        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

136
CA 13-00839
PRESENT: SCUDDER, P.J., CENTRA, FAHEY, CARNI, AND VALENTINO, JJ.


MICHAEL A. LAWLER, PLAINTIFF-APPELLANT,

                    V                             MEMORANDUM AND ORDER

KST HOLDINGS CORPORATION, ET AL., DEFENDANTS,
AND KEVIN S. TAILLIE, DEFENDANT-RESPONDENT.


HISCOCK & BARCLAY, LLP, ROCHESTER (GEORGE G. MACKEY OF COUNSEL), FOR
PLAINTIFF-APPELLANT.

ADAIR LAW FIRM, ROCHESTER (DONALD R. ADAIR OF COUNSEL), FOR
DEFENDANT-RESPONDENT.


     Appeal from a judgment (denominated order) of the Supreme Court,
Wayne County (Kenneth R. Fisher, J.), entered March 1, 2013. The
judgment dismissed plaintiff’s complaint.

     It is hereby ORDERED that the judgment entered March 1, 2013,
insofar as it dismissed the foreclosure cause of action, is
unanimously vacated and the order dated August 3, 2010 is modified on
the law by granting that part of plaintiff’s motion for summary
judgment with respect to the foreclosure cause of action, and as
modified the order is affirmed without costs and the matter is
remitted to Supreme Court, Wayne County, for further proceedings in
accordance with the following Memorandum: Plaintiff appeals from a
judgment (denominated order) dismissing his complaint following a
bench trial in this mortgage foreclosure action, contending that
Supreme Court erred in denying that part of his pretrial motion for
summary judgment on his first cause of action, for foreclosure. We
note at the outset that plaintiff’s appeal properly brings up for
review the propriety of the order denying his pretrial motion (see
CPLR 5501 [a] [1]), and we further note that plaintiff has abandoned
any contention with respect to the denial of his motion concerning his
other cause of action, as well as the court’s dismissal of that cause
of action following the bench trial (see generally Ciesinski v Town of
Aurora, 202 AD2d 984, 984).

     The underlying facts are as follows. Defendant Kevin S. Taillie
was the high bidder at the auction of the real and personal property
of the Ontario Golf Club (OGC) on January 9, 2007. After making down
payments totaling $278,300, however, Taillie was underfunded and could
not close the purchase. Plaintiff thereafter agreed to provide
Taillie with a $500,000 letter of credit that would have allowed
Taillie to obtain a “bridge” mortgage sufficient to close the
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                                                         CA 13-00839

purchase. The record establishes that, in conjunction with
plaintiff’s agreement to provide the subject letter of credit, Taillie
agreed, inter alia, that plaintiff would have a 51% ownership interest
in defendant KST Holdings Corporation (KST), which at that point had
not been formed, and that Taillie would own the remaining 49% of that
company. KST was subsequently incorporated and, by separate
certificates signed by Taillie and dated February 23, 2007, plaintiff
was issued 51 shares in KST, and Taillie was issued 49 shares in that
corporation. On the same day, Jason Roth, Esq., the attorney
assisting in the purchase of OGC, transmitted to plaintiff a “Written
Consent of the Officers, Directors and Shareholders of KST,” which
authorized KST to purchase the OGC real and personal property and to
execute the documents necessary to finalize the “bridge” financing.

     The closing on the OGC purchase was scheduled for March 7, 2007,
but on March 6, 2007, Roth realized that KST was $30,000 to $35,000
short of the funds required for the closing. It is unclear on the
record before us whether Roth represented both plaintiff and KST;
according to plaintiff, there was such dual representation, but Roth
has indicated that he represented only KST.

     Upon then making an inquiry into the details of the bridge loan
that Taillie had arranged, plaintiff determined that the OGC purchase
was “doomed” and that the deal was “dead.” In an effort to save the
transaction, plaintiff wired to HSBC Bank (HSBC), the holder of the
foreclosed mortgage on the OGC real property, the sum of over $1.5
million, which was the amount needed to close the purchase of both the
real property and the personal property of OGC. According to
plaintiff, at the time that money was wired plaintiff instructed Roth
to put the OGC property solely in plaintiff’s name.

     Roth, however, failed to do so, and instead put the property in
the name of KST. Upon learning that the subject property had been
placed in the name of KST, plaintiff determined that “[t]he easiest
and most efficient solution to correct [the] error and to secure
[plaintiff’s] loan was to have KST grant [plaintiff] a mortgage.” At
the first annual meeting of KST, Taillie was removed as an officer and
director of that corporation, and two new directors were elected. KST
thereafter resolved, inter alia, to borrow from plaintiff the precise
sum wired by plaintiff to HSBC to close the OGC purchase, and to issue
plaintiff a note and first mortgage payable in that amount. The note
and the mortgage were later approved by KST’s directors who were
appointed at KST’s first annual meeting, and the note and mortgage
were subsequently recorded. KST also issued a note and mortgage to
Taillie equal to the amount of Taillie’s down payment on the OGC real
and personal property and entered into a security agreement with
plaintiff by which KST granted a security interest in all of KST’s
personal property as collateral to secure the payment of all
obligations and liabilities of KST to plaintiff. After KST defaulted
on both of the subject mortgages, plaintiff commenced this action.

     We agree with plaintiff that the court erred in denying that part
of his motion seeking summary judgment on the foreclosure cause of
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                                                         CA 13-00839

action. We therefore vacate the judgment and modify the underlying
order accordingly, and we remit the matter to Supreme Court for the
appointment of a referee to compute the amount due on the mortgage
issued by KST to plaintiff.

     With respect to that part of plaintiff’s motion on the
foreclosure cause of action, we conclude that plaintiff met his
initial burden of establishing his “ ‘prima facie entitlement to
judgment as a matter of law by submitting the mortgage [issued by KST
to plaintiff], the underlying note, and evidence of a default’ ”
(Ekelmann Group, LLC v Stuart [appeal No. 2], 108 AD3d 1098, 1099;
see Cassara v Wynn [appeal No. 2], 55 AD3d 1356, 1356, lv dismissed 11
NY3d 919). “The burden [thus] shift[ed] to the defendant[s] to
demonstrate ‘the existence of a triable issue of fact as to a bona
fide defense to the action’ ” (Rose v Levine, 52 AD3d 800, 801;
see Ekelmann Group, LLC, 108 AD3d at 1099; Cassara, 55 AD3d at 1356).
Only Taillie opposed the motion, and he failed to meet that burden.

     Taillie opposed the motion on three grounds, none of which has
merit. First, Taillie contended that plaintiff sought a controlling
interest in KST only after executing the letter of credit, and Taillie
thus implicitly contended that the monies wired by plaintiff to close
the KST transaction were intended to be a capital contribution to KST.
That contention lacks merit. We conclude that the record establishes
that plaintiff asked for a controlling interest in conjunction with
his provision of the subject letter of credit, and that Taillie’s
contentions to the contrary were merely an attempt to raise a feigned
issue of fact (see generally Taillie v Rochester Gas & Elec. Corp., 68
AD3d 1808, 1809).

     Second, Taillie explicitly contended that plaintiff financed the
purchase of OGC real and personal property in exchange for control of
KST. That contention is belied by the record inasmuch as the stock
certificates establishing that plaintiff had controlling interest in
that corporation were signed and dated well before plaintiff wired
approximately $1.5 million to finance the purchase of OGC. We also
note that plaintiff wired the monies directly to HSBC, not to KST, and
that KST never received those monies.

     Third, Taillie contended that the “Written Consent” form
authorized acquisition of the bridge loan but not the financing
provided by plaintiff, and was thus invalid. Even assuming, arguendo,
that such consent did not apply to the financing provided by
plaintiff, we conclude for the reasons set forth above that the monies
provided by plaintiff to complete the purchase of the OGC property
were not a capital contribution to KST but, rather, those monies were
a loan.

     As previously noted, we are deciding this case on the ground that
the court erred in denying that part of plaintiff’s motion for summary
judgment with respect to the foreclosure cause of action. On this
record, we conclude that it was the clear intent of the parties that
KST would finance the purchase of the OGC real and personal property,
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                                                         CA 13-00839

and that there is a valid obligation underlying the mortgage, i.e.,
the funds plaintiff wired to complete the OGC transaction for which
the mortgage was intended as security (see Tornatore v Bruno, 12 AD3d
1115, 1117). Contrary to Taillie’s further contention, he failed to
raise an issue of fact whether the mortgage is invalid because
plaintiff was an interested director of KST at the time KST issued
that mortgage (cf. Business Corporation Law § 713 [a], [b]).

     Finally, in view of our conclusion, we do not address plaintiff’s
further contentions with respect to the judgment.




Entered:   March 21, 2014                      Frances E. Cafarell
                                               Clerk of the Court
