FILED: KINGS COUNTY CLERK 03/22/ :32 PM INDEX NO /2017 NYSCEF DOC. NO. 57 RECEIVED NYSCEF: 03/22/2018

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS X â â â â â â â â â MELROSE CREDIT UNION, INDEX NO.: /2017 Plaintiff, REPLY AFFIRMATION Hon. Loren Baily- - against - Schiffman, J.S.C. Return date: 4/12/18 MARIE J. LIMA, individually, and as Administrator of the Estate of JEAN LIMA, JEAN E. LIMA, and BECKI NARAYAN, X Defendants. Christopher D. Palmieri, an attorney duly licensed to practice law in the State of New York, affirms the following to be true, under the penalties of perjury: 1. I am a member of the law firm of Jaspan Schlesinger LLP, attorneys for plaintiff, Melrose Credit Union ("Plaintiff" or "MCU"), in the above-entitled action. Based upon a review of the file maintained by MCU and by Jaspan Schlesinger LLP in this action, I am familiar with all the facts and circumstances regarding this motion. 2. I submit this reply affirmation in response to the affirmation in Opposition and Affidavit in Opposition (collectively, "Opposition" "Opposition") of Defendants Marie J. Lima (" Marie" ("Marie"), individually and as Administrator of the Estate of (" Estate" Jean Lima ("Estate"), (" Jean" and Jean E. Lima ("Jean") (collectively, "Defendants" "Defendants") and in further support of MCU's motion for an 1 of 12

2 order: (i) pursuant to CPLR , for summary judgment in favor of MCU against Defendants on its complaint; (ii) for default judgment against defendant Becki Narayan; and (iii) for such other and further relief as the Court deems just and proper "Motion" (the "Motion"). Capitalized terms not defined herein shall have the meaning ascribed to them in the Affirmation of Christopher D. Palmieri, dated December 8, 2017 ("Initial Affm."), Memorandum of Law dated December 8, 2017 ("Memo of Law") and Affidavit of Andrew Bastone, Chief Credit Officer of Melrose Credit Union, sworn to on December 5, 2017 ("Bastone Affidavit" Affidavit"), previously submitted in support of the Motion. 3. The Opposition makes three primary arguments: (1) that the real property which is the subject of the fraudulent conveyance claims (576 East 818t "Property" Street (the "Property")) was not collateral under the Security Agreement; (2) that Plaintiff did not request a return of the Collateral or request payment of the Loan after default; and (3) that Ms. Lima did not have fraudulent intent when she transferred the Property and that the transfer did not render the Estate insolvent. As set forth in Plaintiff's initial Motion papers and herein, these arguments lack merit and fail to raise a triable issue of material fact, and as such, the Motion should be granted in all respects. 4. Plaintiff demonstrated its prima facie entitlement to summary judgment. In opposition, Defendants failed to "lay bare" 2 of 12

3 their proof and raise a triable issue of material fact. See Emigrant Funding Corp. v. Agard, 121 A.D.3d 935 (2d Dept. 2014); Jessabell Realty Corp.. v Gonzales, 117 A.D.3d 908 (2nd Dept. 2014). Defendants do not dispute the execution of the Loan Documents or the maturity of the Note and the default in payment. In fact, Defendants admit that "Plaintiff has a right to take possession of the Collateral...". While Defendants deny there was fraudulent intent in the transfer of the Property, Defendants fail to disclose what was done with the proceeds of the sale of the Property, which should have been used to pay creditors of the Estate. Moreover, since Defendants have admitted that Marie was appointed administrator of the Estate, Plaintiff's claim against her is for breach of fiduciary duty in failing to preserve the assets of the Estate for its creditors (and the claim for fraudulent conveyance can be withdrawn). 5. As such, for the reasons set forth herein, as well as in the previously submitted Motion papers, the Motion should be granted in its entirety. A. The Fact that Plaintiff Does Not Have a Security Interest in the Property is Irrelevant 6. Much of Defendants' Opposition focuses on the fact that Plaintiff does not have a security interest in the Property. However, this is not disputed. Defendants miss the fact that Plaintiff's fraudulent conveyance claims are based on 3 of 12

4 the NY Debtor and Creditor Law ("DCL"), which does not require a creditor to have a security interest in the property conveyed. 7. Plaintiff's Complaint alleged a cause of action for violation of DCL 276, intentional fraudulent conveyance. This section allows for a conveyance to be overturned if the intent of the conveyance was to hinder, delay or defraud a creditor. There is no requirement that the creditor have. a security interest in the property which has been fraudulently conveyed. However, this cause of action was plead in the alternative if Marie was not the administrator of the Estate. Marie has admitted that she was appointed as Administrator of the Estate. As such, she had a fiduciary duty to the creditors of the Estate (such as MCU) to preserve the assets of the Estate for distribution to the creditors. See Agne v Schwab, 123 A.D. 746 (2d Dept. 1908)("An executor or administrator is trustee for the creditors..."); McQuaide v Perot, 223 NY 75 (1918)("It is elementary that the executors or administrators represent the legatees, creditors and distributees in the administration of the estate [and] that their duty is to recover the property of the estate..."); In re Estate of Hollinger, 93 Misc. 2d 926 (Sur. Ct., Nassau Cty. 1978); In re Estate of Weinberg, 162 Misc. 867 (Sur. Ct., Kings Cty. 1937). Since an estate fiduciary, except for obligations for administration and funeral expenses, is primarily a trustee for creditors... for his dealings or 4 of 12

5 neglects in respect to which his cestuis que trustent may call him to account in the tribunal of his appointment in like manner and to like extent as they may seek a surcharge against him for other misconduct or wrongful, negligent or fraudulent dealing with any other asset within his authority. It is his bounden duty to protect all valuable rights coming within his control, and failure to do so will result in his personal liability which may be enforced against him, as is here attempted, at the time of his accounting. In re Estate of Weinberg, 162 Misc In the Complaint, Plaintiff also alleged a cause of action against Marie for breach of fiduciary duty (in the event that she was formally appointed as Administrator). The fact that MCU does not have a security interest in the Property has no bearing on whether Marie breached her fiduciary duty by selling the Property and not marshaling the proceeds for the benefit of the creditors of the Estate. Marie admits selling the Property, but conspicuously fails to state what was done with the proceeds from the sale of the Property. 9. Moreover, despite Defendants' attorney claiming that the Property was sold by Marie prior to any claim being asserted by Plaintiff in the Estate, Marie, in her affidavit does not dispute that she knew or should have known of Plaintiff's claim against the Estate at the time she sold the Property. She could not deny knowledge, since she is a co-borrower herself on the same Loan which forms the basis for Plaintiff's claim against the Estate. CDP/D v2/M0721SO/C0177S30 5 of 12

6 10. A fiduciary is not shielded from personal liability for a distribution of Estate proceeds if she knew or should have known of the creditor's claim at the time the distribution was made. See In re Estate of Bailey,, 147 Misc. 2d 46 (Sur. Ct., Bronx Cty. 1990)(holding executor personally liable for distribution when he had knowledge of creditor's claim); Estate of Corrie Robinson, 2015 N.Y.L.J. LEXIS 4936 (Sur. Ct., NY Cty. 2015); Matter of Marwaha, 2010 NY Slip Op 31458[U] (Sur. Ct., Monroe Cty. 2010); Estate of Smith v Commr. of Taxation & Fin. of State of NY, 5 Misc. 3d 1015[A], 2004 NY Slip Op 51381[U] (Sur. Ct., Nassau Cty. 2004) (fiduciary can be personally liable if she knew or should have known of creditor's claim). 11. ' As a co-borrower on the Loan, Marie did not (and could not) dispute that she knew or should have known of Plaintiff's claim at the time of any distribution of the proceeds of the sale of the Property. Tellingly, she does not state in her affidavit what has happened to the proceeds of the sale of the Property. 12. The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct. See Kurtzman v Bergstol, 40 A.D.3d 588 (2d Dept. 2007). There is no requirement of intent. CDP/DD764$$v2ih007215OC0177S30 6 of 12

7 13. It is clear that as the administrator of the Estate, Marie had a fiduciary duty to creditors of the Estate. Marie has not disputed that she sold the Property and does not account for the proceeds of the sale in her affidavit. Plaintiff has been damaged since, as a creditor of the Estate, it should have received some of the proceeds of the sale of the Property to satisfy its claim. As such, Defendants have failed to raise a triable issue of material fact as to Marie's breach of fiduciary duty to Plaintiff as a creditor of the Estate, and as such, the Motion should be granted. B. No Demand for return of the Collateral or Demand for Payment Was Necessary 14. Defendants also argue that Plaintiff did not demand a return of the Collateral or that Plaintiff sent a default notice. However, neither the demand for the Collateral not the sending of a default notice were required, and as such, these arguments fail to raise a triable issue of material fact. 15. There is no requirement in either the Security Agreement or the UCC that a secured party demand a return of collateral before it is entitled to possession. 16. In fact, UCC provides that "[a]fter default, a secured party... may take possession of the collateral..." UCC As such, pursuant to the UCC, the only requirement before a secured party is entitled to immediate possession of 7 of 12

8 its collateral is that there be a default, which is undisputed here. See, e.g., Leban Store Fixture Co. v August Props., 117 A.D.2d 782 (2d Dept. 1986) (upon default, secured party entitled to immediate possession of collateral); MGD Graphic Sys., Inc. v NY Press Publ. Co.,, 52 A.D.2d 815 (1st Dept. 1976) (holding that pursuant to UCC secured party is entitled to immediate possession of collateral after default in construing provisional pre-judgment remedy of seizure); Bud-Lee Ski Ctrs., Inc. v State, 116 A.D.2d 715 (2d Dept. 1986); Fleet Natl. Bank v B & E Ventures Ltd., 2005 N. Y. Misc. LEXIS 3510 (Sup Ct., Nassau County Nov. 1, 2005, No. 3328/05)(secured party has right to immediate possession of collateral after default); Fleet Capital Corp.. v Yamaha Motor Corp., U.S.A., 2002 U. S. Dist. LEXIS [S. D.N. Y. Sep. 25, 2002, 01 Civ (AJP) ) ("The law is clear that a secured lender may take possession without declaring a default and, indeed, without notice of any kind."); Am. Furniture Co. v Extebank, 676 F.Supp, 455 (E.D.N.Y. 1987) (no notice or demand required prior to secured party's entitlement to immediate possession after default). 17. Further, since a party may proceed either with or without judicial process, imposing an additional requirement if the party elects to proceed with judicial process as opposed to without judicial process is contrary to logic and the clear language of the statute. CDP/D V2/M072150/C of 12

9 18. Moreover, no notice of default or acceleration was required because the Loan matured by its terms. Even if the Loan did not mature, the loan documents do not require a written notice of default or acceleration. The Note specifically states as follows: If I am in default, the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of principal which has not been paid and all the interest that I owe on that amount. That date must be at least 30 days after the date on which the notice is delivered or mailed to me. See Exhibit 1 to Bastone Affidavit, Section 6(B) (emphasis added). 19. Upon Defendants' default under the Note, the Plaintiff may provide a notice of acceleration prior to accelerating the full amount of principal and interest due under the Note; the Note does not require such notice. Moreover, such notice was unnecessary in this case because the Note matured pursuant to its own terms on December 7, 2016; therefore, no affirmative act of acceleration was required. This position is further bolstered by the fact that the Note states that Borrower will be in default by failing to pay the full amount of each "monthly payment" on the date it is due and notice may be given upon the occurrence of said default. See Exhibit 1 to the Bastone Affidavit, Sections 3(B) and 6(A). Thus, Section 6(B) would only apply to Borrower's failure to pay the monthly payment due 9 of 12

10 under the Note. In effect, if this provision were to apply to matured loans, it would effectively be extending the Maturity Date of the Loan by thirty days. Moreover, construing this provision to apply to post-maturity enforcement would fly in the face of logic and common sense, since the provision states that the notice should state "that if [Borrower] do[es] not pay the overdue amount by a certain date, the Note Holder may require [Borrower] to pay immediately the full amount of principal which has not been paid and all the interest that [Borrower] owe[s] on that amount." Once the Note matured, the entire amount of the Note was immediately due and payable in full - there is no "overdue amount" which the Defendants could pay to cure the "default" and avoid having the Note accelerated. The Note was "accelerated" by its own terms on the Maturity Date without any affirmative act required. 20. Contrary to Defendants' argument, it clearly is not a condition precedent to enforcing the Loan that Plaintiff send a written notice of acceleration. The explicit use of the language "may" negates that argument. Accordingly, this argument has no merit and the Motion should be granted. 21. Defendants also argue that Plaintiff never requested additional collateral for the Loan. Again, this argument is a "red herring" as the term Defendants are referring to in the Note provides that Defendants shall provide additional 10 of 12

11 collateral upon Plaintiff's demand if the Loan to Value Ratio falls below 80%. This does not obligate Plaintiff to demand additional collateral, and this provision is not the basis for the claim that the Property was sold and the proceeds distributed improperly (as discussed above in connection with the breach of fiduciary duty). C. No Fraudulent Intent was Necessary 22. Defendants argue that the transfer of the Property was not made with fraudulent intent, and that Plaintiff did not prove that the transfer rendered the Estate insolent, However, Defendants have admitted that Marie was formally appointed as administrator of the Estate. The claim for fraudulent conveyance (which would require fraudulent intent and/or insolvency of the transferor) was plead in the alternative to the claim for breach of fiduciary duty. Since Marie was administrator of the Estate, she is liable for her breach of fiduciary duty to Plaintiff as discussed above regardless of whether she had fraudulent intent or if the Estate was insolvent (and the cause of action for a fraudulent conveyance can be withdrawn). 23. Accordingly, Defendants have failed to raise a triable issue of material fact and the Motion should be granted. 24. I certify that to the best of my knowledge, information and belief, formed after a reasonable inquiry, there are no frivolous contentions contained in any of the papers 11 of 12

12 submitted by Plaintiff in support of this Motion, as "frivolous" is defined in 22 NYCRR WHEREFORE, plaintiff, Melrose Credit Union, respectfully requests an Order: (i) pursuant to CPLR , granting it summary judgment against the Answering Defendants on its Complaint and dismissing the Answering Defendants' affirmative defenses; (ii) granting default judgment against defendant Becki Narayan and (iii) for such other and further relief as the Court deems just and proper. Dated: Garden City, New York March 22, 2018.'i-' / e"j Christopher 'D. Palmieri 12 of 12