the closing, it did not assign to plaintiff its interests in the loan agreements or its obligation to make distributions to it in accordance with the draw schedule. According to Diamond Point, in November 2008, after the Short Term Fund had only made its initial distribution of the funds at the closing, the Short Term Fund notified it that it would not make any of its required distributions under the draw schedule.

Diamond Point asserts that as a result of the Short Term Fund's refusal to provide the construction funding, the project came to a halt. Diamond Point claims that its representatives were told that the changes in the market had prevented any distributions, and that while its representatives spoke to the Short Term Fund's representatives in an attempt to restart the funding, these efforts were futile. Diamond Point further claims that it needed to timely begin construction before a change in the zoning law, which would limit the scale of the project, went into effect. It also claims that after beginning the demolition, with no further funds to continue the project, it was left with a hole in the ground, which would have been in violation of local ordinances if left in its existing state. It maintains that it was, therefore, forced to incur unnecessary expenses in addressing the state of the premises at the time when funding was cut off by the Short Term Fund.

With respect to the Short Term Fund's alleged failure to provide the required funding for the project, Diamond Point claims that the three mortgage loans were actually the product of a complex investment scam perpetrated by William Landberg (Landberg), along with several of his accomplices. Landberg was the president of Sentinel Investment Management Corp., an SEC registered investment advisor. Diamond Point explains that through a network of over 30 entities, Landberg sought funding from innocent investors for three bogus investment funds, one of which was the Short Term Fund, which was marketed as providing short term commercial loans. Diamond Point asserts that Landberg then purported to extend various loans to unwitting third party borrowers, including the construction loans made to it.

According to Diamond Point, Landberg secured financing from two German banks, one of which was WestLB, which funded the Short Term Fund. Diamond Point alleges that Landberg also created plaintiff, which is a wholly owned subsidiary of the Short Term Fund, in order to serve as the conduit through which Landberg could access the WestLB investment funds. Diamond Point claims that Landberg would cause the Short Term Fund to make a funding request to WestLB for the funds it needed to distribute pursuant to a particular loan agreement, that these advances would then be made by WestLB to plaintiff, but that, unbeknownst to WestLB, plaintiff would transfer the funds to Landberg to be used as he saw fit, rather than to the borrower.

Diamond Point asserts that the Short Term Fund never intended to fund the loans to it, but, instead, sought to induce it, among other innocent third-party borrowers, to enter into a loan agreement for the purpose of creating a basis for obtaining funds from WestLB, and for the purpose of obtaining notes that could then be transferred to plaintiff, who would then seek to enforce the notes as a purported holder in due course. Diamond Point alleges that the Short Term Fund and plaintiff were under the control of Landberg and were instrumentalities of his fraud against it and other investors.

Diamond Point further alleges that when Landberg was unable to pay his investors and took money out of interest reserve accounts that were set up as part of the loan transactions with the German banks, the German banks cut off funding and his fraudulent scheme collapsed. According to Diamond Point, in March 2011, the Short Term Fund and several of Landberg's other entities filed for bankruptcy, and, on November 18, 2011, Landberg pleaded guilty to securities fraud and is awaiting sentencing. Diamond Point claims that the loans which plaintiff now seeks to enforce were obtained as part of this massive fraud, and that the construction funding was never provided to it.

On November 5, 2009, prior to the time that Landberg was charged with securities fraud, Diamond Point filed the prior action against plaintiff, the Short Term Fund, and Mercury Capital U.S.A. LLC (Mercury) (which allegedly issued a written commitment letter to make the loans). In its complaint in the prior action, Diamond Point alleged that on November 20, 2008 and thereafter, representatives of the Short Term Fund advised it that no further draws of the loans would be made, and that the Short Term Fund repudiated its obligation to provide funding under the loan agreements. Diamond Point further alleged that the condominium project has been at a standstill since October 2008, and that at the time of maturity of the loans in September 2009, plaintiff attempted to compel it to execute extension documents, granting it a six-month extension in exchange for granting it a general release from culpability for failure to fund the loans as required under the loan agreements, and to waive any and all affirmative defenses, set-offs, claims, and counterclaims. Diamond Point refused to agree to these terms. Diamond Point's prior action sought damages of at least $2 million against plaintiff, the Short Term Fund, and Mercury based upon their alleged breach of the loan agreements.

On September 21, 2011, plaintiff filed this action against Diamond Point, seeking to foreclose the three mortgages on the premises. Plaintiff alleges that Diamond Point is in default under the Senior Note and Senior Mortgage, the Construction Note and Construction Mortgage, and the Project Loan and Project Mortgage by failing to pay the outstanding principal amount, accrued interest, late charges, and...