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Altshuler Shaham Provident Funds, Ltd. v. GML Tower, LLC

Court of Appeals of New York

June 11, 2013

GML TOWER, LLC, et al., Defendants, The Pike Company, Inc., et al., Respondents.

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[972 N.Y.S.2d 149] D'Agostino, Levine, Landesman & Lederman, LLP, New York City (Bruce H. Lederman, Eric R. Garcia and Christopher M. Tarnok of counsel), and Hancock & Estabrook, LLP, Syracuse (John G. Powers of counsel), for appellant.

Hahn, Loeser & Parks, LLP (Timothy M. Bittel, of the Ohio bar, admitted pro hac vice, of counsel), and Gilberti Stinziano Heintz & Smith, P.C., Syracuse (Kevin Roe and John L. Stinziano of counsel), for The Hayner Hoyt Corporation, respondent.

Pappas, Cox, Kimpel, Dodd & Levine, P.C., Syracuse (Thomas P. Givas of counsel), for L.A. Painting, Inc., respondent.

Byrne, Costello & Pickard, P.C., Syracuse (Jordan R. Pavlus and Terry R. Pickard of counsel), for TAG Mechanical Systems, Inc. and others, respondents.

Phillips Lytle LLP, Rochester (Mark J. Moretti of counsel), for The Pike Company, Inc., respondent.

Stewart L. Weisman, Manlius, for Pyramid Roofing & Sheet Metal Co., Inc., respondent.

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[995 N.E.2d 111] This mortgage foreclosure action arises from a failed redevelopment of the Hotel Syracuse complex in downtown Syracuse, New York. The complex consists of several properties interconnected by pedestrian bridges: the hotel, built in 1924 and closed in 2004, and its separate garage (the hotel property); a 15-story tower constructed in the early 1980s as an addition to the hotel (the tower building); and a building formerly housing a major department store, vacant since the early 1990s (the Addis building). The lender for the redevelopment and numerous mechanic's lienors dispute the priority of their respective claims to the foreclosure sale proceeds from the auction of the tower building, a matter governed by Lien Law ยง 22.


In September 2005, defendant GML Tower, LLC (GML Tower) purchased the tower building for $7 million, and GML Syracuse LLC (GML Syracuse) and GML Addis LLC (GML Addis) bought the other two parcels making up the hotel complex for an additional $2.75 million. The predecessor of a now-defunct Illinois-based bank loaned the GML entities $7 million for acquisition of these properties, as evidenced by a promissory note and secured by the purchase-money mortgage in that amount, both dated September 7, 2005. The mortgage, recorded in the Onondaga County Clerk's office on September 8, 2005, encumbered all three parcels.

On March 29, 2007, Perfect Provident Fund Ltd., the predecessor of plaintiff Altshuler Shaham Provident Funds, Ltd. [972 N.Y.S.2d 150] [995 N.E.2d 112] (collectively, Altshuler) entered into a " Loan Agreement" (the 2007 loan agreement or the agreement) with GML Tower and its parent company, Ameris Holdings, Inc. (Ameris), whereby Altshuler agreed to loan them $10 million, bifurcated into tranches of $5.5 and $4.5 million. The entire principal amount of the loan was due and payable, with accrued interest at 12% per annum, on March 29, 2010. To secure payment of the amounts owing to Altshuler under the agreement, GML Tower and Ameris undertook to grant Altshuler a " first ranking senior [l]ien, mortgage, pledge, charge and security interest" (which the agreement referred to collectively as the security interest) in, among other collateral, the property and improvements made thereon.

The loan proceeds were to be deposited in a trust account as of the date of the agreement's execution and delivery (i.e., Mar.

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29, 2007), and released by the trustee on the closing date, April 30, 2007, " for immediate repayment" to the Illinois-based bank of the outstanding principal amount of the original $7 million dollar acquisition financing (the $5.5 million tranche); and for deposit into another dedicated bank account (the restricted account) to be " held ... and disbursed, used and applied solely to finance" improvements of the tower building, based upon construction progress as determined by an inspector appointed by Altshuler (the $4.5 million tranche). The 2007 loan agreement seems to have contemplated redevelopment of the tower building into residential condominiums and commercial space.[1]

When the transaction did not close on April 30, 2007, Altshuler entered into a " Memorandum of Understanding" (the MOU) with GML Tower and Ameris " [i]n connection with" the agreement. The MOU, dated May 1, 2007, set closing dates for the $5.5 million and $4.5 million tranches of May 1 and May 15, 2007, respectively. The first of the two tranches timely closed, resulting in transfer of $5.5 million from the trust account to the Illinois-based bank on May 2, 2007. By an " Assignment of Note and Mortgage," executed April 19, 2007, the bank assigned the September 7, 2005 promissory note and mortgage to Altshuler. Altshuler recorded this instrument in the Onondaga County Clerk's office on May 3, 2007, along with a " Mortgage Extension and Modification Agreement," dated April 30, 2007, which established $5.5 million as the maximum principal indebtedness secured by the mortgage covering the hotel complex (the 2007 mortgage).

The parties failed to close on the $4.5 million tranche in accordance with the MOU. Instead, on six separate occasions from May 24, 2007 though February 21, 2008, the trustee released monies totaling $2.5 million from the trust account to GML Tower, pursuant to the parties' joint instructions and advance letters. These disbursements were personally guaranteed by Ameris's principal.

Then on March 4, 2008, GML Tower and Ameris entered into " Amendment No. 1" (the 2008 amendment or the amendment) of the 2007 loan agreement with Altshuler. The 2008 amendment changed the improvements to be built and the terms and conditions of the release to GML Tower and Ameris of the remaining funds held in the trust account (defined as the

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remaining loan proceeds in the principal sum of $2 million plus accrued interest and less certain outstanding fees and expenses); [972 N.Y.S.2d 151] [995 N.E.2d 113] and provided for the delivery of additional collateral to Altshuler as security for the $10 million loan.[2] To these ends, the 2008 amendment called for construction of residential and commercial rental units in the tower building rather than condominiums; added the Addis building as collateral; and eliminated the restricted account, providing instead for the trustee to release the remaining funds to GML Tower on March 6, 2008, the new closing date, as an unrestricted lump sum. With the disbursement of these funds, the existing promissory note was canceled and replaced and restated by a replacement note (the 2008 note), the guaranties covering the $2.5 million were rescinded, and Ameris's principal gave a new personal guaranty in the principal sum of $250,000. Additionally, the lien of the mortgage was apparently released with respect to the hotel property owned by GML Syracuse.

Concomitantly, GML Tower and GML Addis entered into a " Mortgage Increase, Modification, and Spreader Agreement" (the 2008 mortgage) with Altshuler on March 4, 2008. The 2008 mortgage extended the reach of the 2007 mortgage to cover the Addis building in addition to the tower building, and increased the principal amount secured from $5.5 to $10 million. The 2008 mortgage was recorded in the Onondaga County Clerk's office on March 7, 2008. To provide Altshuler with additional collateral, GML Tower and GML Addis also executed an " Assignment of Leases and Rents" with ...

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