Opinion
No. 13166/13.
03-05-2015
HSBC BANK USA, N.A., as Trustee for the Registered Holders of Renaissance Equity Loan Asset–Back Certificate, Series 2007–3, Plaintiff, v. Gangaram SINGH, Dwight Halstead, Teddy Halstead, GMAC, Environmental Control Board, John Doe No.1 through John Doe # 12,” the last twelve names being fictitious and unknown to plaintiff, the persons or parties intended being the tenants, occupants, persons or corporations, if any, having or claiming an interest in or lien upon the premises, described in the complaint, Defendants.
Thomas G. Sherwood, Esq., Garden City, attorney for plaintiffs. Vivian M. Williams, Esq., Vivian M. Williams & Associates, PC, New York City, attorney for defendants.
Thomas G. Sherwood, Esq., Garden City, attorney for plaintiffs.
Vivian M. Williams, Esq., Vivian M. Williams & Associates, PC, New York City, attorney for defendants.
Opinion
CAROLYN E. DEMAREST, J.
Defendants Dwight and Teddy Halstead move to dismiss the action pursuant to CPLR 3212 based upon documentary evidence and for failure to join a necessary party. Plaintiff cross-moves to amend the complaint.
BACKGROUND
In this residential foreclosure action, plaintiff alleges the following: On January 30, 2004, defendant Teddy Halstead (“Teddy”) purchased the property 762 New Jersey Avenue, Brooklyn, New York (“Property”) and financed the purchase through two mortgage loans from Select Wholesale Mortgage (“Select”) in the amounts of $288,000 and $54,000 (“Select Mortgages”). After those loans went into default, a Judgment of Foreclosure was signed by my colleague Justice Sylvia O. Hinds–Radix in DLJ Mortgage Capital Inc. v. Halstead (Index No. 27038/04) (“Select Action”) on April 13, 2005. Teddy and defendant Dwight Halstead (“Dwight”) were also defendants in the Select Action and they defaulted. On or about November 9, 2006, Teddy brought an Order to Show Cause seeking to stay the foreclosure sale alleging that he was in contract to sell the Property for $590,000 and would use the proceeds of the sale to satisfy the Select Mortgages. On February 1, 2007, Teddy entered into a contract of sale (“Contract”) for the Property with defendant Gangaram Singh (“Singh”) for $585,000. On May 24, 2007, Teddy executed a notarized title insurance general affidavit stating, “I am Owner of 762 New Jersey Avenue Brooklyn, executing the deed of the property known as 762 New jersey Avenue to Gangaram Singh.” On May 29, 2007, Teddy executed a notarized power of attorney in favor of attorney Victor A. Worms, Esq. (“Worms”), with respect to “real estate transactions”, and on May 30, 2007, Worms, as “attorney in fact for Teddy Halsted”, executed a transfer of the deed of the Property to Singh. At the closing held on May 30, 2007, a mortgage (“Mortgage”) on the Property was signed by Singh with Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for lender Delta Funding Corporation (“Delta”). At the closing, checks were issued to Select in the amount of $384,155.69, Wilshire Credit Corp. in the amount of $74,449.41, and Teddy Halsted [sic ] in the amount of $59,407.57. A satisfaction of mortgage was signed on June 28, 2007 with respect to the $288,000 Select mortgage that was the subject of the Select Action. Upon satisfaction of the Select Mortgage, the Select Action was discontinued by order of Justice Hinds–Radix dated September 10, 2007. On October 30, 2007, plaintiff commenced its first foreclosure action, HSBC Bank USA, N.A. v. Singh (Index No. 40221/07). On October 31, 2007, Delta assigned the Note and Mortgage to plaintiff.
After the commencement of the Select Action, Select became DLJ Mortgage Capital Inc. and the caption was modified to list the plaintiff as “DLJ MORTGAGE CAPITAL INC C/O Select Portfolio Servicing, Inc. F/K/A Fairbanks Capital Corporation 3815 Southwest Temple Salt Lake City, UT 84115”. According to the satisfaction of mortgage document for the $288,000 Select Mortgage, Select assigned that mortgage to DLJ Mortgage Capital Inc. on January 30, 2004.
By order dated December 1, 2006, Justice Hinds–Radix denied Teddy's Order to Show Cause upon his counsel's failure to appear on the return date.
Teddy's signature was notarized by public notaries Barry Braxton and Elena J. Cascone.
Teddy's signature was notarized by public notary Barry Braxton.
Singh's signature was notarized by public notary Deborah Weinstein.
Although a note signed by Singh on May 30, 2007 (“Note”) is referenced in the Mortgage, indicating a loan of $555,750, it is not included in the motion papers.
It appears from the caption of the Select Action, and the satisfaction of mortgage dated June 28, 2007, that Select Portfolio Servicing, Inc. was the servicer of the Select Mortgages at the time of the closing.
The official bank check made out to Teddy was allegedly delivered to Worms.
The court takes judicial notice that in a decision dated April 21, 2008, Justice Hinds–Radix noted that the assignment of the Mortgage to the plaintiff apparently occurred after the commencement of the HSBC v. Singh (Index No. 40221/07) foreclosure action.
On January 14, 2008, four months after the Select Action was discontinued, Dwight Halstead (“Dwight”) and Teddy (collectively, “the Halsteads”), filed a verified complaint (Halstead v. Surujnarine, Index No. 2422/08) (“Halstead Action”) alleging that Dwight purchased the Property in 2004 and, pursuant to a “nominee agreement” executed on January 30, 2004, appointed Teddy as “nominee” of Dwight to receive and hold title to the Property (“Nominee Agreement”). The Nominee Agreement prohibited Teddy from doing anything that related to Dwight's purported interest in the Property without Dwight's written consent or authorization. The complaint further alleges that Worms and defendant Kalawattie Surujnarine (“Surujnarine”) persuaded Teddy to execute the Contract to sell the Property to Singh for $585,000 without Dwight's consent, that Surujnarine and Worms “caused” Teddy to execute a power of attorney to Worms in order to conduct the closing on the Property and a fraudulent closing was held on May 30, 2007 in which the Property was transferred to Singh. The Halsteads allege that, pursuant to the Nominee Agreement, Teddy did not have authority to sign any document that would affect Dwight's interest in the Property and, “[a]t the time of execution of the contract and before the fraudulent Closing, [Singh] was shown the NOMINEE AGREEMENT between [Dwight and Teddy].” However, no explanation is provided as to who showed Singh the Nominee Agreement at the time of the execution of the Contract or why Teddy signed the Contract if he was prohibited from doing so pursuant to the Nominee Agreement. The Halstead Action complaint further alleges that Worms was entrusted with checks from the closing, made out to Teddy, totaling approximately $106,975.18 and that Surujnarine and Worms then converted those funds for their own use without the Halsteads' consent. The Halstead Action seeks monetary damages and the return of the deed to the Halsteads.
The complete caption of the Halstead Action is, Teddy Halstead, Dwight Halstead v. Kalawattie Surujnarine, Victor Worms, Esq. Gangaram Singh.
According to the complaint in the Select Action, Worms was Dwight's attorney for “several years.”
On April 2, 2008, Singh signed a deed transferring the Property to Dwight, in consideration of $10. In an affidavit dated April 2, 2008, notwithstanding his signatures on the Mortgage and the Affidavit of Compliance with Smoke Detector Requirement For One- and Two–Family Dwellings notarized by Notary Public Deborah Weinstein on May 30, 2007, Singh claims that he had no involvement with the Property and did not sign the Mortgage. On September 22, 2008, the Halsteads' counsel, Vivian M. Williams, Esq., filed the quitclaim deed with the New York City Department of Finance Office of the City Register.
It is noted that Singh's signature on the Quitclaim Deed to Dwight is notarized by the Halsteads' counsel, Vivian M. Williams, Esq..
The original April 2, 2008 Singh affidavit, under the caption of the Halstead Action, was submitted in support of the Halsteads' motion.
On or about September 30, 2008, Singh filed a Chapter 13 bankruptcy petition in the Middle District of Florida (“Bankruptcy Action”). Plaintiff's servicer filed a secured claim in the Bankruptcy Action, with respect to the loan at issue, on or about October 8, 2008 and objected to Singh's proposed chapter 13 plan on or about November 3, 2008 as the plan did not account for the loan. On or about July 10, 2009, Singh objected to the plaintiff's claim in the Bankruptcy Action alleging that the indebtedness, with respect to the Note, was incurred through identity theft. The Plaintiff did not object to disallowance of the claim and, on August 28, 2009, the claim was disallowed by the bankruptcy court. On June 21, 2012, Singh was granted a “discharge of debtor after completion of chapter 13 plan” pursuant to § 1328(a) of title 11 of the United States Code. As a result of the discharge in the Bankruptcy Action, plaintiff admits that Singh is no longer liable on the Note and solely seeks to foreclose on the Property.
Plaintiff previously commenced two foreclosure actions on the Property that were both voluntarily discontinued. In HSBC Bank USA, N.A. v. Singh (Index No. 40221/07), Justice Hinds–Radix denied an order of reference on April 21, 2008 due to a lack of certificate of conformity. Plaintiff voluntarily discontinued that action on June 13, 2008. In HSBC Bank USA, N.A. v. Singh (Index No. 21875/08), this court denied an order of reference on March 1, 2013 due to inadequate service of the complaint upon Singh and an inadequate explanation of the effect of the Bankruptcy Action on the foreclosure proceeding. This court also noted that, prior to plaintiff's filing the motion for an order of reference, Singh transferred the Property to Dwight and that any service of the renewed motion should be made upon Dwight. By order of this court on July 11, 2013, the action was voluntarily discontinued, without prejudice, on plaintiff's motion. The plaintiff commenced the present foreclosure action on July 23, 2013. The Halsteads previously moved to dismiss this action and, by order dated January 6, 2014, this court denied the motion (see infra ).
In support of their second motion to dismiss the present action, the Halsteads argue that this action must be dismissed based upon the Nominee Agreement, that purportedly demonstrates Teddy's lack of authority to convey the Property, and a 2008 affidavit from Singh that alleges his identity was stolen by Surujnarine in a number of fraudulent transactions and that he never attended the closing or signed the Mortgage. The Halsteads further argue that Singh has not been properly joined in this action, as the service of the complaint was inadequate, and he is a necessary and indispensable party to this action.
In opposition to the motion to dismiss, the plaintiff argues that the motion should be denied as the Halsteads have failed to demonstrate prima facie proof that the Mortgage was forged, Teddy was not authorized to convey the deed to Singh, or that service of the complaint upon Singh was improper. In the cross-motion, plaintiff seeks to amend the complaint to assert causes of action for the declaration of an equitable mortgage, equitable subrogation, and unjust enrichment. Plaintiff argues that they are entitled to allege alternative equitable causes of action for recovery of the loan proceeds as the Halsteads directly benefitted from the loan and Mortgage. Accordingly, plaintiff argues that should the court find a defect in the Mortgage, plaintiff should be able to recover under alternative causes of action in order to prevent a windfall for the Halsteads. The Halsteads argue that the cross-motion should be denied as the equitable causes of action are barred by the statute of limitations, statute of frauds, and are duplicative of the plaintiff's foreclosure cause of action.
At oral argument, the court directed the parties to submit briefs with respect to the impact of the Bankruptcy Action on the present action. The Halsteads argue that the debt at issue was not provided for in Singh's chapter 13 bankruptcy discharge and was, therefore discharged. The Halsteads argue:
Therefore, solely on account of the exclusion of Plaintiff's claim from [Singh's] Chapter 13 Plan that claim was extinguished which is a legal fact separate and distinct from a discharge. This court should NOT confuse the extinguishing of the Plaintiff's claim in 2009 from a discharge received by SINGH. Upon the extinguishing of the claim the agreement sought to be enforced in this case became a ity as if none existed. Thus, there was and could NOT have been any installment contract at the time of the commencement of this action. The claim of an installment contract is a fraud Plaintiff attempted on this court until it was caught.
The Halsteads further argue that the plaintiff's claims are barred on the basis of res judicata and collateral estoppel as Singh objected to plaintiff's claim in the Bankruptcy Action, on the basis of a fraud perpetrated against him, and the Bankruptcy Court sustained that objection. Accordingly, the Halsteads argue that, “[t]he sustaining of SINGH's objection is therefore, a judgment on the merit of that claim and issue and Plaintiff is precluded from re-litigating that issue.”
The Halsteads also argue, without merit, that plaintiff has engaged in “persistent and sustained deceit in this court” because the plaintiff continues to prosecute the present action against Singh after his discharge in bankruptcy court. Accordingly, the Halsteads simultaneously argue that the case must be dismissed for the plaintiff's failure to include Singh as a necessary party and that the plaintiff is in “contempt of court” by including Singh as a party.
Plaintiff argues that, pursuant to CPLR 3211(a)(5) & (e), the Halsteads waived the res judicata and collateral estoppel defenses by not asserting them in their answer or by making a motion to dismiss. Further plaintiff argues, citing Nationwide Mechanical Contractors Corp. v. Hokkaido Takushoku Bank, Ltd., 188 A.D.2d 871 [3d Dept 1992], that since Singh transferred the deed to Dwight prior to filing for bankruptcy, the bankruptcy court did not have jurisdiction over the in rem Property in the Bankruptcy Action, and there could not, therefore, have been an adjudication of the plaintiff's equitable rights to foreclose its mortgage lien. Further, plaintiff argues, citing In re Shain, 47 BR 309 [Bankr ED N.Y.1985] ), that while the discharge in bankruptcy terminated Singh's obligation to repay the debt, it did not affect the validity of the Mortgage lien.
DISCUSSION
In order to obtain summary judgment, the movant must establish its cause of action or defense sufficiently to warrant a court's directing judgment in its favor as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact (Zuckerman v. City of New York, 49 N.Y.2d 557, 562 [1980] ; CPLR 3212[b] ). Where the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action (Vermette v. Kenworth Truck Co., 68 N.Y.2d 714, 717 [1986] ). The parties' competing contentions are viewed in the light most favorable to the party opposing the motion (Marine Midland Bank, N.A. v. Dino & Artie's Automatic Transmission Co., 168 A.D.2d 610 [2d Dept 1990] ).
Although the Halsteads submitted an affidavit by Singh, notarized by defense counsel, Vivian Williams, Esq., on April 2, 2008, claiming that Singh was defrauded by Surujnarine, there are issues of fact as to whether Singh was present at the closing that resulted in the creation of the Mortgage and what authority, if any, Worms and Teddy had prior to the closing. There is significant evidence that Teddy signed a power of attorney to Worms for the transaction at issue, the Halsteads benefitted from the sale of the Property by preventing a foreclosure sale on the Property in the Select Action, and that the Halsteads were the main beneficiaries of the transfer of title to Singh. Further, Teddy's affidavit in opposition to the cross-motion, in which he states that he did not sign the Contract, is contradicted by the verified complaint in the Halstead Action in which he states that he “executed a contract for the sale of the property to [Singh] at a purchase price of $585,000.00.” Similarly, Teddy's notarized affidavit of May 24, 2007, in which he stated that he owned the Property, is contradicted by the Nominee Agreement that the Halsteads now submit in support of their motion. Accordingly, there are multiple issues of fact regarding the title to the Property and the enforceability of the Mortgage that preclude summary judgment.
As plaintiff does not seek to recover monetary damages from Singh due to his discharge in bankruptcy, and Singh conveyed the Property to Dwight on April 2, 2008, prior to the commencement of this action, Singh is not a necessary party to this action pursuant to Real Property Actions and Proceedings Law 1311 and dismissal is not warranted upon a failure to join him. In any case plaintiff did name Singh as a party and submitted an affidavit of service, pursuant to CPLR 308(2) and 313, demonstrating that, in 2013, the complaint was served at the address listed in Singh's Notice of Change of Debtor's Address that was filed in the Bankruptcy Action in 2011. 5 Jurisdiction has, therefore been obtained over Singh in this action. Accordingly, the Halsteads have failed to demonstrate that they are entitled to summary judgment based upon documentary evidence (see Zuckerman, 49 N.Y.2d at 562 ; CPLR 3212[b] ).
5 It is also noted that the Halsteads did not explain how they would be prejudiced in their defense if Singh were not included as a necessary party, nor have they submitted any legal authority in support of their contention that a defendant can challenge the service of the complaint upon another defendant pursuant to CPLR 3211(a)(10).
The Halsteads' motion to dismiss the action based upon res judicata and collateral estoppel, due to the disallowance of a claim against Singh in the Bankruptcy Action, is denied. Pursuant to CPLR 3211(e), these defenses are waived if not raised in a pre-answer motion to dismiss or answer. The Halsteads previously moved to dismiss the action and, after that motion was denied, filed an answer. As they did not raise the res judicata and collateral estoppel defenses in either the prior motion to dismiss or in their answer, the defenses are waived (see CPLR 3211[e] ). Further, as Singh conveyed the Property to Dwight prior to the commencement of the Bankruptcy Action, the bankruptcy estate did not include the Property (see Cerrato v. BAC Home Loans Servicing (In re Cerrato), 504 BR 23, 29 [Bankr E.D.N.Y.2014] ). Therefore, the disallowance of the plaintiff's claim in the Bankruptcy Action was not an adjudication of the purported fraud on Singh or the validity of the Mortgage at issue as these issues were not actually litigated (see North Shore–Long Is. Jewish Health Sys., Inc. v. Aetna U.S. Healthcare, Inc., 27 AD3d 439, 440–441 [2d Dept 2006] ). Moreover, a mortgage survives a debtor's discharge in bankruptcy (see Johnson v. Home State Bank, 501 U.S. 78, 82–83 [1991] ; Citimortgage, Inc. v. Chouen, 2014 N.Y. Slip Op 33251(U) [Sup Ct, Suffolk County 2014] ). Accordingly, the motion to dismiss pursuant to CPLR 3211(a)(5) is denied.
Plaintiff cross-moves to add three additional causes of action: for declaration of an equitable mortgage, equitable subrogation, and unjust enrichment. In the proposed second cause of action for an equitable mortgage, plaintiff alleges that Singh purchased the property as a “straw man” with the intent to re-convey the property to the Halsteads without consideration following satisfaction of the Select Mortgages with funds fraudulently obtained from plaintiff's predecessor and vacatur of the judgment of foreclosure and sale in the Select Action. Accordingly, plaintiff argues that, in the event that this court finds the Mortgage to be invalid or unenforceable, it is entitled to an equitable mortgage against the Property. In the proposed third cause of action for equitable subrogation, plaintiff argues that, in the event that this court finds the Mortgage to be invalid, or unenforceable, plaintiff is subrogated to the rights of the holders of the Select Mortgage as Delta had a good faith belief that by satisfying the Select Mortgages it was obtaining a first priority lien. In the proposed fourth cause of action for unjust enrichment, plaintiff argues that the Halsteads were unjustly enriched at the plaintiff's expense and, should the court not grant the first cause of action to foreclose upon the Mortgage, plaintiff should recover the funds it advanced from the Halsteads.
In opposition to the cross-motion, the Halsteads argue that the checks issued to Select, Wilshire Credit Corp. and Teddy were dated May 31, 2007 and, as the statute of limitation for unjust enrichment and the other proposed equitable causes of action is six years, the causes of action are barred because the complaint was filed on July 23, 2013. The Halsteads further argue that equitable causes of action may not be maintained where there is an existing contract. The Halsteads argue, without legal citation, that “[i]t is well established that even where an existing contract is held to be unenforceable an unjust enrichment claim may NOT be brought with respect to the subject matter covered in the existing agreement.” The Halsteads also argue that, where the subject matter of the claim for unjust enrichment is governed by the statute of frauds, an unjust enrichment claim cannot be maintained in the absence of an enforceable written agreement.
Plaintiff argues that on January 6, 2014, this court previously denied the Halsteads' motion to dismiss, made pursuant to a statute of limitations defense, as there was an issue of fact as to the date on which the plaintiff accelerated the debt and this court held that, the “plaintiff is deemed to have accelerated the debt no later than November 19, 2007. However, as no evidence has been presented as to the specific date of acceleration, there remains an issue of fact as to when the statute of limitations began to run.” Further, plaintiff correctly argues that the Halsteads only became unjustly enriched when Dwight reacquired the Property free and clear of the satisfied Select Mortgages from Singh on April 2, 2008 which is less than 6 years prior to the commencement of this action on July 23, 2013.
“Leave to amend a pleading should be freely given absent prejudice or surprise to the opposing party, unless the proposed amendment is palpably insufficient or patently devoid of merit” (Etzion v. Etzion, 112 AD3d 782 [2d Dept 2013] ). While a party may plead “alternatively or hypothetically,” and state several causes of action “regardless of consistency” (CPLR 3014 ), “the existence of a valid contract governing the subject matter generally precludes recovery in quasi contract for events arising out of the same subject matter” (EBC I, Inc. v. Goldman Sachs & Co., 5 NY3d 11 [2005] ; see Clark–Fitzpatrick, Inc. v. Long Island R.R. Co ., 70 N.Y.2d 382, 388 [1987] ). However, where “there is a bona fide dispute as to the validity and enforceability” of a contract, the plaintiff is not required to elect a remedy in a pleading (see Worldcare Intl., Inc. v. Kay, 119 AD3d 554, 556 [2d Dept 2014] ; citing Plumitallo v. Hudson Atl. Land Co., LLC, 74 AD3d 1038, 1039 [2d Dept 2010] ; Elbroji v. 22 E. 54th St. Rest. Corp., 67 AD3d 957, 958 [2d Dept 2009] ). As the Halsteads were not a party to the Mortgage, and the Halsteads have alleged that the Mortgage upon which the plaintiff seeks to foreclose in the first cause of action is fraudulent and unenforceable, the plaintiff is permitted to plead equitable causes of action against the Halsteads in the alternative (see CPLR 3014 ; Worldcare, 119 AD3d at 556 ; Plumitallo, 74 AD3d at 1039 ; Elbroji, 67 AD3d at 958 ). The Halsteads' reliance on Basis Pac–Rim Opportunity Fund (Master) v. TCW Asset Mgt. Co. (40 Misc.3d 1240(A) [Sup Ct, New York County 2013] ) in opposition to the motion is inapposite as the plaintiff here has not alleged a cause of action for fraud as an alternative to its foreclosure cause of action and has not alleged a breach of contract.
“The limitations period for unjust enrichment is six years from the occurrence of the wrongful acts and, as a claim in equity, the same period applies to [a] cause of action seeking an equitable mortgage” (US Bank N.A. v. Gestetner, 103 AD3d 962, 963 [3d Dept 2013], citing CPLR 213[1] ; Elliott v. Qwest Communications Corp., 25 AD3d 897, 898 [3d Dept 2006] ; Roslyn Union Free School Dist. v. Barkan, 16 NY3d 643, 650 [2011] ). Although plaintiff commenced this action more than six years after Delta paid out the proceeds of the apparently fraudulently obtained Mortgage, the equitable mortgage, equitable subrogation, and unjust enrichment causes of action are based upon Dwight's acquisition of the Property from Singh on April 2, 2008 allegedly without consideration. As Dwight's acquisition of the Property was less than six years prior to the commencement of this action on July 23, 2013, the equitable causes of action are not barred by the statute of limitations (see U.S. Bank N.A. v. Gestetner, 103 AD3d at 963–965 ; CPLR 213[1] and 203[f] ). As plaintiff correctly argues, pursuant to CPLR 203(f), the claims in the amended pleadings are deemed to have been interposed at the time the original pleadings were interposed and, “[a] new claim relates back to the allegations' of an original complaint, not the causes of action” so long as the original pleading gives notice of the underlying transaction (Pendleton v. City of New York, 44 AD3d 733, 737 [2d Dept 2007] ). Accordingly, as the Halsteads were parties to the original complaint, and were identified as having acquired an interest in the Property after the Mortgage was filed against the Property, the Halsteads' opposition to the cross-motion, based upon the statute of limitations defense, is rejected (see U.S. Bank N.A. v. Gestetner, 103 AD3d at 963–965 ; Pendleton, 44 AD3d at 737 ; CPLR 213[1] and 203[f] ).
The Halsteads' further argument, that plaintiff should be estopped from seeking an equitable remedy because, “[i]n this case the fraud was perpetrated by the Plaintiff's [sic ] or its predecessor in interest or was at minimum aided and abetted by the Plaintiff or its predecessor in interest” and the plaintiff had “unclean hands,” is without merit.
CONCLUSION
The defendants' motion to dismiss is denied. The plaintiff's cross-motion to amend the complaint is granted. Defendants are to serve an answer to the amended complaint within 30 days. A preliminary conference is scheduled for April 16, 2015.
This constitutes the decision and order of the court.