“Because jurisdiction rests on diversity, B.C.L. § 1312 precludes the maintaining of an action by an unauthorized foreign corporation not only in the state courts of New York but also in the federal courts located in that state.”
How later courts described this case
- “Because jurisdiction rests on diversity, B.C.L. § 1312 precludes the maintaining of an action by an unauthorized foreign corporation not only in the state courts of New York but also in the federal courts located in that state.”
- “[T]his standard . . . requires the intrastate activity of a foreign corporation to be permanent, continuous, and regular for it to be doing business in New York.”
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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TEVES REALTY CORP,
Plaintiff,
MEMORANDUM AND ORDER
-against- Case No. 14-CV-3226 (FB) (VMS)
KARL TERRY, THE CITY OF NEW
YORK, NEW YORK CITY
ENVIRONMENTAL CONTROL
BOARD, NEW YORK CITY
DEPARTMENT OF FINANCE and
NEW YORK CITY PARK
VIOLATIONS BUREAU,
Defendants.
------------------------------------------------x
BLOCK, Senior District Judge:
In this diversity action, Teves Realty Corp (“Teves”) seeks to foreclose two
mortgages on the property of Karl Terry. Both parties move for summary
judgment pursuant to Federal Rule of Civil Procedure 56. For the following
reasons, the motions are denied.
I
In November 2009, Terry borrowed $100,000 from Nechadim Corp. The
debt was evidenced by a promissory note and secured by a mortgage on
commercial property Terry owns in Long Island City, Queens.
What happened next is a matter of dispute. In May 2010, Terry executed a
second promissory note for $100,000 in favor of Alexander Reich and Searle
Selmon. This note was, like the first, secured by a mortgage on Terry’s property in
Long Island City. The record also includes an “EXTENSION PLUS
MODIFICATIONS AND RIDER,” which (1) stated that the November 2009
mortgage was “a FIRST lien upon the premises,” (2) extended the repayment
period for the November 2009 note, and (3) “acknowledge[d] that the money Karl
Terry gave back to Alexander Reich was don[e] to stop the payment of interest on
this mortgage.” Decl. of Harold Schwartz (Aug. 30, 2020), Ex. J. It was signed by
Reich, on behalf of Nechadim, and ostensibly by Terry; however, Terry denies
signing it.
In any event, Terry stopped making payments in November 2010. In 2014
the notes and mortgages were allegedly assigned to Teves, a New Jersey
corporation; Terry disputes this. This action followed.
II
Over the course of this litigation, the parties have proven that they cannot
agree on anything. Court-ordered mediation failed, in no small part because
Teves’s counsel failed to appear for the mediation session, resulting in sanctions.
The parties were then unable to agree on a modification to the briefing schedule for
their summary judgment motions.
It is, therefore, unsurprising that each party has presented the Court with a
litany of reasons why it is entitled to summary judgment and why the opposing
party is not. The Court addresses each argument in turn.
1. As a threshold matter, Terry argues that Teves cannot collect on the
November 2009 note because it has already been repaid. Although there is no
evidence of any satisfaction of the note or mortgage, Teves acknowledges that
Terry “gave back money” to Reich. It argues, however, that Terry immediately
sought another loan of $200,000. That argument, though convoluted, is supported
by the “EXTENSION PLUS MODIFICATIONS AND RIDER.” As noted,
however, Terry denies signing that document. Thus, there is a genuine issue of
material fact precluding summary judgment.
2. Terry next argues that Teves cannot prove a valid assignment of either
note and mortgage. With respect to the first, he notes that Nechadim was dissolved
in January 2011. But “[a] dissolved corporation . . . may continue to function for
the purpose of winding up the affairs of the corporation in the same manner as if
the dissolution had not taken place.” N.Y.B.C.L. § 1006(a). In particular, assets of
a dissolved corporation remain with the corporation “until transferred by it in its
corporate name.” Id. § 1006(a)(1). It is undisputed that the assignment of the
November 2009 loan was signed by Reich as president of Nechadim and was,
therefore, valid.
With respect to the second loan and mortgage, Terry correctly asserts that
the assignment was signed by Reich but not Selmon. Teves argues, however, that
Reich and Selmon were partners. “A partner is the agent of the partnership and his
acts may be adopted and enforced by the partnership as its own.” Beizer v. Bunsis,
833 N.Y.S.2d 154, 156 (2d Dep’t 2007) (quoting Bennett Dairy v. Putney, 362
N.Y.S.2d 93 (4th Dep’t 1974)). Although the loan documents themselves do not
reflect that Reich and Selmon were acting as partners, Reich has attested that they
were. See Decl. of Alexander Reich (Nov. 2, 2020) ¶ 2. In the absence of any
evidence to the contrary, Terry cannot dispute that the assignment of the second
note and mortgage to Teves was valid.
3. Terry next argues that Teves cannot enforce the notes and mortgages
because it did not comply with § 1304 of the Real Property Actions and
Proceedings Law, which requires “notice to the borrower” at least 90 days before
“a lender, an assignee or a mortgage loan servicer commences legal action against
the borrower.” However, § 1304 applies only to a “home loan.” Id. It is
undisputed that both notes were secured by commercial property.
4. Terry next argues that § 1312(a) of New York’s Business Corporation
Law bars foreclosure. That statute provides that “[a] foreign corporation doing
business in this state without authority shall not maintain any action or special
proceeding in this state unless and until such corporation has been authorized to do
business in this state.”
Teves is incorrect that the statute does not apply in federal court. See
Netherlands Shipmortgage Corp. v. Madias, 717 F.2d 731, 735 (2d Cir. 1983)
(“Because jurisdiction rests on diversity, B.C.L. § 1312 precludes the maintaining
of an action by an unauthorized foreign corporation not only in the state courts of
New York but also in the federal courts located in that state.”). But it is correct
that it applies only to foreign corporations “doing business” in New York. There is
no evidence that Teves has done anything in the state other than attempt to enforce
its assigned rights. That does not constitute “doing business.” See id. (“To come
within this section, the foreign corporation must do more than make a single
contract, engage in an isolated piece of business, or an occasional undertaking; it
must maintain and carry on business with some continuity of act and purpose.”
(quoting Int’l Fuel & Iron Corp. v. Donner Steel Corp., 242 N.Y. 224, 230
(1926)). See also id. (“[T]his standard . . . requires the intrastate activity of a
foreign corporation to be permanent, continuous, and regular for it to be doing
business in New York.”).
Terry further argues that Teves’s authorization to do business in its home
state of New Jersey was revoked in 2016. Even assuming that is true, a dissolved
corporation can, as noted, wind up its affairs.
5. Terry next argues that the notes are void because they call for usurious
interest, in violation of § 5-511 of New York’s General Obligations Law.
However, “the defense of usury does not apply where . . . the terms of the
mortgage and note impose a rate of interest in excess of the statutory maximum
only after default or maturity.” Miller Planning Corp. v. Wells, 678 N.Y.S.2d 340,
340 (2d Dep’t 1998). That is the case here.
6. Terry next argues that interest on the notes should be tolled because
Teves delayed enforcing its rights. “In an action of an equitable nature”—such as
foreclosure—“the recovery of interest is within the court's discretion.” Dayan v.
York, 859 N.Y.S.2d 673, 674 (2d Dep’t 2008). While some New York courts have
applied that principle to deny interest to dilatory lenders, there is no evidence that
Teves is guilty of such conduct. The assignments are dated January 2014 and this
lawsuit was filed only four months later. Much of the subsequent delay was
attributable to Terry’s delay in answering the complaint. His default was not set
aside until January 2018. The remaining delay was typical for civil litigation.
7. Finally, Terry argues that Teves seeks relief outside the pleadings.
The body of Teves’s complaint refers to the two notes and mortgages discussed in
Part I; the prayer for relief then seeks foreclosure of the mortgages. Terry
apparently objects that the notes are for $100,000 each, while Teves’s motion
papers assert a total indebtedness of $180,000. As explained above, there is an
issue of fact as to the status of the $100,000 note executed in November 2009.
Terry claims that the balance is an “unasserted claim for $80,000” having nothing
to do with the $100,000 note executed in May 2010. Def.’s Mem. of Law 16.
Teves explains, however, that the discrepancy was due to a $20,000 check
that Terry was given at the closing but did not cash. It is, therefore, clear that
Teves seeks to collect on notes totaling $200,000 on their face, but candidly
acknowledges that Terry did not retain $20,000 of that amount.
III
In sum, there are disputed issues of fact regarding (1) the status of the
November 2009 note and mortgage, and (2) Teves’s standing to enforce the May
2010 note and mortgage. Accordingly, both parties’ motions for summary
judgment are denied.
SO ORDERED.
__/S/ Frederic Block__________
FREDERIC BLOCK
Senior United States District Judge
Brooklyn, New York
September 1, 2021