Courchevel 1850 LLC v. Alam

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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COURCHEVEL 1850 LLC,

Plaintiff,

MEMORANDUM AND

- against - ORDER

17-CV-785 (RRM) (SMG)

MOHAMMED ALAM; KOZNITZ I LLC; UNITED STATES OF

AMERICA (INTERNAL REVENUE SERVICE); NY STATE

DEPARTMENT OF TAXATION AND FINANCE; CITIBANK,

N.A.; CITIBANK (SOUTH DAKOTA), NEW YORK CITY

ENVIRONMENTAL CONTROL BOARD; NEW YORK CITY

TRANSIT ADJUDICATION BUREAU; NEW YORK CITY

PARKING VIOLATIONS BUREAU,

Defendants.

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ROSLYNN R. MAUSKOPF, Chief United States District Judge.

In this foreclosure action, Defendant Koznitz I LLC (“Koznitz”) is the current fee owner

and occupant of the property, having purchased it from the original owner and mortgagor

defendant Mohammed Alam (Def.’s Rule 56.1 Statement (Doc. No. 46) ¶ 1–2.) Koznitz objects

to two recommendations from Magistrate Judge Gold’s October 30, 2019, report and

recommendation (“R&R”), which, among other things, recommended that the Court grant

plaintiff Courchevel 1850 LLC (“Courchevel”) summary judgment. For the reasons stated

below, the Court denies the objections to the Report and Recommendation (“R&R”), grants

Plaintiff summary judgment, and adopts the R&R in all respects.

I. Background

On August 18, 2008, Mohammed Alam executed a note to AmTrust Bank, along with a

mortgage to Mortgage Electronic Registration Systems, Inc. as Nominee for AmTrust Bank, to

purchase the property at 3228 97th Street, East Elmhurst, New York 11369 (“the Property”).

(Compl. (Doc. No. 1) at ¶¶ 29–30; Answer (Doc. No. 30) at ¶ 3.) Defendant Koznitz became

owner of record of this property by virtue of a Deed from Alam recorded on July 26, 2013.

(Compl. at ¶ 10; Answer at ¶ 3.) Plaintiff alleges that the ownership of the note passed to it

through a series of specific indorsements, first from AmTrust Bank to the Federal Home Loan

Bank of Cincinnati, then to the Federal Deposit Insurance Corporation as Receiver for AmTrust

Bank of Cleveland, Ohio, then to Bayview Loan Servicing, LLC, then by allonge to RCS

Recovery Services, LLC, then by allonge to Blue Lagoon LLC, then by allonge to Plaintiff,

Courchevel 1850 LLC. (Compl. at ¶32–7.) Plaintiff alleges that Alam is solely indebted to it on

the loan, while Koznitz claims that it is a “successor-in-interest” to Alam. (Compl. at ¶ 43;

Def.’s Rule 56.1 Statement at ¶ 2.)

Plaintiff Courchevel 1850 LLC brought this action on February 13, 2017 pursuant to New

York Real Property Actions and Proceedings Law (“RPAPL”) § 1301 et seq., to foreclose the

mortgage encumbering the Property, against Alam, Koznitz and seven alleged lienholders.

(Compl.) Along with its complaint, Courchevel has submitted and Koznitz has personally

inspected a note with allonges showing a series of indorsements beginning with the note’s

original owner and ending with Courchevel. (See Declaration in Supp. of Def.’s Cross-Mot. to

Dismiss & for Summ. J. & in Opp. to Pl.’s Mot. for Summ. J. (“Decl. in Supp. of Def.’s Cross-

Mot”) (Doc. No. 47) ¶¶ 3–4); (Notes & Allonges (Doc. No. 1-2) at 5–8.)1 The first two specific

indorsements, (1) from AmTrust Bank to the Federal Home Loan Bank of Cincinnati, then (2) to

the Federal Deposit Insurance Corporation as Receiver for AmTrust Bank of Cleveland, Ohio,

appear beneath Alam’s signature on page 3 of the Note. (Notes & Allonges at 4.) The third

indorsement, (3) to Bayview Loan Servicing, LLC, appears to be on the back of the note. (Id. at

5.) The last three indorsements, (4) to RCS Recovery Services, LLC, then (5) to Blue Lagoon

1 All page numbers refer to ECF pagination.

LLC, then (6) to Plaintiff, Courchevel 1850 LLC, were by allonges, all three of which

specifically reference the note. (Id. at 5–8.) The allonges were fastened to the note with one

staple on the upper left side, and, apart from the staple, there were no visible staple holes or tears

on the documents. (See Decl. in Supp. of Def.’s Cross-Mot.) ¶¶ 6–7.) Courchevel has shown by

an affidavit from its owner, Jared Dotoli, that, at the time the suit was filed, Courchevel had

“possession of the original Note, with endorsements and allonges, as affixed thereto.” (Aff. of

Note Possession (Doc. No. 1-4) ¶ 7.) Courchevel also attached to its complaint a mortgage

which, in pertinent part, describes the lender’s obligation to provide the mortgagor, Alam, a

notice in case of any default, with 30 days to cure. (Mortgage (Doc. No. 1-3) at 18–19.) In its

answer, Koznitz raised (among other affirmative defenses) the defenses that the indorsements

presented by Courchevel failed to establish Courchevel’s standing, and that Courchevel could

not prove that it had mailed the notice of default required by the terms of the mortgage. (See

Answer at 1–2.)

Plaintiff moved for summary judgment against defendant Koznitz on June 18, 2018,

(Mot. for Summ. J. (Doc. No.38)), and Koznitz cross-moved on August 10, 2018, to dismiss the

action pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter

jurisdiction, lack of standing to foreclose, and for lack of a contractually-required default letter to

the original mortgage. (Mot. to Dismiss (Doc. No. 45).) Koznitz moved in the alternative for

summary judgment on these issues. (Id.)

As to the issue of jurisdiction, Koznitz argued that because defendants included the

United States and the state of New York, and because there was no evidence that defendant

Citibank was a citizen of South Dakota, Courchevel had not carried its burden of proving

diversity jurisdiction. (Mem. in Supp. of Mot. to Dismiss and for Summ. J. (Doc. No. 48) at 2–

3.)2 As to standing, Koznitz opposed summary judgment on the ground that Courchevel had not

carried its burden of proving standing. (Id. at 4.) Koznitz argued that NYUCC § 3-202(2)

requires that a transfer effected by delivery with indorsements must occur with all allonges

“firmly affixed” at the moment of delivery. (Id. at 5.) Otherwise, Koznitz argued, the transferor

or transferors would have failed the firm affixation requirement, meaning that they would have

lacked capacity to assign the note. (See id.) Since it was clear that the allonges had been stapled

together only once, after execution of the final indorsement to plaintiff, then prior transferors

must have failed the “firm affixation” requirement and therefore must have lacked capacity to

assign the note. (Id.) As to the default notice, Koznitz opposed summary judgment on the

ground that Koznitz had not carried its burden of proving mailing of the default notice. (Id. at 7.)

Koznitz argued that the mailing was a condition precedent to foreclosure, but that the proofs

offered by Courchevel failed to establish the fact of mailing, and failed to establish that the

mailing complied with the terms of the mortgage, that such a mailing be sent with thirty days to

cure the default described. (Id. at 7–9.)

On November 6, 2018, Courchevel moved for the appointment of a receiver to collect

rents due from the Property during the pendency of this action pursuant to Rules 64 and 66 of the

Federal Rules of Civil Procedure. (Mot. to Appoint Receiver (Doc. No. 58).) Following a

hearing regarding whether the plaintiff had manufactured diversity jurisdiction, on May 28,

2019, Koznitz moved once more to dismiss the action pursuant to Rule 12(b)(1), (Mot. to

Dismiss (Doc. No. 83)), and separately moved for sanctions pursuant to Federal Rule of Civil

Procedure 11. (Mot. for Sanctions (Doc. No. 84).)

On October 30, 2019, Magistrate Judge Steven M. Gold issued an R&R, pursuant to

2 As Koznitz has not objected to Magistrate Judge Gold’s findings as to diversity jurisdiction, the Court will not

further analyze this issue.

Judge Weinstein’s referral order dated March 23, 2017, recommending that plaintiff’s motion for

summary judgment be granted in its entirety; that Koznitz’s cross-motion to dismiss and for

summary judgment, second motion to dismiss, and motion for sanctions be denied; and that

plaintiff’s motion to appoint a receiver be denied. (R&R (Doc. No. 95).) Magistrate Judge Gold

further recommended that the Department of Taxation and the IRS be dismissed from this action,

and that Koznitz be permitted to take additional discovery on the issue of subject matter

jurisdiction, provided it is not duplicative of discovery it has already conducted. (Id.)

As to the issue of standing, Judge Gold found that plaintiff had carried its burden of

proving standing to foreclose. (Id. at 23.) Judge Gold found that mere possession of the note

was insufficient to confer standing, because NYUCC 3-202(2) also required that specific

indorsements, as the indorsements in this case, be firmly affixed to the note. (Id. at 20.) Judge

Gold found “not implausible” Koznitz’s argument that the prior allonges were unaffixed at the

time of delivery. (Id. at 21.) However, Judge Gold also found that it was clear from the record

that the allonges were firmly affixed at the time of the commencement of foreclosure. (Id.)

Judge Gold also pointed out that the allonges specifically referred to the note. (Id. at 22.)

He reasoned that 3-202(2) should be read in light of NYUCC § 1-103(a)(1)’s policy of

simplifying and clarifying “the law governing commercial transactions.” (Id. at 22.) Read thus,

it is clear 3-202(2) was meant only to ensure that allonges relate to the note. (Id.) Since the

allonges specifically referenced the note, the allonges were “firmly affixed” under 3-202(2), and

summary judgment for plaintiff was appropriate. (Id.)

As to the issue of the default notice, Judge Gold agreed with Courchevel that Koznitz, not

being a party to the Mortgage, lacked standing to assert noncompliance with its terms. (Id. at

23.) Judge Gold reasoned that, unlike the assignee of a contract, the purchaser of a property does

not become liable to pay the debt on the house it purchases. (Id. at 24.) Therefore, Koznitz

could not raise the defense of failure to mail the default notice. (Id.)

Koznitz now objects to Magistrate Judge Gold’s R&R granting plaintiff’s motion for

summary judgment on two grounds. (Objs. to R&R (Doc. No. 96).) First, Koznitz renews its

argument that Courchevel must be denied summary judgment because there is a genuine dispute

of material fact as to whether Courchevel has standing to foreclose. Koznitz argues that

Courchevel cannot prove that the Note was assigned to it and that Courchevel therefore lacks

standing to sue. (Answer at 1.) Courchevel contends that it was the holder of the Note and

therefore has standing. (Pl.’s Rule 56.1 Statement (Doc. No. 40) ¶ 8.)

In its objections to Magistrate Judge Gold’s R&R, Koznitz reasserts its theory that the

chain of assignments resulting in Courchevel’s possession of the note failed to confer standing,

because there was only one staple through all of the allonges without signs of tearing or re-

stapling. (See Def.’s Objs. at 2.). From this fact, Koznitz argues that it can be inferred that the

prior allonges went unaffixed during some period of time ending when all of the allonges were

stapled together to the note. (See id. at 2–3.) Therefore, during the period of time prior to the

final stapling, the allonges failed the UCC’s requirement that an indorsement by allonge be

“firmly affixed to the note,” even though the allonge was affixed as of the day of the

commencement of the foreclosure action. (Id.) Failing this requirement, the prior possessors

were not holders of a properly indorsed note as defined by the UCC, and therefore they lacked

power to validly assign the note and confer standing to Courchevel. (See id.)

Second, Koznitz reasserts its theory that there is a genuine dispute of material fact as to

whether a notice was mailed to the original mortgagor, as was required under the original

mortgage contract. Contrary to Judge Gold’s finding that Koznitz does not have standing to

assert defenses of the original mortgagor, Koznitz asserts that it “stands in the shoes” of the

seller, Alam. (Id. at 6.) Koznitz reiterates its arguments that Courchevel did not establish the

fact of mailing, because it furnished by way of proof only an affidavit sworn by plaintiff and

plaintiff’s counsel that the “30-day notice was issued,” rather than mailed. (Id. at 8.) Koznitz

argues that the UPS confirmation letter submitted by Courchevel is insufficient under New York

law, which requires a first-class mailing, and that Courchevel cannot prove that any mailing went

to the correct address. (Id.)

II. Standard of Review

The Court reviews Koznitz’s two objections to the magistrate judge’s recommendation de

novo. United States ex rel. Coyne v. Amgen, Inc., 243 F. Supp. 3d 295, 297 (E.D.N.Y. 2017),

aff’d sub nom. Coyne v. Amgen, Inc., 717 F. App’x 26 (2d Cir. 2017). Summary judgment is

appropriate when the pleadings, depositions, interrogatories, admissions, and affidavits

demonstrate that there are no genuine issues of material fact in dispute and that one party is

entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477

U.S. 317, 322 (1986). As to Koznitz’s cross-motion to dismiss, motion for summary judgment,

second motion to dismiss, and motion for sanctions, Courchevel’s motion to appoint a receiver,

and dismissal of the Department of Taxation and the IRS, pursuant to 28 U.S.C. § 636(b) and

Rule 72, this Court reviews the R&R for clear error. See Pall Corp. v. Entegris, Inc., 249 F.R.D.

48, 51 (E.D.N.Y. 2008).

DISCUSSION

A. Standing

Under New York Law, “a plaintiff has standing in a mortgage foreclosure action when it

is the holder or assignee of the underlying note.” Deutsche Bank Nat’l Tr. Co. v. Benson, 116

N.Y.S.3d 685, 686–87 (N.Y. App. Div. 2020) (citations omitted). A holder under the New York

UCC is simply “the person in possession of a negotiable instrument3 that is payable either by

indorsement to bearer or indorsement to an identified person that is the person in possession.”

N.Y.U.C.C. Law (“NYUCC”) § 1-201(b)(21). The transfer of a negotiable instrument with all

necessary indorsements negotiates the instrument, thereby creating a new holder. See NYUCC §

3-202. If indorsement is by allonge, the allonge must take the form of “a paper so firmly affixed

[to the note] as to become a part thereof.” NYUCC § 3-202(2). See Nationstar Mortgage LLC v.

Corrao, 114 N.Y.S.3d 189 (N.Y. Sup. Ct. 2019) (stapling satisfies firm affixation requirement);

HSBC Bank USA, Nat. Ass’n v. Roumiantseva, 15 N.Y.S.3d 117, 120 (N.Y. App. Div. 2015)

(attachment by paperclip fails the firm affixation requirement.) A party that fulfills the UCC’s

definition of holder has standing ipso facto and is not required to prove extra-statutory elements

about the delivery or indorsement of the note. See JPMorgan Chase Bank, Nat. Ass’n v.

Weinberger, 37 N.Y.S.3d 286, 288–89 (N.Y. App. Div. 2016) (declining to require a holder to

prove the fact of delivery once it had proven possession with a valid indorsement); U.S. Bank NA

as Tr. of Holders of the J.P. Morgan Mortg. Tr. 2007-S3 Mortg. Pass-Through Certificates v.

Cannella, 99 N.Y.S.3d 579, 587 (N.Y. Sup. Ct. 2019) (declining to read into § 3-202 a

requirement that an allonge must be “permanently attached” to a note).4 In interpreting the “firm

affixation” requirement, as with all aspects of the NYUCC, the interpreting court must bear in

mind the UCC’s policy, “to simplify, clarify, and modernize the law governing commercial

transactions.” NYUCC § 1-103(a)(1).

The Court agrees with Magistrate Judge Gold that Courchevel has established its

3 A note qualifies as a negotiable instrument. NYUCC § 3-104.

4 Nor are these cases distinguishable because the notes in question were payable to bearer, i.e. indorsed in blank.

The only extra requirement beyond possession for one receiving a note with a special indorsement is that the special

indorsement be made to the specific party in possession. See NYUCC § 1-201(b)(21).

entitlement to summary judgment on the issue of standing to foreclose. Here, Courchevel is

claiming standing through its status as holder. Courchevel has shown that it is a holder. The

elements of the definition of a holder by special indorsement under NYUCC 1-201(b)(21) are (1)

possession; (2) of a note with indorsements in the name of the person in possession. As Koznitz

has argued, and as Magistrate Judge Gold points out, the NYUCC effectively adds the third

element that indorsements by allonge must be (3) firmly affixed to the note. Courchevel has

shown (1) possession of a note with (2) special indorsements in its name. The allonges (3) are in

compliance with NYUCC § 3-202(2), because the indorsements, as Koznitz admits, are stapled

to the note and therefore firmly affixed. As Magistrate Judge Gold explained in his report and

recommendation, 3-202(2) must be read in light of the NYUCC’s goal of fostering simplicity

and clarity in commercial transactions. It would defeat those policies entirely to find that

Koznitz had raised a dispute of fact where, as here, there is plain, facial proof that all of the

allonges in question relate to the note in question, and where the plaintiff complied with the letter

of 3-202(2) by possessing a note with allonges firmly affixed. Courchevel has submitted an

affidavit attesting to possession and firm affixation, along with a copy of the note, and Koznitz

has personally inspected this evidence. None of this evidence is disputed. There is no dispute,

then, that Courchevel is the holder.

It is also immaterial to its holder status whether there exists some evidence that the

plaintiff originally took possession of a note with loose allonges and then stapled them to the

note after the fact. There would be no legal defect if it had done so, since the UCC permits

indorsement after transfer. See NYUCC § 3-201(3).

Since there is no dispute about Courchevel’s status as a holder, Courchevel has proven its

entitlement to summary judgment on the issue of standing.

B. The Default Letter

A party lacks standing to assert noncompliance with the terms of a mortgage to which it

was not a party. See Rajamin v. Deutsche Bank Nat’l Tr. Co., 757 F.3d 79, 84 (2d Cir. 2014)

(holding that the plaintiffs who were neither parties nor third-party beneficiaries of a pooling

service agreement could not assert noncompliance with the agreement as a claim or defense);

Nash v. Duroseau, 39 A.D.3d 719, 720 (2d Dep’t. 2007) (“As third parties who were not parties

to the mortgages which are the subject of this mortgage foreclosure action, [the defendants] lack

standing to raise the defense of lack of consideration on the ground that that defense is personal

to the original mortgagor.”); accord Cty. of Tioga on Behalf of Tioga Cty. Solid Waste Dist. v.

Solid Waste Indus. Inc., 178 A.D.2d 873, 874 (3d Dep’t. 1991). The status of a purchaser of real

property is therefore unlike that of the assignee of a contract where “the assignee steps into the

assignor’s shoes and acquires whatever rights the latter had.” In re Stralem, 303 A.D.2d 120,

123 (N.Y. App. Div. 2003) (internal citation omitted). “When a person purchases property

subject to a lien[,] he or she does not become personally liable to pay the debt underlying the

lien. The property is, however, burdened by the lien and its equity value to an owner is reduced

by the value of the lien.” Ozzi v. I.R.S., 1992 WL 37080, at *2 (E.D.N.Y. Feb. 11, 1992).

The Court agrees with Magistrate Judge Gold that Courchevel is entitled to summary

judgment on the issue of the mailing of a contractually-required default letter Koznitz claims was

owed to the original mortgagor. The complaint alleges that Alam is the sole party liable on the

note. Koznitz, then, was not and is not a party to the debt contract for which the mortgage was

security, nor has Koznitz pleaded (let alone raised evidence) that it is an assignee of that contract.

Koznitz, in sum, has not raised any evidence from which a factfinder could infer that it is owed

any duties under the contract. All of the cases Koznitz has cited in its objections involved an

actual assignment. No such assignment is in evidence here. The idea that Koznitz, simply by its

purchase of the property, “stands in the shoes” of the original mortgagor and may assert the

mortgagor’s contractual defenses has no basis in law. Therefore, Koznitz has raised no dispute

of material fact, and Courchevel is entitled to summary judgment on this issue.

C. Clear Error

The Court has also reviewed that portion of the R&R as to which no objections were

raised and finds no clear error. The Court therefore adopts those portions of the R&R which

recommended denial of Koznitz’s cross-motion to dismiss and motion for summary judgment,

denial of Koznitz’s second motion to dismiss and motion for sanctions, denial of Courchevel’s

motion to appoint a receiver, and dismissal of the Department of Taxation and the IRS

CONCLUSION

Having reviewed Koznitz’s objections de novo, and having reviewed the other findings of

the magistrate judge for clear error, the Court adopts Magistrate Judge Gold’s R&R in full for

the reasons stated above. Accordingly, the Court grants Courchevel’s motion for summary

judgment, and denies Koznitz’s cross-motion to dismiss, motion for summary judgment, second

motion to dismiss, motion for sanctions, and Courchevel’s motion to appoint a receiver. The

Court also dismisses the Department of Taxation and the IRS. This action is re-committed to the

assigned magistrate judge for all remaining pretrial proceedings, including settlement discussions

as appropriate.

SO ORDERED.

Dated: Brooklyn, New York

May 28, 2020 Roslynn R. Mauskopf

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ROSLYNN R. MAUSKOPF

Chief United States District Judge