[*1]
Branch Banking & Trust Co. v South Fork Resources LLC
2011 NY Slip Op 51686(U) [32 Misc 3d 1243(A)]
Decided on August 31, 2011
Supreme Court, Nassau County
Warshawsky, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on August 31, 2011
Supreme Court, Nassau County


Branch Banking and Trust Company, Successor in interest to Colonial Bank, by asset acquisition from the FDIC, as receiver for Colonial Bank, Plaintiff,

against

South Fork Resources LLC, formerly known as South Fork Development LLC, and ALFRED L. AMATO, Defendants.




012563/2010

Ira B. Warshawsky, J.



The following papers read on this motion:

Plaintiff's Motion for Summary Judgment in lieu of Complaint, Miller Affidavit, Justiss Affidavit, Davis Affidavit, and Exhibits Annexed1

Defendants Cross-Motion to Dismiss, Fertig Affirmation, Ettelman Affirmation, Amato Affidavit, and Exhibits Annexed2

Defendants' Memorandum of Law in Support of their Motion3

Defendant's Memorandum of Law in Opposition to Plaintiff's Motion4

Justiss Reply Affidavit5

Giles Affidavit and Exhibits Annexed6

Plaintiffs' Reply Brief in Support of its Motion7

Plaintiffs' Brief in Opposition to Defendants' Motion8

Fertig Reply Affirmation9

Defendants' Reply Memorandum of Law10 [*2]



PRELIMINARY STATEMENT


Plaintiff initiated the instant action under CPLR § 3213 requesting summary judgment for non-payment on a promissory note. The defendants filed an action in Florida and obtained a stay from this court pending a determination in that matter. Subsequently the defendants have filed a cross-motion to dismiss pursuant to CPLR §§ 3211(a)(3) and (a)(5).

The promissory note at issue was entered into between Colonial Bank and defendant South Fork for the development of a particular property at 9802 Clarence Street in Panama City Beach. Defendant Alfred L. Amato provided a Guarantee for this note. Colonial Bank subsequently entered into bankruptcy proceedings by which FDIC became a receiver of the bank and plaintiff Branch Banking and Trust Company later purchased the assets of Colonial Bank, including its portfolio of loans. As successor to Colonial Bank, plaintiff now seeks recovery on the promissory note and guarantee entered into between Colonial Bank and defendant South Fork.

DISCUSSION


I. Defendants' Cross-Motion to Dismiss the ComplaintDefendants seek dismissal of the instant action under CPLR §§ 3211(a)(3) and (a)(5) on the grounds that defendants have a complete defense based on documentary evidence and that plaintiffs' lack capacity or standing to sue for the claims asserted.

A. Waiver in Florida Action


Defendants contend that plaintiff is precluded from seeking any recovery for deficiency in the promissory notes at issue by operation of Florida Statute § 727.113(4). The Florida law at issue does not create procedure for discharge of loans and other obligations in bankruptcy. Rather, the law is intended "to provide a uniform procedure for the administration of insolvent estates, and to ensure full reporting to creditors and equal distribution of assets according to priorities as established under this chapter." (West's Florida Stat. Ann. § 727.101). In this regard, the Florida law allows an insolvent estate to transfer all assets to an assignee. The responsibilities and powers of the assignee are set out in Florida Stat. § 727.108. The assignee's powers include the ability to "[a]bandon assets to duly perfected secured or lien creditors, where, after due investigation, he or she determines that the estate has no equity in such assets or such assets are burdensome to the estate or are of inconsequential value and benefit to the estate." (West's Florida Stat. Ann. §727.108[8]). The defendants instituted an action in Florida under this law by which they transferred the Panama City Beach property at 9802 Clarence Street to an assignee, who properly transferred and certified abandonment of the property for the benefit of the plaintiff in this case.

According to the defendants, the transfer of the Panama City Beach property in the Florida action has satisfied all of plaintiff's claims and the plaintiff has waived any insufficiency claims by failing to raise such claims in the Florida action within 60 days of the final disposition (in this case, abandonment or transfer) of the Panama City Beach property or within ten days of the assignee's service of a final report of all receipts and disbursements regarding the insolvent estate. The Section upon which defendants rely provides:

A creditor whose claim is secured by a lien against property of the estate has 60 days following the sale or disposition of the property securing his or her claim to file a claim for an unsecured deficiency, notwithstanding the passage of the last date in which a proof of claim may be served [*3]upon the assignee set forth in s. 727.112(2). If such a creditor fails to file with the assignee a deficiency claim within 10 days after the filing and service by mail of the assignee's final report of all receipts and disbursements, the creditor's deficiency claim shall be disallowed as untimely, and the creditor is not entitled to share in any distribution made to holders of unsecured claims under s. 727.114(1)(f) on account of its deficiency claim.

(West's Florida Stat. Ann. § 727.113[4]). The intent of the law and the language of this Section make it apparent that this statute addresses only deficiency claims against assets of the insolvent estate. The law does not state in any manner that any loans or obligations are fully discharged by the final disposition of the assets of an insolvent estate. Certainly, there is no language that discharges a guarantor from any deficiencies that cannot be satisfied from the disposition of the insolvent estate.

Florida Stat. § 727.114 confirms this understanding. The statute indicates that secured creditors are first in order of priority to receive proceeds from the sale of collateral from the insolvent estate, and to the extent any secured claims are not satisfied by sale of collateral, such creditors may receive further proceeds from sale of other assets which are not part of the collateral. The statute provides

Allowed claims shall receive distribution under this chapter in the following order of priority and, with the exception of paragraph (1)(a), on a pro rata basis: (1)(a) Creditors with liens on assets of the estate, which liens are duly perfected pursuant to applicable law, shall receive the proceeds from the disposition of their collateral, less the reasonable, necessary expenses of preserving or disposing of such collateral to the extent of any benefit to such creditors. If and to the extent that such proceeds are less than the amount of a creditor's claim or a creditor's lien is avoided pursuant to s. 727.109(8)(c), such a creditor shall be deemed to be an unsecured creditor for such deficiency pursuant to paragraph (f).

*** (f) Unsecured claims. (West's Florida Stat. Ann. § 727.114). The defendants' interpretation of this law is contrary to its plain meaning and imputes an intent to permit the full discharge of debt obligations, even as against guarantors, which is not discernible from any of the language in the statute. There are no allegations in this case that the South Fork's allegedly insolvent estate had any other assets against which the plaintiff could seek a deficiency claim or that any other assets of South Fork were properly transferred to the assignee. Having no other recourse against the assets of South Fork's allegedly insolvent estate in the Florida action, the Plaintiff may proceed against guarantor in this action.

Defendants' also attempt to shield themselves from liability under Section 1371(3) of New York's Real Property Law is similarly unavailing. The statute pertains only to procedures for creditors to assert deficiency claims in New York in relation to a foreclosure sale on a mortgage debt. This statute is inapplicable since no foreclosure sale has taken place in accordance with the proceedings set forth in New York's Real Property Law. Rather, the clear language of this statute contrasts with the language in the Florida statute. New York RPL § 1371(3) establishes in [*4]unmistakable terms that "no right to recover any deficiency in any action or proceeding shall exist." In contrast, the Florida statute at issue only provides that the secured creditor's deficiency claim will be disallowed in a proceeding related to the statute, such that the creditor therefore "is not entitled to share in any distribution made to holders of unsecured claims." The Florida proceeding did not provide a mechanism for a deficiency judgment or any recovery beyond the assets of the insolvent estate, and the Plaintiff did not lose its right to seek a deficiency that could not be satisfied or adjudged in the Florida action.

B. Equitable Estoppel


The defendants also contend that equitable estoppel establishes a complete defense to Plaintiff's claims such that the Complaint must be dismissed. Equitable estoppel is an affirmative defense that precludes a party from asserting a right, privilege, or advantage under principles of detrimental reliance. The New York Court of Appeals has described the doctrine of equitable estoppel as follows:

The purpose of equitable estoppel is to preclude a person from asserting a right after having led another to form the reasonable belief that the right would not be asserted, and loss or prejudice to the other would result if the right were asserted. The law imposes the doctrine as a matter of fairness. Its purpose is to prevent someone from enforcing rights that would work injustice on the person against whom enforcement is sought and who, while justifiably relying on the opposing party's actions, has been misled into a detrimental change of position

(Shondel J. v Mark D., 7 NY3d 320, 326 [2006]).

The defendants have failed to conclusively establish equitable estoppel as a complete defense to the instant action. The defendants allege only that plaintiff "lulled" defendants by conveying the impression that plaintiff would work with defendants to sell the property to a potential third-party in satisfaction of the promissory note and that plaintiff would extend the note. Plaintiff's lack of cooperation or failure to engage in negotiations with defendants was not a misrepresentation that caused a detrimental change of position in the defendants. The defendants may have expended some effort in attempting to secure a third-party purchaser, but such efforts were carried out also in furtherance of their interest in satisfying their loan obligations. The defendants do not present any facts that reveal a compelling injustice worked upon them by plaintiff's conduct. Neither has the defendant presented facts which demonstrate particular representations or conduct which manifested plaintiff's abandonment of its claims under the promissory note, or any unambiguous manifestation that it would not seek recovery on these notes. Therefore, the defendants are unable to establish a reasonable belief that plaintiff would not assert the rights it asserts now, and that permitting plaintiff's claims would be unconscionable.

C. Assignment of Promissory Note


Defendants further assert an affirmative defense that Plaintiff Branch Banking and Trust Company does not have standing to assert any benefit from the promissory note at issue. Defendant South Fork Resources, LLC promised to pay on the promissory note "to the order of COLONIAL BANK, N.A., a National Banking Association, its successors and assigns in interest... or at such other place as the holder of this Renewal Promissory Note [] may from time [*5]to time designate in writing..." (Justiss Aff., Ex. 1). Similarly, Alfred Amato agreed that the Guarantee he provided for the loans at issue "shall inure to the benefit of the Beneficiary and its successors and assigns, including every holder of any of the indebtedness here guaranteed." (Id., Ex. 2).

The court has examined the case of Murdock v. Rad (No. A574852 [Clark Cty. Dist. Ct., Nevada, June 18, 2010]) and the related case of Branch Banking and Trust Co. v. Nevada Title Co., No. 2:10-CV-1970, 2011 U.S. Dist. LEXIS 40788 [D. Nev. April 13, 2011]), proffered for the first time on defendants' reply papers, and the court does not find their holdings applicable or binding under principles of collateral estoppel. Those cases surrounded entirely different promissory notes and the trial court in Murdock believed that there was insufficient evidence that the particular note was included within the terms of Section 3.1 of the Purchase and Assumption Agreement, by which Plaintiff Branch Banking and Trust Company became the successor and assign of Colonial Bank's assets through the FDIC's receivership when the latter bank had failed. For reasons unknown to this court, the claim of default at issue in Branch Banking was determined to be capable of characterization as an "interest, right, action, claim or judgment against... any [] Person whose action or inaction may be related to any loss (exclusive of any loss resulting from such Person's failure to pay on a Loan made by the Failed Bank) incurred by the Failed Bank... before Bank Closing" according to Section 3.5(b) of the Purchase and Assumption Agreement. (Branch Banking, 2011 U.S. Dist. LEXIS 40788 at *2). For reasons unclear to this court, the Murdock court determined that the promissory note at issue there may have been refused to Branch Banking and Trust Co. or may have been "assign[ed], transfer[ed], convey[ed] and deliver[ed] to the Receiver" upon written request of the FDIC because the promissory note at issue could satisfy Section 3.6(a)(ii) of the Purchase and Assumption Agreement as an asset that is "the subject of any investigation relating to any claim with respect to any item described in Section 3.5(a) or (b) [i.e., bonds or insurance policies held by the failed bank and legal claims which the failed bank had available before closing] or the subject of, or potentially the subject of, any legal proceedings."

Moreover, those cases sought enforcement or priority determination of a mortgage or lien, and foreclosure on a mortgage or lien is governed by equitable principles. In contrast, the Plaintiff in this case has received the secured property and now asserts only deficiency claims against the guarantor and obligor. Finally, the particular clause in Section 3.5 of the Agreement, identifying assets excluded from purchase and upon which those cases relied, is not applicable to the promissory note at issue. The plaintiff's legal claim for repayment on the promissory note did not accrue prior to the closing of the failed bank, and of course, the language at issue unambiguously states that claims before closing of the failed bank on unpaid promissory notes were not excluded from the Purchase and Assumption Agreement. Further, there is little basis to conclude that the promissory note entered into by Defendant South Fork and guaranteed by Alfred L. Amato was tainted with fraud or otherwise subject to investigation for fraud by the FDIC.

Plaintiff has proffered evidence sufficient for a prima facie case at this stage to establish its status as assign, successor, and purchaser of Colonial's assets, including financial instruments, and has presented evidence that it is the holder of the promissory note at issue through Philip Justiss's Affidavit. Defendants have not rebutted this prima facie proof. Instead, defendants note [*6]that Section 3.1 of the Purchase and Assumption Agreement excluded certain assets from purchase, as identified in Sections 3.5 and 3.6. There is little basis, however, to conclude that the promissory note at issue arguably meets any definition of the assets described in these sections. The promissory note is not a bond, an interest in a legal claim, a regulatory assessment, a tax receivable, a loss reserve account, a lease or title to Colonial's premises, goodwill valuation, or any restitution or forfeiture owed. Finally, as already discussed, defendants allege no facts to suggest that their promissory note is an asset which "may be tainted with fraud, criminality, or otherwise deemed improper" by the FDIC.

Defendants cross-motion to dismiss the Complaint is denied in its entirety.

II. Plaintiff's Motion for Summary Judgment in Lieu of Complaint


A. Standard


A potential plaintiff may file and serve a summons and a motion for summary judgment in lieu of a complaint under CPLR § 3213, if the matter "is based upon an instrument for the payment of money only or upon any judgment." Normally, the question whether the dispute involves an instrument for the payment of money only, is determined by reference to whether any extrinsic evidence, beyond proof of non-payment and the instrument itself, is required to establish a prima facie case for liability. (Weissman v. Sinorm Deli, Inc., 88 NY2d 437 [1996], Craven v Rigas, 71 AD3d 1220 [3rd Dep't 2010]).

Once it is established that the action was properly brought under CPLR § 3213, the standard for summary judgment is the same as under CPLR § 3212. A plaintiff bringing an action under CPLR § 3213 may show entitlement to summary judgment by demonstrating that there are no triable issues of fact. In most cases under CPLR § 3213, the plaintiff would demonstrate no triable issues of fact by presenting the instrument upon which money is owed and proof of non-payment. (Dresdner Bank AG v. Morse/Diesel, Inc., 115 AD2d 64 [1st Dep't 1986]). To defeat such a showing, a defendant must present admissible evidence that raises triable issues of fact that would preclude liability. (Seanman-Andwall Corp., 31 AD2d 136 [1st Dep't 1968]). Therefore, even if the instrument itself and proof of non-payment present a prima facie case for liability under CPLR § 3213, affidavits which raise triable issues of fact with respect to a bona fide affirmative defense, may defeat summary judgment. (See, e.g., Silvestri v. Iannone, 261 AD2d 387 [2d Dep't 1999], Silber v. Muschel, 190 AD2d 727 [2d Dep't 1993]). Similarly, if the instrument by its very terms references another agreement as to which triable issues of fact exist, summary judgment under CPLR § 3213 would be inappropriate. (Technical Tape, Inc. v. Spray Tuck Inc., 131 AD2d 404 [1st Dep't 1987]).



B. Availability of CPLR § 3213 for Defendants' Promissory Note

CPLR § 3213 permits a would-be plaintiff to file and serve a summons and a motion for summary judgment in lieu of a complaint, where the matter "is based upon an instrument for the payment of money only or upon any judgment." The defendants contend that the promissory notes at issue here are not instruments for the payment of money only, since plaintiff must submit the Purchase and Assumption Agreement and Shared-Loss Agreement to prove its ownership of the loans at issue. As promissory notes, which CPLR § 3213 is intended to embrace, the motion for summary judgment on these notes has been properly brought before this Court, and therefore the [*7]Court has authority to decide the motion. (Cf. St. John Assoc. Engineers, P.C. v. Chase Architectural Assoc., P.C., 106 AD2d 743 [3d Dept 1984], Stevens v. Phlo Corp., 288 AD2d 56 [1st Dep't 2001]; see Interman Indus. Prods., Ltd. v. R.S.M. Electron Power, Inc., 37 NY2d 151, 154-55 [1975]).

It has been difficult to lay down a clear rule as to CPLR § 3213 without conflating the separate questions whether, on the one hand, the matter involves an instrument for payment of money only, and whether, on the other hand, summary judgment in the instant matter is appropriate. New York courts which have found a matter to satisfy the "money only" provision of CPLR § 3213, have often settled the question by finding that "[i]n the instant action, no proof other than the instrument sued upon and the affidavit of non-payment is needed to establish a prima facie case." (Council Commerce Corp. v. Paschilides, 92 AD2d 579 [2d Dep't 1983]; see also Technical Tape, Inc. v. Spray Truck Inc., 131 AD2d 404, 405 [1st Dep't 1987]; Seaman-Andwall Corp., 31 AD2d 136 [1st Dep't 1968]). However, disputes which involve only the non-payment of money due under an arguably discrete and separable provision to a contract, may not satisfy CPLR § 3213, since the Section was intended as a limited procedure for commercial paper, promissory notes, and similar instruments:

Had the Legislature intended that this simplified procedure for accelerated judgment be applicable to agreements wherein but one of the provisions related to the payment of money, the word only' would have been deleted from the critical phrase in the provision under discussion.

(Wagner v. Cornblum, 36 AD2d 427 [4th Dep't 1971]; see also Dresdner Bank AG v. Morse/Diesel, Inc., 115 AD2d 64 [1st Dep't 1986]; Grossman v. Clarey, 133 AD2d 443 [2d Dep't 1987]). Therefore, as the Court of Appeals has noted, "the cases permitting use of the CPLR 3213 procedural device have dealt primarily with some variety of commercial paper in which the party to be charged has formally and explicitly acknowledged indebtedness." (Interman Indus. Prod., Ltd. v. R.S.M. Electron Power, Inc., 37 NY2d 151, 154-55 [1975]).

Since CPLR § 3213 was devised precisely to provide accelerated judgment to actions involving promissory notes, commercial paper, and similar instruments, it is generally immaterial that such instruments may be part of a larger transaction involving other agreements, or that a promissory note may not recite a sum certain such that resort to some outside documents may be necessary. (Key Bank of Long Island v. Munkenbeck, 162 AD2d 503 [2d Dep't 1990]). It is likewise immaterial that affirmative defenses to such notes or commercial paper require extrinsic evidence, since that goes more to the question whether summary judgment is appropriate, rather than whether the instrument is for the payment of money only. (See Seaman-Andwall Corp., 31 AD2d 136 [1st Dep't 1968]).

In this case the defendants admit that the promissory notes at issue involve obligations for the payment the sum to be advanced. The face of the Note and Guarantee provide that the obligor and guarantor will be liable for the sums advanced under the Note "to the order of COLONIAL BANK, N.A., a National Banking Association, its successors and assigns in interest... or at such other place as the holder of this Renewal Promissory Note [] may from time to time designate in writing..." (Justiss Aff., Ex. 1). Therefore, the plaintiff's proof regarding its status as a successor or assign of the Note and Guarantee is merely ancillary to the prima facie proof of liability provided by the promissory note to its holder. The cases which the defendants cite to this Court are not in any way analogous to the instant matter and the court may consider the instant motion for summary [*8]judgment in lieu of complaint. Whether the proof is sufficient to satisfy summary judgment is, of course, an entirely separate matter.

C. Amounts Advanced On the Promissory Note


Defendants strongly contest the amounts advanced under the Note. The Note is not written for a sum certain. The Project Development Agreement provided for a maximum principal amount of $8.5 million to be advanced, with approximately $2.5 million in separate tranches for soft costs, construction and development costs. Plaintiff's proffer of proof for the amounts advanced under the Project Development Agreement and Note is simply a print-out of a computer record which provides only a "PRIN BAL" of $7,406,933.32. Plaintiff's affidavits provide no details regarding the various amounts advanced, particular dates, or various interest and fee calculations. Neither does the Justiss Affidavit establish the validity of the computer record as an accurate and current official record of the amounts due and owing on the Note. Plaintiff's proof does not establish a prima facie case of a sum certain that is due and owing from the defendants. (Cf. Transamerica Commercial Fin. Corp. v. Roy A. Matthews of Scotia, Inc., 178 AD2d 691 [3rd Dept. 1991]).

Plaintiff's proof is all the more inadequate given defendants' strong factual disagreement on the amounts advanced or owed on the Note. In particular, defendants allege that the Loan facility was never fully advanced and that Colonial, the Plaintiff's predecessor, "unilaterally eliminated the entire construction and development tranche." (Pl. mem. in oppo. 4). Factual issues regarding the amounts advanced under the Note and calculation of payments, interest, and fees in accordance with the Note preclude summary judgment.

D. Nonpayment on the Promissory Note


Questions of fact also remain regarding whether the promissory note has been fully satisfied by the Florida ABC Proceeding. While defendants contend that any questions regarding the valuation of the Panama City Beach property only relates to damages and not liability, there is no liability if the promissory note has been entirely satisfied. It is axiomatic that at least some damages are requisite for civil liability, even if only nominal damages. The plaintiff concedes that the valuation of the Panama City Beach property is a question of fact and the plaintiff has not proven in a prima facie case that despite any credible issue regarding the property's valuation, some deficiency remains such that defendants are liable for non-payment. Because non-payment is factually disputed, summary judgment is inappropriate on the adduced facts and proof.

This constitutes the Decision and Order of the Court.

DATED: August 31, 2011______________________________

J.S.C.