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WIFE SHOULD HAVE BEEN ALLOWED TO INTERVENE IN AN ACTION SEEKING THE TURNOVER OF PERSONAL PROPERTY TO ENFORCE A JUDGMENT AGAINST HUSBAND; HER SEPARATE PROPERTY, AS OPPOSED TO MARITAL PROPERTY, COULD NOT BE REACHED BY A JUDGMENT CREDITOR.

The First Department determined the wife in a divorce proceeding, Wendy, should have been allowed to intervene in an action against her husband, Hugh, by plaintiff, Pensmore, seeking the turnover and sale of personal property to enforce a money judgment. Wendy submitted proof supporting her claim that the personal property in her possession was her separate property, not marital property, and therefore could not be reached by the creditor:

As a preliminary matter, we agree with Wendy that because Hugh was not in physical possession of the property which is the subject of the turnover order, the enforcement proceeding should have been brought as a special proceeding pursuant to CPLR 5225(b). Wendy was required to have been named as a party and separately served with the petition, because she is the one in actual possession of the disputed property (CPLR 5225[b] McKinney's Practice Commentary, 5225.5). Although Pensmore did not properly name Wendy, the error could have been cured by permitting Wendy to intervene, so long as the burden of proof remained on the judgment creditor (Pensmore) to establish that the judgment debtor (Hugh) has an interest in the property that is superior to the person in actual possession (Wendy) … .

The trial court was required to hold a hearing to determine whether the personal property in Wendy's possession is her sole separate property or marital property. * * *

While … an inchoate right to equitably share in marital property cannot be protected against third party creditors of a debtor spouse … , the same rule does not hold true for separate property of the non-debtor spouse. Domestic Relations Law § 236[B] provides that “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held” is marital property (Domestic Relations Law § 236 [B][1][c]…). There is an exception, however, for “property acquired before marriage or property acquired by bequest, devise, or descent, or gift from a party other than the spouse;” such property is the separate property of that spouse (DRL § 236 [B][1][d]…). Separate property, is not “marital property” and it is not equitably distributed in a divorce action … . Although neither spouse has a vested interest in any property that is otherwise marital until it is distributed in a divorce action, separate property, unless transmuted or commingled, retains its character as the property of the spouse who owns it both during and after the marriage … . Pensmore Invs., LLC v Gruppo, Levey & Co., 2016 NY Slip Op 01789, 1st Dept 3-15-16

FAMILY LAW (SEPARATE PROPERTY OF A NON-DEBTOR SPOUSE, AS OPPOSED TO MARITAL PROPERTY, CAN NOT BE REACHED BY A JUDGMENT CREDITOR)/PERSONAL PROPERTY (SEPARATE PROPERTY OF A NON-DEBTOR SPOUSE, AS OPPOSED TO MARITAL PROPERTY, CAN NOT BE REACHED BY A JUDGMENT CREDITOR)/DEBTOR-CREDITOR (SEPARATE PROPERTY OF A NON-DEBTOR SPOUSE, AS OPPOSED TO MARITAL PROPERTY, CAN NOT BE REACHED BY A JUDGMENT CREDITOR)/CIVIL PROCEDURE (NON-DEBTOR SPOUSE SHOULD HAVE BEEN ALLOWED TO INTERVENE IN ACTION TO ENFORCE JUDGMENT AGAINST DEBTOR-HUSBAND)/INTERVENE, MOTION TO (NON-DEBTOR SPOUSE SHOULD HAVE BEEN ALLOWED TO INTERVENE IN ACTION TO ENFORCE JUDGMENT AGAINST DEBTOR-HUSBAND)

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HOLDER OF SECOND MORTGAGE COULD PROPERLY SUE ONLY ON THE UNDERLYING DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS.

The Second Department determined plaintiff bank, the holder of a second mortgage on defendant’s residence to secure an equity loan, could sue to recover on the underlying debt, without bringing foreclosure proceedings. Because defendant’s ownership and possession of his residence was not at risk in the lawsuit, the protections afforded a homeowner by the foreclosure procedure were not applicable:

 

Where a creditor holds both a debt instrument and a mortgage which is given to secure the debt, the creditor may elect either to sue at law to recover on the debt, or to sue in equity to foreclose on the mortgage (… see generally RPAPL 1301). Here, contrary to the Supreme Court’s determination, the clear and unequivocal language of the parties’ agreement did not limit the plaintiff’s options to recover in the event of a default, and did not require that the plaintiff commence only a foreclosure action … . …

Accordingly, the plaintiff was free to commence the instant action to recover damages, and the protections afforded to homeowners under the foreclosure laws are inapplicable to this action, since the defendant’s ownership and possession of his residence are not at risk in this lawsuit. Wells Fargo Bank, N.A. v Goans, 2016 NY Slip Op 00710, 2nd Dept 2-3-16

 

MORTGAGES (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/FORECLOSURE (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/HOME EQUITY LOAN (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)/DEBTOR-CREDITOR (SECOND MORTGAGE TO SECURE HOME EQUITY LOAN, BANK CAN SUE ON DEBT WITHOUT BRINGING FORECLOSURE PROCEEDINGS)

NOTE WITH 12% INTEREST RATE FOR LESS THAN A YEAR WAS USURIOUS.

The First Department determined a note was void as usurious.  Although the face of the note indicated the interest rate was 12%, the duration of the note was less than a year.  The actual interest was a usurious 36%:

It is true that the stated rate on the four-month note is 12%. However, it does not say 12% per annum. Where, as here, the loan is for less than a year, the interest rate is annualized … , and thus, the annual rate on the note is 36%, well above the criminal usury rate of 25%. It is also true that the note says, “in no event shall the rate of interest payable hereunder exceed the maximum interest permitted to be charged by applicable law and any interest paid in excess of the permitted rate shall be credited to principal and any balance refunded to” defendant. However, that does not make the subject note nonusurious … . Furthermore, even if defendant drafted the note, that “does not relieve the lender from a defense of usury” … . Bakhash v Winston, 2015 NY Slip Op 08966, 1st Dept 12-8-15

MONTHLY COMPILATION INDEX ENTRIES FOR THIS CASE:

USURY (EFFECTIVE ANNUAL INTEREST ON NOTE WAS 36%)

Question of Fact Raised About Whether Signature on Promissory Note Was Forged

In this action on a promissory note, the Second Department reversed Supreme Court, finding that defendant raised a triable issue of fact whether his signature was forged. The court noted that expert evidence is not necessary to raise a question of fact in this context:

Something more than a mere assertion of forgery is required to create an issue of fact contesting the authenticity of a signature … . Here, in addition to his own affidavit, the defendant submitted a copy of his driver license as an example of his signature, and an affidavit from the individual who allegedly witnessed execution of the note. Review of the defendant’s signature on his driver license and the signature on the note reveal some difference to the untrained eye. More importantly, the individual who is identified as the witness on the note stated in his affidavit that he had no recollection of witnessing the defendant signing the note, and that he believed that his own signature thereon was forged. Furthermore, while the defendant did not submit an expert affidavit, an expert opinion is not required to raise a triable issue of fact regarding a forgery allegation … . Finally, the defendant’s signature on the note was not notarized, and thus, there is no presumption of due execution … . Kitovas v Megaris, 2015 NY Slip Op 08388,2nd Dept 11-18-15

 

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Plaintiff Judgment-Creditor’s Action Under the Debtor Creditor Law to Recover Payment Made to a Limited Partner Time-Barred by Three-Year Statute of Limitations in the Revised Limited Partnership Act (RPLA)

In a detailed and fact-specified full-fledged opinion by Justice Acosta, in an action under the Debtor and Creditor Law (DCL), the First Department, determined plaintiff, a judgment creditor with an unpaid judgment against a partnership, could not reach a $425,000 payment made by the partnership to a limited partner. The court held the payment was not fraudulent, constituted a partnership distribution, and was subject to the three-year statute of limitations in the Revised Limited Partnership Act (RPLA), not the six-year statute of limitations in the Debtor and Creditor Law (DCL). Therefore, plaintiff’s action seeking the recover the payment was time-barred;

RLPA (Partnership Law) § 121-607 prohibits limited partnerships from making distributions “to a partner to the extent that, at the time of the distribution, after giving effect to the distribution, all liabilities of the limited partnership. . . exceed the fair market value of the assets of the limited partnership” (Partnership Law § 121-607[a]) … . A limited partner who knowingly receives a prohibited distribution is liable to the partnership in the amount of the distribution (§ 121-607[b]). However, “a limited partner who receives a wrongful distribution . . . shall have no liability under this article or other applicable law for the amount of the distribution after the expiration of three years from the date of the distribution” (§ 121-607[c]). … [T]he Limited Liability Company Law (LLCL) contains a similar limitation on distributions to members (LLCL §§ 102[i], 508[a]). Peckar & Abramson, P.C. v Lyford Holdings, Ltd., 2015 NY Slip Op 08363, 1st Dept 11-17-15

 

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Transfer of Assets to Qualify for Medicaid Constituted a Breach of the Defendants’ Contract with Plaintiff Continuing Care Retirement Community

The Third Department, in a full-fledged opinion by Justice Lynch, determined the defendants’ (the Yezzis’) transfer of funds in order to qualify for Medicaid constituted a breach of the contract with the plaintiff (GSV), a continuing care retirement community (CCRC), as well as a fraudulent transfer under the Debtor-Creditor Law:

… [T]he essence of the CCRC financial model requires a tradeoff between the resident and the facility, in which the resident must disclose and spend his or her assets for the services provided, while the facility must continue to provide those services for the duration of the resident’s lifetime even after private funds are exhausted and Medicaid becomes the only source of payment. With this long-term commitment, the facility necessarily must evaluate the financial feasibility of accepting a resident in the first instance.

Pertinent here, the contract provided that the Yezzis could “not transfer assets represented as available in [their] application to be a [r]esident of [GSV] for less than fair market value, unless the transfer [would] not impair [their] ability to pay [their] financial obligations to [GSV].” The contract further required the Yezzis to “make every reasonable effort to meet [their] financial obligations” to GSV and prohibited them from making “any transfers or gifts after actual occupancy, which would substantially impair [their] ability or the ability of [their] estate to satisfy [their] financial obligations to [GSV].” Further, the contract specifies that the financial information disclosed with their application was “a material part of this [contract], . . . [that was] incorporated as a part of this [contract].” Although, as defendants correctly contend, the contract does not affirmatively state that the Yezzis must expend the private resources identified with their application, it does expressly preclude the transfer of such resources without fair consideration.

Given the long-term nature of the contract, which expressly embraced the prospect of nursing facility care, we agree with Supreme Court that the admission agreement is supplemental to, and does not supercede, the contract. We recognize that, under the admission agreement, the Yezzis were required to “pay for, or arrange to have paid for by Medicaid, . . . all services provided by [GSV]” (emphasis added). We are not, however, persuaded by defendants’ interpretation that this disjunctive provision required plaintiff to accept Medicaid as an alternative payment source. Construed together, the contract and admission agreement are actually compatible in that the CCRC financial model anticipates that, upon depletion of a resident’s personal resources, Medicaid will be the ultimate source of payment — and plaintiff is contractually obligated to accept Medicaid while continuing to provide the same services. Consistently, addendum X to the admission agreement specifies that, “[i]t is the responsibility of residents, and those who assist them, to use the residents’ assets and income to pay the costs associated with their residency and health care.” Good Shepherd Vil. at Endwell, Inc. v Yezzi, 2015 NY Slip Op 08031, 3rd Dept 11-5-15

 

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Pleading Requirements for “Goods Sold and Delivered” Cause of Action Succinctly Explained

In affirming Supreme Court’s grant of summary judgment to plaintiff on its “goods sold and delivered” cause of action, the Fourth Department explained the pleading requirements:

… [P]laintiff’s complaint, with its attached invoices, satisfied the pleading requirements of CPLR 3016 (f) … . The invoices provided the requisite degree of specificity inasmuch as they permitted defendant ” to respond in a meaningful way on an item-by-item basis’ ” … . Each invoice set forth the date of the order, the specific items ordered and delivered, the quantity ordered and delivered, as well as the price per unit and the total price for the quantity ordered … . Defendant was thus required to indicate specifically in its verified answer “those items [it] dispute[d] and whether in respect of delivery or performance, reasonable value or agreed price” (CPLR 3016 [f]). Defendant failed to do so and, therefore, Supreme Court properly granted that part of plaintiff’s motion on the cause of action for goods sold and delivered … . Erie Materials, Inc. v Central City Roofing Co., Inc., 2015 NY Slip Op 07137, 4th Dept 10-2-15

 

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Fees Owed by Seller to “Financial Advisor” Hired by Seller to Facilitate the Sale Were Excluded from the Asset Purchase Agreement (APA)—Doctrine of “De Facto Merger” Did Not Apply in Absence of “Continuity of Ownership”

The First Department, in a full-fledged opinion by Justice Friedman, over a full-fledged dissenting opinion by Justice Manzanet-Daniels, determined that the buyer of a business (TBA Buyer) did not assume the seller’s (TBA Seller’s) obligation to pay a financial advisor (Fidus) hired by TBA Seller to find a buyer and facilitate a sale. The opinion focused on the precise language of the asset purchase agreement (APA) and held that any monies owed by TBA Seller to Fidus were excluded, by the terms of the APA, from the assets and liabilities TBA Buyer purchased. Much of the opinion addresses the arguments made by the dissent. With respect to the dissent’s argument that TBA Buyer assumed TBA Seller’s obligation to pay Fidus under the “de facto merger” doctrine, the majority wrote:

While the general rule is that, absent a merger or consolidation, an entity purchasing the assets of another entity does not thereby acquire liabilities of the seller not expressly transferred in the sale …, a purchase-of-assets transaction may be deemed to constitute a de facto merger between seller and buyer, even if not formally structured as such, under certain conditions … . We have recognized, however, that “the essence of a merger” … is the element of continuity of ownership, which

“exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor’s purchase of the predecessor’s assets, as occurs in a stock-for-assets transaction. Stated otherwise, continuity of ownership describes a situation where the parties to the transaction become owners together of what formerly belonged to each'” … . * * *

… [U]nder New York law, continuity of ownership is “the touchstone of the [de facto merger] concept” and “thus a necessary predicate to a finding of de facto merger” … . The purpose of requiring continuity of ownership is “to identify situations where the shareholders of a seller corporation retain some ownership interest in their assets after cleansing those assets of liability” … . Stated otherwise, “[t]he fact that the seller’s owners retain their interest in the supposedly sold assets (through their ownership interest in the purchaser) is the substance’ which makes the transaction inequitable” … . By contrast, where a “buyer pays a bona fide, arms-length price for the assets, there is no unfairness to creditors in . . . limiting recovery to the proceeds of the sale — cash or other consideration roughly equal to the value of the purchased assets would take the place of the purchased assets as a resource for satisfying the seller’s debts” … . Thus, “allowing creditors to collect against the purchasers of insolvent debtors’ assets would give the creditors a windfall by increasing the funds available compared to what would have been available if no sale had taken place” … .

In this case, there is no continuity of ownership between TBA Seller and TBA Buyer because, as the record establishes (and Fidus does not dispute), none of TBA Seller’s owners acquired a direct or indirect interest in TBA Buyer (and thus in the transferred assets) as a result of the asset purchase transaction … .  Matter of TBA Global, LLC v Fidus Partners, LLC, 2015 NY Slip Op 06698, 1st Dept 9-1-15

 

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Purported Deed Was Actually an Usurious Mortgage—All Related Transfers and Encumbrances Void

The Second Department determined a deed purporting to transfer property was actually an usurious mortgage and therefore void.  All further attempted transfers of the property were therefore a nullity.  The deed was provided in return for a $200,000 loan requiring repayment of $220,000 in 90 days. The transaction was therefore an illegal mortgage with a 40% annual interest rate:

Real Property Law § 320 provides, in pertinent part, that a “deed conveying real property, which, by any other written instrument, appears to be intended only as a security in the nature of a mortgage, although an absolute conveyance in terms, must be considered a mortgage” (Real Property Law § 320…). In determining whether a deed was intended as security, ” examination may be made not only of the deed and a written agreement executed at the same time, but also [of] oral testimony bearing on the intent of the parties and to a consideration [of] the surrounding circumstances and acts of the parties'” … . Thus, ” a court of equity will treat a deed, absolute in form, as a mortgage, when it is executed as a security for a loan of money. That court looks beyond the terms of the instrument to the real transaction; and when that is shown to be one of security, and not of sale, it will give effect to the actual contract of the parties'”… .  * * *

Real Property Law § 245 provides that a “greater estate or interest does not pass by any grant or conveyance, than the grantor possessed or could lawfully convey, at the time of the delivery of the deed.” Thus, “conveyances of land to which the grantors had no title convey no interest to the grantees” … . Likewise, “[i]f a document purportedly conveying a property interest is void, it conveys nothing, and a subsequent bona fide purchaser or bona fide encumbrancer for value receives nothing”… . Bouffard v Befese LLC, 2013 NY Slip Op 07925, 2nd Dept 11-27-13

 

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County Clerk Not Authorized to Enter Judgment Where the Underlying Stipulation Required Notice Prior to Entry and Extrinsic Evidence Was Required to Calculate the Amount

The Second Department vacated a clerk’s judgment which had been entered based upon defendant’s alleged violation of a stipulation requiring monthly installments to pay off a judgment. The stipulation allowed the entry of judgment only “upon ten (10) days notice” and extrinsic evidence was necessary to calculate the amount of the judgment:

… [T]he … County Clerk did not have authority to enter a clerk’s judgment against Wielgus pursuant to CPLR 3215(i)(1). This statute states, in relevant part, that “[w]here . . . a stipulation of settlement is made, providing, in the event of failure to comply with the stipulation, for entry without further notice of a judgment in a specified amount, . . . the clerk shall enter judgment on the stipulation and an affidavit as to the failure to comply with the terms thereof, together with a complaint or a concise statement of the facts on which the claim was based” (CPLR 3215[i][1] [emphasis added]). Although the stipulation provided that [plaintiff bank] could enter a money judgment against [defendant] in the event of a default, it permitted entry of such a judgment only “upon ten (10) days notice” to [defendant]. Thus, the stipulation was not one which provided for entry of a judgment upon default “without further notice.” Moreover, the stipulation did not provide for entry of a judgment “in a specified amount.” Rather, it provided that the judgment to be entered upon [defendant’s] default would be calculated so as to “credit [defendant] for all payments made on account.” The stipulation thus did not specify the exact principal sum of the judgment that [plaintiff bank] would have the right to enter based on a default … under the stipulation; rather, it provided for a formula that required reference to extrinsic proof … .

Furthermore, as a general rule, a clerk’s judgment should not be entered where, as here, the amount of the judgment can be determined only by reference to extrinsic proof … . Generally, a judgment should be entered on application to the clerk only where “there can be no dispute as to the amount due”… . Under these circumstances, HSBC was required to apply to the court, rather than to the clerk, for an order enforcing the stipulation and granting leave to enter an appropriate judgment … . HSBC Bank USA, N.A. v Wielgus, 2015 NY Slip Op 06494, 2nd Dept 8-12-15