Opinion
154857/2019
12-30-2020
ONE 32ND STREET CORPORATION, One 100 Street Corporation, Plaintiff, v. Ronald STEWART, Defendant.
For Plaintiffs: Christopher Clarke of Ginsburg and Misk LLP, Queens Village. For Defendant: Steven Weg of Kofsky Schwalb LLC.
For Plaintiffs: Christopher Clarke of Ginsburg and Misk LLP, Queens Village.
For Defendant: Steven Weg of Kofsky Schwalb LLC.
David Benjamin Cohen, J. Defendant Ronald Stewart ("Stewart") has moved to dismiss this action. The question presented on this motion is whether the two related plaintiff corporations can seek equitable relief from this court, under legal theories of equitable lien or unjust enrichment, to recover funds expended to pay tax liens and upkeep on a property, where one of the plaintiffs has since been found by a jury and this Court to have fraudulently obtained the deed to the property from the defendant.
This case is a companion case to another action (Stewart v. Makhani, et al. , Index No.: 151854/2014) that this Court presided over at jury trial. In that case, the jury rendered a verdict on August 21, 2019, finding that that plaintiff One 32nd Street Corporation ("One 32nd Street") fraudulently induced Stewart to sign a deed transferring the Property to One 32nd Street; and that there was fraud in the inducement and execution of this deed.
In this action, plaintiffs One 32nd Street and One 100 Street Corporation ("One 100 Street") seek equitable relief under the theories of equitable lien or unjust enrichment to recover monies from Stewart, that they claim to have expended in connection with a property located at 240 West 132nd Street, New York, New York (the "Property"). The expenses were incurred in furtherance of, what a jury has since found to be, a fraudulent scheme to induce Stewart to execute a deed to the Property.
A brief recitation of the facts, jury findings, and this Court's determination in the companion case is necessary. At trial, Ronald Stewart testified that he lived at the property for 55 years. Lilian Hester Brown was his great aunt and the deed owner of the Property until her death in August 1987. Lilian Hester Brown was unmarried, had no siblings, and died without a will. Stewart's mother, Ella Stewart, was Lilian Hester Brown's sole heir, inherited the Property, passed away in August 2008 without a will. Stewart was the only child of Ella Stewart. He and his mother lived at the Property with Lilian Hester Brown, continued to live there after her death, and he continued to live at the Property upon his mother's death in 2008. He was aware of a tax lien foreclosure case in which he never appeared or opposed and did not hire counsel. He has no family member named Sharmane L. Brown.
Stewart broke his neck and back in 2006 and is on disability. In 2013 Stewart lived at the Property with his daughter Caroline. He was behind on property tax payments at the time. In 2013, Stewart testified that he received a letter which indicated that an entity, One 100 Street Corporation, had paid off the tax lien, had taken over the Property and was evicting him. He acknowledged receiving the 10 Day Notice To Vacate, dated March 5, 2013, and signed by Charles Simon as President, which indicated that One 100 Street Corporation was the owner of the Property pursuant to a bargain and sale deed. The bargain and sale deed which supported One 100 Street's claim was a deed, dated December 18, 2012, purportedly signed by a Sharmane L. Brown in Charleston, South Carolina, deeding the property from Ms. Brown to One 100 Street Corporation.
Stewart also acknowledged that he received the Notice of Holdover Petition and Licensee Petition, dated March 26, 2013, indicating that One 100 Street Corporation was the owner, having purchased the premises, and verified by Charles Simon as President. The petition stated that Joseph Makhani was the registered managing agent of One 100 Street Corporation.
Stewart went to Housing Court on June 19, 2013, without counsel and entered into a stipulation with an attorney from One 100 Street, who told him that One 100 Street paid the tax lien to obtain the Property. Stewart then entered into a Stipulation agreeing to a final judgment of possession with execution stayed through September 30, 2013 for him to vacate. In addition, he agreed in the Stipulation to meet with One 100 Street's agent on September 4, 2013 at the Property. The Stipulation was allocuted before Judge Brenda Spears, at which time, One 100 Street's counsel represented that prior owner was Lillian Brown and that the building had been sold. Based upon these representations to the Court, Stewart agreed to settle the Housing Court proceeding.
Mr. Stewart never claimed ownership at that time because he was led to believe that One 100 Street Corporation owned the Property.
On September 4, 2013, Stewart met Mr. Makhani and a Mr. Bishop at the Property. Stewart understood that Mr. Bishop worked for Mr. Makhani. He was presented with an offer to help him find someplace else to live and pay his first month's rent and security deposit. Mr. Stewart then agreed to another meeting to finalize the paperwork. On September 10, 2013 Mr. Bishop returned with a clipboard holding the paperwork to be signed. Mr. Stewart was rushed through the paperwork, which he did not read, and signed four or five pages; no notary was present. He later learned that one of the documents he signed was a deed transferring the property to One 32nd Street Corporation, notarized by a Charles A. Simon—who was not present when Stewart signed the documents. Mr. Stewart did not intend to sign a deed to transfer the Property on September 10, 2013, as he had been let to believe that he no longer owned the Property at that time, and he received no payment for the Property. He believed that he was signing documents assisting him to find a new place to live. Stewart was under the impression that the papers presented to him were in connection with the agreement for him to receive payment of rent and security deposit, and he did not know that there was deed included. Another of the documents signed provided that he was to receive $2,690.00 to vacate but he testified that he never received this money. Mr. Stewart moved out on November 4, 2013 and at the time of trial lived in a one room SRO paying rent of $200 per week.
Mr. Joseph Makhani testified at trial that he owns One 100 Street and One 32nd Street and that One 32nd Street owns the Property. He testified that in September 2012, when the Sharmane L. Brown's deed was obtained that he had no interest in One 100 Street, which was owned by Charles Simon. He lacked any first-hand knowledge of Sharmane L. Brown and had no idea who she was. Thus, at trial One 100 Street could not provide any details on this sale, or how they acquired the deed to the Property from Sharmane L. Brown. Similarly, no evidence was presented as to who Sharmane L. Brown was, her connection to Lilian Hester Brown, how Sharmane L. Brown came to transfer the deed to One 100 Street, or that Sharmaine L. Brown even existed.
Mr. Makhani also testified that he was not involved in preparing the 10 Day Notice To Vacate or the Notice of Petition and Petition. He denied that he was the registered managing agent of One 100 Street when the holdover petition was served in March 2013—despite the petition clearly stating that he was—and that Charles Simon was the registered managing agent. Mr. Makhani claimed that he purchased One 100 Street in September 2013. He admitted that Stewart could have had an interest in the Property and that One 100 Street may have evicted Stewart from a property in which he may have had an interest.
One 32nd Street was not a party in the Housing Court summary holdover proceeding. No explanation was ever provided why, if the Sharmane L. Brown deed to One 100 transaction was valid, another deed would be needed from Stewart to One 32nd Street. Similarly, no explanation was provided as to why One 32nd Street requested and accepted a deed from Stewart if One 100 Street was the true owner.
When One 32nd Street registered the transfer of property with the City of New York, Stewart was the listed seller, not One 100 Street or Sharmane L. Brown.
Also, One 100 Street listed the exact same address in Jamaica, Queens on the Sharmane L. Brown deed and the Housing Court Notice of Petition as was used by One 32nd Street in the Stewart deed (the same address was also used as Mr. Makhani's managing agent address in the Housing Court Petition).
The jury returned a verdict on August 21, 2019 making findings as to One 100 Street, One 32nd Street, and Mr. Makhani. With respect to One 32nd Street, the jury found that that Stewart had proven all elements of the claims of both fraud in the inducement and fraud in the execution of the deed. The jury found that Mr. Makhani did not make material statements to Stewart and that that One 100 Street Corporation made representations to Stewart, but that they were not false.
A motion to set aside the verdict was denied on November 20, 2019. Accordingly, on June 11, 2020, after ratifying and adopting the findings of the jury, this Court signed a judgment rescinding and declaring voiding ab initio the deed signed from Stewart to One 32nd Street Corporation.
In this action, in discussing what actions were taken by the two plaintiff corporations regarding the Property, no distinctions have been articulated between the two. For example, the verified Complaint says:
"Plaintiffs, believing themselves to be the owners of the Premises, have paid tax liens filed against the Premises that were incurred due to Defendant's failure to pay real property taxes. From December 16, 2012 through present, Plaintiffs, believing themselves to be the owners of the Premises, have paid the real estate taxes and ca[r]rying charges for the Premises."
Based upon their own admissions and based upon the evidence produced at trial, including the jury finding that both plaintiffs made statements to Stewart, this Court finds that plaintiffs acted together with one another in furtherance of this scheme. This action was commenced prior to the start of the jury trial. Now, Stewart moves to dismiss this action and argues that plaintiffs cannot seek equitable relief following the findings of the jury. Plaintiffs argue that they expended sums on the Property to keep up with maintenance and taxes in belief that they were the proper owners and Stewart should not benefit from the payments made by plaintiffs. Specifically, they argue that these payments, made in good faith, entitle plaintiffs to an equitable lien or a claim for unjust enrichment.
First, when this motion was brought, plaintiffs were both "inactive" corporations and the parties disputed whether they were permitted to maintain this action. A review of the New York State Corporations page shows that both entities are now active again. Thus, this argument has been rendered academic.
At the outset of the analysis, the Court points out the significant concern over the ongoing issue of deed theft. Deed theft involves tricking apartment and townhouse owners with fraudulent paperwork—victims effectively hand over the deed to their property, often without knowing what they are doing. It includes deceiving, or sometimes coercing, a homeowner into signing forms that transfer ownership of a property. In many cases, a homeowner is made to believe that they have no choice, are required legally to sign documents or that the documents involve some type of financial assistance, but in fact turn out to be the property deed (see https://www.nytimes.com/2019/10/21/nyregion/deed-theft-brooklyn.html). New York State has specifically identified this problem and has enacted legislation in attempt to curb this practice (see https://www.governor.ny.gov/news/governor-cuomo-calls-department-financial-services-investigate-deed-fraud-and-deceptive). The New York State Attorney general has created a special task force to combat this increasing practice and has also created a dedicated team to assist with these complaints (see https://ag.ny.gov/press-release/2020/attorney-general-james-launches-protect-our-homes-initiative-combat-deed theftNo.:~:text=Volunteers% 20knocked% 20on% 20doors% 20and,issues% 20pertaining% 20to% 20deed% 20theft.).
Plaintiffs' opposition to the motion states:
"An equitable lien may be granted in favor of a
person who, due to the nature of his or her relationship with a property owner, has relied upon that owner's unfulfilled promise to convey the property, and as a result has expended funds to preserve or improve it in anticipation of the conveyance." Fallica v. Manzolillo, 210 A.D.2d 660, 661, 619 N.Y.S.2d 409 (2d Dept. 1994). Moreover, a court may award an equitable lien to a plaintiff in the interests of justice even though other remedies are unavailable to that party. See Rock v. Rock, 100 A.D.3d 614, 617 (2d Dept. 2012). One of the essential elements of an equitable lien upon real property is that the improver of the property made such improvements in good faith and under a color of right. See e.g., Vulovich v. Baich, 286 A.D. 403, 405, 143 N.Y.S.2d 247 (4th Dept. 1955).
Plaintiffs' own opposition demonstrates the reason that this claim must fail. A jury has already determined that the actions by Stewart in conveying the deed were part of a fraudulent scheme. Hence, the relationship with Stewart was one based not upon good faith, but upon a scheme to defraud Stewart. Any funds expended by plaintiffs were made in furtherance of that fraud. For those reasons, the interest of justice prong would also necessitate that this claim must fail.
This action is against Stewart and not Sharmane L. Brown. To the extent that One 100 Street may argue that its transaction to obtain the property was not found to be fraudulent and it expended funds in connection with that transaction and that owner relationship, this action does not seek any relief from Sharmane L. Brown. One 100 Street could have, but did not, seek damages from her, which it could have done (provided commencement was within the applicable statute of limitations).
--------
Similarly, for unjust enrichment, the plaintiff must prove "that (1) the defendant was enriched, (2) at plaintiff's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered" ( Georgia Malone & Co., Inc. v. Rieder , 19 N.Y.3d 511, 516, 950 N.Y.S.2d 333, 973 N.E.2d 743 [2012] ). The claim for unjust enrichment is an equitable one and "it is an ancient maxim that he who comes to equity must come with clean hands" ( Amarant ex rel. Mercury Beach-Maid Inc. v. D'Antonio , 197 A.D.2d 432, 434, 602 N.Y.S.2d 837 [1st Dept. 1993] ). Further, when equitable relief is sought "moral considerations of fundamental importance require that the litigant come into court with clean hands" ( Thompson v. 76 Corp ., 37 A.D.3d 450, 453, 830 N.Y.S.2d 564 [2nd Dept. 2007] ; see also Sardanis v. Sumitomo Corp. , 282 A.D.2d 322, 723 N.Y.S.2d 466 [1st Dept. 2001] [equitable defenses were not permitted when party intentionally obtained the assignment by means of surreptitious conduct]). Here, for the same reasons, the deed transfer was fraudulent, and any funds expended by plaintiffs were in furtherance of that fraud. The companion case's evidence and findings necessitate that this claim cannot meet the equity and good conscience prong and that moral considerations of fundamental importance require dismissal. Additionally, based upon the evidence produced as trial and the jury's ratified findings, Stewart did not commit any wrongdoing that would prohibit him from asserting this claim of unclean hands (see Tai v. Broche , 115 A.D.3d 577, 982 N.Y.S.2d 463 [1st Dept. 2014] ).
As this matter solely seeks relief from a transaction where funds were expended in furtherance of deed fraud, a particular scourge in this State, and plaintiffs have come to this court seeking relief with unclean hands, they cannot claim good faith. As such, the two related plaintiff corporations cannot seek equitable relief from this court, under legal theories of equitable lien or unjust enrichment, to recover funds expended to pay tax liens and upkeep on a property, where both plaintiffs participated in the underlying scheme, and one of the plaintiffs has since been found by a jury and this Court to have fraudulently obtained the deed to the property from the defendant. Accordingly, it is hereby
ORDERED that this matter is dismissed with prejudice, and with cost and disbursements to the defendant as taxed by the Clerk upon the submission of an appropriate bill of costs.