The Court of Appeals ended the 2014-15 Term with a flurry of decisions relating to standing to sue in a mortgage foreclosure proceeding and with respect to the prosecution of a common law claim of fraud; the reasonableness of a claim of justifiable reliance, at the pleading stage, in an action for fraud in connection with a synthetic collateralized debt obligation; whether a proceeding to set aside a forged deed was barred by the statute of limitations; whether the statute of frauds barred enforcement of an oral agreement to provide financial advisory services; the proof required to obtain a deficiency judgment in a mortgage foreclosure proceeding; whether an absolute and unconditional guarantee could be avoided on the ground of collusion; whether applying Florida law to the non-solicitation provision of a restrictive covenant violated New York public policy; and whether parcels of municipal land were impliedly dedicated as parkland.
Did a mortgage service provider have standing to commence a foreclosure proceeding, as assignee, of a mortgage secured by a note? Answer: yes.
Aurora Loan Servs., LLC v. Taylor, 2015 NY Slip Op 04872 (decided on June 11, 2015), arose out of the following facts:
Defendant Monique Taylor executed and delivered an adjustable rate note dated July 5, 2006 to First National Bank of Arizona, wherein she agreed to repay the bank $600,000.00, with interest. To secure the payment, Monique and Leonard Taylor (the Taylors) executed a mortgage with the bank, granting Mortgage Electronic Recording Systems, Inc. (MERS), as nominee, a mortgage lien on the property located in Fleetwood, New York. The note, however, was not transferred to MERS with the mortgage.
Subsequent to the note’s execution, pursuant to a March 2006 pooling and servicing agreement (PSA), the loan was made part of a residential mortgage-backed securitization trust. Deutsche Bank Trust Company Americas (Deutsche), as trustee, became the owner of the note through an allonge indorsing the note to Deutsche, as required under the PSA. The allonge shows the chain of ownership of the note through indorsements from First National Bank of Arizona, to First National Bank of Nevada, to Residential Funding Company, LLC, to Deutsche.
On April 1, 2008, Aurora assumed servicer obligations under the PSA pursuant to a March 10, 2008 master servicing assignment and assumption agreement (MSAAA). The mortgage was subsequently assigned by MERS to Aurora on August 13, 2009, and recorded with the County Clerk on October 29, 2009.
Thereafter, the Taylors defaulted under the note and mortgage by failing to make the payment due on January 1, 2010, and each month thereafter. The Taylors have never disputed their obligation to make the payments or their default. Multiple notices of default were mailed to the Taylors through May of 2010.
On May 14, 2010, Deutsche, by limited power of attorney, granted Aurora the right to perform certain acts in the trustee’s name, including the execution of documents related to loan modification and foreclosure.
The proceedings in Supreme Court:
The Taylors filed a motion for summary judgment, asserting that Aurora did not have standing to bring this foreclosure action. Aurora cross-moved for summary judgment. In support of its cross motion, Aurora submitted the affidavit of Sara Holland (Holland Affidavit), Aurora’s legal liaison, who stated that based on her “personal knowledge” of the facts as well as her “review of the note, mortgage and other loan documents” and “related business records…kept in the ordinary course of the regularly conducted business activity,” the “original Note has been in the custody of Plaintiff Aurora Loan Services, LLC and in its present condition since May 20, 2010.” Holland also stated that, “prior to the commencement of the action, Aurora Loan Services, LLC, has been in exclusive possession of the original note and allonge affixed thereto, indorsed to Deutsche Bank Trust Company Americas as Trustee, and has not transferred same to any other person or entity.” A copy of the note and allonge were attached to the affidavit.
Supreme Court denied the Taylors’ motion for summary judgment, granted Aurora’s cross motion for summary judgment, and appointed a referee to determine the amount due under the note.
And before the Appellate Division:
The Appellate Division affirmed the first order, concluding that Aurora had proven its standing as a matter of law. The Court concluded that, under New York law, the Holland Affidavit demonstrated that Aurora had obtained physical possession of the original note prior to commencement of this foreclosure action, and that such was legally sufficient to establish standing. The Court specifically noted that the Taylors “offered no evidence to contradict those factual averments and, therefore, failed to raise a triable issue of fact with respect to [Aurora’s] standing”…One Justice dissented, arguing that the Holland Affidavit was insufficient to confer standing on Aurora because it did not give sufficient “factual details” regarding the physical delivery of the note to Aurora[.]
The Court described the matter before it:
The critical issue we must resolve is whether the record demonstrates a basis for finding that Aurora had standing to commence this mortgage foreclosure action. The physical delivery of the note to the plaintiff from its owner prior to commencement of a foreclosure action may, in certain circumstances, be sufficient to transfer the mortgage obligation and create standing to foreclose[.]
And applied the law to the facts:
Applying these principles of New York law, Aurora was vested with standing to foreclose. The evidence established that, as of 2006, Deutsche, as trustee under the PSA, became the lawful owner of the note. The Holland Affidavit establishes that Aurora came into possession of the note on May 20, 2010, prior to the May 24, 2010 commencement of the foreclosure action. From these specific statements, together with proof of Aurora’s authority pursuant to the MSAAA and the limited power of attorney, the Appellate Division held, “[i]t can reasonably be inferred…that physical delivery of the note was made to the plaintiff” before the action was commenced[.]
Contrary to the Taylors’ assertions, to have standing, it is not necessary to have possession of the mortgage at the time the action is commenced. This conclusion follows from the fact that the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law. In the current case, the note was transferred to Aurora before the commencement of the foreclosure action — that is what matters.
A transfer in full of the obligation automatically transfers the mortgage as well unless the parties agree that the transferor is to retain the mortgage…The Taylors misconstrue the legal principle that “an entity with a mortgage but no note lack[s] standing to foreclose”…to also mean the opposite — that an entity with a note but no mortgage lacks standing. Once a note is transferred, however, “the mortgage passes as an incident to the note”.
“[A]ny disparity between the holder of the note and the mortgagee of record does not stand as a bar to a foreclosure action because the mortgage is not the dispositive document of title as to the mortgage loan; the holder of the note is deemed the owner of the underlying mortgage loan with standing to foreclose”…Accordingly, the Taylors’ argument that Aurora lacked standing because it did not possess a valid and enforceable mortgage as of the commencement of this action is simply incorrect. The validity of the August 2009 assignment of the mortgage is irrelevant to Aurora’s standing.
The question that follows this analysis is whether Aurora adequately proved that it did, indeed, have possession of the note prior to commencement of this action. The Taylors argue that to demonstrate possession of the note Aurora had to produce the original mortgage note for examination, and that the Holland Affidavit does not suffice. Additionally, the dissent at the Appellate Division concluded that the affidavit was lacking details regarding Aurora’s possession of the note.
As to production of the original note, there is no indication in the record that the Taylors ever requested such production in discovery or moved Supreme Court to compel such production. Although the Taylors assert that the best evidence rule should require production of the original, they fail to cite any authority holding that such is required in this context. Second, Ms. Holland asserts in her affidavit that she examined the original note herself, and the adjustable rate note attachments submitted with the moving papers clearly show the note’s chain of ownership through Deutsche.
Although the better practice would have been for Aurora to state how it came into possession of the note in its affidavit in order to clarify the situation completely, we conclude that, under the circumstances of this case, the court did not err in granting summary judgment to Aurora.
Did the plaintiff/assignee have the right to bring a common law fraud claim with respect to the purchase of notes where the assignment document did not explicitly assign such a claim? Answer: No.
Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. v. Morgan Stanley & Co., Inc., 2015 NY Slip Op 05591 (decided on June 30, 2015), determined the following question certified by the United States Court of Appeals for the Second Circuit: “whether a reasonable factfinder could conclude that plaintiff Commerzbank AG was assigned the right to bring a common law fraud claim, and therefore had standing to sue various defendants involved in the issuance of rated notes by the Cheyne structured investment vehicle”.
The Court described the relevant facts as follows:
The notes in question were originally purchased by Allianz Dresdner Daily Asset Fund (DAF), subsequently sold to a branch of Dresdner Bank AG in 2007, and ultimately acquired by Commerzbank through its merger with Dresdner in 2009[.]
[A]s particularly relevant here, defendants Morgan Stanley & Co., Incorporated and Morgan Stanley & Co. International Limited (collectively, Morgan Stanley) arranged and placed notes for the Cheyne SIV, which was launched in 2005. To attract investors, defendants Standard & Poor’s Ratings Services and the McGraw-Hill Companies, Inc. (collectively, S & P) and Moody’s Investors Service, Inc. and Moody’s Investors Service Ltd. (collectively, Moody’s) — nationally recognized statistical rating organizations — were engaged to rate the notes. Between 2005 and 2007, the Cheyne SIV issued several classes of notes on a rolling basis. These notes received top credit ratings from Moody’s and S & P, which ratings were included in documents distributed to potential investors by Morgan Stanley. Investors who purchased the notes purportedly relied on these ratings.
The notes issued by the Cheyne SIV — which included a significant number of subprime residential mortgage-backed securities — were downgraded by S & P and placed on review for downgrade by Moody’s after the SIV breached its “Major Capital Loss Test” in 2007. That breach triggered “an irreversible operating state requiring that a receiver be appointed to manage the SIV in order to sell its assets and repay maturing liabilities.” Allegedly, most, if not all, of the value of the Cheyne SIV notes was eradicated.
Proceedings in the District Court:
In 2009, this action was commenced against Morgan Stanley and the rating agencies in the federal District Court of the Southern District of New York by Abu Dhabi Commercial Bank and other institutional investors that had purchased or acquired Cheyne SIV notes and allegedly suffered damages as a result of the Cheyne SIV’s collapse. Commerzbank — which held Cheyne SIV notes that it had purchased directly, in addition to the notes that had originally been purchased by DAF and subsequently acquired by Commerzbank — eventually joined the action as a named plaintiff. Plaintiffs, including Commerzbank, asserted causes of action sounding in fraud, aiding and abetting fraud, and negligent misrepresentation against Morgan Stanley and the rating agencies… Following discovery, Morgan Stanley and the rating agencies moved for summary judgment dismissing plaintiffs’ fraud claims and questioned, among other things, whether Commerzbank had standing to sue for fraud on the Cheyne SIV notes originally purchased by DAF and whether Morgan Stanley had made any actionable misstatements. Defendants also argued that plaintiffs could not establish justifiable reliance on the ratings. With respect to the reliance element, the District Court limited plaintiffs to a single three-page declaration to demonstrate whether and how they had relied on the ratings when investing in Cheyne SIV notes. In the declaration submitted by plaintiffs, Commerzbank asserted that Dresdner purchased Cheyne SIV notes “at par” from its affiliate, DAF, in October 2007, and that Dresdner was acquired by Commerzbank in January 2009 which, under German law, meant that all of Dresdner’s “assets, liabilities, rights and obligations passed automatically by operation of law to Commerzbank and Dresdner ceased to exist as a legal entity.”
[W]ith respect to standing, the Court held that, although Commerzbank may have acquired all causes of action possessed by Dresdner, it had provided no evidence that DAF, in the first instance, had assigned to Dresdner any tort causes of action connected to the notes.
* * *
Commerzbank moved for reconsideration of the standing issue and proffered, as pertinent here, two additional declarations to support its contention that DAF had assigned its fraud claims to Dresdner. More specifically, Commerzbank provided a declaration from Christopher Williams, former Secretary of and Senior Counsel to Dresdner Advisors (DAF’s investment advisor) and former Senior Counsel to the branch of Dresdner that purchased the notes from DAF. Williams explained that DAF did not typically enter into written agreements when purchasing or selling securities. He further explained that, when the Cheyne SIV notes were downgraded in 2007, DAF was prohibited from continuing to hold them by federal rules promulgated under the Investment Company Act of 1940. “[I]n order to ensure DAF’s compliance” with such rules, Dresdner therefore purchased the notes from DAF for cash “at par” for $121,078,069. DAF ceased operations 10 months later and was terminated in January 2009. Williams asserted that, to the best of his knowledge, DAF and Dresdner believed that any causes of actions or claims related to the notes would automatically transfer with them.
Commerzbank also submitted a declaration by Brian Shlissel, Managing Director of Allianz Global Investors Fund Management LLC, which administered DAF as a series of a Massachusetts business trust known as Allianz Global Investors Managed Accounts Trust, of which Shlissel was the President and Chief Executive Officer. Shlissel similarly attested to the foregoing facts regarding DAF’s sale of the notes to Dresdner, and he asserted that the parties to the sale believed that any causes of action related to the notes would automatically transfer to Dresdner with the notes themselves.
The District Court denied Commerzbank’s motion for reconsideration, declining to consider its additional submissions…Commerzbank appealed.
An appeal followed to the Second Circuit which:
[H]eld that the District Court abused its discretion by refusing to consider Commerzbank’s supplemental papers, but determined that resolution of the standing issue would require it to pass on an open question of New York law; namely, whether proof of a subjective, uncommunicated intent to transfer a whole interest in a note — in the absence of limiting language — suffices to transfer an assignor’s tort claims related to such note under New York law…Accordingly, the Second Circuit certified to [the Court of Appeals] the question whether, “[b]ased on the declarations and documentary evidence presented by Commerzbank,…a reasonable trier of fact [could] find that DAF validly assigned its right to sue for common law fraud to Dresdner in connection with its sale of Cheyne SIV notes”…Further, if we answer the first question in the affirmative, the Second Circuit asked us to determine whether, “based on the record established in the summary judgment proceedings in the district court,…a reasonable trier of fact [could] find Morgan Stanley liable for fraud under New York law”[.]
The Court of Appeals summarized the contentions of Commerzbank:
Commerzbank contends that its proffered evidence precludes the granting of summary judgment in defendants’ favor on the issue of whether Commerzbank has standing to pursue a fraud claim arising out of DAF’s purchase of the Cheyne SIV notes that Commerzbank subsequently acquired. According to Commerzbank, any fraud claims possessed by DAF were assigned to Dresdner in light of the “unqualified” nature of DAF’s sale of its “whole interest” in the notes to Dresdner. Commerzbank also argues that the Williams and Shlissel declarations are sufficient to demonstrate the intent of DAF and Dresdner to assign to Dresdner all causes of action associated with the notes. Finally,…Commerzbank asserts that the circumstances surrounding the 2008 sale of the Cheyne SIV notes provide a sufficient basis upon which a factfinder could conclude that, when the notes were transferred, the parties to the sale intended to assign any potential fraud claims related thereto[.]
The Court found the arguments unpersuasive:
To be sure, fraud claims are freely assignable in New York…It has long been held, however, that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note…Thus, where an assignment of fraud or other tort claims is intended in conjunction with the conveyance of a contract or note, there must be some language — although no specific words are required — that evinces that intent and effectuates the transfer of such rights…Without a valid assignment, “only the…assignor may rescind or sue for damages for fraud and deceit” because “the representations were made to it and it alone had the right to rely upon them”[.]
Our review of the record fails to reveal any proof of an assignment of fraud or, more generally, tort causes of action. Crucial to our analysis, Commerzbank concedes that there was no “explicit” assignment of DAF’s common law fraud claims to Dresdner in connection with DAF’s sale of the notes. Rather, Commerzbank contends that the transfer of the notes was “unqualified” and, therefore, implicitly included claims related thereto. At its core then, Commerzbank’s argument amounts to little more than an assertion that, in the absence of language to the contrary, DAF’s tort claims necessarily transferred to Dresdner with the notes. However, this is contrary to the law in New York, which requires either some expressed intent or reference to tort causes of action, or some explicit language evidencing the parties’ intent to transfer broad and unlimited rights and claims, in order to effectuate such an assignment[.]
The declarations of Williams and Shlissel are insufficient, as a matter of law, to demonstrate that the parties expressed an intent to and did, in fact, undertake an assignment of fraud claims in connection with the conveyance of the notes at the time of the sale. Williams and Shlissel averred only that DAF and Dresdner assumed that DAF’s rights and causes of action would transfer automatically with the note; neither declarant claimed that the assignment of tort claims was actually discussed or negotiated by the parties prior to or at the time of the transfer, or that the sale of the notes in any way referenced the simultaneous assignment of such claims. This deficiency is fatal to Commerzbank’s argument that it has standing[.]
To what extent must a plaintiff plead the “justifiable reliance” element of a cause of action for fraud in the inducement or fraudulent concealment? Answer: The question of what constitutes “justifiable reliance” is not generally a question to be resolved as a matter of law on a motion to dismiss.
ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 2015 NY Slip Op 03876 (decided on May 7, 2015), arose out of the following facts:.
Plaintiff ACA Financial Guaranty Corp. commenced this action against defendant Goldman, Sachs & Co., alleging that defendant fraudulently induced plaintiff to provide financial guaranty for a synthetic collateralized debt obligation (CDO), known as ABACUS. In its complaint, plaintiff alleged that defendant fraudulently concealed the fact that its hedge fund client Paulson & Co., which selected most of the portfolio investment securities in ABACUS, planned to take a “short” position in ABACUS, thereby intentionally exposing plaintiff to substantial liability; had plaintiff known this information, it would not have agreed to the guaranty.
The majority opinion summarized the prior proceedings:
Defendant moved to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7), contending, among other things, that plaintiff failed to sufficiently plead the “justifiable reliance” element of its fraud in the inducement and fraudulent concealment claims. Supreme Court denied the motion, but the Appellate Division reversed the order, granted defendant’s motion and dismissed the amended complaint[.]
The applicable law:
To plead a claim for fraud in the inducement or fraudulent concealment, plaintiff must allege facts to support the claim that it justifiably relied on the alleged misrepresentations. It is well established that “if the facts represented are not matters peculiarly within the [defendant’s] knowledge, and [the plaintiff] has the means available to [it] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, [the plaintiff] must make use of those means, or [it] will not be heard to complain that [it] was induced to enter into the transaction by misrepresentations”…Moreover, “[w]hen the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy”[.]
The Court concluded that “the question of what constitutes reasonable reliance is not generally a question to be resolved as a matter of law on a motion to dismiss.” Thus the Court reversed the Appellate Division’s order noting:
In its complaint, plaintiff alleges that it sought assurances from defendant about Paulson’s role in ABACUS. Specifically, plaintiff alleges that it e-mailed defendant asking how Paulson intended to “participate” in the transaction. Plaintiff further alleges that defendant affirmatively misrepresented to plaintiff that Paulson would be the equity investor in ABACUS. Thus, at this pleading stage, plaintiff has sufficiently alleged justifiable reliance.
Two judges of the Court dissented from the Court’s decision. The dissenting opinion notes that plaintiff was a sophisticated financial entity which did not avail itself of ample opportunity to ask Paulson about its investment position in ABACUS. The dissenting judges believed that this failure doomed plaintiff’s claims as a matter of law.
The action was remitted to the Appellate Division for further proceedings.
May an action to cancel a forged deed be barred by the passage of time? Answer: No.
Faison v. Lewis, 2015 NY Slip Op 04026 (decided on May 12, 2015), raised “[t]he legal question [of] whether plaintiff Dorothy Faison is time-barred under CPLR 213 (8) from seeking to set aside and cancel, as null and void, defendant Bank of America’s mortgage interest in real property conveyed on the authority of a forged deed.”
The Court of Appeals summarized the facts:
Plaintiff is the daughter and administrator of the estate of her father, Percy Lee Gogins, Jr. (“Gogins”). Gogins and his sister, defendant Dorothy Lewis (“Lewis”) inherited from their mother, as tenants in common, a three-family house in Brooklyn. A few years after the mother’s death, in May 2000, Lewis conveyed by quitclaim deed her half-interest in the property to her daughter Tonya Lewis (“Tonya”). In February 2001, Tonya recorded a deed claiming to correct the prior deed from Lewis. This corrected deed, dated December 14, 2000, allegedly conveyed Gogins’s half-interest in the real property to Tonya. Thus, if the corrected deed were valid, it would convey to Tonya a fee interest in the property. Gogins passed away in March 2001.
* * *
In December 2009, Tonya borrowed $269,332.00 from defendant Bank of America (BOA), which she secured with the mortgage, granted in favor of defendant Mortgage Electronic Registration Systems, Inc. (MERS). Several months later, in July 2010, Surrogate’s Court appointed plaintiff administrator of Gogins’ estate. In her supporting affidavit explaining her delay in seeking appointment, plaintiff asserted that her mother’s lawyer led her to believe that he had secured a judgment in favor of the estate, when in fact the lawyer, now disbarred, had failed to take action on her mother’s behalf.
The prior proceedings:
The month following her appointment, in August 2010, plaintiff filed the underlying action against Lewis, Tonya, BOA and MERS to declare the deed and mortgage null and void based on the alleged forgery. Thereafter, BOA moved to dismiss the complaint under CPLR 3211 (a) (5) as untimely under CPLR 213 (8), and plaintiff cross-moved to dismiss the statute of limitations affirmative defense asserted in the BOA and MERS joint answer. Supreme Court granted the motion to dismiss the complaint in its entirety as time-barred, and denied plaintiff’s cross-motion as moot.
The Appellate Division affirmed; and plaintiff appealed and argued that:
[A] forged deed has long been treated as void ab initio, entirely without effect from inception. Therefore, the CPLR 213 (8) statute of limitations does not apply to her claims to vacate and declare the deed and defendant BOA’s mortgage-based interest in the property a legal nullity[.]
The Court initially analyzed the difference between a void instrument and a voidable instrument:
In Marden v. Dorthy, this Court held that a forged deed was void at its inception, finding it to be a “spurious or fabricated paper” (160 NY 39, 47 [1899]), a forgery characterized by “the fraudulent making of a writing to the prejudice of another’s rights”[.] As Marden noted, a forged deed lacks the voluntariness of conveyance…Therefore, it holds a unique position in the law; a legal nullity at its creation is never entitled to legal effect because “[v]oid things are as no things”[.]
A forged deed that contains a fraudulent signature is distinguished from a deed where the signature and authority for conveyance are acquired by fraudulent means. In such latter cases, the deed is voidable. The difference in the nature of the two justifies this different legal status. A deed containing the title holder’s actual signature reflects “the assent of the will to the use of the paper or the transfer,” although it is assent “induced by fraud, mistake or misplaced confidence”…Unlike a forged deed, which is void initially, a voidable deed, “until set aside…has the effect of transferring the title to the fraudulent grantee, and…being thus clothed with all the evidences of good title, may encumber the property to a party who becomes a purchaser in good faith”[.]
A forged deed, however, cannot convey good title, and “[i]t is legally impossible for any one [sic] to become a bona fide purchaser of real estate, or a purchaser at all, from one who never had any title, and that is this case”[.]
The Court also noted that “[t]he fact that a false and fabricated writing of this character is deposited in a public office for record, and is actually recorded, can add nothing to its legal efficacy. The recording statute applies to “genuine instruments and not to forged ones.” The Court concluded that “a claim against a forged deed is not subject to a statute of limitations defense.”
The Court rejected defendant’s argument that the CPLR 213(8) limitations period applicable to fraud claims governed:
That conclusion cannot be squared with our decisions in [the prior case], nor with general principles of real property law. Nor is it supported by compelling policy reasons. On the contrary, our long-standing commitment to the protection of ownership interests and the integrity of our real property system favors the continued treatment of challenges to forged deeds as distinct from other claims, and exempt from a statute of limitations defense.
Concluding that:
Under our prior case law it is well-settled that a forged deed is void ab initio, meaning a legal nullity at its inception. As such, any encumbrance upon real property based on a forged deed is null and void. Therefore, the statute of limitations set forth in CPLR 213 (8) does not foreclose plaintiff’s claim against defendant.
The Court remanded with the following instructions:
[P]laintiff may seek to vacate the deed and defendant’s encumbrance upon the property. If, as plaintiff claims, the deed is a forgery, then it was never valid and Tonya lacks title to Gogins’ half-interest in the property based on the “corrected” deed.
Does the statute of frauds bar enforcement of an oral agreement to provide financial advisory services? Answer: Yes and no (depending on the purpose for which the services were allegedly provided).
JF Capital Advisors, LLC v. Lightstone Group, LLC, 2015 NY Slip Op 05622 (decided on July 1, 2015), raised the question of “whether the statute of frauds, as embodied in General Obligations Law § 5-701 (a) (10), bars the causes of action set forth in the amended complaint [in which] plaintiff claims to have rendered to defendants financial advisory services for what plaintiff characterizes as nine groups of investment opportunities, and plaintiff seeks recovery for those services rendered based on theories of quantum meruit and unjust enrichment”.
The Court of Appeals outlined the facts:
Plaintiff alleges that it and its principals are hospitality industry consultants engaged in the business of providing investment and advisory services. In November 2010, defendants solicited plaintiff’s assistance in analyzing an investment opportunity involving certain hotel/waterpark properties. The parties entered into a written agreement whereby plaintiff provided financial and analytical services to defendants regarding that project, and defendants paid plaintiff for its work with respect to that opportunity.
Defendants did not purchase the hotel/waterpark properties, and those holdings eventually became the subject of an online auction. Based on the seller’s willingness to dispose of the hotel/waterpark properties separately, defendants again sought plaintiff’s services with the goal of acquiring only 2 of the 10 holdings that comprised the hotel/waterpark properties. Plaintiff provided continuing “advisory services” to defendants consisting of financial and market analyses with respect to the hotel/waterpark endeavor, as well as to other projects, and defendants accepted those services.
According to plaintiff, however, defendants did not compensate plaintiff for such work[.]
In its amended complaint:
[P]laintiff asserts causes of action for quantum meruit and unjust enrichment, through which it seeks compensation for approximately $480,000 in services it rendered to defendants in connection with the nine project groups. Plaintiff generally alleges that its work with respect to each of the project groups consisted of the review, analysis, and modeling of the finances and operations of the assets in which defendants had the opportunity to invest. However, with respect to the “Waterpark Portfolio Project,” the “CBRE 7 Loan Portfolio Project,” and the “Allegria Hotel Loan Purchase,” i.e., what are respectively denominated as project groups ##1, 6, and 7, plaintiff alleges that it performed work that was used to assist in defendants’ negotiation of a business opportunity and that was conducted in anticipation of a possible purchase bid.
The Supreme Court granted in part defendants’ motion to dismiss. “On appeal, the Appellate Division modified by granting the motion in its entirety and dismissing the amended complaint based upon its conclusion that ‘investment analyses and financial advice regarding the possible acquisition of investment opportunities clearly fall within General Obligations Law § 5-701 (a) (10).’”
The Court of Appeals discussed the purpose of the relevant provisions of General Obligations Law:
The statute of frauds is codified in General Obligations Law § 5-701. As a general matter, it “is designed to protect the parties and preserve the integrity of contractual agreements”[.] More precisely, the statute “is meant to guard against the peril of perjury; to prevent the enforcement of unfounded fraudulent claims’…The statute decrease[s] uncertainties, litigation, and opportunities for fraud and perjury, ‘and primarily discourage[s] false claims’…In short, the purpose of the Statute of Frauds is simply to prevent a party from being held responsible, by oral, and perhaps false, testimony, for a contract that the party claims never to have made’[.]
Here we are specifically concerned with General Obligations Law § 5-701 (a) (10), which “appl[ies] to a contract implied in fact or in law to pay reasonable compensation” and which provides that “[e]very agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking…[i]s a contract to pay compensation for services rendered in…negotiating the purchase…of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein.”
The same subdivision further states that “[n]egotiating includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction”[.]
The Court of Appeals reinstated the decision of Supreme Court:
The fundamental question on this appeal is whether the services for which plaintiff seeks compensation were tasks performed so as to inform defendants whether to negotiate for the properties at issue, or whether those services were performed as part of or in furtherance of negotiation for the subject properties. As noted, General Obligations Law § 5-701 (a) (10) interdicts oral agreements to pay compensation for services rendered with respect to the negotiation of the purchase of real estate or of a business opportunity or business. Supreme Court recognized this in dismissing the causes of action pertaining to project groups ##1, 6, and 7. The allegations pertaining to project group #1 include what Supreme Court correctly saw as a claim for compensation for work plaintiff performed in furtherance of defendants’ negotiation of a business opportunity, while the allegations pertaining to project groups ##6 and 7 seek compensation for services rendered in anticipation of a possible bid by defendants, including preparation of documents for bidding.
Said another way, Supreme Court properly dismissed the parts of the amended complaint bound by the common thread of allegations pertaining to defendants’ negotiation of a business opportunity and declined to dismiss the parts of the amended complaint pertaining to project groups ##2-5 and 8, which are not braided by such claims. Indeed, the allegations with respect to project groups ##2-5 and 8 could be construed as seeking recovery for work performed so as to inform defendants whether to partake in certain business opportunities, that is, whether to negotiate. To the extent the causes of action are based on such allegations, they are not barred by the statute of frauds.
What must a lender submit in order to establish entitlement to a deficiency judgment in a commercial mortgage foreclosure proceeding? Answer: The lender bears the initial burden of demonstrating the property’s fair market value on the date of the mortgage foreclosure auction sale; however, the court should give a lender the opportunity to present further proof if the initial submission is not sufficient.
Flushing Sav. Bank, FSB v. Bitar, 2015 NY Slip Op 04678 (decided on June 4, 2015), arose out of the following facts:
Plaintiff Flushing Savings Bank, FSB (FSB) was the owner and holder of a note secured by a mortgage on commercial property in Brooklyn. Defendant Pierre Bitar, the mortgagor and obligor on the note, defaulted under the terms of the note. FSB commenced a mortgage foreclosure action against Bitar (and others) in March 2010. Neither Bitar nor any of the other named defendants answered the complaint.
* * *
In March 2011, Supreme Court confirmed the referee’s report, granted FSB a judgment of foreclosure, awarded FSB $690,642.23 plus interest and fees, advances, costs and disbursements, and directed that the property be sold at a public auction. Supreme Court further ordered that should the proceeds of the sale be insufficient to pay the amount due and owing to FSB, FSB could recover the deficiency from Bitar in accordance with RPAPL 1371.
FSB was the highest bidder at an amount substantially below fair market value.
On November 23, 2011, FSB moved for an order confirming the referee’s report of sale and for a deficiency judgment against Bitar in the amount of $318,724.75, representing the outstanding amount of $793,724.75 less the alleged fair market value of $475,000. In addition to its submission of the referee’s report, FSB proffered a four-paragraph affidavit from its licensed appraiser, who stated that he was “well acquainted with real estate values in [Kings] County” and that he had made a personal exterior and interior inspection of the premises . . .” As to the property’s fair market value, the appraiser opined that “[b]ased on said inspection and after reviewing comparable sales, examination of the neighborhood, market and general economic trends, comparable rentals, expense data and subject to the reasonable assumption that there have not been substantial changes in occupancy and condition, deponent is of the opinion that the market value of the premises as of August 11, 2011, was $475,000, which valuation is consistent with the valuation of the premises as of October 5, 2011, the date of inspection.”
No opposition was filed by Bitar; however, Supreme Court nevertheless refused to enter a deficiency judgment because the appraiser’s conclusory affidavit failed to meet FSB’s burden of establishing the fair market value of the premises. The Appellate Division held that “Supreme Court was entitled to reject the opinion of [FSB’s] appraiser as without probative value in light of the lack of evidentiary foundation set forth in his affidavit.”
In the Court of Appeals, FSB argued that FSB’s “appraiser’s affidavit was sufficient to establish the property’s fair market value because there was no conflicting evidence of market value presented to Supreme Court and that, absent any opposition to FSB’s submission, Supreme Court should have accepted its appraiser’s valuation.”
After noting that FSB bore the initial burden of demonstrating the property’s fair market value, the Court held:
We agree with Supreme Court that FSB failed to meet its initial burden of establishing the fair market value of the property. The appraiser’s four-paragraph affidavit consisted of two paragraphs that briefly covered the appraiser’s experience and qualifications. The remaining paragraphs set forth the address of the property and the date the appraiser conducted the inspection, and contained conclusory references to “comparable sales” and an examination of “the neighborhood, market and general economic trends, comparable rentals [and] expense data.” Although the appraiser opined that the property had a fair market value of $475,000, that opinion was unsupported by any detailed analysis of the data and valuation criteria he utilized in reaching his valuation. Nor did the appraiser affix to his affidavit any evidence substantiating his opinion, which would have assisted the court in reaching a determination as to the property’s fair market value. Moreover, although the appraiser claimed to have examined the interior and exterior of the building, he made no attempt to describe the building’s condition or what his inspection of the property revealed. Simply put, the appraiser’s affidavit consisted of little more than conclusory assertions of fair market value, and, therefore, Supreme Court properly refused to accept the appraiser’s valuation.
Contrary to FSB’s contention, it is of no moment that Bitar failed to submit any evidence in opposition to the motion. FSB had the initial burden of establishing fair market value through the submission of sufficient proof that would have permitted the court to render a determination as to the property’s fair market value. Absent such proof, Supreme Court had no basis to award FSB a deficiency judgment, notwithstanding the fact that FSB’s submission was unrebutted.
The Court of Appeals nevertheless held that Supreme Court erred:
[O]nce Supreme Court determined that the appraiser’s affidavit was insufficient to meet FSB’s burden, it should not have denied the motion, but rather, should have directed FSB to submit additional proof or taken additional steps in order to make a fair market value determination.
The Court, in an admonition to both lenders and trial courts, explained:
RPAPL 1371 (2) directs that, when a lender makes a motion for a deficiency judgment, “the court, whether or not the respondent appears, shall determine, upon affidavit or otherwise as it shall direct, the fair and reasonable market value of the mortgaged premises as of the date such premises were bid in at auction or such nearest earlier date as there shall have been any market value thereof and shall make an order directing the entry of a deficiency judgment”[.]
This provision is a directive that a court must determine the mortgaged property’s “fair and reasonable market value” when a motion for a deficiency judgment is made. As such, when the court deems the lender’s proof insufficient in the first instance, it must give the lender an additional opportunity to submit sufficient proof, so as to enable the court to make a proper fair market value determination.
Here, FSB failed to meet its burden in the initial application. However, rather than denying the deficiency judgment motion outright, Supreme Court should have permitted FSB to submit additional proof establishing fair market value[.]
It is, of course, within the court’s discretion to elucidate the type of proof it requires so it can render a proper determination as to fair market value. The court may also order a hearing if it deems one necessary. In proceedings that are governed by section 1371, the court is in the best position to determine the type of proof that will allow it to comply with the directives of that section. Lenders seeking deficiency judgments, however, must always strive to provide the court with all the necessary information in their first application.
May a guarantor avoid liability under an unconditional and absolute guarantee on the ground that the default judgment on the underlying debt was obtained by collusion? Answer: No. A collusion claim may be barred by the express language of a guaranty.
Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v. Navarro, 2015 NY Slip Op 04753 (decided on June 9, 2015), was an action in which “defendant guarantor [sought] to avoid liability as provided under an ‘unconditional and absolute’ guaranty in favor of plaintiff, on grounds that the default judgment against him, which constitutes the subject underlying debt, was obtained by plaintiff’s collusion.”
The Court summarized the facts:
Defendant Francisco Herrera Navarro was a Chief Executive Officer and director of now bankrupt Agra Services of Canada, Inc. (Agra Canada), and an officer and director of Agra USA. Agra Canada was a Canadian corporation which traded physical agricultural commodities between Canada and Mexico. Agra Canada was also the sole shareholder of Agra USA. This appeal involves defendant’s liability under a personal guaranty for a debt arising from litigation which can be traced back to payments made for fictitious business transactions attributed to Agra Canada.
According to the undisputed facts, Agra Canada entered a purchase agreement with plaintiff Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank), under which Rabobank purchased and financed certain receivables of Agra Canada (the “Purchase Agreement”). Specifically, Rabobank made regularly scheduled payments to purchase any indebtedness or obligations owed to Agra Canada arising from the sale of its goods to its importers.
A year after execution of the Purchase Agreement defendant and Eduardo Guzman Solis (Guzman Solis), President of Agra Canada and manager of both Agra businesses, signed separate, individual and identical personal guarantees [sic] in favor of Rabobank (the “Guaranty”). Pursuant to sections 1(a), defendant guaranteed all obligations and liabilities of Agra Canada arising and outstanding under the Purchase Agreement, not covered by insurance, and further guaranteed under section (1)(b), all obligations and liabilities of Agra USA to Rabobank “now or hereafter existing, including without limitation . . . principal, interest, fees, expenses, or otherwise.”
Liability under the Guaranty is “absolute and unconditional” as provided in section 2, which states
“SECTION 2. Guaranty Absolute. The Guarantor guarantees that the obligations will be paid strictly in accordance with the terms of the applicable agreements, notes or other instruments under which the Obligation arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Purchaser with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute and unconditional[.]
Two years later Guzman Solis died. Rabobank was owed millions of dollars from Agra Canada and defendant’s subsequent investigation into Rabobank’s payment demands revealed fraudulent receivables based on nonexistent transactions submitted by Solis. Defendant claimed to have no knowledge or involvement regarding Solis’ scheme.
On Rabobank’s petition, Canadian bankruptcy proceedings against Agra Canada were commenced. Deloitte & Touche, Inc. was appointed receiver and trustee of Agra Canada.
The following month, on March 2, 2012, Rabobank commenced an action in the United States District Court for the Southern District of New York, against defendant, Agra Canada, Agra USA, and the estate of Guzman Solis seeking to recover the millions owed Rabobank under the Purchase Agreement and the guarantees. Defendant appeared represented by counsel he retained for his own behalf, but failed to retain counsel for Agra USA. Upon Agra USA’s failure to answer or otherwise respond, on April 3, 2012, Rabobank secured from the Clerk of the Court a Certificate of Default against Agra USA, in accordance with Federal Rule of Civil Procedure 55 (a).
On April 11, 2012, Agra Canada removed all officers and directors of Agra USA, including defendant, and elected and installed a Deloitte & Touche representative as president and sole officer and director. Then, on April 16, 2012, Rabobank filed an order to show cause for entry of default judgment against Agra USA, pursuant to Federal Rule of Civil Procedure 55(b)(2), which the District Court ultimately entered and filed on April 30, 2012, awarding Rabobank $41,991,980. In the interim, on April 19, 2012, Rabobank voluntarily discontinued without prejudice its action against defendant, pursuant to Federal Rule of Civil Procedure 41 (a) (1) (A) (i).
The proceedings in Supreme Court:
The same day that the Southern District Court entered the default judgment Rabobank filed the underlying action in state court, by summons and accompanying motion for summary judgment in lieu of complaint pursuant to CPLR 3213. Rabobank alleged defendant was liable under the Guaranty…for the outstanding millions owed it under the Purchase Agreement, and, alternatively…based on the federal default judgment.
Defendant opposed the motion, arguing that Guzman Solis fraudulently obtained payments from Rabobank by way of his exclusive control over Agra Canada’s business activities, and that the Guaranty did not encompass fraudulent transactions — only “uninsured outstanding sums on the ‘accounts receivable.’” Defendant contended that “accounts receivable” represent sums owed on an actual sale, and since the accounts receivable are fictitious, “there are no sales that actually give rise to any sum ‘owed on said account receivable’ as defined in the [Purchase] Agreement.”
Supreme Court denied Rabobank’s motion. The court held that questions of fact as to the existence of actual “receivables” precluded summary judgment based on…the Guaranty. The court further concluded that summary judgment was not proper…because issues of fact existed as to who controlled Agra USA during the course of the Southern District action, at the time of default and when judgment was entered.
And before the Appellate Division:
In a split decision, the Appellate Division reversed Supreme Court and granted Rabobank summary judgment…The majority concluded that the Guaranty’s waiver provision precluded defenses as to the existence of an enforceable “obligation,” including defendant’s assertion of plaintiff’s collusion…The majority held that the collusion claim was, in fact, a defense and not, as defendant and the dissent argued, a condition precedent…The two justices in dissent…determined that “[i]f the judgment was obtained as a result of collusion, it cannot constitute a valid ‘obligation’ of Agra USA covered by the terms of the guarantee [sic]”[.]
The issues raised on appeal:
On appeal to this Court, defendant does not challenge the validity of the Guaranty or non-payment of the obligations covered by the Guaranty and Purchase Agreement. Instead, he challenges whether a valid underlying debt exists, which he argues presents a question as to whether plaintiff met its summary judgment burden by establishing, as a condition precedent, an obligation that is owed and due. In support of his position, defendant avers that the alleged “obligation” here is a default judgment obtained through collusion.
Rabobank contends that defendant’s argument that the federal judgment fails to qualify as a “valid obligation” is, in reality, a defense that defendant expressly waived under the Guaranty. Rabobank also challenges defendant’s collusion argument as “a baseless conspiracy theory,” and argues that defendant was a party to the federal lawsuit but simply failed to act to protect his personal interest, or that of Agra USA.
The legal issue before the Court:
Pursuant to CPLR 3213, “[w]hen an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint.” CPLR 3213 was enacted “to provide quick relief on documentary claims so presumptively meritorious that a formal complaint is superfluous, and even the delay incident upon waiting for an answer and then moving for summary judgment is needless”…An unconditional guaranty is an instrument for the payment of “money only” within the meaning of CPLR 3213[.]
To meet its prima facie burden on its summary judgment motion, Rabobank must prove “the existence of the guaranty, the underlying debt and the guarantor’s failure to perform under the guaranty”…Thereafter, “the burden shifts to the defendant to establish, by admissible evidence, the existence of a triable issue with respect to a bona fide defense”. Here, Rabobank submitted a copy of the Purchase Agreement, the Guaranty signed by defendant, as well as proof of receivables due pursuant to the Purchase Agreement, and the federal default judgment entered against Agra USA. Defendant objected, claiming triable issues of fact exist as to the applicability of the Guaranty. Thus, resolution of this appeal requires determination of whether defendant’s challenge to Rabobank’s demand for summary judgment is foreclosed by the Guaranty. If it is, then on this record, summary judgment was properly granted to Rabobank.
We agree with Rabobank that defendant’s challenge constitutes a defense precluded by the Guaranty and, on the facts of this case and the record presented, his allegations of collusion cannot overcome his “absolute and unconditional” liability. We therefore affirm the Appellate Division.
A guaranty is a promise to fulfill the obligations of another party, and is subject “to ordinary principles of contract construction”. Under those principles, “a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms”[.]
Guarantees that contain language obligating the guarantor to payment without recourse to any defenses or counterclaims, i.e., guarantees that are “absolute and unconditional,” have been consistently upheld by New York courts… “Absolute and unconditional guaranties have in fact been found to preclude guarantors from asserting a broad range of defenses . . .”[.]
* * *
Here, defendant personally guaranteed the obligations owed by Agra Canada under the Purchase Agreement, as well as obligations owed by Agra USA. Moreover, defendant specifically agreed that his “liability under this Guaranty shall be absolute and unconditional irrespective of (1) any lack of validity or enforceability of the agreement;…or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Seller (Agra Canada) or a guarantor.” By its plain terms, in broad, sweeping and unequivocal language, the Guaranty forecloses any challenge to the enforceability and validity of the documents which establish defendant’s liability for payments arising under the Purchase Agreement, as well as to any other possible defense to his liability for the obligations of the Agra businesses[.]
Would applying Florida law of restrictive covenants relating to the non-solicitation of customers by a former employee violate the public policy of New York? Answer: Yes.
Brown & Brown, Inc. v. Johnson, 2015 NY Slip Op 04876 (decided on June 11, 2015) arose out of the following facts:
Plaintiff Brown & Brown, Inc. (BBI) is a Florida corporation. Its New York subsidiary, plaintiff Brown & Brown of New York, Inc. (BBNY), is licensed to handle insurance in New York. BBNY recruited defendant Theresa A. Johnson to leave her former job at Blue Cross/Blue Shield — where she was employed as an underwriter and actuary for over 20 years — to work for BBNY.
On Johnson’s first day, BBNY’s employee gave her documents that included an employment agreement with a restrictive covenant. As relevant here, the agreement contained a Florida choice-of-law provision and a non-solicitation provision. The non-solicitation provision precluded Johnson, for two years following her termination of employment, from directly or indirectly soliciting, accepting or servicing any person or entity “that is a customer or account of the New York offices of [BBI and BBNY] during the term of this Agreement,” as well as certain prospective customers. In the discussions that took place before Johnson was hired, this agreement was never mentioned.
* * *
After working solely in New York for several years, Johnson was terminated. Less than one month later, Johnson began working for defendant Lawley Benefits Group, LLC, a competitor of BBNY; her work with Lawley involved providing services to some of plaintiffs’ former customers.
Plaintiffs sued to enjoin alleged violations of the agreement by Johnson and to recover damages against both Johnson and Lawley for, among other things, soliciting plaintiffs’ customers. Defendants answered the complaint and very soon after moved for summary judgment. Supreme Court partially granted defendants’ motion but did not dismiss the claim against Johnson alleging that she violated the non-solicitation provision by using client relationships that she initially developed while working for plaintiffs. The court found the choice-of-law provision in Johnson’s employment agreement to be unenforceable. The Appellate Division modified Supreme Court’s order and dismissed the breach of contract claim based on the non-solicitation provision. According to the Appellate Division, the Florida choice-of-law provision was unenforceable as against public policy and the non-solicitation provision was overbroad and unenforceable as a matter of New York law.
The Court of Appeals outlined the public policy considerations:
The employment agreement’s choice-of-law provision states that any disputes will be governed by Florida law. While parties are generally free to reach agreements on whatever terms they prefer, courts will not “enforce agreements…where the chosen law violates ‘some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal’”…This public policy exception is reserved “for those foreign laws that are truly obnoxious”…The party seeking to invoke the exception bears a “‘heavy burden’ of proving that application of [the chosen] law would be offensive to a fundamental public policy of this State”[.]
Here, to determine whether the public policy exception renders unenforceable the employment agreement’s choice of Florida law, we must compare the Florida statute concerning restrictive covenants in employment agreements to New York law on that subject. The law of the two states is similar to the extent that they both require restrictive covenants to be reasonably limited in time, scope and geographical area, and to be grounded in a legitimate business purpose.
However, the court noted that Florida law differs significantly from New York law, and explained:
Specifically, Florida law requires a party seeking to enforce a restrictive covenant only to make a prima facie showing that the restraint is necessary to protect a legitimate business interest, at which point the burden shifts to the other party to show that the restraint is overbroad or unnecessary…If the latter showing is made, the court is required to “modify the restraint and grant only the relief reasonably necessary to protect” the employer’s legitimate business interests…In contrast to this focus solely on the employer’s business interests, under New York’s three-prong test, “[a] restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. A violation of any prong renders the covenant invalid”…Whereas Florida shifts the burden of proof after the employer demonstrates its business interests [New York law] requires the employer to prove all three prongs of its test before the burden shifts…Further, Florida law explicitly prohibits courts from considering the harm or hardship to the former employee…This directly conflicts with New York’s requirement that courts consider, as one of three mandatory factors, whether the restraint “impose[s] undue hardship on the employee”[.]
Additionally, under Florida law, courts are required to construe restrictive covenants in favor of protecting the employer’s interests, and may not use any rules of contract interpretation that would require the construction of a restrictive covenant narrowly or against the restraint or drafter…In contrast, New York law provides that “[c]ovenants not to compete should be strictly construed because of the ‘powerful considerations of public policy which militate against sanctioning the loss of a [person’s] livelihood”’[.]
The Court concluded:
Considering Florida’s nearly-exclusive focus on the employer’s interests, prohibition against narrowly construing restrictive covenants, and refusal to consider the harm to the employee — in contrast with New York’s requirements that courts strictly construe restrictive covenants and balance the interests of the employer, employee and general public — defendants met their “‘heavy burden’ of proving that application of Florida law [to the non-solicitation provision of the parties’ agreement] would be offensive to a fundamental public policy of this State”.
The Court held that “the employment agreement’s choice-of-law provision is unenforceable in relation to the non-solicitation provision and New York law governs plaintiffs’ claim based on Johnson’s alleged breach thereof.”
Upon applying New York law on the issue of the enforceability of the non-solicitation provision, the Court held that it would be inappropriate to dismiss that claim because the action was at an early stage and little discovery had occurred. The Court therefore reversed the Appellate Division’s order and remitted the case for further proceedings on certain factual issues.
Were parcels of municipal land in New York City impliedly dedicated as parkland? Answer: No.
Matter of Glick v. Harvey, 2015 NY Slip Op 05593 (decided on June 30, 2015) raised the following issue: “whether four parcels of municipal land in the Greenwich Village area of New York City near the campus of New York University (NYU) were impliedly dedicated as public parkland and therefore fall under the protection of the public trust doctrine, which requires approval of the State Legislature before the land can be alienated[.]”.
The Court of Appeals outlined the facts:
In July 2012, the New York City Council approved NYU’s plan to expand its campus. The project involves demapping certain areas currently designated as streets on City maps and using them, either permanently or for some part of 20 years, in connection with construction of new buildings. The four disputed parcels, which are Mercer Playground, LaGuardia Park, LaGuardia Corner Gardens, and the Mercer-Houston Dog Run, feature open space that has been available to the public for years. Two of the parcels (Mercer Playground and LaGuardia Park) will be inaccessible during construction and have been approved for later dedication as parkland, subject to perpetual easements granted to NYU for utilities and access. LaGuardia Corner Gardens will be affected during construction as well as by shadows that will result from a building being constructed as part of the project. The Dog Run will be moved to a nearby space.
Mercer Playground, which opened in 1999, is a paved children’s skating and biking park. The New York City Department of Parks and Recreation (DPR) developed the playground under a New York City Department of Transportation (DOT) permit “for the temporary use and occupation of the…property…for playground or park purposes.” The letter of approval for the permit stated that, “It is expressly understood that in the event that [the] DOT requires the occupied property in order to perform capital construction work, [the] DPR shall vacate it and return it to [the] DOT so that such work can take place.” The DPR spent City funds to improve the playground and marked it with DPR signage.
LaGuardia Park sits next to LaGuardia Place and has paved walkways, greenery and a privately-funded statue of former Mayor LaGuardia. Pursuant to the City’s Greenstreet program undertaken in partnership between the DPR and the DOT, the City developed a toddler’s playground called Adrienne’s Garden on this parcel. Like other Greenstreet sites, this development was subject to a memorandum of understanding declaring that it “will always remain as DOT jurisdictional propert[y], available for DOT purposes and uses as needed.” And, in participating in the Greenstreet program, the DPR and the DOT acknowledged that Greenstreet sites such as LaGuardia Park “are not intended to be formal or implied dedicated parklands.”
As for LaGuardia Corner Gardens, volunteers for the non-profit entity LaGuardia Corner Gardens, Inc., (LGCG) tend to that parcel. Since 1981, the Gardens have been part of the DPR-administered GreenThumb Gardens program, and the DPR erected signs there bearing the DPR insignia. At first, the DOT leased the gardens to LGCG “on a yearly basis,…renewable only upon consent from the [DOT]” but it later merely licensed the gardens for LGCG’s occupancy “on an interim basis, pending the future development or other use of the premises.” Finally, the Mercer-Houston Dog Run is a fenced-in area that was constructed by NYU in 1979. Since 1981, a non-profit corporation has operated the dog run and granted access only to paying members. The DPR is not involved with the Dog Run.
Supreme Court “declared that the City respondents had illegally alienated all parcels except for the Mercer-Houston Dog Run, and enjoined NYU from starting construction on any of the remaining three parcels without legislative authorization.”
The Appellate Division modified the Supreme Court’s order by dismissing the proceedings, concluding that “petitioners…failed to meet their burden of showing that the City’s acts and declarations manifested a present, fixed, and unequivocal intent to dedicate any of the parcels at issue as public parkland.”
Petitioners appealed and again argued that “the City’s actions manifest its intent to impliedly dedicate the parcels as parkland. Under the public trust doctrine, a land owner cannot alienate land that has been impliedly dedicated to a public use without obtaining the approval of the Legislature.”
The Court of Appeals noted that:
A party seeking to establish such an implied dedication and thereby successfully challenge the alienation of the land must show that: (1) “[t]he acts and declarations by the land owner indicating the intent to dedicate his land to the public use [are] unmistakable in their purpose and decisive in their character to have the effect of a dedication” and (2) that the public has accepted the land as dedicated to a public use[.]
And concluded that:
With respect to the element of the owner’s intent — the only matter contested in this appeal — if a landowner’s acts are “equivocal, or do not clearly and plainly indicate the intention to permanently abandon the property to the use of the public, they are insufficient to establish a case of dedication”[.]
Here, as the Appellate Division noted, several documents created prior to this litigation demonstrate that the City did not manifest an unequivocal intent to dedicate the contested parcels for use as public parks. The permit, memorandum of understanding and lease/license relating to Mercer Playground, LaGuardia Park and LaGuardia Corners Gardens, respectively, show that “any management of the parcels by the [DPR] was understood to be temporary and provisional”…Thus, those documents’ restrictive terms show that, although the City permitted and encouraged some use of these three parcels for recreational and park-like purposes, it had no intention of permanently giving up control of the property. And, as the Appellate Division observed, “the City’s “refus[al of] various requests to have the streets de-mapped and re-dedicated as parkland”…further indicates that the City has not unequivocally manifested an intent to dedicate the parcels as parkland.
That a portion of the public may have believed that these parcels are permanent parkland does not warrant a contrary result. Petitioners did not establish the City’s unequivocal intent to permanently dedicate this municipal property, as there was evidence that the City intended the uses to be temporary, with the parcels to remain under the City’s control for possible alternative future uses.