By order to show cause, dated March 25, 2013, defendant Juda Mochkin seeks an order permitting him additional time to pay the final settlement payment of $700,000 on account of: (i) actions taken by plaintiff Joseph Mochkin to impede defendant's ability to conclude the settlement and (ii) plaintiff's continuing refusal to cooperate in the removal of impediments he created.

Defendant also seeks an order authorizing defendant, as an officer and director of 513 Properties, Inc. (513), and in the exercise of his business judgement, to file a petition on behalf of 513 for protection from creditors under Chapter 11 of the United States Bankruptcy Code, and authorizing defendant to take all necessary steps to cause the initiation and prosecution of such a case under the Bankruptcy Code.

For the reasons that follow, defendant's application is granted to the extent set forth herein.

I.Background: [*2]

Plaintiff commenced this action against his father, the defendant, claiming he is a 50% shareholder in 513, which owns the property. The property is a mixed use building containing residential units and commercial space. The property is encumbered, since September 16, 2003, with a mortgage held by Astoria Federal Savings and Loan (Astoria).

To help resolve the parties' dispute, this court, over the course of numerous conferences, supervised and helped fashion a so-ordered and stipulated-to settlement agreement signed by both parties on July 25, 2011 (the Settlement Agreement or Agreement). The terms of the Agreement provided, inter alia, that plaintiff would relinquish all of his claims in exchange for a settlement amount of $750,000. The settlement amount was to be paid in two installments, as follows: $50,000 on or before September 26, 2011 and the remaining $700,000 was to be paid on or before July 25, 2012 . With respect to both payments, the Settlement Agreement provided that "time [was] of the essence." Defendant made the initial payment of $50,000 to plaintiff in the fall of 2011.

Relevant to this discussion, the Settlement Agreement contemplated that the funds for the settlement payment might be raised from either a sale or refinancing of the property. Upon payment of the settlement amount, the parties were to exchange general releases. The Agreement further provided that, in the event of defendant's default of his payment obligations, "plaintiff shall have the right to buy defendant's interests in 513 Properties Inc. for $200,000 within six months after the default." At the request of the parties, this court retained jurisdiction in all matters related to the Agreement.

In April 2012, plaintiff claims that he received notice from counsel forAstoria that 513 had allegedly failed to submit payments pursuant to the note and outstanding mortgage. On April 6, 2012, after consulting with his own counsel, plaintiff commenced an action challenging the validity of the note and mortgage held by Astoria (the Astoria action). Thereafter, on April 17, 2012, plaintiff filed an amended notice of pendency against Astoria and the property. Prior to entering into the Agreement, plaintiff never challenged the validity of the Astoria mortgage for the more than eight years that 513 paid the monthly mortgage payment.

To pay the balance of the settlement amount, defendant obtained a mortgage commitment from W Financial Fund, LP (W Financial), a lender, to refinance the property in advance of the July 25, 2012 deadline. On July 5, 2012, Joseph Farber, the attorney charged with securing financing for defendant, received an e-mail with attached correspondence from counsel to W Financial. The letter confirmed that W Financial was "ready willing and able" to fund a loan in the amount of $2.5 million to be secured by a first mortgage on the property. The letter further states that, before a closing could occur, the issue of the outstanding lis pendens on the property needed to be cleared.

Mr. Farber also received notice, via e-mail, from Fidelity National Title Insurance Services, LLC (Fidelity), the company engaged to insure the W Financial loan, that Fidelitywould not issue a policy until it had in its possession documents demonstrating that the cloud on title had been removed, i.e., the cancellation of the lis pendens and withdrawal of the Astoria action.

As a result of these developments, defendant moved, by order to show cause, dated July 9, 2012, for an order directing plaintiff to cancel the lis pendens and withdraw the Astoria action. By order dated July 12, 2012, this court extended the deadline for defendant to pay the settlement [*3]amount to August 24, 2012. The court further indicated that the new deadline was "subject to defendant's right to seek a further extension if necessary due to plaintiff's conduct."

Then, by order to show cause, dated August 8, 2012, defendant moved to this court to intervene in the Astoria action and hold a joint trial regarding both the Astoria action and the current action. On August 14, 2012, this court issued an order granting defendant's motion to intervene and merge the Astoria action with the instant action. Additionally, the August 14th order directed plaintiff to immediately cancel the lis pendens and to discontinue the underlying action against Astoria with prejudice, subject to defendant's payment of the settlement amount.

As the new deadline for full payment of the settlement amount was approaching, defendant sought plaintiff's cooperation to attend the closing and provide the releases sought by W Financial and Fidelity. Plaintiff refused, thereby, preventing the loan from closing.

On the belief that 513's lender would proceed with the refinancing provided that the loan proceeds payable to plaintiff were deposited into escrow, defendant moved by order to show cause, dated August 21, 2012, for a modification of the Settlement Agreement to permit payment of the $700,000 into escrow. However, when the title company, upon reviewing the order, stated that the escrow provision was not an adequate solution, defendant moved by order to show cause, dated August 23, 2012, for an extension of the time to pay the final settlement payment.

By Order and Decision dated November 28, 2012, as modified by orders dated December 5, 2012 and January 7, 2012, the Court granted an extension of 120 days (until April 30, 2013) to make the final payment. The court granted this relief on two grounds. First, pursuant to CPLR 2004, the court found that there was good cause to extend the time for defendant to complete the settlement:

"Plaintiff brought the Astoria action and filed the lis pendens after entering into the Agreement. Regardless of his motives at the time, plaintiff understood,no later than July 9, 2012, that his refusal to cancel the lis pendens and issue the requested releases was interfering with defendant's ability to obtain refinancing. See affirmation of Juda Mochkin, dated July 5, 2012, ¶ 12.

Further, plaintiff has not made any secret of his intentions to interfere with defendant's ability to satisfy the terms of the Agreement. During a hearing on July 12, 2012, plaintiff shouted words to the effect that defendant would be unable to get the property; a sentiment at odds with the parties' Agreement."

See Affirmation of Sheldon Eisenberger, dated March 25, 2013 (Eisenberger aff.), Ex. G (November 28, 2012 Decision and Order) at 7.

In addition, the court concluded that the filing of the Astoria action and lis pendens violated the covenant of good faith and fair dealing implied in the Settlement Agreement. In this regard, the court reasoned that:

"As the Agreement itself expressly contemplated refinancing and plaintiff was informed that his actions created an impediment to defendant's performance, the court finds that, as a matter of law, plaintiff cannot claim that defendant breached the Settlement Agreement by failing to tender payment by the deadline. See e.g. Gross v Neuman, 53 AD2d 2, 4 (1st Dept 1976) ("a party to a contract cannot rely on the failure of another to perform a condition precedent where he has frustrated or prevented the occurrence of the condition") (internal citations omitted). Unless [*4]the lis pendens is canceled and defendant is given an appropriate extension of time to complete the refinancing, plaintiff cannot be permitted to exercise his option to purchase the property."

Id. at 8 (bolded emphasis added).

Besides extending defendant's time to complete the settlement payment, the court ordered the following:

"[I]f a refinancing by defendant Juda Mochkin of the property located at 838-840 Montgomery Street, Brooklyn, New York is accomplished and the $700,000 payment is made to plaintiff Joseph Mochkin or placed in escrow with an agent approved by this court on behalf of plaintiff, the lis pendens that plaintiff filed against the subject property is canceled and the Astoria action is dismissed ..."

Id. at 10.

Now, on this application, defendant moves again for another extension of his deadline to complete the payment. According to defendant, plaintiff continues to refuse to remove the impediments to refinancing, i.e., the Astoria action and lis pendens. Accordingly, with the new deadline only weeks away, defendant seeks a further extension of the time to make the final payment.

II.Discussion

As in his prior applications, defendant maintains that plaintiff's filing of the Astoria action and related lis pendens ispreventing defendant from refinancing the property, which, in turn, is interfering with defendant's ability to obtain the funds to pay the balance of the settlement amount. Eisenberger aff., ¶ 8.

Plaintiff's argument in opposition is that more than one deadline to complete the settlement payment has come and gone and defendant should not be given any further extensions. Plaintiff insists, as he did in opposition to defendant's prior application to extend the payment deadline, that defendant is obligated to provide an affidavit from a lender, stating that it was "ready, willing, and able to lend the requisite funds to defendant but for the existence of the conditions created by plaintiff's allegedly improper actions and that if those conditions were remedied, then the lender would in fact make the loan to defendant." Affirmation of Theodore P. Kaplan (Kaplan aff.), dated April 10, 2013, ¶ 10. Plaintiff's position is that, without such proof, the court should not entertain plaintiff's present application for an extension and the previous extension should not have been granted. Id. ¶ 11. Plaintiff further contends that because the time for defendant to complete the payment has elapsed (or will shortly elapse), he is entitled to exercise his option under the Agreement to purchase the property for $200,000. Id. ¶ 22.

As an initial matter, the court has already concluded that defendant's prior submissions — a letter from the lender and an e-mail from the title company stating, respectively, that no closing could occur or policy would be issued until the cloud on title created by the lis pendens had been removed — was sufficient proof that plaintiff's actions were the cause of defendant's inability to perform under the terms of the Agreement. See Eisenberger aff., Ex. G at 9.

Furthermore, plaintiff's contention that, without an affidavit from a lender, defendant has no proof that plaintiff's actions interfered with the refinancing, defies reason and logic. By [*5]challenging the validity of the underlying Astoria mortgage (eight years after it was assumed and only after entering into the Settlement Agreement), plaintiff is effectively putting any new lender in the untenable position of bearing the risk that the new mortgage (which would pay off, and therefore incorporate, the prior indebtedness), would potentially be equally invalid. Under these circumstances, it requires no proof, other than common sense, that a title insurance company, such as Fidelity, would not issue a policy of clean title, for the simple reason that it would prospectively be buying itself a lawsuit should plaintiff's claims in the Astoria action be found to have merit.

Indeed, even if a lender was found that would agree to do the refinancing subject to thenotice of lis pendens being cancelled upon completion of the settlement payment (as per the court's August 14, 2012 Order), plaintiff has represented to the court that it would not withdraw the Astoria action, despite the fact that plaintiff understood that in exchange for the settlement amount of $750,000 he would not only be giving up his claims in this litigation but his right to pursue the Astoria action.^[FN1] Plaintiff's stated justification is that the court was without authority to extend defendant's previous deadline, and therefore, the period during which it is plaintiff's right to exercise his option to purchase the property has already been triggered, making a refinancing under the terms just articulated, even more unlikely.

By the same token, it must also be recognized that, even if the court were to find in favor of plaintiff, defendant can likewise be expected to refuse to cooperate in any closing plaintiff tries to arrange for his purchase of the property.

The court realizes that in trying to preserve the rights of each side, i.e., providing defendant with an opportunity to perform under the settlement agreement and allowing plaintiff to maintain the Astoria action in the intervening time, it has fashioned a remedy that has allowed an impasse to occur. Plaintiff won't remove the lis pendens and dismiss the Astoria action until it is paid the balance of the settlement amount and defendant can't obtain a refinancing without the removal of these impediments. In addition, plaintiff believes his right to exercise his option to purchase under the Settlement Agreement was triggered when defendant failed to make the $700,000 payment by the originally designated deadline, and consequently, he cannot be compelled to give up the Astoria action. Nor does the court have any illusion that defendant would fully cooperate with plaintiff's exercise of his rights under the Settlement Agreement if a ruling in favor of plaintiff were to issue from this court. To break this stalemate, the 120 day extension provided in the November 28, 2012 Decision and Order for defendant to complete the settlement payment will not begin to run until the earlier of such time that: (i) the parties complete their appeals of the orders of this court (which, if that is their intent, the parties are ordered to pursue expeditiously), and an appellate decision is issued that resolves the question of whether defendant's time to exercise his option has expired; or (ii) plaintiff, without the court's intervention, dismisses the Astoria action and cancels the lis pendens.

With respect to the second branch of defendant's application, in which defendant requests [*6]an order authorizing him to seek Chapter 11 bankruptcy protection on behalf of 513, the court will neither prevent nor authorize defendant from pursuing such action.

Dated: April 22, 2012

ENTER:

_______________________

J.S.C.