SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
286
CA 14-01113
PRESENT: SCUDDER, P.J., LINDLEY, VALENTINO, AND DEJOSEPH, JJ.
ALTSHULER SHAHAM PROVIDENT FUNDS, LTD.,
PLAINTIFF-APPELLANT,
V MEMORANDUM AND ORDER
GML TOWER LLC, ET AL., DEFENDANTS,
THE PIKE COMPANY, INC., L.A. PAINTING, INC.,
THE HAYNER HOYT CORPORATION, SYRACUSE MERIT
ELECTRIC, A DIVISION OF O’CONNELL ELECTRIC CO.,
INC., AND TAG MECHANICAL SYSTEMS, INC.,
DEFENDANTS-RESPONDENTS.
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SYMPHONY TOWER LLC, RESPONDENT.
D’AGOSTINO, LEVINE, LANDESMAN & LEDERMAN, LLP, NEW YORK CITY (BRUCE H.
LEDERMAN OF COUNSEL), AND HANCOCK & ESTABROOK, LLP, SYRACUSE, FOR
PLAINTIFF-APPELLANT.
PHILLIPS LYTLE LLP, ROCHESTER (MARK J. MORETTI OF COUNSEL), FOR
DEFENDANT-RESPONDENT THE PIKE COMPANY, INC.
HAHN LOESER & PARKS LLP, SARATOGA SPRINGS (ANDREW AGATI OF COUNSEL),
AND GILBERTI STINZIANO HEINTZ & SMITH, P.C., SYRACUSE, FOR
DEFENDANT-RESPONDENT THE HAYNER HOYT CORPORATION.
BYRNE, COSTELLO & PICKARD, P.C., SYRACUSE (JORDAN R. PAVLUS OF
COUNSEL), FOR DEFENDANTS-RESPONDENTS SYRACUSE MERIT ELECTRIC, A
DIVISION OF O’CONNELL ELECTRIC CO., INC. AND TAG MECHANICAL SYSTEMS,
INC.
GOLDBERG SEGALLA LLP, BUFFALO (MARC W. BROWN OF COUNSEL), FOR
RESPONDENT.
Appeal from an order of the Supreme Court, Onondaga County
(Deborah H. Karalunas, J.), entered March 18, 2014. The order denied
plaintiff’s motion seeking, inter alia, to modify the judgment of
foreclosure and sale.
It is hereby ORDERED that the order so appealed from is reversed
in the exercise of discretion without costs and plaintiff’s motion is
granted, the judgment of foreclosure and sale is modified by granting
plaintiff priority in the amount of $5,500,000, plus interest from
March 29, 2007, the order confirming the Referee’s report of sale is
vacated, the Referee’s deed is set aside and a new foreclosure sale
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CA 14-01113
for 101-131 Onondaga Street, Syracuse, New York is ordered.
Memorandum: Plaintiff, formerly known as Perfect Provident Fund
Ltd., commenced this mortgage foreclosure action against defendants
related to several properties that, together, make up the Hotel
Syracuse complex in downtown Syracuse. The parties disputed the
priorities of their respective claims to the proceeds of the impending
foreclosure sales. Following extensive litigation, a judgment of
foreclosure, a foreclosure sale and, ultimately, a remittitur from the
Court of Appeals (Altshuler Shaham Provident Funds, Ltd. v GML Tower,
LLC, 21 NY3d 352, 357, rearg denied 21 NY3d 1047), plaintiff filed the
motion that is the subject of this appeal seeking, inter alia, to
modify the judgment of foreclosure and sale, to vacate the order of
Supreme Court confirming the Referee’s report of sale of the property
known as 101-131 Onondaga Street, Syracuse NY, to set aside the
Referee’s deed for that property and to order a new foreclosure sale
of that property. That motion was denied, and we now reverse.
In 2005 defendants GML Tower LLC, GML Syracuse, LLC and GML Addis
LLC (GML defendants) purchased three properties: a hotel with garage,
a 15-story tower addition to the hotel, and a building that once
housed a department store. The purchase was financed by a duly
recorded mortgage held by a “now-defunct Illinois-based bank” (id.).
In 2007, plaintiff loaned approximately $10 million to defendant
Ameris Holdings, Inc. and one of its subsidiaries, defendant GML Tower
LLC, for the purposes of repaying the bank for the outstanding
principal ($5.5 million) and financing the construction of
improvements to the property known as the tower building ($4.5
million) (see id. at 357-358). Plaintiff did not, however, file the
2007 loan agreement or the 2008 amendment to that agreement in the
county clerks’ office, as required by Lien Law § 22. In December
2008, plaintiff commenced this mortgage foreclosure action against
defendants, some of whom had mechanic’s liens on the properties.
Plaintiff also filed a notice of pendency on the properties pursuant
to CPLR 6501. Following motions and cross motions for summary
judgment, the court determined that, although some of plaintiff’s
mortgage was for the purpose of acquiring the property, the entirety
of plaintiff’s $10 million mortgage was subject to the subordination
penalty of Lien Law § 22 and was therefore subordinate to the
mechanic’s liens (Altshuler Shaham Provident Funds, Ltd., 28 Misc 3d
475). We affirmed Supreme Court’s order for reasons stated (Altshuler
Shaham Provident Funds, Ltd., 83 AD3d 1563).
While plaintiff attempted to appeal to the Court of Appeals, the
parties consented to entry of a final order for judgment of
foreclosure, which was stayed pending certain action of the Court of
Appeals or further order of the court. Meanwhile, plaintiff’s notice
of pendency expired by its terms, and plaintiff did not seek to extend
it (see CPLR 6513). Ultimately, the Court of Appeals dismissed
plaintiff’s motion for leave to appeal “upon the ground that the order
sought to be appealed from d[id] not finally determine the action
within the meaning of the Constitution” (Altshuler Shaham Provident
Funds, Ltd., 18 NY3d 892, rearg denied 19 NY3d 837).
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CA 14-01113
Following the Court of Appeals’ determination, defendant The
Hayner Hoyt Corporation (Hayner Hoyt) moved to vacate the stay of the
foreclosure judgment. With the consent of all parties, the court
vacated the stay and, on June 6, 2012, the tower building was sold to
Hayner Hoyt at a public auction. Twelve days later, Hayner Hoyt sold
the property to respondent, Symphony Tower LLC (Symphony), which is a
domestic limited liability company that lists Gary V. Thurston as its
registered agent. Thurston is the chairman and chief executive
officer (CEO) of Hayner Hoyt, and Symphony’s initial Department of
State filing was on May 24, 2012.
An order confirming the Referee’s report of sale was entered on
July 13, 2012, and plaintiff thereafter again sought leave to appeal
this Court’s decision to the Court of Appeals. On June 11, 2013, the
Court of Appeals modified our decision by concluding that the $5.5
million used by plaintiff to pay off the existing mortgage “was not
subject to the subordination penalty” of Lien Law § 22 and that
plaintiff was entitled to priority for that amount (Altshuler Shaham
Provident Funds, Ltd., 21 NY3d at 368). In its remittitur, the Court
of Appeals ordered that the order of the Appellate Division be
“modified, without costs, . . . and, as so modified, . . . affirmed.”
The Court further ordered that “this record of the proceedings in this
Court be remitted to Supreme Court, Onondaga County, there to be
proceeded upon according to law.”
Plaintiff thereafter filed a “Successive Notice of Pendency in
Foreclosure Action” (see CPLR 6516 [a]; RPAPL 1331), and moved in the
Court of Appeals for clarification of the remittitur to determine
whether the Court of Appeals was “precluding the Supreme Court from
potentially exercising its inherent equitable discretion to vacate its
judgment [of foreclosure] and order a new foreclosure sale.” In the
alternative, plaintiff sought to modify the decretal portion of the
Court of Appeals’ decision “to specifically provide that the judgment
confirming the [R]eferee’s report of sale . . . is remanded for
further proceedings.” Plaintiff’s motion “for clarification or
reargument” was denied with costs (Altshuler Shaham Provident Funds,
Ltd., 21 NY3d 1047).
Relying on the “well-established equitable power of the Court to
modify foreclosure orders and vacate referee’s deeds where a mistake
and/or change in the law ‘casts doubt upon the fairness of the
sale,’ ” plaintiff moved to vacate the order confirming the Referee’s
report of sale and the Referee’s deed and to direct a new foreclosure
sale. The court denied the motion, determining that there was no
“oppression, injustice or fundamental unfairness” to justify the
court’s exercise of its discretionary equitable powers to undo the
foreclosure sale or otherwise modify the judgment of foreclosure
(Altshuler Shaham Provident Funds, Ltd., 42 Misc 3d 1232[A], 2014 NY
Slip Op 50311[U], *3).
It is well settled that, even after a judicial sale to a good
faith purchaser, “[a] court may exercise its inherent equitable power
over a sale made pursuant to its judgment or decree to ensure that it
is not made the instrument of injustice . . . Although this power
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CA 14-01113
should be exercised sparingly and with great caution, a court of
equity may set aside its own judicial sale upon grounds otherwise
insufficient to confer an absolute legal right to a resale in order to
relieve [a party] of oppressive or unfair conduct” (Guardian Loan Co.
v Early, 47 NY2d 515, 520-521; see Fleet Fin. v Gillerson, 277 AD2d
279, 280). Generally, such discretion, “which is separate and
distinct from any statutory authority” (Wayman v Zmyewski, 218 AD2d
843, 844), is exercised where fraud, mistake, exploitive overreaching,
misconduct, irregularity or collusion “casts suspicion on the fairness
of the sale” (Fleet Fin., 277 AD2d at 280; see Guardian Loan Co., 47
NY2d at 521; Wells Fargo Bank, N.A. v IPA Asset Mgt. III, LLC, 111
AD3d 820, 821-822). It may also be exercised where “the price is so
inadequate as to shock the court’s conscience” (Polish Natl. Alliance
of Brooklyn v White Eagle Hall Co., 98 AD2d 400, 407; see Wells Fargo
Bank, N.A., 111 AD3d at 822; Harbert Offset Corp. v Bowery Sav. Bank,
174 AD2d 650, 651) or where the judicial sale has been “made the
instrument of injustice” (Guardian Loan Co., 47 NY2d at 520).
While we agree with defendants that there has been no showing of
fraud, mistake, exploitive overreaching, misconduct, irregularity or
collusion, and the price is not so inadequate as to shock the
conscience, we agree with plaintiff that, under the circumstances of
this case, the judicial sale has been made the instrument of
injustice.
There can be no dispute that plaintiff’s failures have
contributed to its current predicament. First, plaintiff failed to
file the loan documents pursuant to Lien Law § 22 and, second,
plaintiff failed to protect its rights by, inter alia, failing to
extend the notice of pendency pursuant to CPLR 6513. Inasmuch as
equitable relief should be invoked to “ ‘aid[] the vigilant and not
those who slumber on their rights’ ” (Kansas v Colorado, 514 US 673,
687), defendants’ contention that equity should not intervene is not
without merit (see Da Silva v Musso, 76 NY2d 436, 439). Had those
failures not occurred, plaintiff would have had an absolute legal
right to relief and would not need to rely on equity’s intervention.
Despite plaintiff’s failings, we conclude that a balancing of the
equities in this case favors plaintiff. The Court of Appeals declined
to review this Court’s order until after the foreclosure sale and
order confirming the Referee’s report of sale. Had plaintiff been
able to appeal this Court’s order initially, as in Da Silva (76 NY2d
at 439), the priorities would have been established before any
judicial sale occurred, and there would have been no need for
subsequent litigation to set aside the sale. Moreover, Hayner Hoyt
and Symphony, through its agent, had actual notice of the ongoing
litigation and the potential risks in buying the property. While
defendants correctly contend that actual knowledge of a pending appeal
is “not legally significant and that, in the absence of an outstanding
valid notice of pendency, the owner’s ability to transfer clear title
to the disputed property remains unimpaired” (id. at 438; see Aubrey
Equities v Goldberg, 247 AD2d 253, 253, lv denied 92 NY2d 802), we
nevertheless conclude that such knowledge may be considered when
balancing the equities in this case. Symphony’s agent is Hayner
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CA 14-01113
Hoyt’s chairman and CEO, and Symphony’s initial filing with the
Department of State was less than one month before the judicial sale.
Hayner Hoyt transferred title to the property to Symphony only 12 days
after purchasing it at the judicial sale. We thus conclude that the
prejudice sustained by Symphony does not outweigh the prejudice
sustained by plaintiff (cf. Da Silva, 76 NY2d at 438; Aubrey Equities,
247 AD2d at 253). Here, the judicial sale has been “made the
instrument of injustice” and must be set aside (Guardian Loan Co., 47
NY2d at 520).
All concur except DEJOSEPH, J., who dissents and votes to affirm
in the following memorandum: I respectfully dissent. In my view,
Supreme Court properly exercised its discretion in denying plaintiff’s
motion to set aside the underlying foreclosure sale.
It is well established that “[a] court has the inherent equitable
power to ensure that a sale conducted pursuant to a judgment of
foreclosure ‘is not made the instrument of injustice’ ” (Alkaifi v
Celestial Church of Christ Calvary Parish, 24 AD3d 476, 477), and “a
court of equity may set aside its own judicial sale upon grounds
otherwise insufficient to confer an absolute legal right to a resale
in order to relieve [a party] of oppressive or unfair conduct”
(Guardian Loan Co. v Early, 47 NY2d 515, 520-521). As the majority
properly notes, however, this power “should be exercised sparingly and
with great caution” (id. at 520).
The majority acknowledges that plaintiff’s failures have
contributed to its current predicament, but ultimately concludes that,
“under the circumstances of this case, the judicial sale has been made
the instrument of injustice.” In my view, the majority has failed to
explain how this sale, under these circumstances, has been made the
instrument of injustice and, in any event, I cannot agree with that
conclusion. As Supreme Court observed, plaintiff “failed to avail
itself of the most basic step in preserving its claim, [namely,]
maintaining a valid notice of pendency on the property,” and I cannot
look past that failure. In addition thereto, plaintiff did not file
the loan documents pursuant to Lien Law § 22 and did not seek a CPLR
5519 stay following entry of the order confirming the Referee’s report
of sale. Lastly, while I acknowledge the inherent risks associated
with doing so, plaintiff also failed to bid at the June 2012
foreclosure sale.
In my view, equity is available only to the “vigilant and not
those who slumber on their rights” (Kansas v Colorado, 514 US 673, 687
[internal quotation marks omitted]). There is no dispute here that
plaintiff had options to protect its interests. Plaintiff created
this current predicament by its own disregard of basic real property
practice. I am unwilling to engage in a balancing of the equities
because I see no equities to weigh. I therefore would affirm.
Entered: June 12, 2015 Frances E. Cafarell
Clerk of the Court