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New York Commercial Division Case Compendium A Searchable Database of Court Decisions Issued by New York’s Commercial Division

Court Stays Action, Rather Than Dismiss, Despite Simultaneous Similar Action Between Same Parties in NJ, Where Full Relief Might Not Be Afforded in NJ Action

Posted in Banking, Demarest, Carolyn E., Guaranty, Kings, Motion to Dismiss, Personal Jurisdiction, Real estate

In a January 6, 2016 Commercial Division decision by Justice Demarest, the court granted the defendants’ motion to dismiss pursuant to CPLR 3211(a)(4) in part, staying the action until the conclusion of a separate action brought in New Jersey.

The action arose out of loans extended from Wachovia Bank (“Wachovia”) to a borrower, Yolanda, to enable her to purchase investment commercial property in New Jersey. In 2007 and 2008, the borrower executed and delivered two notes to the plaintiff, in the amounts of $300,000 and $50,000 (the “Notes”). In order to induce Wachovia to extend the loans to Yolanda, a second person, Donasia, executed an Unconditional Guaranty and later on a Commercial Guaranty (the “Guaranties”), under which he guaranteed, among other things, timely payment and performance of all obligations under the Notes. Additionally, to secure the Notes, Yolanda and Donasia executed two mortgages (the “Mortgages”) on the property. Wachovia merged into the plaintiff, Wells Fargo Bank (“Wells Fargo”), and when Yolanda defaulted on the Notes, Wells Fargo filed a mortgage foreclosure action against Yolanda and Donasia in New Jersey, to foreclose on the mortgaged property that secured the loans, as evidenced by the Notes. Shortly thereafter, Wells Fargo brought an action against the defendants in New York, asserting causes of action for breach of the Notes and the Guaranties.

Defendants moved to dismiss the complaint as barred by RPAPL 1301(3), which provides that while a foreclosure action “is pending… no other action shall be commenced or maintained to recover any part of the mortgage debt, without leave of the court in which the former action was brought.” However, this rule does not apply where the property securing the loan is located outside of New York State; since the mortgaged property in this case is located in New Jersey, RPAPL 1301(3) in inapplicable. Despite this technical inapplicability, the court discussed the underlying purpose of the rule, which is to avoid duplicative litigation that addresses the same issues.

The court also considered the potential for dismissal under CPLR 3211(a)(4), which provides for dismissal where “there is another action pending between the same parties for the same cause of action in a court of any state…” and that “the court need not dismiss upon this ground but may make such order as justice requires.” The court stated that since both the New York and New Jersey actions arise out of the same “actionable wrong,” i.e. defendants’ failure to make payment on the Notes, the two actions are therefore substantially the same. However, since under a local rule in New Jersey, the plaintiff apparently is unable to seek a deficiency judgment against the defendants in the foreclosure action, the court stayed the New York action (in lieu of dismissal), in order to allow plaintiff the opportunity to proceed against the defendants to recover the remaining debt in the event the potential foreclosure and sale of the property pursuant to the New Jersey case may be insufficient to afford it full relief.

Wells Fargo Bank, N.A. v Pena, Kings County, January 6, 2016, Demarest, J., Index No. 500827/2015