| City of New York v Kraus |
| 2013 NY Slip Op 06540 [110 AD3d 755] |
| October 9, 2013 |
| Appellate Division, Second Department |
| City of New York, Appellant, v Valerie Kraus, asTrustee under the Trust Agreement Made by 236-1 Development Associates, L.P. (Buff),et al., Respondents, et al., Defendants. |
—[*1] Mintz & Gold LLP, New York, N.Y. (Howard Miller, Steven G. Mintz, Scott A.Klein, and Mark S. Pomerantz of counsel), for respondents.
In an action to foreclose a mortgage and real property tax liens, the plaintiff appeals,as limited by its brief, from so much of an order of the Supreme Court, Kings County(Baynes, J.), dated November 17, 2011, as denied those branches of its motion whichwere for summary judgment on the amended complaint and pursuant to CPLR 3211 todismiss the counterclaims of the defendant Stephen Kraus, as trustee under the trustagreement made by 236-1 Development Associates, L.P. (Buff).
Ordered that the order is modified, on the law, by deleting the provision thereofdenying that branch of the plaintiff's motion which was pursuant to CPLR 3211 todismiss the third counterclaim of the defendant Stephen Kraus, as trustee under the trustagreement made by 236-1 Development Associates, L.P. (Buff), and substituting therefora provision granting that branch of the motion; as so modified, the order is affirmedinsofar as appealed from, with costs to the respondents.
The property that is the subject of this action is operated as a low-income housingproject. According to the pleadings, the property is owned in fee simple by the defendantStephen Kraus, as trustee under the trust agreement made by 236-1 DevelopmentAssociates, L.P. (Buff) (hereinafter Stephen Kraus), and the defendant DevelopmentAssociates (Buff) is a contract vendee with respect to the property. In 1969 and 1970, theplaintiff, the City of New York, made loans secured by mortgages on the property tofinance the rehabilitation of the buildings in the project. In 1980, all of the notes andmortgages relating to the project were consolidated into a single consolidated mortgage,which was to come due on May 31, 2000. The maturity date was extended pursuant to aseries of letter agreements that were executed between 2000 and 2003.
In 2009, the City commenced this action to foreclose on the mortgage and realproperty tax liens. In their joint answer, Stephen Kraus and Development Associates(Buff) (hereinafter together the Buff defendants) alleged that the City had failed toapprove any rent increases during the period from 1991 to 2003, which caused them toowe approximately $30 million [*2]in New York Cityreal property taxes, including interest and penalties. The Buff defendants further allegedthat when the City finally allowed a rent increase in 2003, the City conditioned theincrease on their agreement to use the proceeds to pay down arrears on the mortgageinstead of arrears owed on real property taxes, causing further interest to accrue on thereal property tax debt at a rate of 18%. According to the Buff defendants, had the Cityallowed the proceeds of the rent increase to go toward reducing the property tax arrears,they would have been able to refinance the project and use the proceeds from therefinancing to fully pay their tax arrears to the City.
The Supreme Court properly denied that branch of the City's motion which was forsummary judgment on the amended complaint. In opposition to the City's prima facieshowing of entitlement to judgment as a matter of law, the defendants raised a triableissue of fact with respect to their allegation that the City's conduct in conditioning rentincreases on the Buff defendants' agreement to use the proceeds to pay down arrears onthe mortgage instead of arrears owed on real property taxes, causing further interest toaccrue on the real property tax debt at a rate of 18%, constituted bad faith, oppressive,and unconscionable conduct sufficient to relieve the mortgagor's default (see NassauTrust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, 183 [1982];Ferlazzo v Riley, 278 NY 289, 292 [1938]; European Am. Bank vHarper, 163 AD2d 458, 461 [1990]). While the letter agreements executed between2000 and 2003 provided that "[t]here are no defenses, offsets or counterclaims to the"mortgage or to the indebtedness secured thereby, where a waiver of defense clause isembodied within an agreement procured by oppressive and unconscionable conduct, theoppressive and unconscionable conduct which vitiates the agreement also vitiates thewaiver of defense clause contained within it (see President & Directors of ManhattanCo. v Monogram Assoc., Inc., 276 App Div 766, 767 [1949]; see also NassauTrust Co. v Montrose Concrete Prods. Corp., 56 NY2d at 185).
The Supreme Court should have granted that branch of the City's motion which waspursuant to CPLR 3211 to dismiss Stephen Kraus's third counterclaim, which sought torecover damages for breach of contract, since he failed to allege that he complied withthe notice of claim provisions contained in Administrative Code of the City of New York§ 7-201 (see EMDConstr. Corp. v New York City Dept. of Hous. Preserv. & Dev., 70 AD3d 893[2010]; City of New York v 611 W. 152nd St., 273 AD2d 125, 127 [2000];City of New York v Candelario, 223 AD2d 617, 618 [1996]).
The City's remaining contentions are without merit. Dillon, J.P., Angiolillo,Leventhal and Lott, JJ., concur.