Wilmington Trust, Nat'l Ass'n v. 410 S. Main St. LLC

• Decision Date: 07 February 2022
• Docket Number: Case No. 3:20-CV-677 JD
• Citation: 584 F.Supp.3d 689
• Parties: WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE FOR the benefit of the registered HOLDERS OF UBS COMMERCIAL MORTGAGE TRUST 2018-C10, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2018-C10, by and through Rialto Capital Advisors, LLC, in its capacity as special servicer, Plaintiff, v. 410 SOUTH MAIN STREET LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Indiana

584 F.Supp.3d 689

WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE FOR the benefit of the registered HOLDERS OF UBS COMMERCIAL MORTGAGE TRUST 2018-C10, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2018-C10, by and through Rialto Capital Advisors, LLC, in its capacity as special servicer, Plaintiff,
v.
410 SOUTH MAIN STREET LLC, et al., Defendants.

Case No. 3:20-CV-677 JD

United States District Court, N.D. Indiana, South Bend Division.

Signed February 7, 2022

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Cara M. Houck, Miller Canfield Paddock and Stone PLC, Chicago, IL, Scott R. Lesser, Miller Canfield Paddock and Stone PLC, Troy, MI, for Plaintiff Wilmington Trust, National Association.

Jeffrey Fleischmann, Law Office of Jeffrey Fleischmann PC, New York, NY, for Defendants 410 South Main Street LLC, Red Realty Holdings LLC, Sol Dayan.

OPINION AND ORDER

JON E. DEGUILIO, Chief Judge

This lawsuit stems from a commercial loan transaction involving a single tenant retail building in Goshen, Indiana, and efforts that Plaintiff Wilmington Trust has undertaken to collect on the loan after default. Wilmington Trust named twelve entities and individuals as defendants in the suit, but only three have appeared.

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They are Defendants 410 South Main Street, Red Realty Holdings, and Sol Dayan (collectively "Defendants"). The other nine named defendants have all defaulted out.

Wilmington Trust and the Defendants have created a dense web of filings as they've litigated this lawsuit. But in short, there are three pending issues that need to be resolved. First, the Defendants have argued that Wilmington Trust was not the proper party to bring this lawsuit and that, as a result, the Court does not have subject matter jurisdiction to hear and decide the case. Second, Wilmington Trust has moved for summary judgment on four of the five claims it brought in its amended complaint. And third, Wilmington Trust has filed a motion to dismiss the two counterclaims the Defendants brought against it. The Court will tackle each issue in turn, first confirming that it has subject matter jurisdiction and then explaining why summary judgment in Wilmington Trust's favor is appropriate both on its own claims and on the Defendants’ counterclaims.

A. Factual Background

Defendant 410 South Main Street ("410" or "Borrower") is an Indiana limited liability company that entered into a commercial loan agreement ("Loan") with Keybank National Association in the amount of $3 million in March 2018. There were several loan documents executed and delivered in connection with the Loan, including: 1) a promissory note in the original principal amount of $3 million ("Note"); 2) a loan agreement; 3) a mortgage; 4) an Assignment of Leases and Rents; and 5) a Guaranty Agreement that Defendant Moshe Rudich executed as the sole member and owner of 410. (DE 48-1; DE 48-2; DE 48-3.) Keybank recorded the mortgage and perfected its security interest in 410's personal property and fixtures in April 2018. (DE 48-3 at 2.) It then assigned all of its interest in the Loan to Plaintiff Wilmington Trust in May 2018. (DE 48-4 at 33–38.) Wilmington Trust participated in the assignment and is pursuing this litigation in its role as trustee for the benefit of the registered holders of UBS Commercial Mortgage Trust 2018-C10, Commercial mortgage Pass-Through Certificates, Series 2018-C10. The trust is a real estate mortgage investment conduit ("REMIC") trust.

As is common in situations involving loans such as the Loan here, the REMIC trust and Wilmington Trust entered into a Pooling and Servicing Agreement ("PSA") with various entities to help service and otherwise maintain the Loan, including using an entity named Rialto Capital Advisors as the Loan's special servicer. (DE 74-1.) The PSA assigned "all the right, title and interest" in the Loan and documents to Wilmington Trust as trustee, but it also gave Rialto specific delegated abilities to service the Loan. (Id. )

Wilmington Trust's oversight of the Loan did not go smoothly after it was assigned the interests. 410 began missing monthly installment payments in December 2019 and continued missing monthly payments thereafter. In investigating the missed payments, Wilmington Trust learned that 410 had also been involved in a variety of transfers and liens related to the real estate underlying the loan, none of which were disclosed to Wilmington Trust and none of which were executed with Wilmington Trust's prior written consent as the loan documents required. The transfers and liens triggered carve-outs to what was originally the nonrecourse loan agreement that allowed Wilmington Trust to accelerate payment on the Loan and seek more onerous fees and interest. (DE 48-1; DE 48-2 at 76–77, 89–90.)

The liens and transfers at issue are as follows. First, 410 obtained a mortgage from Defendant Park National Capital

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Funding in December 2017 for the real estate covered under the Loan and never disclosed that mortgage to Wilmington Trust. 410 eventually allowed Park National to record that mortgage in May 2020. (DE 48-5 at 2–20.) Second, Mr. Rudich transferred his interest in 410 two times. He first pledged his interest to Defendant Scopus Equity, LLC in August 2018 (DE 48-5 at 22–29) and then pledged that same interest to Defendant Red Realty in April 2019 (DE 48-4 at 46). Third, 410 entered into a series of restrictions on the property. Those restrictions included: a restriction with Defendants Judah Zelmanovitz and Neil Fink recorded in May 2018 (DE 48-4 at 54); a restriction with Defendant Law Offices of David Fleischmann, P.C. recorded in June 2019 (DE 48-4 at 58); a restriction with Defendant Levitin & Associates, P.C., with Defendant New York Capital, LLC as declarant, recorded in August 2019 (DE 48-4 at 60); and a restriction with Defendant Sol Dayan recorded in October 2019 (DE 48-4 at 62). Each of the restrictions pledged that 410 would not take actions creating a security interest in the underlying real estate without the consent of the other party to the restriction. Fourth, 410 conveyed the underlying real estate to Defendant TAC Capital by quitclaim deed in December 2019. (DE 48-4 at 66.)

Red Realty, purportedly acting for 410 after it received Mr. Rudich's interest in the limited liability company, began requesting a mortgage statement in the first few months of 2020 so that it could begin addressing 410's missed monthly installment payments that had begun to pile up and had put the Loan into default. Red Realty received a balance statement from Keybank on March 12, 2020, that stated the current balance to be paid as of that date was $87,279.66 plus per diem interest after March 12 of $416.67 ("Balance Statement"). (DE 54-1 at 18.) The Balance Statement also contained language stating that it was "null and void" after 2 p.m. on March 12 and that "neither ... receipt of [the] statement nor acceptance of any partial payment, or any future partial payment, shall be deemed to amend or modify the terms of the loan documents, nor cure or waive the default existing under the Loan." (Id. )

410, Red Realty, and Mr. Dayan interpreted the Balance Statement as an agreement that if 410 paid the amount listed, Wilmington Trust would reinstate the Loan and waive any past defaults. (DE 70 at 7.) The Defendants have alleged that they began collecting funds to make payments in line with that agreement. But Wilmington Trust saw the Balance Statement as only giving a snapshot of the amount owed on the particular day it was issued and nothing more. On March 25, 2020, as the full extent of 410's defaults and unauthorized transfers and liens were becoming clear, Wilmington Trust notified 410 and Mr. Rudich by letter that it was choosing to accelerate the required payments under the loan agreement. Wilmington Trust gave 410 and Mr. Rudich until April 8, 2020, to pay all sums due under the loan agreement, including additional fees and interest triggered by the defaults, transfers, and liens. (DE 48-4 at 70–74.)

The Defendants, maintaining their view that the Balance Statement was a valid agreement that could be enforced, did not pay Wilmington Trust the full, accelerated amount Wilmington Trust had requested. Instead, they made a series of payments in early April that totaled $86,446.66. (DE 64-1 at 26.) Having not received full payment, Wilmington Trust sent a follow-up letter on June 15, 2020, to 410, Mr. Rudich, and all of the parties who had entered into transfers or liens. The letter notified the parties that the transfers and liens had been prohibited under the loan agreement and that 410 and Mr. Rudich were fully

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and personally liable for the entire amount due under the Loan as a result. (DE 48-4 at 76–80.) 410 and Mr. Rudich did not pay after the follow-up letter either.

Wilmington Trust thus brought suit against 410, Mr. Rudich, and the other parties involved in the transfers and restrictions. They sought judgments against 410 for breach of the Note, against Mr. Rudich for breach of the Guaranty Agreement, and against all of the defendants for foreclosure of the mortgage and foreclosure of personal property. (DE 1, DE 4, DE 48.) Of the twelve defendants named in the suit, only 410, Red Realty, and Mr. Dayan ever appeared. (DE 51.) The Defendants also filed two joint counterclaims against Wilmington Trust, one for breach of contract and one for negligent misrepresentation. (DE 51 at 19–22.) A Clerk's Default was entered against the nine defendants who did not appear, including Mr. Rudich, Fleischmann P.C., Levitin & Associates, Mr. Zelmanovitz, Mr. Fink, New York Capital, TAC Capital, Park National Capital Funding, and Scopus Equity. (DE 28; DE 55; DE 56.)

B. Standard of Review

The Defendants have raised jurisdictional concerns that, while not appearing in a separately filed motion to dismiss, raise the same issues generally dealt with under Federal Rule of Civil Procedure 12(b)(1).¹ Rule 12(b)(1) authorizes dismissal of claims...