Foreclosures—Appellate Division Criticizes Trial Judge for Ignoring "Binding Precedent" and "Improperly" Relying on Material He Gathered From Independent Research—Dismissal of Foreclosure Action Reversed, Remanded and Assigned to a Different Justice—Failure to Follow an Appellate Division Decision Which Reversed the Same Trial Justice Approximately Two Months Earlier—Trial Judge Urged to Remain Abreast of and Follow Binding Precedent—Improper Independent Internet Investigation by Trial Court of the Plaintiff's Standing That Included Materials That Could Not Be Judicially Noticed and Which Was Conducted Without Providing Notice or Opportunity to Be Heard by Any Party

This case involved an action to foreclose a mortgage. The trial court had denied the lender's motion which was made pursuant to RPAPL 1321 for an order of reference. The trial court had also, sua sponte, dismissed the complaint with prejudice, cancelled a notice of pendency filed against the subject property and ordered that a hearing be held on the issue of sanctions against the lender and the law firm that was representing the lender (law firm). The trial court thereafter ordered that the lender pay a sanction of $10,000 to the Lawyers' Fund for Client Protection (fund) and that the nonparty law firm pay a sanction of $5,000 to the fund. The Appellate Division (court) reversed and granted the lender's motion for reference pursuant to RPAPL 1321. The court also remitted the matter to the trial court for further proceedings before a different justice.

A defendant borrower had defaulted on her mortgage. The lender, the alleged holder of the mortgage and note had commenced the subject action. None of the defendants had appeared in the action or answered the complaint. The trial court had found that the lender lacked standing to commence the action. The trial court determined that a sanctions hearing was appropriate because, inter alia, the trial court's "independent research had revealed that the plaintiff and the law firm had relied upon a 'robosigner' employed by the plaintiff's loan servicer."

The court held that the trial court had improperly denied the lender's motion for an order of reference. The lender had submitted "documentary proof showing, inter alia, that the defendants failed to answer the complaint within the time allowed, that it was the holder of the…mortgage and…note, evidence of the mortgagor's default, and that, as a preliminary step in obtaining a judgment of foreclosure, the appointment of a referee to compute the amount due on the…mortgage would be proper…." The court further held that the trial court had "abused its discretion, in sua sponte, directing dismissal of the complaint with prejudice and cancellation of the notice of pendency…."

The court explained:

[a] court's power to dismiss a complaint, sua sponte, is to be used sparingly and only when extraordinary circumstances exist to warrant dismissal….Here, the Supreme Court was not presented with any extraordinary circumstances warranting sua sponte dismissal of the complaint. Moreover, as the defendants failed to answer the complaint and did not make pre-answer motions to dismiss the complaint, they waived the defense of lack of standing…. Furthermore, a party's lack of standing does not constitute a jurisdictional defect and does not warrant sua sponte dismissal of a complaint by the court….

The court further found that the trial court had "abused its discretion" in imposing sanctions on the lender and its law firm. The court cited a recent Appellate Division decision where it had reversed an order issued by the same trial court justice assigned to the subject case "which similarly directed dismissal of a complaint in a mortgage foreclosure action, sua sponte, for lack of standing." In the prior case, the court emphasized that "a mortgagee's alleged lack of standing is not an 'extraordinary circumstance' that warrants sua sponte dismissal of a foreclosure complaint. Indeed, lack of standing is an affirmative defense which is waived if not raised by the defendant in either an answer or a pre-answer motion to dismiss…." Since the prior Appellate Division decision had been decided approximately two months before the trial court improperly directed dismissal of the subject complaint for lack of standing, the court took "this opportunity to remind the Justice of his obligation to remain abreast of and be guided by binding precedent."

Additionally, the court cautioned the justice "that his independent internet investigation of the plaintiff's standing that included newspaper articles and other materials that fall short of what may be judicially noticed, and which was conducted without providing notice or an opportunity to be heard by any party…was improper and should not be repeated." Accordingly, the court remanded the matter to the trial court for further proceedings before a different justice.

HSBC Bank USA v. Eileen N. Taher, 9320/09, NYLJ 1202593156779, at *1 (App. Div., 2d, Decided March 20, 2013), Before: Dillon, J.P., Angiolillo, Leventhal, Miller, JJ. All concur.

Trespass—Nuisance—Punitive Damages—Defendant Not Liable for Punitive Damages for Intentional Diversion of Storm Water Onto Plaintiff's Property—Injury Was Considerable and Tortious Acts Intentional, but Evidence Was Insufficient for an Award of Punitive Damages

This decision by the Court of Appeals (court) involved the issue of "whether the evidence was sufficient to find defendant liable for punitive damages for intentional diversion of storm water onto plaintiff's property, which caused extensive damage to his land, constituting the torts of trespass and nuisance." The court found that "although the injury was considerable and the tortious acts undeniably intentional, the evidence…was insufficient for an award of punitive damages."

The plaintiff and defendant are adjoining landowners. The defendant was a small residential real estate company run by a person who was 82 years old ("A"). The defendant sought to further develop a residential subdivision on his land. The defendant had submitted a plan to the town for approval. "The approved plan required that water from the…development would flow into a storm sewer and then into a ditch, which was to create a mitigation pond…." The town engineer explained that the ditch was on the defendant's property. However, as the town later discovered, the ditch was actually located on the plaintiff's property and it was used without the plaintiff's permission.

The court found that the defendant should have known that the ditch lacked the capacity to contain the large amount of water that the defendant diverted. Moreover, the defendant's design of the mitigation pond bordering the plaintiffs' property, "the purpose of which was to retain water and prevent it from discharging downstream, was insufficient in size to handle the flow of water from the surrounding area." The defendant had installed two drainage pipes and routed "the quickly rising water into an abandoned farmer's furrow located on plaintiff's land, again, without plaintiff's permission, resulting in over 30 acres of flooded wetland."

The plaintiff personally contacted "A" about the flooding. "A" stated that the flooding was not the plaintiff's problem. The plaintiff demanded "A's" assistance in cleaning up the flooding. "A" did not respond. According to the defendant, the plaintiff had refused to permit the town to clean out the ditch on his property, "which would have significantly alleviated the flooding by allowing water to move through it more easily." When the town had arrived to clean the ditch, the plaintiff had become "enraged and would not allow…any of the Town's workers to enter his property." The town engineer thereafter met with the plaintiff, but according to the town and the defendant, the plaintiff "again became enraged and ordered him to leave." The town had made no further efforts to clean the ditch.

The plaintiff thereafter commenced the subject action against the defendant and the town, alleging, inter alia, "trespass and nuisance and [sought] money damages for alleged intentional diversion of water onto his property." The defendant, at the close of proof, moved to dismiss the punitive damages claim based on the insufficiency of the evidence. The trial court had denied that motion. The jury awarded a verdict of $1,313,600 for the plaintiff against the town for compensatory damages. The jury awarded the plaintiff $328,400 in compensatory damages and $250,000 in punitive damages against the defendant.

Thereafter, the parties settled all but the punitive damage claim. The Appellate Division upheld the $250,000 punitive damages award. Two Appellate Division justices dissented on the grounds that there was insufficient evidence to demonstrate that the defendant "was motivated by maliciousness or vindictiveness or that [defendant] engaged in such 'outrageous or oppressive intentional misconduct' to warrant a punitive damages award…." The court vacated the punitive damages award.

The court explained:

Because the standard for imposing punitive damages is a strict one and punitive damages will be awarded only in exceptional cases, the conduct justifying such an award must manifest "spite or malice, or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that the conduct may be called wilful [sic] or wanton"…. As conceded by plaintiff, the trial court correctly charged the jury that punitive damages may only be awarded if defendant's acts were "wanton and reckless or malicious. Punitive damages may be awarded for conduct that represents a high degree of immorality and shows such wanton dishonesty as to imply a criminal indifference to civil obligations."

The plaintiff argued that the defendant had "willfully and wantonly caused danger to the health, safety and welfare of the public because of the flooding." However, the court found that the "intent" that the plaintiff would impute to the defendant's actions could not find support in the record. The court opined that the evidence did not demonstrate that the defendant's actions "impl[ied] a criminal indifference to civil obligations."

The defendant had "complied with all federal, state and local planning and development laws and regulations, and worked closely with the Army Corps, the Town Engineer and the Town Planner to secure all required permits and approvals; it hired a wetlands expert, an engineering expert, and soil expert to assist…." The court acknowledged that "those measures were ultimately unsuccessful in preventing damage to surrounding property." However, the court stated that such planning, "if not indicative of good faith, at least shows that [defendant's] actions could not be considered 'wanton and reckless or malicious.'"

The court noted that the town and the defendant's dealings with the plaintiff and his property "were not ideal" and the defendants had been held liable for compensatory damages. The defendants "knew that overflow would be a problem along the furrow bordering plaintiff's property," and the town had told the defendant "that it would contact plaintiff regarding an easement along his west property line."

Although the town had not obtained the plaintiff's permission to permit water to flow onto his property, it did not follow that "the acts resulting in overflow onto plaintiff's property were undertaken with the requisite malice or gross indifference." The defendant had failed "to ensure that the Town followed through with its plan to obtain an easement, so that they were liable in nuisance and trespass, but '[s]omething more than the mere commission of a tort is always required for punitive damages'…."

The court emphasized that "[p]unitive damages are permitted only when a defendant purposefully causes, or is grossly indifferent to causing, injury and defendant's behavior cannot be said to be merely volitional; an unmotivated, unintentional or even accidental result of a legally intentional act cannot, alone, qualify…." "Punitive damages are awarded to punish and deter behavior involving moral turpitude…." Since the court found that the defendant's behavior did not rise to that level, it reversed and vacated that part of the judgment which awarded punitive damages.

Paul Marinaccio, Sr. v. Town of Clarence, No. 31, NYLJ 1202593024131, at *1 (Ct. of App., Decided March 21, 2013). Opinion by Lippman, Ch.J. Graffeo, Read, Smith and Pigott, JJ. concur. Rivera, J. took no part.

Landlord-Tenant—Holdover Proceedings—Although Certificate of Occupancy Was for Five Residential Units and a Dentist's Office, the Building Contained Eight Residential Units and Therefore, the Apartments Were Rent Stabilized

This decision involved an appeal from a final judgment of the Civil Court of the City of New York, which, after a nonjury trial, dismissed the petition in a holdover proceeding. The Appellate Term, Second Department (11th and 13th Judicial Districts) (courts) affirmed.

A landlord had commenced separate holdover proceedings to recover two apartments, alleging that the tenancies were month-to-month and that the tenancies had been terminated. The tenants in both proceedings asserted that the building, "which [had] a certificate of occupancy for five residential units and a dentist's office, in fact had contained eight residential units, and, thus, that their apartments were rent stabilized."

The parties had stipulated that a determination in the subject proceeding would be binding in both proceedings. At trial, seven witnesses for the tenant testified as to the existence of eight residential units in the building. The tenant's additional evidence included "videographic, photographic, and documentary evidence, including a Department of Buildings' violation record, all of which supported tenant's claim as to the existence of the illegal units." The trial court, citing Rashid v. Cancel (9 Misc.3d 130[A], 2005 NY Slip Op 51585[U] [App. Term, 2d & 11th Judicial Districts, 2005]), found that "the apartments were rent stabilized and dismissed the petitions."

The landlord argued that although there may have been eight apartments in the building, the apartments are not rent stabilized, absent proof that the owner "knew of and acquiesced in the unlawful conversion of space from commercial to residential use and the owner sought to legalize the conversion." The landlord cited, inter alia, Wolinsky v. Kee Yip Realty (2 NY3d 487 [2004]).

The court agreed with the trial court that Wolinsky is inapplicable since that case is limited to the illegal conversions of lofts. In Wolinsky, the Court of Appeals had explained that the Emergency Tenant Protection Act of 1974 (ETPA) "applies to regulate residential rents of all housing accommodations which it does not expressly except, including previously unregulated accommodations…." Wolinsky had held that the subject loft units were "exempt only because it read 'the ETPA and Loft Law together'…to find that the Loft Law created an exception to ETPA coverage." The court explained that Wolinsky would not have cited Matter of Gracecor Realty, (90 NY2d 350 [1997]), with approval "if the court was, in effect, overruling it. Indeed, a number of trial courts have correctly found, as did the [trial court] here, that Wolinsky is applicable only to illegally converted lofts…."

The landlord had argued that the Appellate Division, Second Department, had applied Wolinsky in cases that did not involve lofts. However, the precedent cited by the landlord had involved the conversion of loft space. Thus, the court affirmed the trial court's holdings that the apartment is rent stabilized and the petition should be dismissed for failure to state a cause of action.

Joe Lebnan, LLC v. Oliva, 2012-1705 K C, NYLJ 1202595168016, at *1 (App. Term., 2d, Decided March 20, 2013); Before: Pesce, P.J., Rios and Solomon, JJ. All concur.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John's University School of Law.