| Washington Mut. Bank, FA v Peak Health Club, Inc. |
| 2008 NY Slip Op 01745 [48 AD3d 793] |
| February 26, 2008 |
| Appellate Division, Second Department |
| Washington Mutual Bank, FA,Appellant-Respondent, v Peak Health Club, Inc., et al., Respondents-Appellants, MerrillLynch Business Financial Services, Inc., et al., Defendants-Respondents, et al., Defendants.(Action No. 1.) Merrill Lynch Business Financial Services, Inc., Respondent, v Peak HealthClub, Inc., et al., Respondents-Appellants, Washington Mutual Bank, FA, Defendant andThird-Party Plaintiff-Appellant-Respondent, et al., Defendants. A & N Planning Services, Inc.,Third-Party Defendant-Respondent, et al., Third-Party Defendants. (Action No.2.) |
—[*1] Meyer, Suozzi, English & Klein, P.C., Mineola, N.Y. (Jeffrey G. Stark of counsel), for [*2]respondents-appellants. Thomas G. Sherwood, Garden City, LLC, for defendant-respondent in Action No. 1 andplaintiff-respondent in Action No. 2, Merrill Lynch Business Financial Services, Inc. Rafferty & Redlisky, Purchase, N.Y. (Robert G. Rafferty of counsel), fordefendant-respondent in Action No. 1 and third-party defendant-respondent in Action No. 2, A &N Planning Service, Inc.
In two related actions, inter alia, to foreclose mortgages, Washington Mutual Bank, FA,appeals (1) from a decision of the Supreme Court, Nassau County (Warshawsky, J.), dated June13, 2005, (2) from an order of the same court dated June 13, 2005, which granted the motion ofA & N Planning Services, Inc., for summary judgment dismissing the complaint in action No. 1and the third-party complaint insofar as asserted against it in action No. 2, and denied its crossmotion for summary judgment declaring that its mortgage is superior in priority to the mortgageheld by A & N Planning Services, Inc., and (3), as limited by its brief, from so much of an orderof the same court dated June 30, 2005, as, upon the decision, granted that branch of the motion ofMerrill Lynch Business Financial Services, Inc., which was for summary judgment on its causeof action to foreclose its mortgage, and denied its motion for summary judgment declaring thatits mortgage is superior in priority to the mortgage held by Merrill Lynch Business FinancialServices Inc.; and Peak Health Club, Inc., East Coast Athletic Club, Inc., and Arnold Marshelcross-appeal, as limited by their brief, from so much of the same order as granted that branch ofthe motion of Merrill Lynch Business Financial Services, Inc., which was for summary judgmenton its cause of action to foreclose its mortgage, and denied their motion for summary judgmentdeclaring that the mortgage held by Washington Mutual Bank, FA, is superior in priority to themortgage held by Merrill Lynch Business Financial Services, Inc., and Arnold Marshel appeals,as limited by his brief, (1) from so much of an order of the same court dated December 9, 2005,as granted that branch of the motion of Washington Mutual Bank, FA, which was for summaryjudgment on the issue of liability on its causes of action against him to recover under apromissory note and guaranty, and (2) from so much of a money judgment of the same courtentered March 29, 2006, as, upon the order dated December 9, 2005, is in favor of WashingtonMutual Bank, FA, and against him in the principal sum of $3,750,142.45. The notice of appealby Arnold Marshel from the order dated December 9, 2005, is deemed to also be a notice ofappeal from the money judgment dated March 29, 2006 (see CPLR 5501 [c]).
Ordered that the notice of appeal of Peak Health Club, Inc., East Coast Athletic Club, Inc.,and Arnold Marshel from the decision is deemed to be a premature notice of appeal from theorder dated June 30, 2005 (see CPLR 5520 [c]); and it is further,
Ordered that the appeal by Washington Mutual Bank, FA, from the decision is dismissed, asno appeal lies from a decision (see Schicchi v J.A. Green Constr. Corp., 100 AD2d 509,509-510 [1984]); and it is further,
Ordered that the appeal by Washington Mutual Bank, FA, from so much of the order datedJune 13, 2005, as granted that branch of the motion of A & N Planning Services, Inc., [*3]which was for summary judgment dismissing the third-partycomplaint insofar as asserted against it in action No. 2 is dismissed; and it is further,
Ordered that the order dated June 13, 2005 is affirmed insofar as reviewed; and it is further,
Ordered that the appeals from the orders dated June 30, 2005 and December 9, 2005 aredismissed; and it is further,
Ordered that the money judgment is affirmed insofar as appealed from; and it is further,
Ordered that one bill of costs is awarded to A & N Planning Services, Inc., payable byWashington Mutual Bank, FA, one bill of costs is awarded to Merrill Lynch Business FinancialServices, Inc., payable by Washington Mutual Bank, FA, Peak Health Club, Inc., East CoastAthletic Club, Inc., and Arnold Marshel, and one bill of costs is awarded to Washington MutualBank, FA, payable by Arnold Marshel.
The appeal by Washington Mutual Bank, FA, from so much of the order dated June 13, 2005as granted that branch of the motion of A & N Planning Services, Inc., which was for summaryjudgment dismissing the third-party complaint insofar as asserted against it in action No. 2, andthe appeal and cross appeal from the order dated June 30, 2005, must be dismissed, because theright of direct appeal and cross appeal therefrom terminated with the entry of an order andjudgment of foreclosure and sale entered August 7, 2006 (see Matter of Aho, 39 NY2d241, 248 [1976]). The issues raised on those appeals and cross appeal are brought up for reviewand have been considered on the appeal and cross appeal from that order and judgment offoreclosure and sale (see Merrill Lynch Bus. Fin. Servs., Inc. v Peak Health Club, Inc., 48AD3d 763 [2008] [decided herewith]).
The appeal from so much of the order dated December 9, 2005 as granted that branch of themotion of Washington Mutual Bank, FA, which was for summary judgment on the issue ofliability on its causes of action against Arnold Marshel to recover under a promissory note andguaranty must be dismissed because the right of direct appeal therefrom terminated with the entryof the money judgment (see Matter of Aho, 39 NY2d 241, 248 [1976]). The issues raisedon the appeal from that provision of the order are brought up for review and have beenconsidered on the appeal from the money judgment (see CPLR 5501 [a] [1]).
The instant appeals raise, among other issues, the priority of mortgages held by two differentmortgagees on the same parcel of land (hereinafter the premises). One of those mortgages is heldby Washington Mutual Bank, FA (hereinafter WaMu). The other is held by Merrill LynchBusiness Financial Services, Inc. (hereinafter Merrill Lynch).
In 1998 East Coast Athletic Club, Inc. (hereinafter East Coast), operated a health club thatwas located on premises owned by Peak Health Club, Inc. (hereinafter Peak). Arnold Marshelowned East Coast and Peak.
By note dated July 14, 1998, East Coast borrowed the sum of $3,250,000 from Dime SavingsBank of New York, FSB (hereinafter Dime), which bank would later merge with, and be [*4]succeeded by, WaMu. In order to obtain the loan, Peak had toconvey the premises to East Coast, and Peak did so.
To secure the loan, East Coast also granted Dime a mortgage on the premises. The "mortgageand security agreement" required Marshel to record the mortgage and Peak's deed to East Coast,and provided that if he did not do so, this would constitute an "event of default." The agreementalso prohibited Marshel from conveying or mortgaging the premises without first obtainingDime's consent, and provided that if he conveyed or mortgaged the premises without firstobtaining Dime's consent, this would also constitute an event of default. If any event of defaultoccurred, Dime would have the option of accelerating payment of all principal and interest dueunder the note, or foreclosing its mortgage.
Marshel executed the note as "principal of Maker," and executed the mortgage and securityagreement as "Principal of Mortgagor." In this regard, an "exculpation provision" in the mortgageand security agreement provided that "Mortgagor and any Principal of Mortgagor shall in anyevent be and shall remain personally liable for each of the matters" that would constitute eventsof default.
On May 17, 2001 Marshel sold his interest in Peak and East Coast to Paragon Resorts, Inc.,which was owned by Dennis Pilotti, Sr. Marshel did not advise WaMu about the sale. Inaddition, he had not recorded the mortgage held by WaMu, or Peak's deed to East Coast.
By note dated April 16, 2002, Peak borrowed the sum of $309,000 from A & N PlanningServices, Inc. (hereinafter A & N). To secure the loan, Peak granted A & N a mortgage on thepremises, which was recorded.
By note dated September 13, 2002, Peak borrowed the sum of $5,125,000 from MerrillLynch, and used part of the loan proceeds to pay off A & N's loan. To secure the loan, Peakgranted Merrill Lynch a mortgage on the premises, which was recorded.
Subsequently, WaMu was apprised of A & N's and Merrill Lynch's mortgages. WaMu thenrecorded its mortgage, and commenced a mortgage foreclosure action (action No. 1), in which itsought a determination that its mortgage was superior in priority to the other mortgages, toforeclose its mortgage, and to hold Marshel personally liable for the outstanding indebtednessunder its loan. In response, Merrill Lynch commenced its own mortgage foreclosure action(action No. 2), seeking a determination that its mortgage was superior in priority to WaMu'smortgage, and to foreclose its mortgage.
Lengthy motion practice ensued, during which the parties moved for summary judgment ontheir respective claims. In various papers appealed from, the Supreme Court determined, amongother things, that WaMu's mortgage was subordinate to the mortgages held by A & N and MerrillLynch, respectively. The court also determined that Marshel was personally liable to WaMu forthe outstanding indebtedness under its note. These appeals ensued, and we uphold the SupremeCourt's determinations.
On their respective motions for summary judgment, A & N and Merrill Lynch demonstratedtheir entitlement to judgment as a matter of law (see Alvarez v Prospect Hosp., 68 [*5]NY2d 320, 324 [1986]), by establishing that their mortgages werevalid, and moreover, superior in priority to WaMu's mortgage. Under New York's Recording Act(Real Property Law § 291), a mortgage loses its priority to a subsequent mortgage wherethe subsequent mortgagee is a good-faith lender for value, and records its mortgage first withoutactual or constructive knowledge of the prior mortgage (see Household Fin. Realty Corp. ofN.Y. v Emanuel, 2 AD3d 192 [2003]). Here, A & N and Merrill Lynch provided evidenceestablishing that they gave valuable consideration for their recorded mortgages, and that they didnot have actual knowledge of WaMu's unrecorded mortgage, or knowledge of facts that wouldhave put them on "inquiry notice" of that mortgage (see Real Property Law § 291;cf. Fleet Mtge. Corp. v Nieves, 272 AD2d 435 [2000]; see also Fidelity & DepositCo. of Md. v Queens County Trust Co., 226 NY 225, 232-233 [1919]). Indeed, A & N andMerrill Lynch showed, among other things, that in making their loans to Peak, and acquiringtheir mortgages on the premises, they each obtained title searches that indicated that Peak ownedthe premises, and contained no indication that the premises were encumbered by WaMu'smortgage. A & N and Merrill Lynch also showed that they obtained a "shareholders' consent" tothe transactions from certain people who represented that they constituted all of Peak'sshareholders. Finally, Merrill Lynch showed that it requested and received certain financialstatements and income tax returns, which contained nothing that might have alerted it to theexistence of WaMu's mortgage. Since, in response, WaMu and Marshel failed to raise a triableissue of fact, the Supreme Court correctly granted A & N's and Merrill Lynch's motions forsummary judgment (see Alvarez v Prospect Hosp., 68 NY2d at 324).
On its motion for summary judgment on the issue of liability on its causes of action seekingto hold Marshel liable for the outstanding indebtedness under its note, WaMu demonstrated itsentitlement to judgment as a matter of law (see Alvarez v Prospect Hosp., 68 NY2d at324), by establishing that there had been an "event of default," and that Marshal could be heldpersonally liable for the amounts due under the note (see Famolaro v Crest Offset, Inc.,24 AD3d 604, 604-605 [2005]). Since, in response, Marshel failed to raise "a triable issue of factwith respect to a bona fide defense" (Famolaro v Crest Offset, Inc., 24 AD3d at 605), theSupreme Court correctly granted WaMu's motion.
The parties' remaining contentions are without merit. Ritter, J.P., Miller, Covello andMcCarthy, JJ., concur.