Windward Bora LLC v. Browne

Background

Windward Bora LLC, a debt buyer, sued Royston D. Browne and Constance R. Browne for payment on a $100,500 junior note signed in 2005. The note was secured by a junior mortgage on property in the Bronx. The Brownes stopped making payments in approximately 2008.

The note and mortgage eventually came to Gustavia Home LLC, Windward’s predecessor. Gustavia pursued foreclosure-related proceedings. A state-court foreclosure action brought by the senior mortgage holder resulted in a 2017 foreclosure judgment and a 2019 auction sale of the property. Gustavia also brought a federal foreclosure action and obtained a 2018 federal foreclosure judgment against the Brownes. That judgment provided for payment from sale proceeds and allowed a deficiency judgment if the sale proceeds were insufficient, subject to New York law. No report of sale or motion for a deficiency judgment appeared in the record before Judge Moses.

Gustavia sold the junior note to Windward for $100 in 2019. Windward filed this separate action in 2020, seeking damages for breach of the note. The parties filed cross-motions for summary judgment, which asks whether the undisputed evidence and law require judgment for one side without a trial.

Arguments and preliminary rulings

The Brownes argued that the court lacked diversity jurisdiction, that Windward lacked standing because of an alleged defect in the note’s endorsements, that the claim was time-barred, that the action was barred by earlier judgments, and that New York’s election-of-remedies rule prohibited the lawsuit.

Judge Moses rejected the jurisdiction argument. Windward was a single-member limited liability company, and its sole member was a Moroccan citizen when the action began; the Brownes were New York citizens. The court therefore found diversity jurisdiction because the parties were citizens of different states or countries and Windward valued the claim at more than $75,000.

The court also found that Windward had standing to sue. Windward possessed the original note before filing the action, and its agreement with Gustavia transferred Gustavia’s rights in the loans to Windward. Under New York law, the court explained, physical delivery or an assignment showing the owner’s intent to transfer the note can establish ownership; a further endorsement by Gustavia was not required.

The court further concluded that the action was timely. The Brownes’ individual missed payments did not automatically accelerate the entire debt. Gustavia accelerated the debt when it filed the federal foreclosure action on December 2, 2016, and Windward filed this case within six years of that date. The court also rejected the Brownes’ arguments based on claim preclusion and the Rooker-Feldman doctrine. The earlier foreclosure proceeding did not bar a later action on the note under New York’s election-of-remedies framework, and Windward was not asking the federal court to review or overturn the state foreclosure judgment.

Election of remedies and disposition

New York’s election-of-remedies rule requires a mortgage holder to choose between an equitable foreclosure action based on the mortgage and a legal action seeking payment on the note. Under New York Real Property Actions and Proceedings Law § 1301(3), after a foreclosure judgment, another action to recover the mortgage debt cannot be started or maintained without permission from the court handling the earlier action. That permission is a condition that must be satisfied before the later case begins.

Gustavia obtained a final federal foreclosure judgment but did not obtain permission before Windward filed this damages action. Although a court may sometimes grant permission after the fact, Judge Moses found no special circumstances requiring that result. Windward had not requested permission, Gustavia had not abandoned the federal foreclosure action, the record did not show what happened to possible surplus sale proceeds or the settlement with the senior mortgage holder, and Windward purchased the note after both foreclosure judgments had been entered.

The court therefore held that the action was barred by § 1301(3). It stated that the Brownes were entitled to summary judgment and that the action would be dismissed. The court also gave an alternative reason: even if the lawsuit were permitted, Windward had not shown the amount owed with sufficient reliability. Its calculations conflicted with earlier figures, included unexplained fees, and did not account for any money recovered through the earlier proceedings.

Order

Judge Barbara Moses denied Windward’s motion for summary judgment, granted the Brownes’ cross-motion, dismissed Windward’s complaint, directed the Clerk of Court to enter judgment in favor of the Brownes, and closed the case.