Mosdos Chofetz Chaim, Inc. v. RBS Citizens, N.A.

• Decision Date: 30 March 2014
• Docket Number: No. 12–CV–7067 KMK.,12–CV–7067 KMK.
• Parties: MOSDOS CHOFETZ CHAIM, INC. Plaintiff, v. RBS CITIZENS, N.A., Avon Group LLC, Abraham Grunwald, Village of Wesley Hills, Village of Pomona, and Village of Chestnut Ridge, Defendants.
• Court: U.S. District Court — Southern District of New York

14 F.Supp.3d 191

MOSDOS CHOFETZ CHAIM, INC. Plaintiff

v.RBS CITIZENS, N.A., Avon Group LLC, Abraham Grunwald, Village of Wesley Hills, Village of Pomona, and Village of Chestnut Ridge, Defendants.

No. 12–CV–7067 KMK.

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

Signed March 30, 2014.

Phillip J. Murphy, Esq., Phillip J. Murphy, PLLC, New York, NY, Joseph J. Haspel, Esq., Joseph J. Haspel, PLLC, Goshen, NY, for Plaintiff.

Riyaz Gulam Bhimani, Esq., Steven Robert Kramer, Esq., Eckert, Seamans, Cherin & Mellott LLC, White Plains, NY, for RBS Citizens, NA.

David Michael Satnick, Esq., Loeb & Loeb LLP, New York, NY, Sara Jessica Crisafulli, Esq., Hughes Hubbard & Reed LLP, Los Angeles, CA, for Avon Group LLC.

Steven M. Silverberg, Esq., Silverberg Zalantis L.L.P., Tarrytown, NY, David Larry Tillem, Esq., Wilson, Elser, Moskowitz, Edelman & Dicker LLP, New York, NY, John A. Sarcone, III, Esq., The Sarcone Law Firm, PLLC, White Plains, NY, for Avon Group LLC and Abraham Grunwald.

Gregory Raymond Saracino, Esq., Milber Makris Plousadis & Seiden, LLP, White Plains, NY, for Defendant Village of Pomona.

Michael David Zarin, Esq., Zarin & Steinmetz, White Plains, NY, for Defendant Village of Chestnut Ridge.

OPINION & ORDER

KENNETH M. KARAS, District Judge:

Plaintiff Mosdos Chofetz Chaim, Inc. (“Mosdos”) brought this Complaint against Defendants RBS Citizens, N.A. (“Citizens”), Avon Group LLC (“Avon”) and its Managing Member Abraham Grunwald (“Grunwald”) (collectively, “Avon Defendants”), and the Villages of Wesley Hills, Pomona, and Chestnut Ridge (“Village Defendants”) alleging various causes of action arising out of a mortgage and related foreclosure proceeding. Before the Court are Defendants' Motions To Dismiss and for Summary Judgment on various causes of action. For the reasons stated herein, these motions are granted in part and denied in part.

I. Background

A. Factual Background

The following facts are drawn from Plaintiff's Complaint and documents incorporated by reference therein and are taken as true for the purposes of resolving the instant Motion.

1. The Loan Agreement with Citizens

Mosdos is a religious corporation organized under New York Religious Corporations Law, N.Y. Relig. Corp. Law §§ 1 et seq. (See Compl. ¶ 10.) On December 14, 2005, Yeshiva Chofetz Chaim Kiryas Radin, Inc. (“YCCKR”), another religious corporation organized under New York Religious Corporations Law, conveyed a five-acre parcel of land situated in the Town of Ramapo, Rockland County, New York, to Yeshiva Chofetz Chaim, Inc. (“YCC”), a third religious corporation organized under New York Religious Corporations Law. (See Decl. in Supp. of the Avon Defs.' Mot. To Dismiss & for Summ. J. (“Avon Defs.' Decl.”) (Dkt. No. 38), Ex. I (Warranty Deed).) That same day, YCC conveyed that property to Mosdos. (See id. Ex. J (Warranty Deed).) Mosdos intended to use this land “for the purposes of creating an adult religious studies institution and student housing [ (]commonly referred to as a ‘Kollel’) for adult students, their spouses and children in a campus-like environment.” (Compl. ¶ 11.) Mosdos's specific plans included a project to construct sixty units of “residential student housing” and one “religious instruction/educational building.” (Id. ¶ 12.)

Months before it purchased the property, Mosdos sought financing from “numerous potential lenders,” ultimately selecting Citizens. (Id. ) Thereafter, on or about September 15, 2005, Mosdos received a “Commitment Letter” from Citizens promising to loan $14,523,000 to Mosdos on November 4, 2005. (See id. ¶¶ 13, 77–80.) Citizens subsequently extended the closing date twice, such that the loan finally closed on December 20, 2005. (See id. ¶¶ 80, 82.)

In reliance on the Commitment Letter but before the final closing date, Mosdos “proceeded to commence work on the project and engage contractors to perform the initial phases of the construction work based on the understanding that these contractors would be paid when the loan closed.” (Id. ¶ 81.) Mosdos also complied with all of its obligations under the Commitment Letter, including “timely paying Citizens a $67,000.00 non-refundable Loan Commitment Fee and other substantial pre-closing costs,” such that it paid, in total, “approximately $100,000.00 in non-refundable up-front loan fees.” (Id. ¶¶ 15, 79.) However, prior to the closing date, “Citizens unilaterally altered its commitment and reduced the amount of the loan from $14,523,000.00 to $12,800,000.00.” (Id. ¶ 14.)

The final loan consisted of three documents relevant to the Complaint: (1) the Building Loan Agreement; (2) the Promissory Note; and (3) the Mortgage and Security Agreement. (See id. ¶ 18; Decl. of Riyaz G. Bhimani in Supp. of Mot. To Dismiss (“Citizens' Decl.”) (Dkt. No. 35), Exs. B (“Building Loan Agreement”), C (“Promissory Note”), D (“Mortgage and Security Agreement”).)¹ In general, and as relevant here, these agreements provide that (1) “Citizens would furnish $12,800,000.00 in construction financing,” (Compl. ¶ 19); (2) “Citizens would disburse loan proceeds to Mosdos as the project progressed,” (id. ¶ 20); (3) Citizens would “make timely inspections of the work performed on the project and timely fund loan advances for the project,” (id. ¶ 21); and (4) Citizens would “h[o]ld in trust certain funds for the benefit of Mosdos as borrower,” (id. ¶ 54).

Certain of the Complaint's causes of action arise out of two provisions of these agreements that merit a more detailed discussion. First, for purposes of calculating the loan's interest rate, the Promissory Note defines two time periods. During the “Construction Period,” which began on the “Funding Date” (December 20, 2005), the Promissory Note classified the loan as a “LIBOR Rate Loan,” whereby interest on the outstanding principal would accrue “by reference to the [London Interbank Offered Rate (“LIBOR”) ] Rate.”² (Promissory Note 1–2.) Then, “upon completion of construction of the project as determined pursuant to the provisions of the ‘Building Loan Agreement,’ ” the “Permanent Period” would commence, at which time the loan would convert to a “permanent amortizing loan.” (Id. at 1.) During this period, interest on any outstanding principal classified as a LIBOR Rate Loan would continue to accrue at a rate based on the LIBOR, and interest on any outstanding principal classified as a “Prime Rate Loan”—i.e., any outstanding principal loaned during the Permanent Period—would accrue at a rate “equal to the Prime Rate.”³ (Id. ) The Promissory Note also specified that, “[a]s a condition to this conversion, the Borrower shall enter into a forward starting Interest Rate Swap transaction (‘Swap’) for ten (10) years with the Bank,” and that the loan would be “cross collateralized and cross defaulted with the Swap.” (Id. ) Based on Mosdos's allegation that construction was never completed, (see Compl. ¶¶ 28–30), the Complaint alleges that the loan “at all times was in the construction phase and never converted to a Permanent Loan,” (id. ¶ 88). Mosdos also alleges, however, that it “now fully occup[ies] the site” and uses it as a school, place of worship, and residential facility. (Mem. of Law in Opp'n to Mots. of Avon Group, LLC (“Pl.'s Opp'n to Avon Defs.”) (Dkt. No. 43) 4, 12.)

Second, in Article IX, titled “Assignments, Sale and Encumbrances,” the Building Loan Agreement outlines the terms governing the “Lender's right to assign” the agreement. (See Building Loan Agreement 32 (alterations omitted).) Specifically, paragraph 9.1 under Article IX provides that “Lender may assign, negotiate, pledge or otherwise hypothecate th[e] Agreement or any of its rights and security hereunder, including the Note, and any of the other Loan Documents to any bank, participant or financial institution.” (Id. ) When so assigned, Borrower agrees to “accord full recognition” to the assignment, and further agrees that “all rights and remedies of Lender in connection with the interest so assigned shall be enforceable against Borrower by such bank, participant or financial institution with the same force and effect and to the same extent as the same would have been enforceable by Lender but for such assignment.” (Id. )

2. The Article 78 Lawsuit

In 2004, the Town of Ramapo “enacted a Local Law to amend its Zoning Code to permit Adult Student Housing, a permitted land use which among other reasons inspired Mosdos to develop the real property which is the subject of this action.” (Compl. ¶ 130.) That same year, before YCC conveyed the property to Mosdos, Village Defendants, among other parties, “filed suit in New York State Court” under New York C.P.L.R. Article 78 “to stop the promulgation of the Adult Student Housing Law [ (“ASHL”) ].”⁴ (Id. ¶ 131.) See also Vill. of Chestnut Ridge v. Town of Ramapo,

No. 16876/2004 (N.Y. Sup.Ct. verified Dec. 23, 2004) (“Village Litigation”). Undeterred, Mosdos ultimately purchased the property, procured the loan, and commenced the construction project. (See id. ¶¶ 17, 25, 30.) Then, in September 2007, the New York court “issued an [i]njunction against the Town of Ramapo which prohibited the Town from issuing a Certificate of Occupancy for the project.” (Id. ¶ 26.) But Mosdos alleges that it “was never enjoined from completing construction.” (Id. ¶ 27.) And “[t]he project has since been issued a Temporary Certificate of Occupancy.” (Id. ¶ 26.)

The Complaint alleges that “[a]t all relevant times herein Citizens was aware of the Village Litigation and proceeded to close on the loan despite its awareness of the litigation.” (Id. ¶ 25.) Nevertheless, after it had funded “an amount approximating [only] 62% of its commitment,” and while it “held the approximate sum of $800,000.00 as retainage for work on the project that [it had] approved,” “Citizens ceased funding the project in the midst of construction” and “[used] the Village Litigation as ‘justification’ to avoid its obligation to fund the project.” (Id. ¶¶ 28–29, 32.) Consequently, “Mosdos was unable to...