IAS TERM PART 23 NASSAU COUNTY

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1 INDEX NO /01 SUPREME COURT - STATE OF NEW YORK IAS TERM PART 23 NASSAU COUNTY PRESENT: HONORABLE LEONARD B. AUSTIN Justice Motion R/D: 1 I Submission Date: 12-4~-02 Motion Sequence No.: 002/MOT D AMERICAN EXPRESS EQUIPMENT FINANCE, Plaintiff, - against FRJ LEASING CORPORATION, BAYSIDE CARTING, INC., FRANK ROTONDO, JR., ROTONDO CONTRACTING CORP., STATEWIDE RECYCLING, INC., Defendants. - COUNSEL FOR PLAINTIFF Peretore & Peretore, P.C. 110 Park Street Staten Island, New York COUNSEL FOR DEFENDANTS Rotondi & Associates, P.C. 330 West 42nd Street New York, New York The following papers were read on Plaintiff s motion for summary judgment against Defendants FRJ and Bayside and a default judgment against Defendants Rotondo, Rotondo Contracting and Statewide Recycling: Notice of Motion dated October 29, 2002; Affidavit of Frank Peretore sworn to on October 30, 2002; Affidavit of Mark Bregar sworn to on October 28, 2002; Plaintiff s Memorandum of Law. Plaintiff moves for summary judgment against Defendants FRJ Leasing Corporation ( FRJ ) and Bayside Carting, Inc. ( Bayside ) and for leave to enter a 1

2 default judgment against the Defendants Frank Rotondo, Jr. ( Rotondo ), Rotondo Contracting Corp. ( Contracting ) and Statewide Recycling, Inc. ( Statewide ). BACKGROUND Plaintiff, American Express Equipment Finance ( American Express ) brings this action seeking to recover on three promissory notes and to recover the items pledged as security for the promissory notes. American Express is the successor in interest to Rockford Industries, Inc. ( Rockford ). On February 28, 1996, FRJ executed a promissory note with Rockford in the principal sum of $209, The note was to be repaid in 60 equal installments of $3, The first payment was due on February 28, 1996 with subsequent payments to be made on the same day of each successive month until the outstanding balance had been paid in full. The obligations of FRJ under the promissory note were secured by a Security Agreement whereby FRJ pledged 1 new Komatsu WA 380 Loader, Serial Number A46084 and * * *all present and all present and future accounts, accounts receivable, inventory proceeds. Chattel paper, contract rights, documents, instruments, general intangibles and the books and records pertaining to the foregoing and the equipment containing said books and records together with all monies deposit accounts, insurance proceeds and other rights to payment due or to become due thereunder and all repossessions and returns thereunder * * *. 2

3 This security interest was perfected by filing same with the New York State Departments of Motor Vehicles and State. On September 5, 1996 FRJ executed a second promissory note with Rockford in the principal sum of $148, The obligations of FRJ pursuant to the promissory note were secured by a Security Agreement dated September 5, 1996 wherein FRJ pledged as security its interest in one 1996 Western Star Tractor F, VIN: 2WLNCCJFXTK and one Atlas Roll-off Hoist, Serial Number : CWO P and * * * in all equipment and any and all inventory, accounts, receivables, goods, machinery, furniture, fixtures, property, intangible property, intellectual property, and assets of Debtor [FRJ] of any kind, regardless of location, and whether presently and/or hereinafter acquired by Debtor or in which Debtor has and interest, and all the proceeds of the foregoing * * *. This security agreement was perfected by filing same with the New York State Departments of Motor Vehicles and State. FRJ executed a third promissory note with Rockford dated September 20, 1996 in the principal sum of $192, The obligations of FRJ under this note were secured by a Security Agreement dated September 20, 1996 wherein FRJ pledged as security its interest in one Picking Station Serial Number C and the component parts thereof, and one Mastermag 8PCB IO KEL Permanent Self Cleaning Overhead 3

4 Magnet, Serial Number M8216 and the component parts thereof, one 1994 Peterbilt Tractor Model Number 379 w/sleeper cab and 425 Caterpillar Engines and Road Ranger Transmissions VI N: 1 XP5D B9X9R N , one 1994 Peterbilt Tractor Model Number 379 w/sleeper cab and 425 Caterpillar Engines and Road Ranger Transmissions VIN: lxp5d B9X2R N , one 1988 Roll Off Peterbilt Model Number 357 w/425 Caterpillar Engine VIN: lxpalboxojn and American Roll Off Hoist Serial Number , one 1987 Roll Off Peterbilt Model Number 357 w/ 425 Caterpillar Engine VIN: Number Bl-1224 and IXPAL 20X8HN and American Roll Off Hoist Serial Bayside, Contracting, Statewide and Rotondo pursuant to three separate Unconditional Guaranty agreements executed by Rotondo, individually, and on behalf of the corporate guarantors simultaneously with the execution of the promissory notes and Security Agreements. * * * all equipment and any and all inventory, accounts, receivables, furniture, fixtures, property, intangible property, intellectual property and assets of Debtor (FRJ) of any kind, regardless of location, and whether presently and/or hereinafter acquired by Debtor or in which Debtor has an interest, and all the proceeds of the foregoing * * *. This security interest was perfected by filing same with the New York State Departments of Motor Vehicles State. The obligations of FRJ under all three promissory notes were guaranteed by 4

5 FRJ defaulted in payment on the promissory notes. In the event of a default in payment, the holder of the promissory note had the right to accelerate the payments and declare the entire outstanding balance due. American Express has chosen to do this. As of October 28, 2002, the balance outstanding on the February 28, 1996 promissory note was promissory note was $45,495.97, the balance outstanding on the September 5, 1996 $53, and the balance outstanding on the September promissory note was $17, This actions was commenced on July IO,2001 by filing the summons and complaint with the County Clerk, Nassau County. At the same time, American Express moved for an Order of Seizure. The complaint alleges six causes of action. The first three seek recovery under the promissory notes, conversion of the chattel, breach of warranty and unjust enrichment. As a part of the relief demanded, Plaintiff also seeks reasonable counsel fees. The Summons and Complaint were served on the corporate Defendants on July 16, 2001, by serving the Secretary of State as Statutory Agent for the corporations. Business Corporation Law 306(b). Defendant Rotondo was served by delivering a copy of the summons and complaint to a person of suitable age and discretion at 186 Broadway, Huntington Station, New York and by mailing a copy thereof to him at the same address. Said address is Rotondo s actual place of business. CPLR 308 (2). The Order to Show Cause seeking an Order of Seizure was served upon the corporate Defendants and Rotondo simultaneous with the service of process. Only 5

6 Defendants FRJ and Bayside opposed that motion asserting that there was a dispute as to the amounts due on the promissory notes. By decision dated May 2, 2002, this Court granted American Express motion for an order of seizure on condition that American Express post a bond or undertaking in the amount of $334, within 30 days of the date of the order. American Express never posted the bond. The only Defendants to have appeared in this action are FRJ and Bayside which interposed an answer to the complaint dated January 8, In that answer, FRJ and Bayside generally deny the allegations of the complaint, interpose several affirmative defenses and a single counterclaim which alleges that the calculation of the sums due is incorrect. Defendants Rotondo, Contracting and Statewide have never appeared in the action. Franc0 Rotondo Jr., was deposed on behalf of the appearing Defendants on September 5, At his deposition, he testified that FRJ had sold the two 1994 Peterbilt Tractors, the 1988 Roll Off Peterbilt and the 1987 Roll Off Peterbilt which were pledged as security in connection with the September 20, 1996 Security Agreement and the 1996 Western Star Tractor and the Atlas Roll-off Hoist pledged as Security in connection with the September 5, 1996 Security Agreement. Mr. Rotondo further testified that the Komatsu Loader that was pledged as security in connection with the February 28, 1996 Security Agreement was still in the possession of FRJ and was located at 186 Broadway, Huntington Station, New York. 6

7 The Picking Station and Mastermag 8PCB IOKEI that were pledged as security in connection with the September 20, 1996 Security Agreement were also in the possession of FRJ and were located at 1345 New York Avenue, Huntington Station, New York. DISCUSSION A. Default Judqment CPLR 3215(c) provides that a request for a default judgment must be made within one year after default or the action shall be dismissed as abandoned. This can be avoided on good cause shown. If the action is brought against multiple Defendants in which some appear and some default, the Plaintiff must still seek to enter a default judgment against the defaulting Defendants within a year of the default. The Court may then direct that the inquest against the defaulting Defendants be held at the time of, or after, the trial against the appearing Defendants. CPLR 3215(d). See, Siegel, New York Practice 3rd In order to avoid the automatic dismissal mandated by CPLR 3215(c), the Plaintiff must demonstrate that the action has merit and sufficient excuse for failure to enter a default within one year. Finan v. Queens Transit Corp., 100 A.D.2d 951 (2nd Dept., 1984); and Winkelman v. H & S Beer and Soda Discounts, Inc., 91 A.D.2d 660. (2nd Dept., 1982). In this case, the summons and complaint were served upon the Defendants Contracting, Statewide and Rotondo in July, The application for a default against 7

8 these Defendants was not made until October, 2002, more than one year after service. While the papers submitted to the Court in connection with this motion, in particular, the affidavit of Mark Bregar, demonstrate a meritorious claim on the guarantee against these Defendants, American Express has failed to make a showing or even argue that it has a sufficient excuse for failing to enter a default against these Defendants within one year, Therefore, the action against these Defendants must be dismissed as abandoned. B. Summarv Judament Summary judgment is drastic remedy which will be granted only when it is clear that, there are no issues of fact. Alvarez v. Prospect H OSP., 69 N.Y.2d 320 (1986); Andre v. Pomerov, 35 N.Y.2d 361 (1974). The party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law. Zuckerman v. City of New York, 49 N.Y.2d 557 (1980). Once the moving party has made a prima facie showing of entitlement to judgment as a matter of the law, the party opposing summary judgment must come forward with proof in evidentiary form establishing that issues of fact exist which necessitate a trial or demonstrate an acceptable reason for failing to do so. Zuckerman v. Citv of New York, supra; and Bras v. Atlas Construction Co., 166 A.D.2d 401, (2 d Dept., 1990). To establish entitlement to judgment as a matter of law on a promissory note, the Plaintiff must establish the existence of the promissory note executed by the Defendant, an unequivocal and unconditional obligation to repay and a default in payment by the 8

9 obligor. James DeLuca, M.D., P.C. v. North Shore Medical lmasinq LLP, 287 A.D. 2d 488 (2nd Dept. 2001); and East New York Savinss Bank v. Baccarav, 214 A.D.2d 601 (2nd Dept., 1995). Plaintiff has established the existence of three promissory notes executed by the Defendant FRJ which contain a clear and unequivocal obligation to repay and the default of FRJ in making payment. Plaintiff has also established the amount due on these notes which, as of the making of this motion, was $116, Therefore, Plaintiff is entitled to summary judgment against the Defendant FRJ in this amount. To establish entitlement to judgment as a matter of law on a guarantee, the Plaintiff must establish the existence of the underlying promissory note or obligation, the guarantee and the failure of the prime obligor to make payment in accordance with the terms of the promissory note or obligation. E.D.S. Securitv Systems. Inc., v. Allvn, 262 A.D.2d 351 (2nd Dept., 1999); Chemical Bank v. Nemeroff, 233 A.D. 2d 239 (lst Dept. 1996); and Kev Bank of Maine v. Lisi, 225 A.D.2d 669 (qfh Dept., 1996). To be enforceable, the guarantee must be in writing subscribed by the person to be charged. General Obligations Law $5-701(a)(2). See, Schulman v. Westchester Mechanical Contractors. Inc., 56 A.D.2d 625 (2nd Dept., 1977). The intent to guarantee payment of the obligation must be clear and explicit. See, Salzman Sian Co., v. Beck, IO N.Y.2d 63 (1961). Clear and explicit intent to guarantee the obligation is established by having the guarantor sign in that capacity and by the language contained in the guarantee. Harrison Court Assocs. v. 220 Westchester Avenue Assocs., 203 A.D.2d 9

10 AMERICAN EXPRESS EQUIPMENT FINANCE V. FRJ LEASING CORPORATION, et 244 (2nd Dept., 1994). See, Salzman Siqn Co., v. Beck, supra. Plaintiff has established that Bayside has guaranteed the obligations of FRJ under the terms of the promissory notes. The guarantee is a writing which is clear and explicit. It was signed by Frank Rotondo, Jr., on behalf of Bayside. See, Yellow Book of New York, LLP v. Platt, 2003 WL (Dist. Ct. Nassau Co.) Plaintiff has also established the obligations of FRJ under the promissory notes and the default of FRJ in payment. Neither FRJ or Bayside have opposed this motion. Therefore, Plaintiff is entitled to judgment against Bayside on the guarantee. With regard to the claims for summary judgment on the conversion cause of action, if American Express was a secured creditor it could, upon default, take possession of the collateral without judicial process if possession can be taken without a breach of the peace pursuant to Uniform Commercial Code See, Leban Store Fixture Co.. Inc. v. August Properties, 117 A.D. 2d 782 (2nd Dept. 1986); and MGD Graphic Systems, Inc. v. New York Press Publishina, Inc., 52 A.D.2d 815 (I Dept., 1976). Paragraph IO of the various Security Agreements signed by FRJ grants the secured party the right to take possession of the collateral and to sell the collateral in such a manner as the secured party may deem appropriate. This contractual right exists independent of, and in addition to, any rights granted to the Secured Party by the UCC. See, General Electric Credit Corp. v. Marcella s Appliance Sales & Services, Inc., 66 A.D.2d 927 (3rd Dept., 1978); General Motors Acceptance Corp. v. Berq & Duffv, 10

11 118 Misc. 2d 525 (Sup. Ct. Nassau Co. 1983). As the successor in interest to Rockford, American Express obtained the rights of Rockford under the security agreement, including the right to take possession of and sell the collateral. American Express has not availed itself of these statutory or contractual rights notwithstanding this Courts earlier granting of Plaintiffs motion for an order of seizure. To establish a claim for conversion, the Plaintiff must prove that Plaintiff has legal ownership or a superior right of possession to a specific, identifiable thing and that the Defendant exercised unauthorized control over this specific item in contravention of Plaintiff s rights. Hart v. Citv of Albanv, 272 A.D.2d 668 (3rd Dept., 2000); and AMF Incorporated v. Also Distributors, Ltd., 48 A.D.2d 352 (2nd Dept., 1975). American Express has established its superior right to possession of the items pledged as security pursuant to the security agreements. It has, therefore, established an entitlement to judgment on the issue of liability. The measure of damages in a conversion action is the value of the goods at the time of the conversion. Lonq Plavinq Sessions, Inc. v. Deluxe Laboratories, Inc., 129 A.D.2d 539 (lst Dept., 1987). See also, 23 NY Jur.2d, Conversion 65,66. Since the value of the items and the actual date of the conversion is not established, the matter should be set down for an assessment of damages on these issues. Plaintiff, in its papers, also seeks punitive damages on its conversion action even though such relief is not sought as part of the ad damnum in the complaint. Where a party seeks punitive damages, the demand for such damages should be made in the 11

12 complaint. See, Rock v. Belmar Contractinq Corp., 141 Misc. 242 (Sup Ct., Washington Co. 1930). Since the complaint does not demand punitive damages and Plaintiff has not moved for leave to amend the complaint to make such a demand, the request for punitive damages cannot be properly considered. Finally, Plaintiff requests attorney s fees in accordance with the terms of the notes. The notes provide for attorney s fees in a reasonable amount fixed at 20% of the amount due. The Court cannot blindly accept such an approach to a counsel fee award. The Court has the obligation to oversee the fees charged by counsel. See, Matter of First Nat 1 Bank of East lslip v. Brower, 42 N.Y. 2d 471, 398 N.Y.S. 2d 815 (1977); and Gair v. Peck, 6 N.Y. 2d 97, 188 N.Y.S. 2d 491 (1959). Instead, the counsel fee must be based on the standards set forth in the seminal case of Matter of Potts, 213 A.D. 59, 209 N.Y.S. 655 (qfh Dept.), aff d., 241 N.Y. 593 (1925) where the counsel fee to be awarded is based upon the time spent, the complexity of the issues presented, the nature of the services, the amount in controversy, the professional standing of counsel and the results obtained. Once the counsel fee is established by the Court, it is added to the total recovery to establish Plaintiff s counsel s contingency fee. See, Wood v. Maaqie s Tavern, Inc., 257 A.D. 2d 733 (3rd Dept. 1999); In re Richard J. Cardali, 225 A.D. 2d 474, 639 N.Y.S. 2d 379 (lst Dept. 1996); and Kooperman v. Picoult, 41 A.D. 2d 980, 343 N.Y.S. 2d 732 (3rd Dept. 1973). The matter must be set down for a hearing to determine the fair and reasonable value of the services rendered by Plaintiff s attorneys. Accordingly, it is, 12

13 ORDERED, that Plaintiff s motion for summary judgment against the Defendants FJR Leasing Corporation and Bayside Carting, Inc. on Plaintiff s first, second and third causes of action is granted; and it is further ORDERED, that Plaintiff is granted leave to enter an Order, settled on five (5) days notice, granting Plaintiff immediate possession and title to the items pledged as security pursuant to the security agreement; and it is further ORDERED, that if Plaintiff takes possession of the collateral that Plaintiff dispose of same in a commercially reasonable manner as defined in UCC Article 9 and that the net proceeds of sale after deduction for the expense for taking possession, holding, preparing for sale and selling the collateral be applied to the amount outstanding on the judgment; and it is further ORDERED, that Plaintiff s motion for on the issue of liability on the fourth cause of action is granted; and its further ORDERED, that Plaintiff s motion for leave to enter a default judgment against the Defendants, Frank Rotondo, Jr., Rotondo Contracting Corp., and Statewide Recycling, Inc., is denied and the action against said Defendants is dismissed pursuant to CPLR 3215(c); and it is further, ORDERED, that this matter is respectfully referred to Special Referee Frank Schellace (Special Term Part II Courtroom, Rm 060, Lower Level) to hear and determine all issues relating to a determination of damages on the fourth cause of action, if any, and for an assessment of counsel fees due herein on May 14,2003 at 13

14 9:30 a.m.; and it is further, ORDERED, that counsel for Plaintiff shall serve Defendants herein pursuant to CPLR 308 (1) or (2), 311 (a) and file with the Clerk of the Court, a copy of the Order with Notice of Entry, a Notice of Inquest and Note of Issue and Plaintiff shall pay all appropriate fees for the filing thereof on or before April 21, 2002; and it is, ORDEREQ, that upon the hearing on damages and the determination of appropriate counsel fees by the Special Referee, the County Clerk is directed to enter judgment in favor of Plaintiff in the principal sum of $116, together with interest from October 2,2002, damages on the fourth cause of action and counsel fees and costs and disbursements as taxed by the County Clerk. This constitutes the decision and Order of the Court. n Dated: Mineola, NY March 28,2003 AR?