Opinion
Index No. 607789/2016
06-07-2023
The WHEATLEY HARBOR LLC, Plaintiff, v. Charles DEWEY and Vincent Di Napoli, Defendant.
RICHARD GLENN GERTLER, ESQ., Attorney for Plaintiff, 31 Villa Ln Hunters Run, Boynton Beach, FL 33436 REICH REICH & REICH, P.C., Attorneys for Defendant, 235 Main Street, Suite 450, White Plains, NY 10601
RICHARD GLENN GERTLER, ESQ., Attorney for Plaintiff, 31 Villa Ln Hunters Run, Boynton Beach, FL 33436
REICH REICH & REICH, P.C., Attorneys for Defendant, 235 Main Street, Suite 450, White Plains, NY 10601
James Hudson, J. On September 20th, 2021 the Court conducted, as per the stipulation of the parties, a virtual trial via the use of Microsoft TEAMS. Mr. Peter Barbieri for the Plaintiff and Mr. Nicholas Pasalides for Defendants Charles Dewey and Vincent DiNapoli. The Court would be remiss if it did not convey its praise for both counsel in this matter. Their manner in representing the parties and the thoughtful argument on the points of law applicable to this case can only be described in one word-sterling.
It must also be noted that Mr. Dewey passed away after the presentation of evidence and the conclusion of the trial. The Court waited a period of time for Mr. Dewey's estate to have an Administrator or Executor appointed in order to allow substitution of parties. Since this was not accomplished, the parties indicated to the Court that this decision would pertain to Mr. DiNapoli exclusively. Therefore, references to Mr. Dewey are for purposes of clarity and continuity of the evidence as concerns Plaintiff and Mr. DiNapoli. Prior to receiving testimony and documentary exhibits, the parties stipulated to certain facts (Court exhibit II):
In June 2005, a company named OCD Telluride, LLC (hereinafter referred to as "OCD") purchased a property in Colorado for the purpose of building a condominium development. The owners of OCD were Charles Dewey, Vincent Di Napoli and Anthony Conforti. Mr. Conforti also had an attorney client-relationship with Messrs. Dewey and Mr. Conforti.
In order to secure funds for this project, OCD arranged a loan of $11,200,000.00 from the US Bank of Telluride. In 2008, however, the economic distress in America's financial sector resulted in the bank no longer providing financing for OCD. Desirous of obtaining funding from another lender, Mr. Conforti introduced his fellow OCD principals to Mr. Stanley Weisz. Mr. Weisz owned two companies, the Plaintiff Wheatley Harbor LLC and WALO, LLC. Wheatley Harbor agreed to loan up to $4,000,000.00 to OCD. Ultimately, however, Wheatley Harbor was only able to make a loan of $2,000,000.00. To make up the difference, OCD obtained a $2,000,000.00 loan from Alba Investments LLC.
These two separate $2,000,000.00 transactions became intertwined in the following fashion: Stanley Weisz agreed to grant Alba a mortgage against certain real property owned by WALO located at 764 Hubbard Ave., Aquebogue, New York (the "Mortgage"), in order to secure additional funds and thus fulfill Wheatley Harbor's agreement to provide $4,000,000 to OCD.
Accordingly, on May 20th, 2009 Mr. Conforti, on behalf of OCD, executed a Secured Promissory Note (the "Note") with Alba in the amount of $2,000,000. On the same day, WALO executed the Mortgage granting Alba a security interest in the Aquebogue realty. To secure payment on the Note, WALO and Messrs. Conforti, Dewey, and DiNapoli each signed a Continuing Absolute Unconditional Guaranty of Payment ("Guaranty") dated May 9th, 2009.
When OCD defaulted on the Note with Alba, the latter commenced (on May 20th of 2016) a foreclosure action against OCD, WALO, Mr. Dewey, Mr. DiNapoli, and Mr. Conforti. The action also sought relief in the form of collecting on the Guaranty provided by WALO, Mr. Dewey, Mr. DiNapoli, and Mr. Conforti. Since the default on the Note, only two payments have been made towards the debt: (l) a payment on May 31st, 2011 in the amount of $750.00, and (2) a payment on April 20th, 2016 in the amount of $100.00.
Alba's motion for summary judgment regarding foreclosure was granted and the Court issued an Order appointing a referee to compute and conduct an auction of the locus in quo.
While it was pursuing its dispositive motion, however, Alba was also engaged in settlement negotiations. Prior to the appointment of a referee, Alba settled its claims. The mortgage was released and WALO was released from the Guaranty under the Note. The settlement manifested itself in a written Sale Agreement ("Agreement") dated December 9th, 2018. The Sale Agreement contained the following salient provisions: Alba was granted a 50% ownership interest in WALO by Stanley Weisz (at the time, the 100% owner of WALO); the note was transferred to Wheatley Harbor; the mortgage was released on the real property; and, WALO was released from its Guaranty under the Note. Thereafter, the Mortgage was released on December 27th, 2018. During the time period when the original loan was made to OCD, Mr. Conforti was also a special member of Wheatley Harbor. On March 28th, 2019 Wheatley Harbor, Mr. Dewey, Mr. DiNapoli, Mr. Conforti, and WALO entered into a stipulation (So-Ordered on May 28th, 2019) permitting Wheatley Harbor to be substituted as the Plaintiff in this action. The stipulation also allowed Wheatley Harbor to amend the caption and file an amended complaint. On July 28th, 2019, Mr. Conforti was permitted by the Court to withdraw as counsel for Mr. Dewey and Mr. DiNapoli. When Wheatley Harbor filed its amended complaint (July 27th, 2019) the only claims asserted were against Mr. Dewey and Mr. DiNapoli.
The Parties also stipulated to the introduction of the exhibits designated as Plaintiffs and Defendants exhibits. The Stipulated list of exhibits was designated Court Exhibit "II". They consisted of the documents listed below:
• The mortgage against the realty located at 764 Hubbard Ave., Aquebogue, New York
• The Continuing Absolute Unconditional Guaranty of Payment dated July 9th, 2009 executed by Mr. Dewey
• The Continuing Absolute Unconditional Guaranty of Payment dated May 9th, 2009 executed by Mr. DiNapoli
• The Continuing Absolute Unconditional Guaranty of Payment dated May 9th, 2009 executed by Mr. Conforti
• The Continuing Absolute Unconditional Guaranty of Payment dated May 9th, 2009 executed by WALO
• The Complaint in the Alba Foreclosure Action including all exhibits annexed thereto
• The Order granting Alba's Summary Judgment Motion
• The Sales Agreement dated December 9th, 2018 (NYSCEF 136) • Mortgage release dated December 27, 2018
• So-Ordered Stipulation dated May 28, 2019
• Amended Complaint dated July 27, 2019 and all exhibits annexed thereto (NYSCEF 86)
• Acknowledgment of Mortgage Indebtedness dated May 2016
• Mr. Conforti's affirmation in Support of Motion Initiated by Order to Show Cause dated March 14, 2019
• Amended and Restated Operating Agreement of WALO, LLC dated August 2018.
In addition to these documents, the Plaintiff also offered as evidence the Secured Promissory Note and Lost Note Affidavit. The Defendants also submitted exhibit "O", the Stipulated Substitution of Parties (NYSCEF Doc. 78).
The testimony at trial consisted of the following:
• The defense (at transcript P. 16) submitted the deposition transcript (NYSCEF Doc. 130) of Anthony Conforti pursuant to CPLR 3117
• Parties also stipulated to the use of affidavits in lieu of the Direct Testimony of Andreas Weisz, Charles Dewey and Vincent DiNapoli
Mr. Andreas Weisz's direct testimony averred that he is a member of the Wheatley Harbor LLC, a lending business. It was owned by his Grandfather, Mr. Stanley Weisz, until the latter's passing away in February of 2020. He described how OCD Telluride approached Wheatley to obtain funds for a condominium project in Colorado. Wheatley agreed to loan up to $4,000,000.00 for the project. After funding $2,000,000.00 "in a transaction that is entirely separate and unrelated to this lawsuit," Wheatley was unable to muster the remaining $2,000,000.00 needed for completion. OCD then procured a loan from Alba Investments LLC. This was evidenced by a secured Note dated May 20th, 2009. This document provided, inter alia , for it to be paid in full on May 20th, 2010. The Note was secured by a mortgage from WALO LLC (another business entity owned by Stanley Weisz) on realty located at 764 Hubbard Ave. Aquebogue NY. Additionally, Mr. Dewey, Mr. DiNapoli, WALO and Mr. Conforti all executed unconditional guarantees of the Note.
Paragraph 3 of the Unconditional Guaranty states
"Independent Obligation. The obligations hereunder are independent of the obligations of the Borrower, and a separate action may be brought and prosecuted against a Guarantor whether or not action is brought against the Borrower or whether the Borrowers joined in any such action or actions."
Paragraph 4 of the Unconditional Guaranty provides:
"Consent to Lender's Acts. The Guarantor authorizes the lender, without notice or demand to the Guarantor and without affecting the obligation assumed herein, from time to time, to agree with the Borrower to (b) take and hold security for the payment of this guaranty or the indebtedness guaranteed and exchange, enforce, waive, and release any such security or part thereof"
Andreas Weisz also noted Paragraphs 5 and 6 of the document which indicate that the Guarantors waived "any right to require lender to proceed against the borrower or proceed against any security held from the borrower" and further "waived any right to any defense whatsoever that the borrower might or may have to the payment of the debt."
On May 10th, 2010, OCD defaulted on the Note, having only made payments totaling $850.00 out of the $2,000,000.00 (plus interests and costs). In May of 2016, OCD delivered an Acknowledgement of Mortgage Indebtedness in the aforementioned sum to Alba. It was signed by Mr. DiNapoli and Mr. Dewey.
In May of 2016, Alba commenced this lawsuit against OCD, WALO, Mr. Conforti, Mr. Dewey and Mr. Di Napoli to collect on the Note and guaranties and foreclose the mortgage. This lawsuit was partially settled in the following fashion:
Stanley Weisz conveyed 50% ownership of WALO to Alba in return for the release of the Mortgage and release of the Guaranty. Alba also agreed to assign the Note to Wheatley. In turn, Alba delivered the original Note with an allonge to Wheatley.
As to the physical possession of the Note, the witness stated
"The original Note and allonge were given to me by Erick Valley, Esq. I subsequently gave the original Note to Stanley Weisz prior to his passing. Unfortunately, while the original Note remained in the possession of Wheatley, despite a diligent search, I have been unable to locate the original Note due to the passing of Stanley Weisz. The Note has not been transferred or assigned by Plaintiff to any third party. Plaintiff is still the holder of the Note. I have maintained a true and correct copy of the original Note, with the Allonge that was in my possession."
During the stipulated direct of this witness, Plaintiff offered both a copy of the original Note (Plaintiff's 15) and a Lost Note Affidavit (Plaintiff's 16) into evidence. To the extent the Agreement indicated that "the Guarantees [sic] were to be assigned or transferred to Stanley Weisz, that is incorrect, is not what occurred in practice and is simply a drafting error."
In conclusion, Mr. Weisz stated that the total amount owed under the defaulted Note amounted to $5,804,957.29, representing unpaid principal of $2,000,000.00 "... plus $16,666.67 for the missed payment on November 20th, 2009 plus $3,789,140.62 in unpaid and accrued interest at 16% default interest rate since the last payment was made on November 20th, 2009 less total payments made in the amount of $850.00."
Mr. Andreas Weisz was then subjected to cross-examination (Transcript p.20).
Mr. Weisz became a special member of Wheatley Harbor roughly in 2011. He identified the Note as being made from OCD Telluride to the Plaintiff. Additionally, the Agreement (Plaintiff's Exh. 8, NYSCEF Doc. 136) was referenced and he described how it functioned to release WALO's obligation under the mortgage concerning the Hubbard Avenue property. He was confronted (Transcript p. 30) with a discrepancy in a date in the lost Note affidavit, specifically,
"Q: According to paragraph 4 of the lost Note affidavit, it states and I quote, I gave the original Note to Stanley Weisz, my Grandfather, a member of the Wheatley Harbor, prior to his death on February 29th, 2019?
A: Oh well then that's a typographical error in there. They had the wrong date in there. It should have been 2020 was his date of death. It was prior to his date of death, yes."
Mr. Andreas Weisz further stated that his late Grandfather had put the Note "somewhere in his office" (Transcript p. 31).
During Andreas Weisz's cross-examination, the witness and the Court's attention was drawn to Defense exhibit "O" (NYSCEF Doc. 78), a stipulation in which the parties had agreed to vacate the granting of summary judgment in favor of Alba against Mr. Dewey, Mr. DiNapoli, Mr. Conforti and WALO. Andreas Weisz further stated that Mr. Conforti was not named as a party defendant in the action presently before the Court. The omission of Mr. Conforti was done verbally by Andreas Weisz (Transcript p. 49). Mr. Conforti's fee arrangement with Wheatley was for him to be compensated from entities which borrowed from Wheatley.
On re-direct examination, Mr. Andreas Weisz indicated that since his Grandfather's passing away, he has been in charge of Wheatley Harbor (Transcript p. 61). His testimony also reiterated that the Note was never assigned or transferred.
The Court then received the Affidavit in lieu of the direct testimony of Mr. Charles Dewey. He stated that OCD Telluride LLC (OCD) was formed in 2005 to purchase and develop a parcel of realty in Telluride Colorado. Mr. Conforti was, in addition to being a 25% owner of OCD, the attorney for the LLC, Mr. DiNapoli and Mr. Dewey. Mr. Dewey's testimony mirrored the stipulated facts set forth on page 2 of this decision. Specifically, he asserted that although financing had been obtained through the US Bank of Telluride, the economic crisis of 2008 resulted in that lending institution refusing to continue funding the project. Mr. Conforti advised his co-venturers to seek funding from a new source instead of commencing legal action against US Bank of Telluride. Mr. Conforti introduced Mr. Dewey and Mr. DiNapoli to Mr. Stanley Weisz. Mr. Weisz conducted a lending business through entities including Wheatley Harbor LLC and WALO LLC. Mr. Dewey contended that he was unaware that Mr. Conforti was also a special member of Wheatley. Mr. Conforti then negotiated a loan for OCD through Alba Investments LLC, whose principal was Mr. Barry Bergman. Mr. Conforti also negotiated a loan through Wheatley. Both of these businesses agreed to fund an aggregate amount up to $4,000,000.00 for the project. Alba undertook to provide the first $2,000,000.00 to OCD. Wheatley funded an additional $300,000.00 but did not supply its promised balance of the loan.
Mr. Dewey did not know that Mr. Conforti had represented Bergman in the past. Mr. Conforti brokered the Alba loan. As a condition of Alba's loan, Weisz had WALO Guaranty the loan and mortgaged property (764 Hubbard Ave., Aquebogue) against the indebtedness.
On May 20th, 2009, OCD, represented by Mr. Conforti, executed the Note with Alba for $2,000,000.00. In addition, WALO, Mr. Conforti, Mr. DiNapoli and Mr. Dewey each signed a personal Guaranty to safeguard the loan. Simultaneously, Alba received a first mortgage on the Aquebogue property as further security.
Unfortunately, OCD was unable to meet its obligation and defaulted. In 2016 Alba then commenced an action to collect upon the Note, enforce the guaranties and foreclose on the mortgage. Mr. Conforti represented himself as well as Mr. DiNapoli and Mr. Dewey.
On December 9th, 2019, Alba and WALO agreed to settle the Alba action as it related to WALO. Mr. Stanley Weisz granted Alba 50% ownership in return for: (1) WALO's release from the Guaranty; (2) WALO's release of the mortgage against the Aquebogue realty; (3) the transfer of the promissory Note to Wheatley; and finally, (4) the transfer of the guaranties to Stanley Weisz. Mr. Dewey referred to this arrangement as the Agreement. He further stated that this Agreement omitted certain details, including: (1) Mr. Dewey was never informed that Alba had released WALO from its guaranty; (2) Alba never contacted OCD regarding the release of WALO from its guaranty; and (3) Mr. Dewey was not informed that Alba had released WALO from the mortgage. In March of 2019, Mr. Conforti advised Mr. Dewey to consent to substitute Wheatley as Plaintiff in place and stead of Alba. WALO was then released from its Guaranty. Mr. Dewey agreed to this suggestion as well as Mr. Conforti's request to allow Wheatley to file an amended complaint.
In May of 2019, Mr. Conforti filed a motion to be relieved as counsel for Mr. Dewey. The basis of this application was the conflict created by the prior and current representation of Wheatley and Stanley Weisz. The Court granted the request to withdraw on July 27th, 2019. That same day, Wheatley filed an amended complaint in which Mr. Conforti was not named as a Defendant.
During cross-examination (Transcript p. 81), Mr. Dewey acknowledged that he read the stipulation (Plaintiff's "10") prior to signing it (Transcript p. 82). Additionally, it was Mr. Dewey's understanding that the guaranties vis-à-vis the Alba loan "essentially accrued to the benefit of Wheatley when Wheatley took over the Note" (Transcript p. 83). As to the structuring of the loan in chronological fashion, Mr. Dewey was asked
"Q: Just so I understand the total pot of money we're talking about, Wheatley lent approximately $2-and-a-half million, then Alba lent $2 million, and then there's additional $300,000 from Wheatley, correct? A: Correct."
Mr. DiNapoli's testimony (Transcript p. 66) essentially paralleled that of Mr. Dewey. The witness averred that he was unaware of Mr. Conforti's relationship with the Plaintiff's principal. Furthermore, Mr. DiNapoli was not informed that the Alba action had been settled or that the Note and guaranty assigned to Wheatley/S. Weisz.
On cross-examination (and re-direct), Mr. DiNapoli stated that he consented to the substitution of Wheatley Harbor as Plaintiff in place and stead of Alba upon Mr. Conforti's advice. He also acknowledged that Wheatley Harbor provided $2,000,000.00 to OCD but was unable to secure the remaining $2,000,000.00 which had been negotiated for the project (Transcript p. 76).
The deposition transcript of the late Mr. Conforti detailed that he had been a friend of Stanley Weisz for over thirty years. Concurrently he had provided legal representation to Mr. Weisz. Mr. Conforti acknowledged that he acted as a facilitator to obtain capital in order to continue the Telluride project. He stated that he had informed the Defendants of both his prior relationship with Mr. Weisz and his representation of Wheatley (Transcript p. 28). He stated, however, that he was not involved in the preparation of the Agreement (Transcript p. 25). Although Mr. Conforti advised the Defendants to obtain separate counsel, he did not impart the fact that Wheatley was going to omit him as a Defendant in the amended action (Transcript pp. 45-46).
Both sides having rested, the question must be answered as to whether the Plaintiff has proved its case.
In Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro , 25 N.Y.3d 485, 492, 15 N.Y.S.3d 277, 36 N.E.3d 80 (2015), the Court set forth the requirements in order to enforce a guaranty on a promissory note. The plaintiff must prove "the existence of the guaranty, the underlying debt and the guarantor's failure to perform on the guaranty."
Plaintiff asserts that the evidence adduced at trial satisfies the elements in Navarro . The Defendants, however, vigorously dispute this. The salient law will be discussed below.
Prior to an analysis of the proof and applicable legal principles, the Court must consider the admissibility of the copy of the original Note as well as the propriety of the lost Note affidavit. Defendants contend that the Plaintiff has failed to satisfy the requirements of UCC 3-804 and case law.
UCC 3—804 provides that the holder of a lost instrument may recover from any party liable thereon upon due proof of ownership and the circumstances which prevent its production before the Court. The standard of proof in such an action is higher than preponderance of the credible evidence. Instead, the Plaintiff is held to a standard "described as ‘clear,’ ‘clear and certain’ or ‘clear and satisfactory’ " Puryear v. Prokeen Mgmt. Co. , Inc . , 49 Misc.3d 1207(A), 26 N.Y.S.3d 215 (Sup. Ct., Kings County 2015) citing New York Jurisprudence Book 75A 220-375 pp. 465-466.
In the case of Wells Fargo Bank, N.A. v. Meisels , 177 A.D.3d 812, 814-815, 111 N.Y.S.3d 706 (2nd Dept. 2019) cited by both Plaintiff and Defendants, the Court opined "Pursuant to UCC 3-804 , which is intended to provide a method of recovery on instruments that are lost, destroyed, or stolen, a plaintiff is required to submit ‘due proof of [the plaintiff's] ownership, the facts which prevent [its] production of [the Note,] and its terms.’ "
Meisels cites to Deutsche Bank Nat'l Tr. Co. v. Anderson , 161 A.D.3d 1043, 1044, 79 N.Y.S.3d 42 (2nd Dept. 2018) which discussed, and affirmed, the lower court's holding that a lost Note affidavit was insufficient. In Anderson , the subject affidavits submitted by the purported holder of the Note were characterized as inconsistent, vague and conclusory. Moreover, the lost Note affidavit failed to specify when possession of the original Note occurred or the manner in which the search for the lost Note took place. ( Id . at 1044-1045, 79 N.Y.S.3d 42 )
In opposing the admission of the lost Note affidavit, Defendants rely on the holdings in Wells Fargo Bank, N.A. v. Shteynberg , 187 A.D.3d 967, 130 N.Y.S.3d 691 (2d Dept. 2020) and Bank of NY Mellon v. Gordon , 171 A.D.3d 197, 97 N.Y.S.3d 286 (2d Dept. 2019). Specifically, Defense counsel contends that Andreas Weisz did not demonstrate a sufficient familiarity with Alba or Wheatley Harbor's record keeping practices. The Court disagrees. In Shteynberg , the affidavit was found insufficient on the basis that the declarant "did not aver that the facts set forth in the affidavit were based upon her personal knowledge, and she failed to demonstrate the admissibility of records she relied upon under the business records exception to the hearsay rule (see CPLR 4518 [a] )" ( Id. at 698 ). By contrast, Mr. Andreas Weisz's affidavit contains this language. The holding in Bank of NY Mellon v. Gordon , supra , also favors the Plaintiff. The obligation delineated by the Gordon Court consisted of the affiant being "required to set forth her familiarity with her employer's record-keeping practices and procedures" ( Id . at 207, 97 N.Y.S.3d 286 ). Once again, the lost Note affidavit submitted by Plaintiff satisfies this criteria. The facts clearly establish that: (1) Wheatley acquired the Note; (2) the reason that the Note became lost; (3) that Wheatley (i.e. Andreas Weisz) searched for the Note without success; and finally, (4) that Wheatley did not transfer the Note.
Accordingly, the Court finds the lost Note affidavit to be sufficient and the Court will accept the copy of the Note in lieu of the original. Defendants’ further arguments will now be addressed.
The Defendants contend that their personal guaranties are discharged under New York General Obligations Law ("GOL") § 15-105. This statute provides
(1) If an obligee releasing or discharging an obligor without express reservation of rights against a co-obligor, then knows or has reason to know that the obligor released or discharged did not pay so much of the claim as he was bound by his contract or relation with that co-obligor to pay, the obligee's claim against that co-obligor shall be satisfied to the
amount which the obligee knew or had reason to know that the released or discharged obligor was bound to such co-obligor to pay; and
(2) If an obligee so releasing or discharging an obligor has not then such knowledge or reason to know, the obligee's claim against the co-obligor shall be satisfied to the extent of the lesser of two amounts, namely (a) the amount of the fractional share of the obligor released or discharged, or (b) the amount that such obligor was bound by his contract or relation with the co-obligor to pay."
In support of their argument, Defendants rely on the authority found in CDS Capital, LLC v. Young , 27 A.D.3d 509, 811 N.Y.S2d 119 (2d Dept. 2006) and In re Halstead Energy Corp. , 367 F.3d 110, 115 (2d Cir. 2004). A close reading of these cases, however, reveals that such reliance is misplaced.
In CDS Cap., LLC v. Young , the court's discussion of law was preceded by a finding that the obligor had not given an unconditional guaranty but was, in fact, a co-maker of the note in question ( Id. at 512, 811 N.Y.S.2d 119 ). In re Halstead Energy Corp ., 367 F.3d 110 (2d Cir. 2004), involved circumstances in which an obligor was released without a reservation of rights against the co-obligors, thus allowing for GOL § 15-105 to take effect.
As pointed out by Plaintiff, the relief found in GOL § 15-105 is not available when there has been an "express reservation of rights". The Unconditional Guaranties executed by each of the individual defendants have been set forth earlier in this decision and do not need to be repeated. Suffice to say that they contain language at paragraphs 3, 4, 5 and 6 which can only be described as imperative. The aforementioned language is unequivocal and not modified elsewhere in the document. This renders the case law offered by the Defendants to be inapposite. Instead, the authority provided by the Plaintiff, Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro , supra at 485, 15 N.Y.S.3d 277, 36 N.E.3d 80 ; Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153 (2d Cir. 2000) ; Compagnie Financiere de CIC et L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc. , 188 F.3d 31 (2d Cir. 1999) ; Gannett Co. , Inc . v. Tesler , 177 A.D.2d 353, 577 N.Y.S.2d 248 (1st Dept. 1991) is controlling. The facts established at trial bring this agreement under the ambit of the rule stated in Citibank, N.A. v. Plapinger , 66 N.Y.2d 90, 495 N.Y.S.2d 309, 485 N.E.2d 974 (1985). In what we consider to be an analogous fact pattern, the Court upheld the propriety of an absolute and "unconditional" personal guarantee between sophisticated business people ( Id. at 95, 495 N.Y.S.2d 309, 485 N.E.2d 974 ).
As in the case of Preferred Equities Corp. v. Ziegelman , 190 A.D.2d 784, 593 N.Y.S.2d 548 (2d Dept. 1993), the Guaranties signed by Mr. Dewey and Mr. DiNapoli are "unconditional and irrevocable, irrespective of * * * [and] * * * circumstances which might * * * constitute a legal or equitable discharge or release of guarantor or surety" ( Id . p. 784, 593 N.Y.S.2d 548 ).
The Defendants also argue that the underlying debt has been satisfied pursuant to General Obligations Law § 15-103.
This statute sets forth:
"The amount or value of any consideration received by the obligee from one or more of several obligors, or from one or more of joint, or of joint and several obligors, in whole or in partial satisfaction of their obligations, shall be credited to the extent of the amount received on the obligations of all co-obligors to whom the obligor or obligors giving the consideration did not stand in the relation of a surety."
The Defense invocation of this statute is predicated on WALO's obtaining a release in consideration of an interest in the Aquebogue property as well as Mr. Conforti's rendering legal services to Wheatley and Stanley Weisz for many years without billing for same.
In support of this contention, Defense Counsel cites to J.P. Endeavors v. Dushaj , 8 A.D.3d 440, 778 N.Y.S.2d 531 (2d Dept. 2004) and Booth v. Farmers & Mechanics’ Natl. Bank , 74 N.Y. 228, 1878 WL 12648, 232 1878 N.Y. LEXIS 731 (1878). The facts in both of these cases, however, are so clearly distinguishable from the matter at hand as to make them of limited utility. J.P. Endeavors v. Dushaj was an action to recover a brokerage commission for the sale of realty. Booth involved the assignment of a promissory note that had been sued upon and reduced to judgment. The court stated, "Where one of several joint debtors pays the debt, his remedy against the others is confined to a claim for contribution" (Ital. at 232). In the case before us, the Agreement was entered into to prevent a foreclosure sale of realty owned by WALO in its capacity as mortgagor. The Defendants herein did not enjoy the same status since they had guarantied the debt but had never pledged realty against it. The Note, and all rights pertaining to its enforcement, were left untouched. This dichotomy of treatment between sureties and obligors was recognized by the court in First Nat. Bank of Highland v. Koriba, Inc. , 89 A.D.2d 713, 453 N.Y.S.2d 838 (3d Dept. 1982) in its discussion of Booth ’s applicability.
Defendants argument that the amount due under the Note must be set off by Mr. Conforti's legal services is also chimerical. At first glance, such a contention appears barred by the general rule militating against the use of past consideration save when coupled with a written instrument drawn in accordance with General Obligations Law § 5-1105 ( Kreuter v. Tsucalas , 287 A.D.2d 50, 734 N.Y.S.2d 185 [2d Dept. 2001] ). We also find, however, that this position is contrary to the credible proof submitted at trial. Mr. Conforti did, in fact, receive renumeration for his legal services to Mr. Stanley Weisz and his companies (Court Exhibit IV. Conforti Transcript p. 10 lines 2-6; p. 11 line 21 — p. 13 line 5). Moreover, Mr. Conforti testified on this very point
"Q. Is it your testimony, or you have testified that the consideration for your release from the lawsuit or release from the guarantee by Wheatley was unpaid legal fees or unpaid services that your performed for Weisz and Wheatley throughout your career? A. No."
(Plaintiff's Exhibit 2-3; Court Exhibit IV. Conforti Transcript p. 41 Lines 14-20)
The Defendants also urge the Court to find that Wheatley is not in possession of the Guaranties and that the allonge is not attached to the Note.
The basis of the claim concerning Wheatley's purported lack of possession stems from Mr. Stanley Weisz being listed on the assignment of guaranties rather than Wheatley. Defendants offer the cases of World Ambulette Transp., Inc. v. Lee , 161 A.D.3d 1028, 78 N.Y.S.3d 137 (2d Dept. 2018), Riverside S. Planning Corp. v. CRP/Extell Riverside, L.P. , 13 N.Y.3d 398, 892 N.Y.S.2d 303, 920 N.E.2d 359 (2009) and Vermont Teddy Bear Co. , Inc . v. 538 Madison Realty Co. , 1 N.Y.3d 470, 775 N.Y.S.2d 765, 807 N.E.2d 876 (2004). These cases stand for a bedrock principle of law that contracts should be enforced according to the language contained therein without resort to extrinsic proof.
The facts presented in the instant controversy, however, prevents the use of the above-cited cases to decide the interpretation of the assignment agreement. In World Ambulette Transportation, Inc. v. Kwan Haeng Lee , supra at 1032, 78 N.Y.S.3d 137, the trial Court was given contradictory testimony on the intent of the parties concerning the agreement. Instead of delving into subjective intent, the Appellate Division ruled that the correct course was simply to look at the plain, unambiguous wording of the contract itself.
Riverside S. Plan. Corp , supra at 406, 892 N.Y.S.2d 303, 920 N.E.2d 359, confined itself to deciding whether an assignment obligation was restricted by a sunset provision in a contract. The Court held that the agreement was unambiguous and thus barred the used of parole evidence to interpret the agreement.
Vermont Teddy Bear Co. , Inc . v. 538 Madison Realty Co. , supra at 475, 775 N.Y.S.2d 765, 807 N.E.2d 876, involved the claimed responsibility of a landlord to provide written notice of restoration of a damaged leasehold in order to forestall termination of the lease. In deciding this question in the negative the Court stated, "neither party claims that the lease is ambiguous or incomplete."
What was absent from World Ambulette , and the companion cases listed above, was reference to typographical mistakes and more importantly, the law pertaining to scrivener's errors.
When "clear, positive and convincing evidence" is shown that a mistake has occurred in the drafting of an "agreement so that the intentions of neither [party] are expressed in it" the Court will reform a contract to correct a mutual mistake ( Nash v. Kornblum , 12 N.Y.2d 42, 46-47, 234 N.Y.S.2d 697, 186 N.E.2d 551 (1962), see Metro-N. Commuter R.R. Co. v. Yonkers Contr. Co. , 256 A.D.2d 32, 680 N.Y.S.2d 537 (1st Dept. 1998).
In the case at bar, the proof submitted is unequivocal that Wheatley Harbor, not Stanley Weisz individually, was in possession of the Guaranties. No evidence of a written assignment of the Guaranties to Stanley Weisz was made. To the contrary, both Mr. Andreas Weisz and Mr. Dewey testified that the Guaranties were transferred to Wheatley. (Court Exhibit III Andreas Weisz Testimony para. 27; trial transcript p. 83 lines 15-23). The only conclusion that can be drawn from this evidence is that the language in the Agreement regarding the transfer of the Guaranties to Stanley Weisz was a drafting error.
This Court also agrees with the Plaintiff's argument that the Guaranties travelled with the underlying Note and that a separate assignment of same was unnecessary in accordance with the rule enunciated by the Court in Hayden Asset V, LLC v. JGBR, LLC , 44 Misc.3d 1220(A), 999 N.Y.S.2d 797 (Sup. Ct. Suffolk County 2014) citing Stillman v. Northrup , 109 N.Y. 473, 17 N.E. 379, 1888 N.Y. LEXIS 751 (1888) ; also citing Craig v. Parkis , 40 N.Y. 181, 1869 N.Y. LEXIS 16 (1869) ; Midland Steel Warehouse Corp. v. Godinger Silver Art Ltd., 276 A.D.2d 341, 714 N.Y.S.2d 466 (1st Dept. 2000) ; see also Restatement [Third] of Suretyship and Guaranty § 13 [5].
Defendants also contend that the Guaranties are not actionable because the allonge relating to the Note is unattached as required by UCC 3-202 (2) ; Bayview Loan Servicing, LLC v. Kelly , 166 A.D.3d 843, 87 N.Y.S.3d 569 (2d Dept. 2018) and HSBC Bank USA, N.A., v. Carchi , 177 A.D.3d 710, 111 N.Y.S.3d 679 (2d Dept. 2019).
UCC § 3-202 (2) states that "An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof." The Defendants’ argument is based on the fact that the Note in this case is referenced as NYSCEF Document number 109 and the allonge is designated as NYSCEF document number 112. Once again, the Court feels obliged to distinguish the cases cited by the defense. Carchi was a decision discussing the question of standing on a CPLR 3211 motion. Kelly involved a summary judgment motion in which the court held that there was "a triable issue of fact as to whether the note was properly endorsed in blank by an allonge" ( Kelly, 166 A.D.3d at 846, 87 N.Y.S.3d 569 ). The rule stated in Kelly actually argues in favor of the Plaintiff herein since it acknowledged that the propriety of the allonge was to be decided by the trier of fact. In this case, the Court finds that Wheatley is in possession of both Note and allonge and rejects the Defense's position that they have become separated.
The last claim of the Defendants which bears discussion is that Mr. Conforti conspired with Stanley Weisz to harm Mr. Dewey and Mr. DiNapoli. This was accomplished by Mr. Conforti's using his divided interest (i.e. as a special member of Wheatley and as attorney for Mr. Dewey and Mr. DiNapoli) to convince the Defendants to consent to Wheatley's substitution as Party Plaintiff. The Court finds this claim to be untenable.
As pointed out by Plaintiff's counsel, the Defendants’ contention is contradicted by the proof at trial. The prior relationship between Mr. Conforti and Stanley Weisz was known to the Defendants (Court Exhibit IV. Conforti Transcript p. 28 line 21 — p. 29 line 16). The evidence submitted at trial is bereft of proof to counter Mr. Conforti's testimony that he was not involved in the drafting of the Agreement (Court Exhibit IV. Conforti Transcript p. 25 line 25 — p. 26 line 11).
Additionally, Defendants’ use of the term "conspired" is troubling. As stated in the case of Williams v. Williams , 149 A.D.3d 1145, 53 N.Y.S.3d 152 (2d Dept. 2017), "Further, New York does not recognize civil conspiracy to commit a tort as an independent cause of action, and a cause of action alleging conspiracy to commit a tort stands or falls with the underlying tort" ( Id. at 1146, 53 N.Y.S.3d 152 citing Blanco v. Polanco , 116 A.D.3d 892, 895—896, 986 N.Y.S.2d 151(2d Dept. 2014) ; Barns & Farms Realty, LLC v. Novelli , 82 A.D.3d 689, 691, 917 N.Y.S.2d 691 (2d Dept. 2011). The behavior complained of by the Defendants appears to sound in fraud. Their pleadings, however, fail to recite such a claim against Stanley Weisz or Mr. Conforti. Assuming, arguendo , the Court were to entertain such a contention in the absence of a specifically pled cause of action, the Defendants would be under an obligation to sustain it by clear and convincing evidence ( Clarke v. Wallace Oil Co. , Inc ., 284 A.D.2d 492, 493, 727 N.Y.S.2d 139, 140 [2nd Dept. 2001] ). Thus, they have not met this burden.
Shorn of any viable defenses, the clear preponderance of the credible evidence submitted during trial compels the Court to find that the Plaintiff has established: (1) That it is the holder of the Note (as assigned to Plaintiff) and unconditional Guarantees in question; (2) The Defendants signed the unconditional guarantees; and, (3) since the Note remains unpaid, they are liable for the debt.
Based upon the foregoing, the Court will issue a judgment in favor of Plaintiff in the amount of $5,804,957.29 plus legal fees and expenses.
Settle Judgment.
This memorandum also constitutes the Order of the Court.