Right to Surplus Moneys

In certain cases, the Referee in the foreclosure action conducted a sale of the subject real property generates surplus moneys after an auction sale, which are then deposited with the court. After filing of the Referee’s Oath and Report of Sale after foreclosure auction sale, a party can move for confirmation of the Report of Sale more than 3 months but not later than 4 months after the filing of the Report of Sale. RPAPL §1355. Further, upon confirmation of the Report of Sale, and on motion of any party prior to or within 3 months of confirmation of the Report and Sale claiming the surplus moneys which have arisen from the foreclosure auction sale, the Supreme Court shall determine the priorities in such surplus moneys and order distributions thereof. RPAPL §1361.

The Second Department has held that the failure to move to appoint a Referee in a Surplus Money Proceeding following foreclosure of a mortgage within the time prescribed by statute is a mere irregularity which, in the absence of prejudice of any substantial right of a party, may be disregarded. Associated Financial Services, Inc. v. Davis, 183 AD2d 686, 583 NYS2d 274 (2d Dept. 1992).

The potential issue of a defendant or claimant not having filed an Answer or Notice of Appearance in the foreclosure action is not relevant as to whether that party may pursue recovery of surplus moneys. It is well settled that a defendant who defaulted in answering the foreclosure action is not precluded from proving its lien in Surplus Money Proceeding. Riverhead Savings Bank v. Garone 183 AD2d 760, 583 NYS2d 483 (2d Dept. 1992), citing to The Dime Savings Bank of Brooklyn v. Pine Drive Associates, Inc., 28 Misc.2d 648, 212 NYS2d 111 (Sup. Ct., Nassau Co. 1961). Further, a second mortgagee/lienor, as a party named in the foreclosure action, is not required to file a Notice of Claim to Surplus Moneys in order to preserve its right to satisfaction of its lien from surplus proceeds of a foreclosure sale. Federal Home Loan Mortgage Corp. v. Grant, 224 AD2d 656, 639 NYS2d 72 (2d Dept. 1996) (“As a party to the foreclosure action, the respondent, secondary mortgagee Marine Midland Bank, was not required to file a notice of claim to the surplus moneys in order to preserve its right to the satisfaction of its lien from the surplus proceeds of the foreclosure sale.”).

Where, under a mortgage foreclosure sale, a surplus is realized, and the premises are at the time of such sale subject to a second mortgage, the respective rights of the parties will be determined as of the date of the foreclosure sale. Elsworth v. Woolsey, 19 AD 385, 46 NYS 486 (1st Dept. 1897), affirmed, 154 NY 748, 49 NE 1096 (1897). New York courts have held that those respective rights in the surplus moneys, as enunciated by Elsworth, transfer from the “res” of the action, to wit: the land, to the surplus moneys. In Roosevelt Savings Bank v. Goldberg, 118 Misc.2d 220, 459 NYS2d 988 (Sup. Ct., Nassau Co. 1983), the court held:

"Surplus money realized upon a foreclosure sale is not a general asset of the owner of the equity of redemption, but stands in the place of the land for all purposes of distribution among persons having vested interests or liens upon the land. Surplus money takes the place of the equity of redemption, and only one who had a vested estate or interest in the land sold under foreclosure which was cut off by the foreclosure sale, is entitled to share in the surplus money, with priority in each creditor determined by the filing date of his lien or judgment."

— by Richard A. Klass

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Saved from the Auction Block

A Kings County homeowner was unable to pay his mortgage. He had been in and out of bankruptcy and his Midwood-area house had been in foreclosure since 2007. A Judgment of Foreclosure and Sale had been entered in 2010. Now, the foreclosure auction was scheduled for September 13th. In laymen’s parlance, the auction sale date is the “drop dead” date for the homeowner to keep his house and, in the final days before the auction, the homeowner needed Richard A. Klass, Your Court Street Lawyer, to save the house from the auction block.


What is a Foreclosure Auction Sale

When there is a lien against real estate in New York, the plaintiff-lienor (usually a mortgage lender) can bring a foreclosure proceeding to foreclose that lien against the property in order to have the debt paid. This includes actions to foreclose a mortgage, mechanic’s lien for labor rendered or goods delivered by a contractor, a condominium building’s common charges, or homeowners’ association fees. The culmination of a foreclosure proceeding is the auction sale of the property to the highest bidder.

Once the hammer of the court-appointed referee drops, the homeowner’s right to redeem the property is gone! Then, it’s time for the homeowner to plan to move from the house or be ejected by the successful bidder. In this case, this homeowner needed to stop the auction sale — stop the drop of the hammer.

Old Foreclosure Cases

Recently, the foreclosure process in various counties has ground to an almost-halt, where foreclosure proceedings have been litigated in the courts in excess of three or four years (or even longer!). Depending on the perspective of the plaintiff-lienor or the defendant-homeowner, this is either a good or bad consequence of the slow process.

As a result of several factors, including the slower foreclosure process, bankruptcy, motions to vacate default judgments and requests for loan modification, the actual foreclosure auction sale date could wind up being many months or even years after the Judgment of Foreclosure and Sale has been entered by the court. Eventually, concern may arise about holding an auction sale so long after the Judgment has been entered. While the amount indicated in the Judgment may have been $100,000 at the time of the auction, the amount due to the plaintiff with accrued interest, property taxes, etc., may become $150,000.

In the Supreme Court decision of Bardi v. Morgan, 17 Misc.3d 927, 847 NYS2d 431 [Sup.Ct., Kings Co. 2007], Justice Kramer noted that a crucial component of the foreclosure process — which is often conducted on the default of the homeowner who never answered the Summons — is the referee's accounting of the amounts due to the mortgage lender — which is done pre-judgment, providing a detailed snapshot of the mortgage debt. This accounting, done by an impartial appointee of the court, ensures the reliability and fairness of the foreclosure proceeding. This serves the function of accurately advising the court of the costs and disbursements expended during the process, thus enabling the court to determine whether the charges were taken in accordance with the law and ensure that there has been no overreaching by the plaintiff. An accurate, impartial and transparent accounting becomes particularly important when the purchaser is not a third party but is the foreclosing mortgage holder and the potential for self-dealing arises. In Bardi v. Morgan, the judge held as follows: “Accordingly, this Court holds that in any case where an auction sale has been scheduled more than one year after the entry of the judgment of foreclosure and sale, the Notice of Sale is invalid and the Clerk of this Court is directed to reject it, unless an amended and updated reference and a supplementary foreclosure judgment reflecting the corrected amount is provided.”

The Supreme Court for Kings County followed suit and enacted Rule 13 of Part F of the General Foreclosure Rules, which provides as follows: “Notices of Sale may be filed with the Clerk within one year of the entry of the Judgment of Foreclosure and Sale. Permission of the Court must be obtained for any filings made thereafter.”

Upset Price vs. Judgment Amount

The reasons this rule is so important become evident when considering the above example (Judgment is $100,000 but amount due with accrued interest is $150,000), including: (1) The homeowner may be relying upon the judgment amount in order to attempt to raise the money necessary, right before the auction sale, to satisfy the judgment; (2) The homeowner may need to know the amount due if he elects to file a bankruptcy case for estimation purposes; and (3) Prospective bidders would be interested so they know how much money to bring to the auction to bid on the property. At the auction sale, if the lender calls out a much higher “upset” price than the judgment amount, everyone except the lender will be surprised; it would be unfair for the lender to have so much control over the bidding process.

In our case here, upon presentment of the Order to Show Cause to stop the auction sale — because the lender proposed selling the house without having gotten permission from the Supreme Court — the lender retreated and agreed to cancel the sale. Now, the lender will have to go through the steps of obtaining an amended referee's report of the amount due, along with the request from the court of issuance of a supplementary judgment. These steps will add several months to the process.

— Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Painting at top: The Captain's Auction (by 1875), John Ritchie (fl. 1858-1875). This work is in the public domain in the United States because it was published (or registered with the U.S. Copyright Office) before January 1, 1923 and its copyright has expired.

Constructive Fraud

When property is transferred to a stranger for no consideration, there is a presumption that the transaction was unfair. Rosevear v. Sullivan, 47 AD 421, 62 NYS 447 (2d Dept. 1900), "and where one party has the advantage of the other, then the burden is on the other party to furnish satisfactory proof that the transaction was in all respects fair."  Id at 423; Arakjinjian v. Arakian, 268 AD 41, 48 NYS2d 501 (1st Dept. 1944); Greenfield v. Greenfield, 123 NYS2d 19 (Sup. Ct., Kings Co. 1953).

An explanation of the reason for the shifting of the burden of proof is provided in Greenfield, infra at page 21, quoting Green v. Roworth, 113 NY 462:

"As was said by Judge Hand in Cowee v. Cornell, 75 NY [91] 99: 'We return, then, to the question whether this case was one for constructive fraud.  It may be stated as universally true that fraud vitiates all contracts, but as a general thing it is not presumed, but must be proved by the party seeking to relieve himself of an obligation on that ground.  Whenever, however, the relations between the contracting parties appear to be of such a character as to render it certain that they do not deal on terms of equality, but that, either on the one side from superior knowledge of the matter derived from a fiduciary relation, or from overmastering influence, or, on the other, from weakness, dependence, or trust justifiably reposed, unfair advantage in a transaction is rendered probable, there the burden is shifted, the transaction presumed void, and it is incumbent upon the stronger party to show affirmatively that no deception was practiced , no undue influence was used, and that all was fair, open, voluntary, and well understood.' "

The holding of the cases requires that the burden of proof should be shifted to the defendant/transferee of property to prove at the onset of trial, “that no deception was practiced, no undue influence was used, and that all was fair, open, voluntary and well understood.”

by Richard A. Klass

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Affidavit of Service Is Primary Proof

The Second Department held, in National Heritage Life Insurance Co. v. T.J. Properties Co., 286 AD2d 715 [2d Dept. 2001], that the affidavit of service of a process server constitutes prima facie evidence of valid service. An affidavit of service by a process server which specifies the papers served, the person who was served, and the date, time, address and sets forth facts showing that service was made by an authorized person, and in an authorized manner, constitute prima facie evidence of proper service. See, Maldonado v. County of Suffolk, 229 AD2d 376 [2 Dept. 1996].

The bare denial of service is insufficient to rebut prima facie proof of proper service pursuant to CPLR 308 created by a process server’s affidavit. Wunsch v. Cerwinski, 36 AD3d 612 [2 Dept. 2007].

by Richard A. Klass

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Consolidation of Actions

Consolidation is generally favored in the interested of judicial economy and ease of decision-making where cases present common questions of law and facts, unless the opposing party demonstrates that consolidation will prejudice a substantial right. See, Rist v. Comi, 260 AD2d 890 (3d Dept. 1999); Progressive Insurance Co. v. Vasquez, 10 AD3d 518 (1st Dept. 2004); Eagle Pet Service Co., Inc. v. Pacific Employers Insurance Co., 102 AD2d 814 (2d Dept. 1984).

It is not necessary, for purposes of consolidation, that all parties or all issues be common to both actions. See, Fourteen Sharot Place Realty Corp. v. Miceli, 125 AD2d 634 (2d Dept. 1986). The commonalities of the actions and the pressing need for judicial relief may constitute sufficient bases for consolidation of actions.

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Plaintiff Has Stated Valid Causes of Action Sufficient to Withstand Defendants’ Motion to Dismiss Action

In an action, Defendants may move to dismiss a Plaintiff’s Complaint based upon the allegation that the Complaint fails to state a cause of action, pursuant to CPLR 3211(a)(3) and (7). In deciding such a motion, the court must accept the facts as alleged in the Complaint as true, according the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Goldman v. Metropolitan Life Insurance Co., 5 NY3d 561 [2005]. Essentially, the court should impose a “four corners” test in liberally construing the four corners of the pleading to see whether they establish valid causes of action. Schwaner v. Collins, 17 AD3d 1068 [4 Dept. 2005].

As the Court of Appeals enunciated in Guggenheimer v. Ginzburg, 43 NY2d 268 [1977], on a motion to dismiss made pursuant to CPLR 3211(a)(7), “the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.” Further, “when evidentiary material is considered, the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one, and unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, again dismissal should not eventuate.” Guggenheimer, supra at 275.

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Punitive Damages Are Not Recoverable for Ordinary Breach of Contract

Punitive damages are those awarded to a litigant, separate and apart from the person’s actual damages, to “punish” the bad conduct of the other party.

It is well-founded that “punitive damages are not recoverable for ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights.” See, Rocanova v. Equitable Life Assurance Society of United States, 83 NY2d 603 [1994]. Damages arising from a simple breach of contract are usually limited to contract damages. See, New York University v. Continental Insurance Company, 87 NY2d 308 [1995].

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Standard for Injunctive Relief

"This Court Should Grant Injunctive Relief"

CPLR 6301 authorizes the Court to grant a preliminary injunction where it appears that the defendant threatens, is about to, or is doing an act in violation of the plaintiff’s rights respecting the subject of the action, which would tend to render any judgment ineffectual. A temporary restraining order may also be granted where it appears that there is immediate and irreparable injury, loss or damage resultant therefrom.

This Court is permitted to issue an injunction in this matter based upon the following factors, which are demonstrated herein: (a) there is a likelihood of Plaintiffs’ success on the merits; (b) irreparable harm will occur without an injunction; and (c) a balancing of the equities tips in favor of Plaintiffs as against Defendants. Hoeffner v. John F. Frank Inc., 302 AD2d 428 (2d Dept. 2003).

A: Likelihood of success on the merits:

Under the first prong of the three-part test, the plaintiff is not required to show a certainty of success, but rather must make a prima facie showing of its right to relief. Terrell v. Terrell, 279 AD2d 301 (1st Dept. 2001).

B: Irreparable harm or injury:

Courts have generally construed irreparable injury as actual and imminent harm to be suffered, as opposed to a remote possibility or speculation. See, e.g. Khan v. State University of New York Health Science Center at Brooklyn, 271 AD2d 656 (2d Dept. 2000). An injury will be viewed as irreparable if adequate compensation cannot be fixed, such as in cases involving the loss of a business’s goodwill. Battenkill Veterinary Equine PC v. Cangelosi, 1 AD3d 856 (3d Dept. 2003).

Where the plaintiff’s allegations in support of the motion are specific and factual, and not conclusory in nature, the granting of injunctive relief is proper. Cf., Matos v. City of New York, 21 AD3d 936 (2d Dept. 2005).

C: Balancing of the equities:

In balancing the equities, the court must weigh the harm each side will suffer in the absence or face of injunctive relief. Battenkill Veterinary Equine PC v. Cangelosi, supra; Credit Index LLC v. Riskwise Intern. LLC, 282 AD2d 246 (1st Dept. 2001). For the plaintiff to prevail, “[i]t must be shown that the irreparable injury to be sustained...is more burdensome [to the plaintiff] than the harm caused to the defendant through imposition of the injunction.” McLaughlin, Piven, Vogel, Inc. v. W.J. Nolan and Co. Inc., 114 AD2d 165 (2d Dept. 1986), quoting Nassau Roofing and Sheet Metal Co. Inc. v. Facilities Development Corp., 70 AD2d 1021 (3d Dept. 1979).

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Not so fast. Lawyer Can’t Be Displaced by Client without Court Order.

The client was injured and hired a lawyer to prosecute his personal injury claim against various entities for negligence. The lawyer agreed to handle the personal injury claim for a one-third contingent legal fee. “Contingent fee” refers to an arrangement with an attorney for payment of a percentage of an amount recovered for the client through settlement or resolution of the claim; a one-third contingency is fairly standard in personal injury matters.

After being retained by the client, the lawyer took a number of steps towards prosecuting the claim, including (1) commencing an action (termed a “special proceeding” in the New York State Supreme Court) against a municipality to file a “late” notice of claim to sue that government entity; (2) representing the client in the related worker’s compensation claim before the New York State Worker’s Compensation Board; and (3) commencing an action for personal injuries against the potentially-liable company in the New York State Supreme Court.

After the action was started in the New York State court, the defendant “removed” the action to federal court (based on a concept known as “diversity,” because that defendant was an out-of-state company). In the federal court case, the action continued with discovery proceedings taking place between the parties. The defendant even made an offer to settle the personal injury claim for $50,000, which was rejected.

Displacement of the Attorney
Three days after the $50,000 settlement offer, the lawyer received a letter from another law firm enclosing a Consent to Change Attorney form for the lawyer to sign and return with the file. The letter indicated that the client had now retained the other law firm to continue litigating his personal injury claim and, effectively, terminated the lawyer’s representation in the federal court case.

It is not uncommon for a client to change attorneys midstream during litigation; the usual steps taken upon substitution of attorneys is for the outgoing attorney to deliver the client’s file to the incoming attorney and for the attorneys to come to an arrangement concerning the split of the contingency fee when and if the case settles or resolves. It is also common for the incoming attorney to pay the outgoing attorney’s expenses on the file, including court filing fees, process service fees, and the costs of medical records and investigators. Unfortunately, in this situation, the incoming attorney was unwilling to pay the outgoing attorney’s expenses; he also refused to negotiate any division of the one-third contingency legal fee with the outgoing attorney, claiming instead that the outgoing attorney was entitled to nothing.

Attorney Cannot Be Displaced without Court Order
The outgoing attorney contacted Richard A. Klass, Your Court Street Lawyer, about enforcing his rights to both his legal fee and reimbursement for expenses. The first step was to draft an Order to Show Cause seeking both a “charging” lien upon any future legal fee upon settlement of the case for the lawyer’s percentage and a “retaining” lien to hold onto the client’s file until the expenses were paid.

There is a rule in the United States District Court for the Eastern District of New York concerning the situation where an attorney withdraws or is displaced from a case:

Local Civil Rule 1.4. Withdrawal or Displacement of Attorney of Record.An attorney who has appeared as attorney of record for a party may be relieved or displaced only by order of the Court and may not withdraw from a case without leave of the Court granted by order. Such an order may be granted only upon a showing by affidavit or otherwise of satisfactory reasons for withdrawal or displacement and the posture of the case, including its position, if any, on the calendar, and whether or not the attorney is asserting a retaining or charging lien.

The Order to Show Cause stated that the lawyer was “displaced” from the case by his former client for no legitimate reason and that the lawyer could only be displaced by Order of the Court. Stated in the accompanying affirmation of the outgoing attorney was that the incoming attorney (and, presumably, his former client) were proposing to pay him $0 for two years’ worth of work on the file. It was urged that the federal judge uphold longstanding New York State law that protects attorneys who render legal services on behalf of their clients.

Charging and Retaining Liens
Under New York State law, an attorney who is discharged by his client is statutorily entitled to a charging lien on any monetary recoveries obtained by the former client in the proceedings in which the attorney had rendered legal services. See Judiciary Law § 475. In Mello v. City of New York, 303 AD2d 564 [2003], the court held that where an attorney’s services were provided on a contingent-fee basis, the court should determine the amount of the lien to be fixed in accordance with the attorney’s request, as a contingent percentage based on the proportionate percentage of work he performed, to be determined at the conclusion of the action (see Matter of Rosenblum, 121 AD2d 546 [1986]; see also Lai Ling Cheng v Modansky Leasing Co., 73 NY2d 454, 457-458 [1989]).

A discharged attorney is also entitled to a retaining lien on the former client's papers and property that are in the attorney's possession, under New York common law. See Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir.1991). This mean that the client’s file can be retained by an attorney until he is paid, similar to how a mechanic can hold onto a car until the car’s owner pays for the repairs.

A conference was held with the judge. The judge decided that the client’s file would be exchanged only upon payment of the file expenses and that the outgoing attorney’s percentage of the overall legal fee would be determined when the case settled or resolved. About six months later, the incoming attorney settled the case for $70,000. The charging lien was settled through negotiations between the attorneys, with the outgoing attorney being paid $16,000 for one third of the initial $50,000 settlement offer and the incoming attorney being paid $6,000 for one third of the next $20,000 settlement portion.

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Summary Judgment Motion Should Be Denied When There Are Material Issues of Fact

On a motion for summary judgment, it is well-settled that the movant must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. If the movant fails to make such a showing, then the motion must be denied, regardless of the sufficiency of the opposing papers. Once a showing has been made, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action. See Zuckerman v. City of New York, 49 NY2d 557 [1980]; SRM Card Shop v. 1740 Broadway Associates, 2 AD3d 136 [1 Dept. 2003]; Romano v. St. Vincent’s Medical Center of Richmond, 178 AD2d 467 [2 Dept. 1991].

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Defendant’s Statements Constitute Defamatory Statements of and Concerning Plaintiff

Point: "The Statements made by Defendant, as fully laid out in the Complaint, constitute false and defamatory statements of and concerning Plaintiff and its restaurant business."

To prove commercial defamation, the plaintiff must demonstrate that the following elements are present:

(1) a false and defamatory statement of fact, that it not protected as an expression of opinion;
(2) of or concerning an existing business;
(3) that is published to a third party with the requisite degree of fault; and
(4) that is the proximate cause of damage to the reputation of that business.
See, e.g. Immuno AG v. Moor-Jankowski, 77 NY2d 235 (1991).

New York courts have long defined defamatory statements as those that “tend to expose the plaintiff to public contempt, ridicule, aversion, or disgrace, or induce an evil opinion of him in the minds of right-thinking persons, and to deprive him of their friendly intercourse in society.” Rinaldi v. Holt, Rinehart and Winston, Inc., 42 NY2d 369 (1977). In Kimmerle v. New York Evening Journal, 262 NY 99 (1933), the Court of Appeals held that defamation is that which “exposes an individual to public hatred, shame, obloquy, contumely, odium, contempt, ridicule, aversion, ostracism, degradation, or disgrace or...induces an evil opinion of one in the minds of right-thinking persons, and...deprives one of...confidence and friendly intercourse in society.”

A: Defamation of a business:

For businesses, a more specific test also has been articulated: whether the language is “of so defamatory a nature as to directly affect credit and to occasion pecuniary injury.” Harwood Pharmacal Co. v. National Broadcasting Co., 9 NY2d 460 (1961); Hornell Broadcasting Corp. v. A.C. Nielson Co., 8 AD2d 60 (4th Dept. 1960), affirmed, 8 NY2d 767 (1960). Courts have also addressed this issue by inquiring as to “whether the published statement relates to the plaintiff’s business so as to affect the confidence of the public and drive away its customers.” Reporters’ Association of America v. Sun Printing and Publishing Association, 186 NY 437 (1906).

In the commercial context, defamation is per se when the statement in question “impugns the basic integrity or creditworthiness of a business.” Hamlet Development Co. v. Venitt, 95 AD2d 798 (2d Dept. 1983), affirmed 60 NY2d 677 (1983), citing Ruder and Finn Inc. v. Seaboard Surety Co., 52 NY2d 663 (1981). The test as for whether the statement is defamatory per se is whether it represents a direct attack on the reputation of the business, as opposed to denigrating the quality of the business, its goods or services. See, Drug Research Corp. v. Curtis Publishing Co., 7 NY2d 435 (1960). As indicated in such case law, where a statement is defamatory per se, special damages need not be proved by the plaintiff and damages are presumed.

It is New York law that the false statements that a kosher business which sells kosher meat is selling non-kosher meat and goods is actionable per se because the words tend to injure such proprietors in their business. See, Cohen v. Eisenberg, 173 Misc. 1089 (Sup. Ct., NY Co. 1940), affirmed 260 AD 1014 (1st Dept. 1940), reargument denied 261 AD 890 (1st Dept. 1941); Braun v. Armour and Co., 228 AD 630 (2d Dept. 1929), affirmed 254 NY 514 (1930), certified question answered by 228 AD 698 (2d Dept. 1930).

B: Evaluation of the statement itself:

In evaluating the defamatory nature of a statement, the court must evaluate it in its context (James v. Gannett Co. Inc., 40 NY2d 415 (1976)), should be interpreted fairly and reasonably based on its effect (Armstrong v. Simon and Schuster Inc., 85 NY2d 373 (1995)), as it pertains to the average reader. The “average reader” standard has been interpreted as including at least a substantial minority in the relevant community. Gjonlekaj v. Sot, 308 AD2d 471 (2d Dept. 2003).

It has been established that opinions, false or not, libelous or not, are constitutionally protected and may not be the subject of private damage actions. Rinaldi v. Holt, Rinehart and Winston, Inc., 42 NY2d 369 (1977), citing to Buckley v. Littell, 539 F2d 882, cert. denied 429 US 1062. In the Rinaldi case, the Court of Appeals held that whether a particular statement constitutes fact or opinion is a question of law.

In Millus v. Newsday, Inc., 89 NY2d 840 (1996), the Court of Appeals stated: “Whether a potentially actionable statement is one of fact or opinion is a question of law, and depends on ‘whether a reasonable reader or listener would understand the complained-of assertions as opinion or statements of fact.” In that case, the Court of Appeals held that the facts that the complained-of assertion was made on the editorial page of the newspaper, surrounded by other opinion pieces, and had a general “tenor” of editorialism, the assertion could not have been alleged to be a statement of fact, but rather one of opinion.

The Court of Appeals held, in Brian v. Richardson, 87 NY2d 46 (1995), that factors to be considered to distinguish between assertions of fact and non-actionable expressions of opinion are: (1) whether the specific language in issue has a precise meaning which is readily understood; (2) whether the statements are capable of being proven true or false; and (3) whether either the full context of the communication in which the statement appears or the broader social context and surrounding circumstances are such as to signal to readers or listeners that what is being read or heard is likely to be opinion, not fact.

C: Publication to a third party:

In order to constitute actionable defamation, the defamatory statement must have been disseminated or published to a third party. Swinton v. Safir, 93 NY2d 758 (1999); Memory Gardens, Inc. v. D’Amico, 91 AD2d 1159 (3d Dept. 1983). The publishing and posting of statements on both a website and blog constitute dissemination and publication to third parties. The same are readily available to anyone who searches the internet.

D: Statements are “of or concerning the plaintiff”:

The defamatory statements must be “of or concerning the plaintiff.” Gross v. Cantor, 270 NY 93 (1936).

E: Proximate cause of injury:

Private corporations (and similarly limited liability companies) are generally deemed a private figure in terms of the degree of fault necessary to place the burden of proof upon a party in a defamation action. Carlucci v. Poughkeepsie Newspapers, Inc., 88 AD2d 608 (2d Dept. 1982), affirmed 57 NY2d 883 (1982).



Did the Defendant Commit Injurious Falsehood?

To prove injurious falsehood, the plaintiff must demonstrate that the following elements are present:

(1) a false statement of fact;
(2) published to a third party;
(3) with malice; and
(4) that is the proximate cause of damage to the reputation of that business.

See, e.g. Penn-Ohio Steel Corp. v. Allis-Chalmers Manufacturing Co., 7 AD2d 441 (1st Dept. 1959).

Case law has held that it is not necessary for the Complaint to allege that the sole motivation of the defendant was to injure the plaintiff; rather, it is enough if the falsehoods charged were intentionally uttered and did in fact cause the plaintiff to suffer actual damages in its economic or legal relationships. P. Kaufmann, Inc. v. Americraft Fabrics, Inc., 198 F.Supp.2d 466 (SDNY 2002).

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

The Legal Standard on a Motion to Dismiss

In an action, a Defendant can move to dismiss a Plaintiff’s Complaint based upon the allegation that the Complaint fails to state a cause of action, pursuant to CPLR 3211(a)(1), (5) and (7). In deciding such a motion, the court must accept the facts as alleged in the Complaint as true, according the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Goldman v. Metropolitan Life Insurance Co., 5 NY3d 561, 807 NYS2d 583 [2005]. The Complaint in this action makes factual allegations which, for the most part, have already been established by the Order. These facts amply support the causes of action alleged in the Complaint.

Essentially, the court should impose a “four corners” test in liberally construing the four corners of the pleading to see whether they establish valid causes of action. Schwaner v. Collins, 17 AD3d 1068 [4 Dept. 2005]. As the Court of Appeals enunciated in Guggenheimer v. Ginzburg, 43 NY2d 268 [1977], on a motion to dismiss made pursuant to CPLR 3211(a)(7), “the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.” Further, “when evidentiary material is considered, the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one, and unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, again dismissal should not eventuate.” Guggenheimer, supra at 275.

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Continuing Wrongs Doctrine and the Statute of Limitations

"This Action Is Not Barred By the Statute of Limitations"

"This action is not barred by the statute of limitations, and should be permitted to proceed. As laid out in the Complaint, there have been a series of wrongs on the part of Defendants, over the course of years, which establish their bad faith and lack of fair dealing with Plaintiff. Based upon the continuing wrongs, the causes of action were properly brought within the statute of limitations period."

Breach of fiduciary duty may constitute a continuing wrong that “is not referable exclusively to the day the original wrong was committed.” Kaymakcian v. Board of Managers of Charles House Condominium, 49 AD3d 407, 854 NYS2d 52 [1 Dept. 2008]  (denying dismissal of the breach of fiduciary duty claim as time-barred where board had a continuing duty to repair leaks in building’s limited common elements); 1050 Tenants Corp. v. Lapidus, 289 AD2d 145, 146, 735 NYS2d 47 [1 Dept. 2001].

The continuing wrong doctrine applied to breach of fiduciary duty limits monetary damages to three years from the commencement of the action. See Kaufman v. Cohen, 307 AD2d 113, 118, 760 NYS2d 157 [1 Dept. 2003]; CPLR 214[4].

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Ownership of Property among Two Sets of Spouses

"Rodriguez’s Right to 50% of the Property Was Created by Operation of Law"

In this case, the Deed to the subject real property indicated ownership of the property as follows:

“GILBERTO HERNANDEZ and CONSOLACION HERNANDEZ, HIS WIFE … AND ERLINDA QUE and ELPIDIO RODRIGUEZ, HER HUSBAND.”

As to the 50% interest in the property owned by movant  Elpidio Rodriguez and his wife, Erlinda Que, they owned their share as tenants by the entirety. Based upon the substantial case law in New York State, Mr. Rodriguez and Erlinda Que took ownership of their half-share as husband and wife, have continued as such until Erlinda Que’s death.

In Prario v. Novo, 168 Misc.2d 610 (Sup. Ct., Westchester Co. 1996), the court held that a grant of real property to a husband and wife creates a tenancy by the entirety “unless expressly declared to be a joint tenancy or tenancy in common.”  Estates, Powers and Trusts Law § 6-2.2(b). A joint tenancy is subject to partition during the lifetimes of the joint tenants (24 N.Y.Jur.2d, Cotenancy and Partition, § 33; 3A Warren's Weed, New York Real Property, Partition, § 3.03; id., vol. 2A, Joint Tenants, § 4.01) whereas a tenancy by the entirety cannot be divided absent consent of both spouses or upon a divorce (24 N.Y.Jur.2d, Cotenancy and Partition, §§ 38, 56; 3A Warren's Weed, op. cit., Partition, § 3.12) The tenancy by the entirety can be changed by voluntary act of the couple, divorce or death.

In Goldman v. Goldman, 95 NY2d 120 (2000), the Court of Appeals noted that a tenancy by the entirety is a form of real property ownership available only to parties married at the time of the conveyance (Kahn v. Kahn, 43 N.Y.2d 203, 207, 401 N.Y.S.2d 47, 371 N.E.2d 809). As tenants by the entirety, both spouses enjoy an equal right to possession of and profits yielded by the property (Neilitz v. Neilitz, 307 N.Y. 882, 122 N.E.2d 924). Additionally, “each tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other” (V.R.W., Inc. v. Klein, 68 N.Y.2d 560, 565, 510 N.Y.S.2d 848, 503 N.E.2d 496). Only if the legal relationship between the husband and wife is judicially altered through divorce, annulment or legal separation, does the tenancy by the entirety converts to a tenancy in common (Kahn v. Kahn, 43 N.Y.2d, supra, at 207, 401 N.Y.S.2d 47, 371 N.E.2d 809).

Courts have recognized that a tenancy by the entirety cannot be altered without the mutual consent of the spouses or divorce. In Sciacca v. Sciacca, 185 Misc.2d 105 (Sup. Ct. Queens Co. 2000), the court held that: “As articulated by the Court of Appeals in Kahn v. Kahn, 43 N.Y.2d 203, 401 N.Y.S.2d 47, 371 N.E.2d 809, a court cannot direct the disposition of property held by married couples as tenants by the entirety until the court first alters the marital status, such as by entering a judgment of divorce or separation. Indeed, the law is long-settled that neither entirety tenant may, without the consent of the other, dispose of any part of the property to defeat the right of survivorship.” Citing to Hiles v. Fisher, 144 N.Y. 306, 39 N.E. 337.)

The Court of Appeals held, in Hiles v. Fisher, 144 NY 306 (1895), that the husband had a right to mortgage his interest, which was a right to the use of an undivided half of the estate during the joint lives, and to the fee in case he survived his wife; and by the foreclosure and sale the plaintiff acquired this interest, and became a tenant, in common with the wife, of the premises, subject to her right of survivorship.

Revisiting this issue, in V.R.W., Inc. v. Klein, 68 NY2d 560 (1986), the Court of Appeals held:

What makes this right of survivorship unique and differentiates it from the right of survivorship inherent in an ordinary joint tenancy is that it remains fixed and cannot be destroyed without the consent of both spouses (see, Kahn v. Kahn, 43 N.Y.2d 203, 401 N.Y.S.2d 47, 371 N.E.2d 809; compare, Matter of Polizzo, 308 N.Y. 517, 127 N.E.2d 316; Matter of Suter, 258 N.Y. 104, 179 N.E. 310, with Matter of Klatzl, supra, 216 N.Y. at pp. 86-87, 110 N.E. 181; Hiles v. Fisher, supra). As long as the marriage remains legally intact, both parties continue to be seized of the whole, and the death of one merely results in the defeasance of the deceased spouse's coextensive interest in the property (see, Stelz v. Shreck, supra, 128 N.Y. at p. 266, 28 N.E. 510; Bertles v. Nunan, supra, at p. 156). Similarly, involuntary partition is not available to either cotenant as a means of severing the tenancy by the entirety, since a contrary rule would permit a vindictive or irresponsible spouse to deprive the other of the comforts of the marital home (see, Kahn v. Kahn, supra, 43 N.Y.2d at p. 208, 401 N.Y.S.2d 47, 371 N.E.2d 809; Anello v. Anello, 22 A.D.2d 694, 253 N.Y.S.2d 759; Vollaro v. Vollaro, 144 App.Div. 242, 129 N.Y.S. 43).

Accordingly, the ownership interests of Mr. Rodriguez and Erlinda Que as “husband and wife” created a tenancy by the entirety. Upon the death of his wife, Mr. Rodriguez became the owner of her share by operation of law; any Last Will and Testament of Erlinda Que would not alter his rights.

Long-established New York law is that real property held as tenants by entirety does not pass under the Will of a decedent spouse. In re Rothko’s Estate, 77 Misc.2d 168 [Sur. Ct., NY Co. 1974]; In re Strong’s Will, 171 Misc. 445 [Sur. Ct., Monroe Co. 1939] (“A severance of a tenancy by the entirety cannot be effected by the unilateral last will of one of the spouses alone.” Citing to Levenson v. Levenson, 229 AD 402 [2 Dept. 1930]).

On the death of the first tenant by the entirety of real property, his estate ceases to have any interest in such property. Matter of Harris’ Estate, 88 Misc.2d 60 [1976], affirmed 61 AD2d 881.

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

The Defense of Equitable Estoppel

There is a concept in the law that one party should not be allowed to lead another party down a road, knowing full well that it is the wrong road, only later to say “a-ha” and attempt to take advantage of the other party. Where one party claims that the other has breached a contract, there may be the availability of the defense of “equitable estoppel.” The term “estoppel” refers to “stopping” someone from taking a certain position that differs from a prior position--and “equitable” refers to that certain degree of fairness that is expected of people.

In the Matter of N.Y. State Guernsey Br. Co-op v. Noyes, 260 AD 240, modified on other grounds, 284 NY 197, the court laid out the essential elements of an equitable estoppel claim, as follows: (1) As related to the party to be charged: (a) conduct which amounts to a false representation or concealment of material facts; (b) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (c) knowledge, actual or constructive, of the real facts; and (2) As related to the party claiming the estoppel: (a) lack of knowledge; (b) reliance upon the conduct of the party estopped; and (c) action based thereon of such a character as to change his position prejudicially.

In the broad context of contracts,

In Ferlazzo v. Riley, 278 NY 289 (1938), the Court of Appeals pointed out that the contract rights of a mortgagee will be enforced in the absence of waiver, estoppel, bad faith, fraud, oppressive or other unconscionable conduct on its part.

In Caspert v. Anderson Apartments, 196 Misc. 555 (Sup. N.Y. Co. 1949), the court opined: “It may be unconscionable, however, to insist upon adherence to the letter of an agreement where a mortgagee indicates by his conduct or silence that his inaction may turn to his own advantage.”

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Summary Judgment Denied When Discovery Pending

Summary judgment should be denied where it appears that relevant evidence needed to oppose the motion is within the exclusive knowledge of the movant, and the opposing party has not had a reasonable opportunity for disclosure prior to the motion for summary judgment. See CPLR 3212(f) (motion for summary judgment should be denied where it appears that facts essential to the motion exist but cannot then be stated due to the absence of discovery). See also, Logan v. City of New York, 148 AD2d 167 [1 Dept. 1989]; Simpson v. Term Industries, 126 AD2d 484 [1 Dept. 1987].

Finally, the failure of a movant to comply with discovery demands may justify the denial of the summary judgment motion. See Jones v. Town of Delaware, 251 AD2d 876 [3 Dept. 1998]. This is especially so where the information sought in the pending discovery demand is clearly specified and relevant to the issues raised by the motion, the motion should be denied. Campbell v. City of New York, 220 AD2d 476 [2 Dept. 1995]; Elliot v. County of Nassau, 53 AD3d 561 [2 Dept. 2008] (A party should be afforded a reasonable opportunity to conduct discovery prior to the determination of a motion for summary judgment).

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

The Directors of a Corporation Owe a Fiduciary Duty to Their Shareholders

Without doubt, the directors of a corporation owe its shareholders a fiduciary duty. The fiduciary duty of a director of a corporation consists of the obligation to perform his duties in good faith, without discriminatory practice, and with the degree of care which an ordinary prudent person in a like position would use under similar circumstances. See, Bernheim v. 136 East 64th Street Corp., 128 AD2d 434 [1 Dept. 1987].

In Levandusky v. One Fifth Avenue Apartment Corp., 75 NY2d 530 [1990], the Court of Appeals held that, generally, members of a board of directors who act in good faith and in the honest exercise of business judgment are protected by the business judgment rule. The business judgment rule has been held to apply to cooperative apartment sales. See, Woo v. Irving Tenants Corp., 276 AD2d 380 [1 Dept. 2000].

Without doubt, the directors of a corporation owe its shareholders a fiduciary duty. The fiduciary is bound at all times to exercise the utmost good faith toward the principal or shareholder. Soam Corp. v. Trane Co., 202 AD2d 162, 608 NYS2d 177 [1 Dept. 1994].  The fiduciary must also act in accordance with the highest and truest principles of morality. Elco Shoe Mfrs., Inc., v. Sisk, 260 NY 100, 183 NE 191 [1932].

The fiduciary duty of a director of a corporation consists of the obligation to perform his/her duties in good faith, without discriminatory practice, and with the degree of care which an ordinary prudent person in a like position would use under similar circumstances. See, Bernheim v. 136 East 64th Street Corp., 128 AD2d 434 [1 Dept. 1987].

However, the business judgment rule does not apply where the directors acted in bad faith or were motivated by factors other than the interest of the cooperative corporation. See, Woo v. Irving Tenants Corp., supra. Further, the business judgment rule does not protect the board from liability for discrimination. Jones v. Surrey Cooperative Apartments, 263 AD2d 33 [1 Dept. 1999].

In a case in which the owner of a cooperative unit sued the board members for rejecting applicants for various reasons, including discriminatory ones, the court noted that the general deference granted to decisions of a cooperative corporation’s board of directors is not unlimited. If those board members act in a manner which is contrary to their duty to act fairly and impartially, courts may review claims of misconduct. Further, upon review, those claims of misconduct may prove actionable against the board members. See, Axelrod v. 400 Owners Corp., 189 Misc.2d 461 [Sup.Ct., NY Co. 2001].

A corporation can be directly liable for breach of fiduciary duty by the actions of its board of directors.  The Board owes a fiduciary duty to its shareholders, and controlling case law is replete with examples of shareholders properly stating these claims directly against cooperative housing corporations where particular board misconduct is alleged. Kleinerman v. 245 East 87 Tenants Corp, et al., 74 AD3d 448, 903 NYS.2d 356 [1 Dept. 2010] (denying defendants’ pre-answer motion to dismiss where complaint stated claims for breach of fiduciary duty against the cooperative, its board, its officer and individual board members); Stowe v. 19 East 88th Street, Inc., 257 AD2d 355, 683 NYS2d 60 [1 Dept. 1999] (denying a pre-answer motion to dismiss of the sole defendant, a cooperative corporation, and holding that directors of apartment cooperative owe a fiduciary duty to act solely in best interest of all shareholders); Ackerman v. 305 East 40th Owners Corp., 189 AD2d 665, 592 NYS2d 365 [1 Dept. 1993] (same); Demas v. 325 West End Ave. Corp., 127 AD2d 476, 511 NYS2d 621 [1 Dept. 1987] (same).

It is therefore beyond cavil that where a board of directors allegedly breaches its fiduciary duty to a shareholder, the claim is actionable against the corporation, particularly where a board’s conduct has “no legitimate relationship to the welfare of the coop at large.” Bryant v. One Beekman Place, Inc., 73 AD3d 616, 904 NYS2d 370 [1 Dept. 2010].

The very fact that the Board refused to satisfy its obligation to repair the shareholder’s apartment is alone sufficient to state a claim for breach of fiduciary duty. Kaymakcian v. Board of Managers of Charles House Condominium, 49 AD3d 407, 854 NYS2d 52 [1 Dept. 2008] (denying dismissal of fiduciary duty claim against a condominium board of managers where it failed to repair limited common elements).

As for damages, the trial court is accorded significant leeway in ascertaining a fair approximation of the loss where a breach of fiduciary duty has been proved.  Keizman v. Hershko, 52 AD3d 204, 859 NYS.2d 79 [1 Dept. 2008].  After all, “[w]hen a difficulty faced in calculating damages is attributable to the defendant's misconduct, some uncertainty may be tolerated.” Whitney v. Citibank, 782 F2d 1106, 1118 [2 Cir. 1986].

Courts have held a fiduciary liable for the attorney's fees and other expenses incurred in exposing his misconduct. Birnbaum v. Birnbaum, 157 AD2d 177, 555 NYS2d 982 [4 Dept. 1990]; Matter of Campbell, 138 AD2d 827, 829, 525 NYS2d 745 [4 Dept. 1988]; Parker v. Rogerson, 49 AD2d 689, 689-690, 370 NYS2d 753 [3 Dept. 1975]; Matter of Rothko, 84 Misc.2d 830, 379 NYS2d 923 [Surr. Ct., NY Co. 1975].

These holdings do not conflict with the “American Rule” articulated in Matter of A.G. Ship Maintenance Corp. v. Lezak, 69 NY2d 1, 511 NYS2d 216 [1986]. While Lezak holds that attorney's fees are ordinarily not recoverable by the prevailing party against the losing party as an incident of litigation, Lezak does not concern the propriety of awarding attorney's fees as an element of damages.

In a case of breach of fiduciary duty, the aggrieved party is entitled to prejudgment interest. CPLR 5001; Howard v. Carr, 222 AD2d 843, 635 NYS2d 326 [3 Dept. 1995].

Indeed, if the breach of fiduciary duty is found to be sufficiently egregious, punitive damages may be recoverable. Don Buchwald Assocs. v. Rich, 281 AD2d 329 [1 Dept. 2001].

by Richard A. Klass, Esq.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Requirements under Truth in Lending Act

The Truth in Lending Act requires the lender to provide the consumer with clear, conspicuous, and accurate disclosures of loan terms. Regulation Z (see footnote 1), 12 C.F.R. Section 226.18 (“Content of Disclosures”). Among other required disclosure items, the amount of credit provided to the consumer and every loan charge must be properly described. See, e.g., Regulation Z, 12 C.F.R. Section 226.18(b) (amount of credit provided), 12 C.F.R. Section 226.18(d) (finance charges), and 12 C.F.R. Section 226.18(e) (interest rate and prepaid charges). The security interest to be taken in the consumer’s principal residence, and any other property, must be disclosed. Regulation Z, 12 C.F.R. Sections 226.5 – 15 (open end transactions), 226.17-23 (closed end transactions).

Section 226.5b requires that the disclosures be given at the time of application, as follows:

“(b) Time of disclosures. The disclosures and brochure required by paragraphs (d) and (e) of this section shall be provided at the time an application is provided to the consumer.”

Footnote:
[1] The provisions of Part 226 of Title 12 of the C.F.R. are commonly known as Regulation Z.  Regulation Z (including its commentary) are consistently followed by courts in determining compliance with TILA, which is a “strict liability” statute.  See, e.g., Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980) (Regulation Z and its commentary are entitled to substantial deference and are dispositive unless demonstrably irrational).

by Richard A. Klass, Esq.

-----------
copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

An Extra $1,500,000 for the Aged

More than fifty years ago, a charitable woman executed her Last Will and Testament, bequeathing all of her assets to two Catholic charities in the event that her siblings did not survive her. The two Catholic charities named in the Will were the Columbus Hospital and St. Joseph Rest Home for the Aged, each to get 50% of her estate. Both of these institutions were founded or operated by Italian American Catholic Orders.

In March 2008, the woman passed away, leaving more than $3,000,000 worth of assets in her estate. Since her siblings predeceased her, the Will left everything to the two Catholic charities.

Demise of Columbus/Cabrini Hospital

Columbus Hospital was founded in 1892 and operated a hospital in Manhattan. It was opened by a mission of the Missionary Sisters of the Sacred Heart of Jesus to address the needs of Italian immigrants. In 1973, Columbus Hospital and Italian Hospital merged to form Cabrini Medical Center. Cabrini Medical Center operated as a hospital on the same site as Columbus Hospital on East 19^th Street until it filed for bankruptcy on July 9, 2009. Through the bankruptcy proceedings, Memorial Sloan Kettering Cancer Center purchased the buildings in which Cabrini Medical Center was formerly located.

Charitable mission of St. Joseph Rest Home for the Aged

Similarly to Cabrini, St. Joseph Rest Home for the Aged was founded by Nuns whose lives are committed, without compensation, solely to their charitable and religious convictions. Both charitable organizations — Cabrini and St. Joseph — were founded and operated by Nuns of Italian heritage. The Order of St. Joseph’s was founded in Rome by Italian Nuns and still has a mother house located in the Vatican. St. Joseph’s Rest Home for the Aged, which operates a licensed nursing home facility that accommodates forty women, was founded by the Catholic Sisters of The Order of St. Joseph’s and is located in Paterson, New Jersey.

Accounting proceeding

Because Columbus Hospital had ceased to exist, the executor of the deceased woman’s estate filed a judicial accounting with the Surrogate’s Court, requesting that the Surrogate give the 50% share originally meant for Cabrini Hospital to Memorial Sloan Kettering. The executor indicated that the bequest originally meant for Cabrini should be given to Memorial Sloan Kettering because the deceased had been treated there.

The Chairman of the Board of Directors of St. Joseph contacted Richard A. Klass, Your Court Street Lawyer, about objecting to the bequest to Memorial Sloan Kettering and, instead, requesting that the Surrogate pay the entire net estate to St. Joseph Rest Home for the Aged.

Cy Pres doctrine

There is a centuries’ old doctrine of cy pres (pronounced “sigh – pray”), which is a rule that when literal compliance with a Will or trust is impossible, the intention of a donor or testator should be carried out as nearly as possible. This is especially true when a bequest to a charity has “lapsed” as the result of the charity no longer existing to receive the bequest; then the Surrogate may designate another charity in its place.

In the seminal case of In re Brundrett’s Estate [1940], a percentage of the remainder of the estate was left to St. Mark’s Hospital, but the hospital was bankrupt in 1931 and ceased to operate as a hospital and perform the functions for which it was originally incorporated. The court held that the gift to the hospital was, therefore, ineffectual. The court then applied the doctrine of cy pres and paid over that charity’s portion to the other charitable ‘remaindermen’ named in the Will (the term ‘remaindermen’ refers to others who receive the residuary or balance of an estate).

Following the holding in In re Brundrett’s Estate, the court in In re Shelton’s Estate [1942] was faced with a similar issue as presented here. In that case, the decedent left moneys to a charitable institution located in Italy that was maintained by a New York religious corporation. After the death of the decedent, the New York religious corporation relinquished its maintenance of the Italian institution and discontinued all of its religious and charitable activities. Although its officers continued to function, it was a “charity in name only.” The court held that the discontinuance of the charitable and religious functions precluded authorization of payment of the legacy to the entity. However, the court recognized that the decedent had charitable intentions to provide a gift for religious purposes and invoked the doctrine of cy pres. In granting the legacy originally left to the Italian charity to the other charitable legatee, the court in In re Shelton’s Estate held: “By the application of that doctrine [cy pres] the surrogate holds that the legacy did not lapse and may be paid to The Cathedral Church of St. John the Divine in the City and Diocese of New York, the other charitable legatees named in the will and object of the generous bounty of the testatrix.”

After the objection to the judicial accounting by St. Joseph, with sufficient case law being presented in support of the request to pay the bequest of Cabrini Hospital over to St. Joseph, the executor agreed to pay 100% of the residuary estate to St. Joseph, roughly $3 million in total. The nursing home needs a new roof — now they’ll be able to afford it!

— Richard A. Klass, Esq.

Credits:

Photo of Richard Klass by Robert Matson, copyr. Richard A. Klass, 2011.
Newsletter marketing by The Innovation Works, Inc.
Image on page one: Salzgitter, Städtisches Altenheim, 1961, Maria retirement home in Tann, in a hospital room with a Dutch nun. Licensed under the Creative Commons Attribution-Share Alike 3.0 Germany license. Attribution: Bundesarchiv, B 145 Bild-F010160-0001 / Steiner, Egon / CC-BY-SA.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Seminar: Mortgage Foreclosure: Process, Defenses and Options

Dear Readers,

You may be interested in this seminar that I have organized with the Brooklyn Bar Association.

Best,
Richard



Mortgage Foreclosure: Process, Defenses and Options
May 14, 2012, 6 – 8:00 PM

Richard A. Klass, Esq., Chair, Mentoring Committee
Program Organizer and Moderator

The Brooklyn Bar Association’s Meeting Hall
123 Remsen Street
Brooklyn Heights, New York 11201

All members of the public are invited to attend an informational lecture outlining the process of a typical mortgage foreclosure proceeding; defenses available to the homeowner; and other options

To reserve a seat or for information, contact: 
Avery Eli Okin, Esq., CAE
e-mail: aokin@brooklynbar.org

This Brooklyn Bar Association Foundation Law Committee program is a joint presentation with the Brooklyn Bar Association, the Brooklyn Bar Association Volunteer Lawyer’s Project, Inc., and the Brooklyn Bar Association Lawyer Referral Service.

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copyr. 2011 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

When Do Two Feet Matter? When $16,728,000 Rides on It!

In 2006, a developer entered into a contract to purchase a large industrial warehouse in Greenpoint, Brooklyn, in order to convert the property into residential housing. The Contract of Sale provided for a purchase price of $16,728,000.

The contract was amended and extended eight times in order to provide for several issues to be resolved. Among those issues, there were tenant buy-out agreements concerning the several remaining commercial tenants. During the entire process, the developer was required to make several types of payments to the seller (separate from the large down payment) towards the operating costs of the property. The developer made substantial payments to the seller, including Surrender Agreements, Tenant Buy-Outs, Operating Expenses, and Security Costs. The property finally became completely vacant, and a closing was to be scheduled in 2007.

Title Defects Raised – Especially Chimney Protrusion

As is common in real estate contracts, there was a clause that all title “defects” were to be cured before closing. A title defect is generally defined as an issue relating to ownership or possession of the property, the legal description of the property to be sold or liens affecting the property – or, more to the point, a title defect is one that a reputable title company believes would render title unmarketable. In this case, the survey revealed that a chimney from an adjoining property was protruding two feet into the property to be sold.


The title defect was raised to the seller’s attorney by the developer. In response, the seller’s attorney claimed that the title defect was insignificant and was being raised as a delay tactic and was without merit. To that end, the seller declared a certain date as the “time of the essence” date for the closing. If the developer did not close on that date, then the down payment and all of the operating costs would be deemed forfeited to the seller. Needless to say, that date came and passed, and the seller declared the developer in breach of the contract, entitling the seller to retain the moneys.


Your Court Street Lawyer, Richard A. Klass, was then retained by the developer to ensure that the down payment moneys would not be lost and title would transfer to the buyer under the Contract of Sale.

Quick Action Was Needed

The first step was to file, along with the Summons and Complaint, a Notice of Pendency (also known as a Lis Pendens) against the Block and Lot of the property. This is a statutory creation under New York’s Civil Practice Law and Rules Article 65. This document gives notice to the entire world that there is a dispute which affects the title, use or possession of real property. The filing of this Notice preserves the rights of the buyer from a seller transferring title to the property in contract, as whoever buys the property is deemed to have knowledge of the dispute.


Simultaneously, the Complaint against the seller was filed with the County Clerk’s Office, which contained several allegations against the seller, including that:


(a) the developer fully complied with the Contract of Sale and was entitled to “specific performance” because real estate is considered a “unique” asset that cannot be replicated (the law recognizes that each piece of real estate is distinct);


(b) the electronic communication from the seller’s attorney to the buyer’s attorney concerning the “time of the essence” closing date did not comply with the “notice” provision of the Contract of Sale (it is always important to check the notice provision of any contract to see how notices to the other side are to be sent, e.g. certified mail, overnight delivery, etc.);


(c) the seller failed to actually “tender” the Deed to the property by coming to the place of closing, as required by the contract (the non-breaching party to a real estate contract must show that it showed up at the place and time indicated in the contract to deliver the Deed, even if the other side does not come; thus, recognizing that the breaching party could potentially show up at the last minute to actually close the transaction); and


(d) the title defects rendered title to the property unmarketable and uninsurable; thus, the developer was entitled to the return of all of its down payment and operating costs.


In New York, it is well settled that in order to place a contract vendor (seller) in default for a claimed failure to provide clear title, the purchaser must first tender performance and demand good title. See, Capozzola v. Oxman, 216 AD2d 509. Following that line, a tender of performance by the purchaser is excused only if the title defect is not curable. See, Cohen v. Kranz, 12 NY2d 242. The law also recognizes that a purchaser may opt to waive a title defect concerning the property in order to close title.


The end result of this case was that, despite the claim of the seller that the developer breached the contract and it was entitled to retain all of the moneys paid, the seller agreed to extend the date of closing for an additional month to facilitate the closing of title to the developer.

— by Richard A. Klass, Esq.

©2008 Richard A. Klass. Art credits: page one, Dorfstraße by Giovanni Fattori, 1903-1904.

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copyr. 2011 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.

Home! Sweet Home!

The homeowner had a bunch of problems. Not only was he saddled with over $30,000 in credit card debt spread across several credit card accounts, he had also just received the Summons and Complaint, filed by his mortgage lender, seeking to foreclose on the mortgage recorded against his home. He was delinquent on his mortgage and owed many months’ worth of mortgage arrears. This homeowner is one of the tens of thousands of homeowners across the State (and more across the country) who have fallen into foreclosure with little help or support. Fortunately for the homeowner, he came to Richard A. Klass, Your Court Street Lawyer, for help.


Establishing the Best Strategy

In order to establish the best strategy for the particular situation, the house’s fair market value first had to be considered.

Many homeowners have seen their property values drop so low that their houses are “underwater,” meaning they owe more on their mortgage than the house is worth. In such circumstances, there are different strategies which may be taken by homeowners, including offering the lender a deed in lieu of foreclosure or staying in possession of the house for as long as possible until the foreclosure auction sale. In this case, the homeowner was unsure of his house’s fair market value, so he was advised to hire a licensed appraiser for an honest, unbiased opinion as to the value of the house. The appraisal came back and showed that the amount due to the mortgage lender on the outstanding mortgage was nearly equal to the fair market value. The homeowner and his wife liked their home and neighborhood, so he wanted to figure out a way to save the house, if possible.


Defending the Mortgage Foreclosure Case

The foreclosure proceeding brought by the mortgage lender had to be answered. The homeowner answered the Complaint and also brought Counterclaims against the lender, alleging that the lender engaged in predatory lending practices, fraud, and violations of the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA). Filing the Answer and Counterclaims placed an obstacle in the path of the mortgage lender and helped slow down the foreclosure process.

As another part of slowing down the mortgage lender’s case, discovery demands were served, including a request for copies of all documents signed at the closing, when the mortgage was first obtained. It is crucial to a homeowner’s defense of a mortgage foreclosure case, in a time when affidavits are “robo-signed” by non-bank representatives, original documentation is lost by mortgage departments, and mortgages lack assignment from the original lender, that all documents be reviewed for their authenticity and truthfulness.


A Dollar Can Be Stretched Only So Far!

After establishing that the house was not very much “underwater” and that the homeowner wanted to keep the house, the next step was to consider how to pay the mortgage, property taxes and other carrying charges of the house. The homeowner’s take-home salary could only go so far — he could not afford to make the regular monthly mortgage payment as well as the minimum payments on all the various credit card accounts. However, if he could shed the credit card debt, he could more easily afford all of his other expenses.


“Straight” Bankruptcy

Generally, homeowners have to file a “Chapter 13” bankruptcy case to save their home. In a Chapter 13 case, a monthly payment plan over a three- to five-year term is proposed by the debtor, reviewed by the trustee, and then approved or denied by the Bankruptcy Judge. However, in the present situation, a Chapter 13 bankruptcy case was not necessary because there was no equity in the house to protect (net equity being the fair market value of the house less the balance due on the mortgage). Accordingly, the decision was made to file a “Chapter 7” bankruptcy case. A Chapter 7 bankruptcy case — also known as a “straight bankruptcy” — is a legal proceeding in which all of the debtor’s ‘unsecured debts’ (such as credit cards, personal loans and lines of credit) are discharged or extinguished. Once the bankruptcy case was filed, the homeowner benefited from the automatic stay provisions of the Bankruptcy Code. Basically, these provisions act as a “Stop Sign” against creditors, prohibiting them from taking any collection actions against debtors. When this homeowner/debtor received his Discharge, by which he discharged or extinguished all of the unsecured credit card debt, he was left with only the mortgage debt (also known as ‘secured debt’ because the house is collateral for the loan).


Mortgage Foreclosure Proceeding — Round Two!

In New York State, when a homeowner/defendant puts in an appearance in a mortgage foreclosure case, the court puts the case onto its Foreclosure Settlement Conference calendar and schedules a conference between the mortgage lender and the homeowner. The purpose of the conference is to see whether there is any way to mediate and settle the dispute, including exploring the loan modification process.

In our present situation, with the bankruptcy case over and the homeowner coming straight out of his Chapter 7 case with his Discharge of all other debts (his “fresh start!”), the mortgage foreclosure proceeding was placed back onto the Supreme Court’s Foreclosure Settlement Conference calendar. Pursuant to the conference, the homeowner applied for loan modification with the mortgage lender and provided all documentation required, including the application, and his tax returns and paystubs.

With no outstanding credit card debt, the homeowner’s salary clearly demonstrated that he had more than sufficient income to support the mortgage and carrying charges of the house. The good news came at the next foreclosure settlement conference: the homeowner’s application to modify his mortgage loan was approved by the lender and the foreclosure proceeding was dismissed. Home! Sweet Home!

— by Richard A. Klass, Esq.©2012 Richard A. Klass.

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copyr. 2012 Richard A. Klass, Esq.
The firm's website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation at 16 Court Street, 28th Floor, Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-ml to RichKlass@courtstreetlaw.com with any questions.
Prior results do not guarantee a similar outcome.


Credits:
Legal services marketing by The Innovation Works, Inc. www.TheInnovationWorks.com
Image at top: Flowering Plum Tree, Eragny, 1894, by Camille Pissarro (1830-1903). This image is in the public domain because its copyright has expired. This applies to Australia, the European Union and those countries with a copyright term of life of the author plus 70 years. This image is in the public domain in the United States. This applies to U.S. works where the copyright has expired, often because its first publication occurred prior to January 1, 1923.