Wilmington Trust, National Association v. Winta Asset Management LLC

Background

Wilmington Trust, National Association, acting as trustee and through Rialto Capital Advisors, LLC as special servicer, brought a foreclosure action against Winta Asset Management LLC, Shuigun Chen, and the New York City Department of Finance. The action concerned a $15,000,000 loan and a mortgage secured by property known as 70 Broad Street, New York, New York. The plaintiff alleged that the borrower and guarantor had defaulted under the loan documents, including by failing to make required payments and by ceasing to operate the property as a mixed-use office and residential property.

The plaintiff sought summary judgment on foreclosure, appointment of a receiver, and an accounting; dismissal of the answering defendants’ first and third counterclaims; default judgment against the Department of Finance; and severance of the guaranty-related claim and counterclaim for later determination. The court had previously appointed a temporary receiver, and the Department of Finance did not answer or otherwise respond to the amended complaint.

Subject-Matter Jurisdiction

The answering defendants argued that the court lacked diversity jurisdiction because the Department of Finance was an arm of the State of New York and therefore was not a citizen for diversity purposes. The court rejected that argument. It concluded that the Department of Finance was a local public entity, sufficiently independent from New York State to have its own citizenship, and an agent of New York City. The court therefore found complete diversity among the parties and held that it had subject-matter jurisdiction.

Foreclosure Summary Judgment

Under Federal Rule of Civil Procedure 56, summary judgment is proper when there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment as a matter of law. Applying New York law, the court explained that a foreclosure plaintiff generally must show the mortgage, the note, and the borrower’s default. If the defendant contests standing—the plaintiff’s legal ability to bring the foreclosure—the plaintiff must also show that it was the holder or assignee of the note when the action began.

The answering defendants had not raised standing in their answer or earlier motion to dismiss, so the court held that they waived that challenge. The court also addressed the challenge on the merits. Although the plaintiff did not provide enough evidence to establish how the allonges were firmly attached to the note under New York’s version of the Uniform Commercial Code, the court held that the plaintiff had shown it was the note’s assignee through written mortgage assignments that referred to the note.

The court found no genuine dispute about at least two alleged defaults. The borrower’s failure to make required monthly debt-service payments continued, and the property had been vacant since April 2017 despite the loan agreement’s requirement that the borrower continue operating it as a mixed-use office and residential property. The answering defendants’ evidence of a listing agreement did not show actual efforts to re-rent the property and did not undermine the alleged default. The defendants also waived their affirmative defenses by failing to raise them in opposition to summary judgment.

The court therefore held that Wilmington Trust was entitled to summary judgment on the foreclosure claim, count I. Because the plaintiff was entitled to foreclosure, the court also granted the plaintiff’s motion to dismiss the answering defendants’ first and third counterclaims, which sought declarations that the defendants were not in default.

Other Requests for Relief

The court denied without prejudice the plaintiff’s requests for summary judgment on count II, concerning appointment of a receiver, and count IV, concerning an accounting. The plaintiff had not explained the applicable legal standards or why the evidence satisfied those standards, so the court stated that the plaintiff could file another motion addressing those deficiencies.

The court also denied without prejudice the plaintiff’s request for default judgment against the Department of Finance because the request was not made by an order to show cause as required by the court’s individual practices. The court directed the plaintiff to consult those practices and file a proposed order to show cause.

Finally, the court granted the plaintiff’s unopposed request to sever count III, the claim concerning breach of the guaranty, and the answering defendants’ second counterclaim for later determination. The court stated that severance would allow foreclosure to proceed without unnecessary delay and that any deficiency claims might become moot depending on the foreclosure sale.

Disposition

The court stated that the plaintiff’s motion was granted in part and denied in part. It granted summary judgment on count I, granted the motion to dismiss the first and third counterclaims, and granted severance of count III and the second counterclaim. It denied without prejudice summary judgment on counts II and IV and default judgment against the Department of Finance.