U.S. Bank National Association, as Trustee for the Registered Holders of Wells Fargo Commercial Mortgage Securities, Inc., Multifamily Mortgage Pass-Through Certificates, Series 2019-SB63 v. 1078 Whillmore LLC

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

--------------------------------------X

U.S. BANK NATIONAL ASSOCIATION, AS

TRUSTEE FOR THE REGISTERED HOLDERS OF MEMORANDUM AND ORDER

WELLS FARGO COMMERCIAL MORTGAGE

SECURITIES, INC., MULTIFAMILY MORTGAGE 23-CV-8245(KAM)(TAM)

PASS-THROUGH CERTIFICATES, SERIES 2019-

SB63, acting by and through its special

servicer, Berkeley Point Capital LLC

d/b/a Newmark, as Special Servicer

under the Pooling and Servicing

Agreement dated as of June 1, 2019,

Plaintiff,

-against-

1078 WHILLMORE LLC; SAMUEL FLEISCHMAN;

NEW YORK CITY DEPARTMENT OF FINANCE;

NEW YORK CITY OFFICE OF ADMINISTRATIVE

TRIAL HEARINGS; and “JOHN DOE” NO. 1

THROUGH “JOHN DOE” NO. 100,

The names of the “John Doe” Defendants

being Fictitious and Unknown to

Plaintiff, the Persons and Entities

Intended Being Those Who May Be in

Possession of, or May Have Possessory

Liens or Other Interests in, the

Premises Herein Described,

Defendants.

--------------------------------------X

KIYO A. MATSUMOTO, United States District Judge:

On November 6, 2023, Plaintiff U.S. Bank National Association

(“Trustee”), as Trustee for the Registered Holders of Wells Fargo

Commercial Mortgage Securities, Inc., Multifamily Mortgage Pass-

Through Certificates, Series 2019-SB63 (the “Trust”) (Trustee as

trustee of the Trust hereinafter referred to as “Plaintiff”),

acting by and through its special servicer, Berkeley Point Capital

LLC d/b/a Newmark (“Special Servicer”), as Special Servicer under

the Pooling and Servicing Agreement dated as of June 1, 2019 (the

“PSA”), brought this action against Defendants to foreclosure a

mortgage in the original principal amount of $1,084,000.00. (ECF

No. 1, Complaint (“Compl.”).) Plaintiff brought this action

against defendant 1078 Whillmore LLC (the “Borrower”), the

mortgagor of the mortgage in question and the owner of the property

securing the mortgage; along with defendant Samuel Fleischman (the

“Guarantor”), the sole member of 1078 Whillmore LLC, who guaranteed

Borrower’s obligations under the note (together with the Borrower,

the “1078 Whillmore Defendants”); and other defendants who might

have possible claims against the property. (Id. at ¶¶ 4-6.)

Presently before the Court is the Plaintiff’s Motion for the

Appointment of a Receiver, as well as the 1078 Whillmore

Defendants’ motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6).

(See ECF No. 21, Plaintiff’s Notice of Motion for the Appointment

of a Receiver; ECF No. 27, 1078 Whillmore Defendants’ Notice of

Motion to Dismiss.) For the reasons set forth below, Plaintiff’s

motion is GRANTED, and the 1078 Whillmore Defendants’ motion is

DENIED.

BACKGROUND

The Court accepts the allegations in the Plaintiff’s

Complaint as true for purposes of the Motion to Dismiss. Carter

v. HealthPort Technologies, LLC, 822 F.3d 47, 56-57 (2d Cir. 2016).

I. Factual Background

Plaintiff, U.S. Bank National Association, brings this case

acting solely in its capacity as Trustee for the Trust, acting by

and through the Special Servicer under the PSA. (Compl. at ¶¶ 1-

3.) Trustee is a national banking association with a designated

main office located in Cincinatti, Ohio, (id. at ¶ 1), and is

therefore a citizen of Ohio, see Wachovia Bank v. Schmidt, 546

U.S. 303, 318 (2006). The Borrower, Defendant 1078 Whillmore LLC,

is a New York limited liability company which is the owner of 1078

Willmohr Street, Brooklyn, New York, identifiable as Block 4691,

Lot 7 (the “Property”). (Compl. at ¶ 4.) The Guarantor, Defendant

Samuel Fleischman, is the sole member of the Borrower LLC, and is

a citizen of New York. (Id.)

The loan at issue in this case dates back to an agreement

between the Borrower and The Community Preservation Corporation1

(“CPC”), a New York not-for-profit corporation. (Id. at ¶ 16.)

Pursuant to the loan agreement, dated December 27, 2018 (the “Loan

Agreement”), CPC made a loan to the Borrower in the original

1 According to the organization’s website, The Community Preservation

Corporation “is the largest Community Development Financial Institution (CDFI)

in the nation solely focused on investing in multifamily housing.” About CPC,

https://communityp.com/about-us/ (last visited June 4, 2024).

principal amount of $1,084,000.00. (Id.) On the same date, the

Borrower executed and delivered to CPC a Consolidated, Amended and

Restated Note (the “Note”) in the original principal amount of

$1,084,000.00. (Id. at ¶ 17.) To secure payment of the note, the

Borrower executed, acknowledged, and delivered to CPC a

Multifamily Mortgage, Assignment of Rents and Security Instrument,

dated as of December 27, 2018, and in the original principal amount

of $1,084,000.00 (the “Mortgage”). (Id. at ¶ 18.) The Mortgage

was included as an exhibit to a Consolidation, Extension and

Modification Agreement (the “CEMA”) dated December 27, 2018, and

executed by the Borrower and CPC. (Id.) To further secure

repayment, the Guarantor also executed a guaranty dated December

27, 2018, in which he guaranteed the full repayment of all amounts

for which Borrower was personally liable (the “Guaranty”). (Id.

at ¶ 23.)

CPC subsequently recorded the CEMA against the Property on

January 4, 2019, in the Office of City Register of the City of New

York (the “Register’s Office”) as City Register File Number

(“CRFN”) 2019000003514, and paid the mortgage recording taxes.

(Id. at ¶ 19.) Because the Mortgage also grants the holder of the

mortgage a security interest in the land, improvements, fixtures,

personalty, leases, and rents associated with the Property (the

“Collateral”), CPC also recorded on January 4, 2019, a Uniform

Commercial Code (“UCC”) Financing Statement with the Register’s

Office as CRFN 2019000003516. (Id. at ¶¶ 20-21.) CPC further

filed a UCC Financing Statement with the New York Secretary of

State on January 9, 2019, to perfect its interest in the

collateral. (Id. at ¶ 22.)

Nearly simultaneous with the execution and recording of the

above-mentioned instruments, CPC subsequently assigned or

transferred its interest in the Mortgage and the Note to Federal

Home Loan Mortgage Corporation (also known as “Freddie Mac2”).

(Id. at ¶¶ 24-25.) Freddie Mac recorded the assignment of the

Mortgage in the Register’s office as CRFN 2019000003515 on January

4, 2019. (Id. at ¶ 25.) CPC subsequently filed UCC Financing

Statement Amendments with the Register’s Office and Secretary of

State assigning the respective UCC Financing Statements filed with

each authority to Freddie Mac. (Id. at ¶¶ 26-27.)

Thereafter, on June 21, 2019, Freddie Mac transferred to

Plaintiff its right, title, and interest in the Note, and Plaintiff

became the holder of the Note. (Id. at ¶ 28.) The transfer was

made via an allonge to the Note, which was affixed to the Note

when it was delivered to Plaintiff. (Id.) Freddie Mac also

executed an assignment of the Mortgage in favor of Plaintiff on

June 5, 2019, and on June 27, 2019, Plaintiff recorded the

assignment of the Mortgage in the Register’s Office as CRFN

2 See FHFA At-a-Glance, FHFA, https://www.fhfa.gov/about (last visited June 5,

2024).

22019000203418. (Id. at ¶ 29.) CPC subsequently filed UCC

Financing Statement Amendments with the Register’s Office and

Secretary of State assigning the respective UCC Financing

Statements filed with each authority to Plaintiff. (Id. at ¶¶ 30-

31.)

Pursuant to the Note, Borrower was obligated to make payments

on the first day of each month, beginning on February 1, 2019, and

concluding on January 1, 2039. (Id. at ¶ 32.) Pursuant to the

Note and the Loan Agreement, if Borrower fails to pay the full

amount of each payment on the date it is due, Borrower will be in

default. (Id. at ¶ 33; ECF No. 28-3, at 83.) Also pursuant to

the Note, Borrower is required to pay a late charge of 5% on any

overdue payment or amount due, and upon Borrower’s Default, the

applicable interest rate on the loan will increase by 4%. (Compl.

at ¶¶ 34-35.) According to the Complaint, Plaintiff, through the

Special Servicer, notified the 1078 Whillmore Defendants on May

26, 2023, that Borrower had failed to remit the payment due on the

March 2023 payment date, and demanded that Borrower pay all sums

due and owed under the loan documents. (Id. at ¶ 36.)

Borrower failed to pay the amount due following Plaintiff’s

first notice, and Plaintiff subsequently sent further notice on

August 30, 2023, notifying the 1078 Whillmore Defendants of the

outstanding amounts due under the loan documents. (Id. at ¶¶ 37-

38.) Borrower also failed to pay the amount due following

Plaintiff’s subsequent notice, and as such, Borrower has been in

default since March 1, 2023. (Id. at ¶¶ 38-39.)

In addition to defaulting by failing to pay the amount due

under the loan documents, Borrower also defaulted by failing to

comply with its financial reporting obligations under the Loan

Agreement. (Id. at ¶¶ 40-44.) Likewise, Guarantor has defaulted

by failing to comply with his financial reporting obligations under

the loan documents. (Id. at ¶¶ 45-48.)

The loan documents provide that upon Borrower’s default, the

holder of the Mortgage shall be entitled to collect the rents and

profits from the Property, or to have a receiver appointed to take

possession of the Property and to collect the rents and profits.

(Id. at ¶ 49.) Furthermore, as a result of Borrower’s default and

failure to cure, Plaintiff revoked Borrower’s license to collect

the rents and profits generated by the Property, and accelerated

all amounts owed under the loan documents. (Id. at ¶ 51.) Borrower

has not paid the amounts due under the loan documents, nor has it

turned over the rents and profits generated by the Property to

Plaintiff. (Id.)

Plaintiff’s complaint asserts several causes of action and

seeks various forms of relief – (1) mortgage foreclosure; (2)

security interest foreclosure; (3) possession; (4) appointment of

a receiver; and (5) breach of the Guaranty. (See generally id.)

II. Procedural History

Plaintiff commenced the instant case on November 6, 2023.

(See generally Compl.) Borrower was served on November 10, 2023,

and Guarantor was served on November 13, 2023. (ECF Nos. 8, 14.)

After the time to answer had expired, on December 8, 2023, counsel

for the 1078 Whillmore Defendants appeared and requested an

extension of time to answer the complaint. (ECF No. 12.) As part

of the request for an extension of time, to which Plaintiff

consented, the 1078 Whillmore Defendants agreed to “waive any and

all personal jurisdiction defenses and consent to the jurisdiction

of this Court.” (Id. at 2.) The Court granted the 1078 Whillmore

Defendants’ request for an extension of time, (Docket Order dated

December 8, 2023), and Plaintiff subsequently moved on December

12, 2023, for a pre-motion conference in anticipation of filing a

motion to appoint a receiver, (ECF No. 13.)

The Court denied Plaintiff’s request for a pre-motion

conference regarding the appointment of a receiver, waiving the

requirement, and ordered Plaintiff to confer with all appearing

defendants regarding appointment of a receiver on consent. (Docket

Order dated December 12, 2023.) After the Court’s order, but

before Plaintiff had responded regarding defendants’ consent to a

receivership, the 1078 Whillmore Defendants moved on December 19,

2023, for a pre-motion conference in anticipation of a motion to

dismiss. (ECF No. 17.) On the same day, Plaintiff filed a joint

letter notifying the Court that the 1078 Whillmore Defendants would

not consent to the appointment of a receiver and would oppose any

such motion. (ECF No. 18.)

The Court held a combined pre-motion conference to discuss

both anticipated motions the following day, on December 20, 2023.

(Minute Entry dated December 20, 2023.) The Court noted that,

based on the 1078 Whillmore Defendants’ arguments made in their

pre-motion letter, “a motion to dismiss would appear to be

premature in the absence of additional documentary evidence” and

the Court accordingly ordered Plaintiff to produce the documents

referenced in the 1078 Whillmore Defendants’ pre-motion letter by

January 12, 2024. (Id.) The Court explained that it “expected

that such production would obviate the need for motion practice

regarding the motion to dismiss” and that the 1078 Whillmore

Defendants’ would submit their answer or motion to dismiss one

week thereafter, on January 19, 2024. (Id.) The Court

subsequently set out a briefing schedule for the receivership

motion and ordered that any cross-motion to dismiss filed by

Defendants would follow the same schedule. (Id.)

As ordered by the Court, Plaintiff submitted additional

documentary evidence to the 1078 Whillmore Defendants on January

12, 2024, including: (1) the Loan Agreement executed by and between

Borrower and CPC on December 27, 2018; (2) the CEMA executed by

and between Borrower and CPC on December 27, 2018; (3) the Note in

the original amount of $1,084,000.00; (4) the Guaranty dated

December 27, 2018; (5) the assignment of security instruments from

CPC to Freddie Mac; (6) the assignment of the Mortgage dated June

5, 2019, from Freddie Mac to Plaintiff; and (7) the PSA dated June

1, 2019. (See ECF No. 27-2, Exhibit A to Declaration of

Christopher Gorman; ECF No. 28-2, Exhibit B to Declaration of David

Mignardi.)

On January 19, 2024, rather than answer the complaint, the

1078 Whillmore Defendants, apparently not satisfied with

Plaintiff’s production of documents, served a motion to dismiss on

Plaintiff. (ECF No. 27, Notice of Motion to Dismiss; ECF No. 27-

10, Memorandum of Law in Support of Motion to Dismiss (“Def’t

Mem.”).) Plaintiff opposed the motion to dismiss, and the 1078

Whillmore Defendants submitted a memorandum in further support.

(ECF No. 29, Plaintiff’s Memorandum in Opposition (“Pl. Opp.”);

ECF No. 30, Defendants’ Reply Memorandum of Law (“Def’t Reply”).)

Plaintiff’s motion to appoint a receiver was also being briefed at

the same time as the motion to dismiss, consistent with the Court’s

scheduling order. (ECF No. 21, Notice of Motion to Appoint

Receiver; ECF No. 24, Plaintiff’s Memorandum of Law in Support

(“Pl. Mem.”); ECF No. 25-7, Defendants’ Memorandum of Law in

Opposition (“Def’t Opp.”); ECF No. 26, Plaintiff’s Reply

Memorandum of Law in Further Support (“Pl. Reply”).) The cross-

motions were both fully briefed on February 12, 2024.

LEGAL STANDARD

I. Motion to Dismiss under Rule 12(b)(1)

Federal courts have inherent power under Rule 12(b)(1) to

dismiss claims for which subject matter jurisdiction is lacking.

Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir.

2008), aff'd, 561 U.S. 247 (2010). In considering a motion to

dismiss under Rule 12(b)(1), the “[C]ourt must take all facts

alleged in the complaint as true and draw all reasonable inferences

in favor of [the] plaintiff.” Id. (internal quotation marks and

citation omitted). The Court may also “consider evidence outside

the pleadings,” in considering a Rule 12(b)(1) motion. Id. (citing

Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000)).

“An objection to standing is properly made on a Rule 12(b)(1)

motion.” Tasini v. N.Y. Times Co., 184 F. Supp. 2d 350, 354-55

(S.D.N.Y. 2002) (citing Steel Co. v. Citizens for a Better Env't,

523 U.S. 83, 88-89 (1998)). “[T]he question of standing is whether

the litigant is entitled to have the court decide the merits of

the dispute or of particular issues.” Warth v. Seldin, 422 U.S.

490, 498 (1975). To survive a Rule 12(b)(1) motion to dismiss,

there must be facts plausibly establishing that the plaintiff has

standing to sue. Carter, 822 F.3d at 56-57.

II. Motion to Dismiss under Rule 12(b)(6)

To survive a motion to dismiss under Rule 12(b)(6),

“a complaint must contain sufficient factual matter, accepted

as true, to ‘state a claim to relief that is plausible on its

face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has

facial plausibility when the plaintiff pleads factual content that

allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id. (citation

omitted). Although “detailed factual allegations” are not

required, “[a] pleading that offers labels or conclusions or a

formulaic recitation of the elements of a cause of action will not

do.” Id. (internal quotation marks and citation omitted).

DISCUSSION

The Court will first examine Defendants’ motion to dismiss

before turning to Plaintiff’s motion to appoint a receiver, given

the latter motion would be moot if Plaintiff’s complaint were to

be dismissed. See, e.g., Sec. & Exch. Comm'n v. Republic Nat.

Life Ins. Co., 378 F. Supp. 430, 437 (S.D.N.Y. 1974) (considering

motion to dismiss SEC’s complaint prior to the SEC’s motion for

the appointment of a receiver).

I. Standing

The 1078 Whillmore Defendants request that the Complaint “be

dismissed in its entirety pursuant to Fed. R. Civ. P. 12(b)(6).”

(Def’t Mem. at 1.) Notwithstanding this request, the 1078

Whillmore Defendants’ primary argument appears to be that

Plaintiff “has failed to meet its burden of establishing standing”

to bring the instant action. (Id. at 2.) “Although standing

challenges have been brought under Rule 12(b)(6), ‘the proper

procedural route is under Rule 12(b)(1).’” Lugones v. Pete and

Gerry's Organic, 440 F. Supp. 3d 226, 237 (S.D.N.Y. 2020) (quoting

All. For Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d

82, 88 n.6 (2d Cir. 2006)). “Where, as here, the defendant moves

for dismissal under Rule 12(b)(1) . . . as well as on other grounds,

the court should consider the Rule 12(b)(1) challenge first.” U.S.

ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d

1148, 1155-56 (2d Cir. 1993) (internal quotation marks and citation

omitted). Accordingly, the Court first addresses the 1078

Whillmore Defendants’ Rule 12(b)(1) standing arguments, followed

by their Rule 12(b)(6) arguments.

A. Legal Standard

“Federal courts are courts of limited jurisdiction that

possess only that power authorized by [the] Constitution and

statute.” Hendrickson v. United States, 791 F.3d 354, 358 (2d

Cir. 2015) (internal quotation marks omitted). “The irreducible

constitutional minimum of standing derives from Article III,

Section 2 of the U.S. Constitution, which limits federal judicial

power to cases and controversies.” Nat. Res. Def. Council, Inc.

v. U.S. Food & Drug Admin., 710 F.3d 71, 79 (2d Cir. 2013) (internal

quotation marks and citations omitted).

To establish Article III standing, a plaintiff must show “(i)

that he suffered an injury in fact that is concrete,

particularized, and actual or imminent; (ii) that the injury was

likely caused by the defendant; and (iii) that the injury would

likely be redressed by judicial relief.” TransUnion LLC v.

Ramirez, 594 U.S. 413, 423 (2021) (citing Lujan v. Defenders of

Wildlife, 504 U.S. 555, 560-561 (1992)) (hereafter TransUnion).

At the pleading stage, a plaintiff “bears the burden of alleging

facts that affirmatively and plausibly suggest that [he or she]

has standing to sue.” Calcano v. Swarovski N. Am. Ltd., 36 F.4th

68, 75 (2d Cir. 2022) (internal quotation marks and citation

omitted).

B. Plaintiff has Adequately Alleged Standing

The 1078 Whillmore Defendants argue that Plaintiff lacks

standing to maintain this foreclosure action. Essentially, the

1078 Whillmore Defendants’ argument rests on one specific factual

contention: that Plaintiff has failed to show that the allonge to

the Note was “firmly affixed” as required by UCC 3-202(2). (Def’t

Mem. at 7.) UCC 3-202(2) requires, in relevant part that “an

[e]ndorsement [to an instrument] must be written by or on behalf

of the holder and on the instrument or on a paper so firmly affixed

thereto as to become a part thereof.” In making their argument,

the 1078 Whillmore Defendants state that “[w]here the plaintiff’s

standing has been placed in issue, the plaintiff must prove its

standing in order to prosecute its case.” (Id. at 5 (citing U.S.

Bank Nat'l Ass'n v. Moulton, 116 N.Y.S.3d 86 (2d Dep’t 2020)).)

The 1078 Whillmore Defendants misstate the law.

Moulton involved a motion for summary judgment by the

Plaintiff – the full quote to which the 1078 Whillmore Defendants

were referring is as follows: “[w]here, as here, the plaintiff's

standing has been placed in issue by the defendant’s answer, the

plaintiff must prove its standing as part of its prima facie

showing on a motion for summary judgment.” Moulton, 116 N.Y.S.3d

at 89 (emphasis added). As correctly noted by Plaintiff in its

opposition, on a motion to dismiss in a mortgage foreclosure

action, “the burden is on the moving defendant[s] to establish,

prima facie, the plaintiff's lack of standing as a matter of law”

and “[t]he burden is not on the plaintiff to affirmatively

establish its standing for the dismissal motion to be denied.”

Wilmington Sav. Fund Soc'y, FSB v. Matamoro, 156 N.Y.S.3d 323, 333

(2d Dep’t 2021). As such, the burden is on the 1078 Whillmore

Defendants to make a prima facie showing of Plaintiff’s lack of

standing.

The 1078 Whillmore Defendants have failed to make any such

showing of Plaintiff’s lack of standing. Plaintiffs set forth in

the Complaint a series of two transfers of the Note – from the

original lender, CPC, to Freddie Mac, and from Freddie Mac to

Plaintiff – which were conducted by an allonge to the note.

(Compl. at ¶¶ 24, 28.) In both instances, Plaintiff’s complaint

alleges that the allonges were “affixed” to the Note. (Id.) The

1078 Whillmore Defendants argue that Plaintiff “failed to include

any information along with its Complaint to describe how the

purported allonges [were] purportedly affixed to the Note (if at

all),” (Def’t Mem. at 8), but Plaintiff’s allegation is sufficient

to establish that the allonges were affixed to the Note. For this

same reason, the authority cited by the 1078 Whillmore Defendants,

nearly all of which involves a plaintiff moving for summary

judgment, is inapplicable and unpersuasive. See, e.g., Wells Fargo

Bank, N.A. v. Mitselmakher, 190 N.Y.S.3d 397, 398 (2d Dep’t 2023)

(appeal from grant of summary judgment); Raymond James Bank, NA v.

Guzzetti, 158 N.Y.S.3d 881, 882 (2d Dep’t 2022) (same); Fed. Nat'l

Mortg. Ass'n v. Hollien, 154 N.Y.S.3d 572, 574 (2d Dep’t 2021)

(same); LNV Corp. v. Almberg, 143 N.Y.S.3d 587, 588 (2d Dep’t 2021)

(same); Moulton, 116 N.Y.S.3d at 89 (same).

Perhaps the only authority cited by the 1078 Whillmore

Defendants that is even applicable to the instant action is HSBC

Bank USA, N.A. v. Roumiantseva, 115 N.Y.S.3d 117 (2d Dep't 2015).

In Roumiantseva, on a motion to dismiss, the court found that the

plaintiff did not have standing to bring suit because the nominee

of the original lender, which assigned the mortgage and note to

the plaintiff, “was never the holder of the note and, therefore,

was without authority to assign the note.” Id. at 119. After

concluding that the nominee was without authority to assign the

note, the court noted that a “purported endorsement [produced by

the plaintiff], attached by a paperclip, was not so firmly affixed

to the note as to become a part thereof.” Id. at 120. The 1078

Whillmore Defendants fail to grapple with authority from within

the circuit showing their reliance on Roumiantseva to be misplaced.

As noted by Magistrate Judge Gold in Courchevel 1850 LLC v.

Alam, No. 17-CV-785 (JBW) (SMG), 2019 WL 9656366 (E.D.N.Y. Oct.

30, 2019), report and recommendation adopted, 464 F. Supp. 3d 475

(E.D.N.Y. 2020), in Roumiantseva “it appeared . . . that the entity

purportedly assigning the note and mortgage was in fact never the

holder of the note.” Id. at *11. The 1078 Whillmore Defendants

have cited no such defect in the assignment of the Note and

Mortgage in the instant case. Magistrate Judge Gold further noted

that, in a separate case affirmed by the Second Circuit, a

plaintiff “had standing to foreclose even though the relevant

allonge was not physically affixed to the underlying note at time

of assignment.” Id. (citing Robinson v. H & R Block Bank, FSB,

2013 WL 2356106, at *2 (E.D.N.Y. May 29, 2013), aff'd, 562 F. App'x

12 (2d Cir. 2014)).

More importantly, even if the 1078 Whillmore Defendants had

pointed out some defect in the way the allonge was affixed in the

instant case, which they do not, Plaintiff would be able to

establish standing on other, independent grounds. To establish

standing in a mortgage foreclosure action, the Plaintiff must

demonstrate “that, when the action was commenced, it was either

the holder or assignee of the underlying note.” Eastern Savings

Bank, FSB v. Thompson, 631 F. App'x 13, 15 (2d Cir. 2015) (internal

quotation marks and citation omitted). “Notably, either a written

assignment of the underlying note or the physical delivery of the

note prior to the commencement of the foreclosure action is

sufficient to transfer the obligation, and the mortgage passes

with the debt as an inseparable incident.” Id. (internal quotation

marks and citation omitted).

Plaintiff alleged in its complaint that Freddie Mac

“delivered the note, with the Plaintiff Allonge affixed thereto,

to Plaintiff.” (Compl. at ¶ 28.) Plaintiff also submitted a

declaration of Robert Doust, a director with the Special Servicer

who was authorized to make a declaration on behalf of Plaintiff,

which states that Mr. Doust “reviewed the allegations in the

complaint . . . and [verifies] that the facts in the complaint are

true and correct.” (ECF No. 23, Declaration of Robert Doust

(“Doust Decl.”), at 2.) Such possession of the note with the

allonge affixed is sufficient for standing in the instant case.

OneWest Bank, N.A. v. Melina, 827 F.3d 214, 223 (2d Cir. 2016)

(“New York courts have repeatedly held that proof of physical

possession [of the note] . . . is sufficient on its own to prove

a plaintiff's standing to foreclose on the mortgage associated

with the note.”)

The 1078 Whillmore Defendants attempt to discount the Doust

Declaration on a technicality, arguing that “there is no proof in

the record in the form of a power of attorney or any other document

to establish [the special servicer’s] or Doust’s authority to speak

on Plaintiff’s behalf.” (Def’t Reply at 4.) The Court notes that

the caselaw cited by the 1078 Whillmore Defendants dealt with

procedural requirements for motions for default judgment under New

York law, which is not applicable here. See HSBC Bank USA, N.A.

v. Betts, 888 N.Y.S.2d 203, 204 (2d Dep’t 2009) (“Where, as here,

a foreclosure complaint is not verified, CPLR 3215(f) states, among

other things, that upon any application for a judgment by default,

proof of the facts constituting the claim, the default, and the

amount due are to be set forth in an affidavit ‘made by the

party.’”)

Even ignoring the fact that the caselaw cited by the 1078

Whillmore Defendants involved a different procedural posture, the

Pooling and Servicing Agreement dated as of June 1, 2019 (“PSA”)

explicitly states that the Special Servicer (which the Court notes

is referenced in the caption of the Complaint) is entitled to “full

power and authority . . . to do or cause to be done any and all

things in connection with such servicing and administration [of

the loans] which it may deem necessary or desirable.” (ECF 27-9,

Exhibit H to the Gorman Decl. (“Gorman Decl. Ex. H”), at 1133.)

As noted by Plaintiff, one of the “things” which the Special

Servicer has “full power and authority” to do is initiate

foreclosure proceedings, as in the instant case, on the Trust’s

behalf. (Id. at 173.) As such, the Court finds that Mr. Doust,

a representative of the Special Servicer, had authority to make a

declaration on behalf of Plaintiff in the instant case – a

conclusion numerous other courts in this circuit have reached in

evaluating motions for summary judgment. See, e.g., Wilmington

Tr., N.A., as Tr. for Benefit of Registered Holders of Wells Fargo

Com. Mortg. Tr. 2018-C44, Com. Mortg. Pass-Through Cerificates,

Series 20 v. 31 Prince St., LLC, No. 22-CV-5855 (JGK), 2023 WL

3647397, at *3 (S.D.N.Y. May 25, 2023) (“the plaintiff has provided

a ‘Pooling and Services Agreement’ authorizing Rialto Capital

Advisors, LLC to act as Special Servicer the plaintiff's behalf”);

Wells Fargo Bank, N.A. as Tr. for Benefit of Holders of CD 2018-

CD7, Mortg. Tr. Com. Mortg. Pass-Through Certificates, Series

2018-CD7 v. Prince 26, LLC, No. 22-CV-5586 (PAE)(OTW), 2023 WL

5152420, at *7 n.3 (S.D.N.Y. Aug. 10, 2023) (finding an identical

defense lacked merit where PSA conferred “the power to bring this

action on behalf of [plaintiff]”). Furthermore, even if the Court

discounted the Doust Declaration, the 1078 Whillmore Defendants

3 The Court utilizes the PSA’s page numbering for pincites to the PSA, and not

the page number assigned by ECF.

fail to dispute the facts alleged in the Complaint showing that

Plaintiff was in physical possession of the Note and allonge at

the time it commenced the foreclosure proceeding.

Ultimately, the 1078 Whillmore Defendants’ arguments against

Plaintiff’s standing are unpersuasive and appear to be nothing

more than an attempt to delay Plaintiff’s ability to seek a

receivership, and ultimately foreclose on the property. Though

the 1078 Whillmore Defendants have succeeded in delaying

Plaintiff’s request for a receivership, their arguments regarding

Plaintiff’s lack of standing fail.

II. Failure to State a Claim

A. The Statute of Frauds Does Not Bar Plaintiff’s Claims

Having concluded that Plaintiff had standing to commence this

action when it filed the Complaint, the Court next turns to the

1078 Whillmore Defendants’ arguments regarding dismissal on other

grounds. The 1078 Whillmore Defendants also argue that Plaintiff’s

complaint should be dismissed because the Mortgage was not signed

by the Borrower, in contravention to the Statute of Frauds, and

also argue that Plaintiff’s claims for a deficiency judgment should

be dismissed based on the text of the loan documents. As with the

1078 Whillmore Defendants’ arguments regarding standing, neither

of their additional arguments is persuasive.

The 1078 Whillmore Defendants again attempt to prevail on an

unfounded technicality in arguing that the Mortgage was not signed.

As part of this Court’s attempt to obviate the need for briefing

on a motion to dismiss, the Plaintiff produced several documents

to the 1078 Whillmore Defendants, including the CEMA executed by

and between Borrower and CPC on December 27, 2018. (ECF No. 23-

3, Exhibit 3 to the Doust Declaration (“Doust Ex. 3”).) Perhaps

anticipating that the 1078 Whillmore Defendants would notice the

lack of a signature on the Mortgage, which is included as an

exhibit to the CEMA, Plaintiff explained in its production letter

to the 1078 Whillmore Defendants that “it is the CEMA, itself,

that is the operative document, not the Consolidated Mortgage.”

(ECF 27-2, Exhibit A to the Gorman Decl., at 3.) Plaintiff

further explained that, as part of the CEMA, Borrower agreed that

the CEMA “consolidates the rights and obligations under the

Existing Mortgages” and that “the Consolidated Mortgage was

incorporated into and made a part of the CEMA in Section 7

thereof.” (Id.) Plaintiff included quotations from the CEMA in

support of both points.

The 1078 Whillmore Defendants, ignoring Plaintiff’s attempts

to obviate the need for costly and unnecessary litigation regarding

the lack of signature on the copy of the Mortgage annexed to the

CEMA (which was signed by Borrower) make a number of arguments

about why the Mortgage should be considered in isolation and not

alongside the CEMA. None are persuasive. As the Plaintiff notes,

the CEMA explicitly states that the Mortgage, as Exhibit C to the

CEMA, is “incorporated into and made a part of [the CEMA].” (Doust

Ex. 3 at 64.) The Second Circuit has encountered a very similar

situation previously, as Plaintiff also notes, and concluded that

a CEMA may properly incorporate the terms of a mortgage,

notwithstanding the lack of a signature on the incorporated

mortgage. Nucci v. PHH Mortg. Corp., 679 F. App'x 48, 51 (2d Cir.

2017) (“the documents [plaintiff] attached to his complaint

conclusively establish that the CEMA he signed expressly

incorporates the terms of the consolidated mortgage he disputes as

invalid for lack of a signature”). Furthermore, as noted by the

district court in Nucci in the order which the Second Circuit

affirmed, “by signing the CEMA, [the borrower] agreed to be bound

by its terms, as well as the documents annexed to it and to which

it specifically referred, i.e., the Consolidated Mortgage.” Nucci

v. PHH Mortg. Corp., No. 14-CV-2683 (NGG)(RML), 2016 WL 1070815,

at *4 (E.D.N.Y. Mar. 16, 2016).

Here, too, the CEMA incorporates the Mortgage, by its own

terms, and Borrower’s sole member, Guarantor, signed the CEMA.

(Doust Ex. 3 at 7.) A notary public attested to the fact that

Guarantor signed the CEMA, (id. at 9) and the 1078 Whillmore

Defendants make no attempt to dispute the fact that Guarantor, the

4 Because Exhibit 3 to the Doust Declaration includes multiple documents which

are each separately paginated, the Court’s pincites reference the ECF-assigned

page number.

sole member of Borrower, signed the document on behalf of Borrower.

New York courts have clearly stated that where “a borrower executes

a CEMA and consolidated note providing that the prior notes

underlying the mortgage have been consolidated into a new single

lien, the plaintiff may establish its standing to commence a

mortgage foreclosure action by producing the CEMA and consolidated

note.” Deutsche Bank Nat'l Tr. Co. v. Goldstone, 153 N.Y.S.3d

523, 525 (2d Dep’t 2021). Plaintiff has produced both documents,

properly signed by Guarantor on behalf of Borrower. The Court

need not consider the 1078 Whillmore Defendants’ arguments

regarding the statute of frauds.

B. Plaintiff Properly Seeks a Deficiency Judgment

The 1078 Whillmore Defendants’ final challenge to Plaintiff’s

complaint concerns one of the forms of relief requested – namely,

a deficiency judgment against Borrower and Guarantor. (Def’t Mem.

at 16.) The 1078 Whillmore Defendants argue that “Plaintiff has

not pled facts sufficient to establish that Defendants are ‘liable

for the payment of the debt secured by the mortgage’ under the

operative loan documents such that they would be responsible under

[Real Property Actions and Proceedings Law (“RPAPL”)] § 1371 for

‘the whole residue, or so much thereof as the court may determine

to be just and equitable, of the debt remaining unsatisfied’ at

any foreclosure sale at the conclusion of this case.” (Id. at

17.) Essentially, the 1078 Whillmore Defendants argue that based

on the terms of the Loan Agreement, the Loan would only become

“full recourse” to the Borrower under limited circumstances, for

which Plaintiff has not alleged sufficient facts. (Id. at 18.)

RPAPL § 1371(1) provides that “[i]f a person who is liable to

the plaintiff for the payment of the debt secured by the mortgage

is made a defendant in the action . . . the final judgment may

award payment by him of the whole residue, or so much thereof as

the court may determine to be just and equitable, of the debt

remaining unsatisfied.” As noted by the 1078 Whillmore Defendants,

the key factual issue is whether Borrower and Guarantor are liable

for a deficiency judgment under the Loan Agreement in the instant

case. At this stage in the proceedings, the Court finds that

Plaintiff has met its burden of alleging facts sufficient to show

that a deficiency judgment may be appropriate under the Loan

Agreement.

Although the 1078 Whillmore Defendants correctly note that

the Loan in the instant case is not a “full recourse” loan absent

certain circumstances, Plaintiff accurately counters that the Loan

Agreement nonetheless makes Borrower (and accordingly, Guarantor)

personally liable for certain losses incurred by Plaintiff. (Pl.

Opp. at 13.) Specifically, Section 3.02 the Loan Agreement

provides that Borrower will be personally liable to Lender for the

Base Recourse (which is 0% of the loan, as the loan is not a full

recourse loan) “plus any other amounts for which Borrower has

personal liability under Article III.” (ECF 23-1, Exhibit 1 to

the Doust Declaration (“Doust Decl. Ex. 1”), at 1-35.) Section

3.03 goes to explain the various events that could cause Borrower

to become personally liable to Plaintiff “for the repayment of a

portion of the Indebtedness equal to any loss or damage suffered

by [Plaintiff] as a result of the occurrence of any” of the listed

events. (Id. at 3.) Two of the events specified in Section 3.03

have already occurred, based on the facts alleged in Plaintiff’s

complaint.

Based on the facts alleged in the Complaint, Borrower did not

comply with its financial reporting obligations under the Loan

Agreement because it failed to deliver “(i) a 2022 Rent Schedule

and 2022 annual statement of income and expenses within ninety

(90) days of the end of the 2022 calendar year in accordance with

Section 6.07(b) of the Loan Agreement; and (ii) a 2023 mid-year

Rent Schedule within twenty-five (25) days of the end of the second

quarter of the 2023 calendar year in accordance with Section

6.07(c) of the Loan Agreement.” (Compl. at ¶ 42.) By failing to

comply with the financial reporting obligations after being put on

notice by Plaintiff, Borrower was in default of its financial

reporting obligations, and the Loan Agreement, since October 23,

2023. (Id. at ¶¶ 43-44.) Section 3.03(j) of the Loan Agreement

5 For Exhibit 1 to the Doust Declaration, the Court’s pincites refer to the page

numbering included in the Loan Agreement, not the ECF-assigned page number.

includes, as one of the events that could cause Borrower to become

personally liable to Plaintiff, the following: “[i]f an Event of

Default has occurred and is continuing, Borrower fails to deliver

all Books and Records, contracts, Leases and other instruments

relating to the Mortgaged Property or its operation in accordance

with the provisions of Section 6.07.” (Doust Decl. Ex. 1 at 4.)

Thus, Plaintiff has adequately pled that Borrower could be liable

for a deficiency judgment and need not establish the exact damages

it suffered at the motion to dismiss stage of litigation. See,

e.g., Xpedior Creditor Tr. v. Credit Suisse First Bos. (USA) Inc.,

341 F. Supp. 2d 258, 272 (S.D.N.Y. 2004) (“such questions are

appropriately handled at summary judgment or trial, not on a motion

to dismiss . . . At this stage, [plaintiff] need only put

[defendant] on notice of its claims . . . [and] need only allege

that it was damaged; it is not required to specify the measure of

damages . . . .”)

Similarly, Plaintiff adequately alleges facts in the

Complaint to show that Borrower has not “turned over the rents and

profits generated by the Property to Plaintiff” following an event

of default under the Loan Agreement. (Compl. at ¶ 51.) Under

Section 3.03(i) of the Loan Agreement, the failure to pay such

rents to Plaintiff after an event of default also subjects Borrower

to personal liability for damages suffered by Plaintiff. (Doust

Decl. Ex. 1 at 4.) Therefore, Borrower could potentially face

liability beyond foreclosure alone under this provision of the

Loan Agreement, as well. Because Guarantor personally guaranteed,

under Section 3(a) of the Guaranty, payment “of all amounts for

which Borrower is personally liable under Article III of the Loan

Agreement,” he would likewise be liable for any deficiency judgment

pursuant to Section 3.03(i) or (j) for which Borrower was liable.

(ECF 23-6, Exhibit 6 to the Doust Declaration (“Doust Decl. Ex.

6”), at 16.)

Contrary to the 1078 Whillmore Defendants’ suggestions,

Plaintiff is not barred from seeking a deficiency judgment simply

because the loan is not non-recourse and Plaintiff has not alleged

facts to show that the “full recourse” provisions of the Loan

Agreement were triggered. (Def’t Reply at 13.) New York courts

have repeatedly stated that non-recourse loan agreements with

carve-out provisions providing for “personal liability for a

violation of certain enumerated exceptions” are valid and

enforceable. G3-Purves St., LLC v. Thomson Purves, LLC, 953

N.Y.S.2d 109, 112 (2d Dep’t 2012); see also Greenwich Capital Fin.

Prods., Inc. v. Negrin, 903 N.Y.S.2d 346, 348 (1st Dept 2010)

(enforcing terms of guaranty against guarantors for failing to pay

real estate taxes, which triggered liability under nonrecourse

loan). Although most of the caselaw involves “full recourse” or

6 For Exhibit 6 to the Doust Declaration, the Court’s pincites refer to the page

numbering included in the Guaranty, not the ECF-assigned page number.

“springing recourse” provisions in loan documents, the events

triggering personal liability in the Loan Agreement serve the same

function as a “carveout” for personal liability in what is

otherwise a non-recourse loan. Accordingly, the Court finds no

basis to grant the 1078 Whillmore Defendants’ motion to dismiss

Plaintiff’s request for a deficiency judgment at this stage in the

litigation, and the motion is respectfully denied.

III. Motion to Appoint a Receiver

Having addressed the 1078 Whillmore Defendants’ arguments

regarding dismissal of the Complaint, and finding the arguments to

be without merit, the Court next turns to Plaintiff’s motion to

appoint a receiver. Plaintiff has moved for this Court to appoint

Orazio Crisalli7, of Syracuse Realty Group, LLC, as receiver of

the Borrower’s Assets pursuant to Fed. R. Civ. P. 66. The Court

finds such an appointment to be appropriate.

A. Legal Standard

“Whether a federal court should appoint a receiver in a

diversity action is governed by federal law.” U.S. Bank N.A. v.

Nesbitt Bellevue Property LLC, 866 F. Supp. 2d 247, 249 (S.D.N.Y.

2012) (citing Varsames v. Palazzolo, 96 F. Supp. 2d 361, 365

(S.D.N.Y. 2000)). “The appointment of a receiver is considered to

7 Because the 1078 Whillmore Defendants do not address the proposed receiver’s

qualifications and Plaintiff extensively briefed that issue, the Court deems

Plaintiff’s position on Orazio Crisalli’s qualifications to be unopposed.

be an extraordinary remedy, and should be employed cautiously and

granted only when clearly necessary to protect plaintiff's

interests in the property.” Rosen v. Siegel, 106 F.3d 28, 34 (2d

Cir.1997) (internal alterations and quotation marks omitted).

“The following factors are relevant to establishing the need for

a receivership:

‘Fraudulent conduct on the part of defendant; the

imminent danger of the property being lost, concealed,

injured, diminished in value, or squandered; the

inadequacy of the available legal remedies; the

probability that harm to plaintiff by denial of the

appointment would be greater than the injury to the

parties opposing appointment; and, in more general

terms, plaintiff's probable success in the action and

the possibility of irreparable injury to his interests

in the property.’”

Varsames, 96 F. Supp. 2d at 365 (quoting 12 Wright & Miller,

Federal Practice & Procedure § 2983 (1999)) (internal alterations

omitted).

Courts in this circuit examining a motion for the appointment

of a receiver have noted that the existence of contractual language

providing “the mortgagee a specific right to an appointment [of a

receiver] . . . is a factor militating in [the] plaintiff’s favor,

and the party opposing the appointment bears the burden of

demonstrating why a receiver should not be appointed.” D.B. Zwirn

Special Opportunities Fund, L.P. v. Tama Broad., Inc., 550 F. Supp.

2d 481, 491 (S.D.N.Y. 2008). Notwithstanding the above, Courts

retain “the discretion to deny appointment of a receiver under

appropriate circumstances even though the mortgage provides the

mortgagee a specific right to an appointment.” Ariani, Inc. v.

1075 Concourse Tenants Corp., No. 93-CV-377 (RCC), 1999 WL 637238,

at *2 (S.D.N.Y. Aug. 20, 1999) (citing Foxfire Enterprises, Inc.

v. Enterprise Holding Corp., 837 F.2d 597, 598 (2d Cir. 1988)).

B. Analysis

Plaintiff argues in support of its motion to appoint a

receiver that the appointment of a receiver “is appropriate not

only because federal law expressly authorizes it but because the

Loan Documents memorialize Borrower’s express consent to such an

appointment following Borrower’s default.” (Pl. Mem. at 4.)

Plaintiff further argues that many of the relevant factors noted

supra weigh in favor of a receivership. (Pl. Mem. at 4-6.)

Plaintiff’s submissions also include the declaration of Mr. Doust,

discussed previously, which, in addition to verifying the contents

of the complaint, also includes factual information on

circumstances warranting receivership. (Doust Decl. at ¶¶ 21-29;

Exhibits 12-13 to the Doust Decl.)

The 1078 Whillmore Defendants argue in opposition that the

Doust Declaration should not be considered because, as already

discussed supra, Plaintiff has not provided proof that Mr. Doust

or the Special Servicer acts for Plaintiff. (Def’t Opp. at 5-8.)

The 1078 Whillmore Defendants further argue that the Doust

Declaration does not specify whether Mr. Doust was “personally

familiar with Plaintiff’s record-keeping practice and procedures”

and therefore the attached business records regarding the

necessity of a receivership are inadmissible hearsay.8 (Id. at 8-

12.) The 1078 Whillmore Defendants next argue that Plaintiff

failed to submit a payment history alongside their motion papers

and do not show sufficient proof of Defendants’ default. (Id. at

12-14.) Finally, the 1078 Whillmore Defendants dedicate the

balance of their motion papers arguing that the relevant factors

weigh against the appointment of a receiver. (Id. at 14-19.)

1. Plaintiff’s Evidence is Properly Authenticated

The Court has previously addressed the 1078 Whillmore

Defendants’ arguments that the Special Servicer, and Mr. Doust,

were not authorized to make a declaration on Plaintiff’s behalf,

and need conduct no further analysis to conclude that the

Defendants’ argument lacks merit. The 1078 Whillmore Defendants’

arguments that the exhibits attached to the Doust Declaration are

not authenticated as business records is similarly unavailing.

Federal Rule of Evidence 803(6) provides a “business records

exception” to the rule against hearsay and allows the admission of

records “kept in the course of a regularly conducted activity.”

Fed. R. Evid. 803(6). So long as the records are both integrated

8 The 1078 Whillmore Defendants cite only New York state caselaw in support of

this argument, but the Court notes that “[r]ules of evidence . . . are generally

considered procedural in nature . . . [so] the Federal Rules of Evidence, rather

than state evidentiary laws, apply here.” De Larancuente v. Am. Airlines, Inc.,

No. 18-CV-4939 (NG)(RER), 2022 WL 2239556, at *3 (E.D.N.Y. June 22, 2022).

into a company's records and relied on in that company's day-to-

day activities, then “[e]ven if the document is originally created

by another entity, its creator need not testify when the document

has been incorporated into the business records of the testifying

entity.” United States v. Jakobetz, 955 F.2d 786, 801 (2d Cir.

1992); see also United States v. Komasa, 767 F.3d 151, 156 (2d

Cir. 2014).

Mr. Doust states that “all the exhibits attached to the

complaint and/or this declaration were received, created, or

otherwise generated at or near the dates reflected on such

documents” based on his “review of and familiarity with Plaintiff’s

records, maintained by the Special Servicer.” (Doust Decl. at ¶

3.) Mr. Doust further states that “[i]n connection with performing

its duties as Special Servicer for Plaintiff, Special Servicer

creates, receives, and maintains records, including the exhibits

attached to the complaint and/or this declaration, in the regular

course of the Special Servicer’s business activities.” (Id.)

Accordingly, the Doust Declaration lays a proper foundation for

the exhibits to be introduced as business records under Federal

Rule of Evidence 803(6).9 See, e.g., Wells Fargo Bank v. Prince

9 Even if, arguendo, New York law did apply, Plaintiff has established that “the

records provided by the maker were incorporated into the recipient’s own records

and routinely relied upon by the recipient in its own business,” see Bank of

New York Mellon v. Gordon, 97 N.Y.S.3d 286, 296 (2d Dep’t 2019), such that the

records would also be admissible under CPLR § 4518(a), New York's business

records statute. See Bank of Am., N.A. v. Bloom, 202 A.D.3d 736, 738, 162

N.Y.S.3d 136 (2d Dep't 2022) (holding that loan servicer established foundation

26, LLC, No. 22-CV-5586 (PAE) (OTW), 2023 WL 5152420, at *6-7

(S.D.N.Y. Aug. 10, 2023) (finding a declaration sufficient under

803(6) when the declarant attested that he was familiar with the

special servicer's record-keeping practices and procedures, that

he conducted a review of the business records, and that all of the

attached exhibits were true and correct copies of the business

records); CIT Bank N.A. v. Elliott, No. 15-CV-4395 (JS) (ARL),

2019 WL 4439347, at *1 (Sept. 17, 2019) (same).

2. Sufficient Evidence Shows Borrower is in Default

The Court also does not find persuasive the 1078 Whillmore

Defendants’ argument that Plaintiff has failed to provide

sufficient proof of payment default under the mortgage to support

the Complaint’s allegations of a payment default. This argument

is all the more puzzling because the 1078 Whillmore Defendants,

through the affidavit of Samuel Fleischman (who is the Guarantor

and the sole member of 1078 Whillmore LLC), admit that Guarantor

was aware of “a shortfall of funds ranging between $50,000 and

$60,000 to pay the mortgage payments” and that his property manager

made him aware of “three (3) months of allegedly missed payments

of the mortgage.” (ECF No. 25-2, Affidavit of Samuel Fleischman

(“Fleischman Aff.”), at ¶¶ 19-20.) Guarantor also argues,

for admissibility of loan records with testimony that records were received

from plaintiff, incorporated into loan servicer's files, and regularly relied

on by loan servicer in its own business).

erroneously, in his Affidavit that “the Lender has increased the

monthly mortgage payments without explanation.” (Id. at ¶ 27.)

A review of the underlying documents makes clear the source

of Guarantor’s erroneous statement. Plaintiff’s Note states that,

during the 60-month fixed rate period, the fixed monthly principal

and interest payment amount will be $5,364.41. (ECF No. 23-2,

Exhibit 2 to the Doust Declaration (“Doust Decl. Ex. 2”), at 210.)

Attached to his Affidavit as Exhibit E, Guarantor includes records

of payments made. (ECF 25-6, Exhibit E to the Fleischman Aff.

(“Fleischman Aff. Ex. E”).) Contrary to Guarantor’s suggestions,

the mortgage installments did not “increase[] from $5,364.41 . .

. to $6,372.00 in August 2020,” (Fleischman Aff. at ¶ 28), rather,

the fixed monthly principal payment and interest payment of

$1,448.90 and $3,915.51 remained at $5,364.41 combined, and the

purported “increase” was instead the “Tax/Insurance Escrow”

payment11, (Fleischman Aff. Ex. E, at 212). The further increases

cited by Guarantor all similarly fall under the “Tax/Insurance

Escrow” payment until December 2021. (Id. at 3-18.)

10 For Exhibit 2 to the Doust Declaration, the Court’s pincites refer to the

page numbering included in the Note, not the ECF-assigned page number.

11 Section 4.02 of the Loan Agreement provides that “Borrower will deposit with

Lender on the Closing Date and on each Payment Date under the Note an additional

amount sufficient to accumulate with Lender the entire sum required to pay,

when due, Taxes (“Tax Reserve Fund”) and Insurance premiums (“Insurance Reserve

Fund”). (Doust Decl. Ex. 1 at 7.)

12 Because Exhibit E to the Fleischman Affidavit is not internally paginated,

the Court utilizes the ECF-assigned page number for its pincites.

Beginning in January 2022, Guarantor’s records show that

Borrower began to incur late charges13, compounding each month, and

that the loan began to incur default interest14 beginning with the

June 2022 statement. (Id. at 19-24.) This pattern continued

over time, and Guarantor’s records show that by the time the June

2023 statement was issued, Borrower owed $58,767.82 in default

interest, $4,291.52 in late charges, and $21,457.64 in interest

and principal payments. (Id. at 31.) As of the January 2024

statement, Borrower owed $82,780.19 in default interest, $5,632.62

in late payments, and $16,093.23 in interest and principal

payments. (Id. at 37.) Thus, Guarantor’s records show that

Borrower was in default at the time Plaintiff provided notice of

default on May 26, 2023. (Compl. at ¶ 36.)

The Court questions how the 1078 Whillmore Defendants can

argue in good faith that the default has not been established “upon

competent, admissible evidence.” (Def’t Opp. at 12.) The

Guarantor’s own Affidavit provides all the evidence that the Court

needs of the Borrower’s payment default. The very first “event of

default” listed in the Loan Agreement, Section 8.01(a), is a

situation in which “Borrower fails to pay or deposit when due any

13 Section 5(a) of the Note provides that Borrower must pay a late charge of

5% of any overdue payment or amount due. (Doust Decl. Ex. 2, at 7.)

14 Section 5(b) of the Note provides that, upon an Event of Default, the interest

rate applicable to the Loan will increase to the Fixed Annual Interest Rate or

the Variable Annual Interest Rate, as applicable, plus 4%. (Doust Decl. Ex. 2,

at 7.)

amount required by the Note, this Loan Agreement or any other Loan

Document.” (Doust Decl. Ex. 1 at 35.) Guarantor’s records make

it crystal clear that, on several occasions from January 2022

onward, Borrower failed to pay or deposit the amounts required by

the Note, such failure constituting an event of default under the

Loan Agreement. As such, the Court does not find there to be any

real dispute regarding the factual allegations made in the

Complaint regarding Borrower’s payment default.

3. Appointment of a Receiver is Appropriate

Having dispensed with the 1078 Whillmore Defendants’

arguments regarding the provenance of Plaintiff’s evidence or the

presence of an event of default, the Court will next turn to

whether the appointment of a receiver is appropriate in the instant

case.

In addition to arguing that appointment of a receiver is

explicitly authorized by the Mortgage, Plaintiff further argues

that a receivership is appropriate because (1) there is imminent

danger that the Property and the associated rents, both of which

serve as collateral to the Loan, will suffer waste and diminish in

value in the absence of a receivership; (2) Plaintiff’s legal

remedies are inadequate in the absence of an appointed receiver

given the nonrecourse nature of the loan; (3) Plaintiff has shown

its likelihood of success on the merits; and (4) the proposed

receiver is well-suited to take possession of the Property and

avoid irreparable harm to the property. (Pl. Mem. at 3-6.)

Defendants argue in response that the current property manager

“stand[s] the best chance of maximizing rent collections and

preserving the Property during the pendency of this action” and

that the “appointment of a Receiver would [] add no value, as it

would only result in the collection of fees by the Receiver and

thus diminish the amount of money on hand to pay the monthly

expenses associated with maintaining the Property.” (Def’t Opp.

at 17-18.)

The Court finds that the Mortgage specifically contemplates

and authorizes Plaintiff to seek a receivership, a factor

“militating in plaintiff’s favor.” D.B. Zwirn, 550 F. Supp. 2d at

491. Here, as in D.B. Zwirn, the Mortgage includes language

stating that Plaintiff “may apply to any court having jurisdiction

for the appointment of a receiver . . . [and] Borrower, by its

execution of this Instrument, expressly consents to the

appointment of such receiver.” (Doust Decl. Ex. 3 at 25); see

also D.B. Zwirn, 550 F. Supp. 2d at 484 (setting forth the

contractual provision on appointment of temporary receiver,

including language regarding consent). The Court notes that the

Second Circuit has also found the appointment of a receiver to be

appropriate when the parties’ agreement specifically authorizes

such an appointment in the event of default. See Citibank v.

Nyland (CF8) Ltd., 839 F.2d 93, 97 (2d Cir. 1988) (“It is entirely

appropriate for a mortgage holder to seek the appointment of a

receiver where the mortgage authorizes such appointment, and the

mortgagee has repeatedly defaulted on conditions of the mortgage

which constitute one or more events of default.”). Because the

Court finds that the parties’ agreement specifically contemplates

the appointment of a receiver, and it is clear that an event of

default has occurred, “the party opposing the appointment bears

the burden of demonstrating why a receiver should not be

appointed.” D.B. Zwirn, 550 F. Supp. 2d at 491 (S.D.N.Y. 2008).

The Court does not find that Defendants have met their burden.

Plaintiff sets forth facts showing that several factors weigh

in favor of a receivership. Although Plaintiff does not allege

that the 1078 Whillmore Defendants have engaged in any fraudulent

conduct, courts in this circuit have appointed receivers even where

there was no evidence of fraud. See id.; see also United States

v. Trusty Cap., Inc., No. 06-CV-8170 (KMK), 2007 WL 44015, at *8

(S.D.N.Y. Jan. 5, 2007) (granting plaintiff's motion for

appointment of receiver even in the absence of evidence of fraud

where defendant defaulted on its payments to plaintiff).

First, the Court finds that there is danger that the Property

and the associated rents will suffer waste or diminish in value in

the absence of a receiver. The Doust Declaration states that the

Property is “subject to no less than, inter alia, two (2) New York

City Environmental Control Board judgments and six (6) open New

York City Department of Building violations in addition to a

multitude of open rent stabilization charges and dwelling

registration charges.” (Doust Decl. at ¶ 24.) Referencing the

attached exhibit, the Court notes that two of the open Department

of Buildings (“DOB”) violations were filed in April 2023. (ECF

23-12, Doust Decl. Exhibit 12, at 215.) The 1078 Whillmore

Defendants have also failed to remit the rents due to Plaintiff,

as provided under Section 3(a) of the Mortgage. (Doust Decl. Ex.

3 at 23 (“As part of the consideration for the Indebtedness,

Borrower absolutely and unconditionally assigns and transfers to

Lender all Rents . . . [but] [u]ntil the occurrence of an Event of

Default, Lender hereby grants to Borrower a revocable license to

collect and receive all Rents . . .”).)

Although the 1078 Whillmore Defendants state that they are

“ready, willing, and able to submit accountings to the Court and

Plaintiff each month demonstrating that Borrower has been

collecting the rents remitted by the tenants, segregating those

funds and using monies to pay the monthly expenses for the

Property,” the 1078 Whillmore Defendants offer no explanation for

their failure to provide a proper accounting (or turnover the

associated rents) to date. (Def’t Opp. at 17.) In light of the

facts proffered by Plaintiff regarding the number of open

15 Because Exhibit 12 to the Doust Declaration is not internally paginated, the

Court utilizes the ECF-assigned page number for its pincites.

violations on the Property, and the 1078 Whillmore Defendants’

failure to comply with their obligation to turn over the rents to

Plaintiff, the Court finds there is a risk of waste or loss of

value to the Property and associated rents.

Second, the Court finds that Plaintiff’s legal remedies in

the absence of a receiver are inadequate. Because the loan is

generally nonrecourse, as discussed supra, Plaintiff’s recovery is

limited to the Property, with a handful of exceptions for specific

losses or damages set forth in Section 3.03 of the Loan Agreement.

(Doust Decl. Ex. 1 at 3-5.) Therefore, any waste or damage to the

Property would generally not be recoverable by Plaintiff, an

outcome which the Plaintiff notes led to Borrower giving its “prior

consent to an appointed receiver in precisely this instance.” (Pl.

Mem. at 6.) Therefore, the Court finds that this factor weighs in

favor of the appointment of a receiver.

Third, for the reasons discussed supra in evaluating the 1078

Whillmore Defendants’ motion to dismiss, the Court finds a strong

probability that Plaintiff will prevail on the merits in this

action. Plaintiff has set forth a prima facie showing of standing,

and the Court finds that the 1078 Whillmore Defendants’ own

documentary evidence clearly shows evidence of a payment default,

even setting aside the financial reporting default. Therefore,

the Court finds a likelihood of success on the merits.

Finally, the Court finds that harm to the Plaintiff by denial

of the motion for a receivership would be greater than any harm to

the 1078 Whillmore Defendants. The 1078 Whillmore Defendants argue

that the fee charged by a receiver will “diminish the amount of

money on hand to pay the monthly expenses associated with

maintaining the Property,” (Def’t Mem. at 18), but the Plaintiff

states that the proposed “Receiver, if appointed, has agreed to

waive his receivership fee and that his proposed property manager,

Syracuse Realty Group, would earn a management fee in place of the

management fee that Borrower’s property manager currently earns,”

(Pl. Reply at 13). Furthermore, other courts examining the

relative harm to the parties have noted that a contractual

provision providing for a receivership suggests “a significant

diminution of [defendants’] interest due to its voluntary

accession to a receivership remedy in the bargaining process.”

Kairos Credit Strategies Operating P'ship, LP v. Friars Nat'l

Ass'n, Inc., No. 23-CV-2960 (JPO), 2023 WL 3675921, at *3 (S.D.N.Y.

May 26, 2023). Accordingly, and in light of the fact that the

Property’s rents should be turned over to Plaintiff under the

operative loan documents, the Court finds that the appointment of

a receiver would not cause a greater injury to the 1078 Whillmore

Defendants than would be caused to Plaintiff if a receiver is not

appointed.

To the extent the 1078 Whillmore Defendants argue that

Borrower’s current property manager has a special relationship

with the tenants of the Property, and “[t]he tenants at the

Property are very unlikely to understand the concept of a receiver

being appointed for the Property and are likely to attempt to take

advantage of same by not remitting rents to anyone,” the Court

does not find Defendants’ argument availing. (Def’t Opp. at 4.)

The receiver could always coordinate with the existing property

manager to avoid such difficulties, but such a special relationship

has previously been found by other courts as “insufficient to

justify leaving [Defendants’] assets entirely in [their] hands.”

Trusty Cap., Inc., 2007 WL 44015, at *9. Therefore, the Court

finds that this factor does not prevent the Court from appointing

a receiver.

In light of the foregoing analysis, the Court finds that it

is appropriate to appoint a receiver in the instant case.

CONCLUSION

For the foregoing reasons, Plaintiff's Motion to Appoint

Orazio Crisalli of Syracuse Realty Group, LLC, 570 Lexington

Avenue, Suite 1600, New York, New York 10022, as Receiver for the

assets of defendant 1078 Whillmore LLC, including certain real

property and improvements located at 1078 Willmohr Street,

Brooklyn, New York, designated as Block 4691 Lot 7 Tax Map of the

City of New York, County of Kings, is GRANTED. The 1078 Whillmore

Defendants’ Motion to Dismiss for lack of standing and for failure

to state a claim is respectfully DENIED.

SO ORDERED

pares Sroskign, New York + “7? ‘Yh —

at, ® wt Leta

HON. KIYO A. MATSUMOTO

United States District Judge

Eastern District of New York

44