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Plaintiff Moves for a Summary Judgment in Lieu of Complaint for Payment



Plaintiff moves pursuant to CPLR § 3213 for an Order granting summary judgment in lieu of complaint for payment allegedly owed on a promissory note. “Defendants” or “the Estate”, as executors of the Estate of the decedent cross-move for summary judgment dismissing this proceeding pursuant to § 1810 of the Surrogate’s Court Procedure Act.

This case arises from a loan transaction between plaintiff and the decedent a real estate developer. Prior to his death, he was a 55% owner in Flatbush Extension, LLC (“Flatbush Extension”), which owned properties located at 67, 75, and 85 Flatbush Avenue in Brooklyn. On or about March 27, 2007, U.S. Bank and Flatbush Extension entered into a secured loan agreement (the “Loan Agreement”) pursuant to which the parties agreed that Flatbush Extension could borrow up to $50,000,000 in connection with the development of a luxury condominium project (“Flatbush Extension Project”).

On or about June 1, 2007, U.S. Bank extended a separate, unsecured loan (“Loan”) to the decedent, in his individual capacity, in the amount of $5,000,000. To evidence the loan, Lax executed a promissory note, dated June 1, 2007 (the “Note”), which matured on June 1, 2009. The nature of the credit line was outlined in the Summary of Terms and Conditions (the “Term Sheet”), dated May 22, 2007, which generally states that U.S. Bank made the loan to allow Lax to “provide a portion of the predevelopment costs associated with various real estate projects that he was involved with.”

On November 3rd, 2008, prior to the maturation of the Loan, he passed away. On February 9, 2009, defendants adult children, were appointed preliminary executors of the Estate by the Surrogate’s Court, Kings County. On or about March 11, 2009 and April 15, 2009, U.S. Bank sent letters to counsel for the Estate advising that Lax had failed to comply with non-monetary obligations set forth in the Note which constituted an “Event of Default” as defined under the Note. Specifically, the March 11, 2009 letter advised that Lax had failed to deliver information documenting his net worth, liquidity, and debt-to-asset ratio as required under the Note. The letter also advised the Estate of the cross-default provision contained in the Note, which provided that a default event under the Flatbush Extension Loan Agreement constituted a default event under the Note. The April 15, 2009 letter advised that U.S. Bank had accelerated the Loan as provided for in the Note and was demanding repayment. On or about March 11, 2009 and April 15, 2009, U.S. Bank also sent letters to Flatbush Extension advising of defaults under the Loan Agreement and demanding repayment of the loans related to the Flatbush Extension Project.

By letter dated April 24, 2009, Flatbush Extension rejected U.S. Bank’s assertion that it had defaulted under the Loan Agreement and objected to U.S. Bank’s decision to cease funding the Flatbush Extension Project, claiming that such alleged non-monetary acts of default had been waived in the course of a restructuring of the project from condominium to rental units. By letter dated May 1, 2009, the Estate rejected U.S. Bank’s assertions that Lax had defaulted under the Note, claiming there had been neither a default under the Note nor a basis for cross-default based on the Loan Agreement.

Defendants did not repay the Loan on the June 1, 2009 Maturity Date, and on June 10, 2009, U.S. Bank served the Estate with a formal Notice of Claim pursuant to § 1803 of the Surrogate’s Court Procedure Act. On June 24, 2009, U.S. Bank sent a “Second Demand for Repayment” letter to the Estate demanding repayment of the Loan based upon the occurrence of the Maturity Date. Defendants did not respond directly to the Notice of Claim, but, by letter dated July 17, 2009, rejected the Bank’s claims under the Note as alleged in the June 24, 2009 letter, denying that there had been a default.

On September 29, 2009, U.S. Bank commenced a foreclosure action against Flatbush Extension in Supreme Court, Kings County, seeking to recover the amount allegedly due under the Loan Agreement. See US Bank National Association, v Flatbush Extension LLC, et al., Index No. 26434/09. On October 8, 2009, U.S. Bank filed this action by motion for summary judgment in lieu of complaint pursuant to CPLR § 3213, claiming that the Note qualifies as a stand-alone instrument for the payment of money only and is in no way related to the Loan Agreement. Defendants have cross-moved to dismiss pursuant to SCPA § 1808, claiming that the Surrogate’s Court is the proper forum to address the validity of Plaintiff’s claims, as Plaintiff failed to commence the instant action within 60 days of rejection of its claim pursuant to SCPA § 1810.

The Surrogate’s Court Procedure Act § 1810 provides that: Nothing in this article shall prevent a claimant from commencing an action on his claim at law or in equity, provided that where a claim has been presented and rejected or deemed rejected pursuant to 1806 in whole or in part the action must be commenced within 60 days after such rejection. To trigger the statute of limitations, a “claim” must therefore be presented and rejected. Section 1803 of the SCPA sets forth the required form of a claim as follows: 1. Every claim against the estate of a decedent must be in writing, contain a statement of the facts upon which it is based and the amount thereof. In addition, the fiduciary may require the claimant to present proof by affidavit that the amount of the claim is justly due, that all payments thereon, if any, have been credited, that the claimant knows of no offsets and no evidence of indebtedness and holds no security, except as specifically described in the affidavit.

2. The notice of a claim required by this section shall be presented by delivering a copy thereof to a fiduciary personally or by certified mail return receipt requested addressed to the fiduciary at the place of residence stated in the designation or upon the clerk of the court whenever the fiduciary cannot be found or served within the state after due diligence; 3. No claimant shall be entitled to enforce payment of a claim in any proceedings in the court unless the claim be presented in accordance with the provisions of this section or unless it shall be based upon a decree or order of the court or a valid judgment rendered by a court of competent jurisdiction.

Once a Notice of Claim is made, SCPA § 1806[1-2] requires the executors of an estate to “promptly give notice in writing to the claimant of the allowance of the claim or of its rejection or of the rejection of some part thereof,” as well as “the reasons therefor.” If “the fiduciary shall fail to allow the claim within 90 days from the date that it has been presented to him, the claim shall be deemed to have been rejected.” SCPA § 1806[3].

The parties dispute the date on which the statute of limitations began to run. Plaintiff argues that: (1) a Notice of Claim sufficient to satisfy the requirements of § 1803 was not served until June 10, 2009, nine days after the Loan matured; (2) the default and demand letters were sent to the attorneys for the Estate merely to notify the Estate of the default and the subsequent acceleration of the Loan; (3) Defendants never formally responded to the Notice of Claim and therefore it was deemed rejected on September 9, 2009, ninety days after service; and (4) a timely action was initiated in this Court on October 8, 2009, well within the sixty day limit to proceed outside of Surrogate’s Court. Defendants disagree, arguing that: (1) the default and demand letters satisfied the requirements of SCPA § 1803; (2) they expressly rejected Plaintiff’s assertion that the Estate had defaulted under the Note in the May 1, 2009 letter of counsel; (3) they expressly rejected Plaintiff’s assertion again via letter of counsel on July 17, 2009; and (4) by filing on October 8, 2009, Plaintiff’s action was initiated two months beyond the 60-day period of limitations and is therefore time-barred.

The provisions of the SCPA carefully prescribe the procedures required for the administration of an estate, including the order of the payment of debts. See e.g. SCPA Art. 18. “Certainty in the administration of estates” requires that “the statutes on the presentation of claims” be “strictly construed.” As such, the SCPA should be “complied with in all its essential particulars,” and “nothing short of a written claim exhibited to the representative, as the statute plainly requires, and absolutely rejected by him, will have the effect of establishing the time for the commencement” of the statute of limitations. Ulster County Savings Inst., 161 NY at 33-34 [1899].Although no prescribed form of a Notice is Claim is mandated under SCPA § 1803, the statute does require that the Notice be written, contain a statement of the facts upon which the claim is based, and the sum claimed and be served personally upon the representative of the estate. There is no question that the Notice of Claim served by Plaintiff on June 10, 2009, following the failure to pay the Note on its Maturity Date, qualifies as a Notice of Claim pursuant to SCPA § 1803. However, this Court finds that Plaintiff’s March 11, and April 15, 2009 letters cannot be construed as § 1803 Notices of Claim on the Estate because each lacked essential elements as required by the SCPA. First, neither letter was served on the fiduciaries personally. See SCPA § 1803[2]. To the contrary, they were addressed and delivered only to counsel for the Estate by mail. Second, the March 11, 2009 default letter, which provided notice only of non-monetary reporting defaults under the Note and the default of Flatbush Extension under the Loan Agreement, failed to contain an amount due (see SCPA § 1803[1]), but merely advised the Estate of the events of default and provided the Estate with an opportunity to cure. While containing a notice of acceleration and a demand for payment of a sum certain, the April 15, 2009 letter related only to the non-monetary curable defaults previously noticed, which not the basis of the present action are.

Not until June 10, 2009 did the Plaintiff deliver a proper § 1803 Notice of Claim addressed to the fiduciaries of the Estate personally, setting forth, in writing, the amount due and a statement of facts upon which the claim was based, supported by an affidavit. Despite the earlier “rejection” by counsel to the Estate of the “claims” made in the May 11, 2009 and April 15, 2009 letters, the Estate was required to respond to Plaintiff after receipt of the June 10, 2009 Notice of Claim, which was expressly premised, as indicated in the supporting affidavit, upon the obligation to make payment in full, according to the terms of the Note, on June 1, 2009. Plaintiff’s “Second Demand for Payment,” dated June 24, 2009, which followed the actual Notice of Claim, is superfluous to the issue of Notice of Claim, but it is to that letter that Defendants responded in counsel’s letter of July 17, 2009. The critical issue is whether the July 17 letter constituted a response to the June 10 Notice of Claim, as required under SCPA § 1806, so as to commence the running of the 60-day statute of limitations under SCPA § 1810, as Defendants contend, or did not, thereby effectuating the provision of SCPA § 1810[3] that the claim would only be deemed rejected after 90 days. Defendants’ attorney’s letter of July 17 expressly states that it is “in response to the letter dated June 25, 2009 [sic] sent by your client” and references the prior letter of counsel dated May 1, reiterating the prior denial of default “based on the decedent’s alleged failure to provide financial documentation from November 2007.”

A motion for summary judgment in lieu of complaint is appropriate where “an action is based upon an instrument for the payment of money only.” CPLR § 3213. A promissory note qualifies as an instrument eligible for treatment under CPLR § 3213 if the plaintiff provides proof of the note and a failure to make the payments called for by its terms. The usual standards for summary judgment apply to CPLR § 3213 motions. In order to obtain summary judgment, the movant must establish its cause of action or defense sufficiently to warrant a court’s directing judgment in its favor as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Where the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action.

Accordingly, Plaintiff’s motion for summary judgment in lieu of complaint is granted. Defendant’s cross-motion to dismiss is denied.

If you are having problems in the administration of your estate, seek the help of Stephen Bilkis and Associates. They have offices to serve you throughout New York, including locations in Manhattan, Queens, the Bronx, Brooklyn, Staten Island, Nassau County, Suffolk County and Westchester County.

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