Opinion ID: 660667
Heading Depth: 2
Heading Rank: 2

Heading: Possession and the Consequences of the Appointment of a Receiver

Text: 40 On January 27, 1992, the New York Supreme Court appointed a receiver for the mortgaged property. The order of receivership transferred possession from the Partnership to the receiver. See Order Appointing Receiver dated January 27, 1992 in Travelers Ins. Co. v. 633 Third Assocs., Index No. 01138/92 (N.Y.Sup.Ct.New York County) (ORDERED, that all persons now or hereafter in possession of the Mortgaged Property, or any part thereof, and not holding such possession under valid and existing leases or licenses, do forthwith surrender such possession to the Receiver subject to the Emergency Rent Laws, if any). The question for this appeal is what effect the transfer of possession from the Partnership to the receiver has on Travelers' (1) cause of action for waste, (2) claims for specific performance, and (3) standing to set aside the distributions as fraudulent conveyances.
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42 To the extent that Travelers' claims of waste relate to conduct that occurred after the appointment of the receiver, they were properly dismissed. 43 Travelers concedes that the District Court correctly determined that an action for waste will lie only against a mortgagor in possession. Brief for Appellant at 20. We said as much on the first appeal. Travelers I, 973 F.2d at 85; see also United States v. Miller, 400 F.Supp. 1080, 1084 (S.D.N.Y.1975). Travelers argues that the District Court's dismissal should nevertheless be reversed on the ground that an action for waste lies against the Partnership as the retainer of an equity of redemption, which enables it to reclaim possession at any time prior to the conclusion of the foreclosure sale. Travelers' Brief at 26. 44 Travelers does not cite, nor has this court found, any decision of the courts of New York suggesting that an action in waste will lie for waste committed by one with a contingent possessory interest. In addition, extension of the action to those who retain an equity of redemption would sever the doctrine of waste from its underlying rationale. If an action for waste exists to induce persons in possession or control of real property to manage it as if they were the owners, because the Partnership here is out of possession and control, it has no opportunity to exploit the property, regardless of its equity of redemption. 45
46 It is undisputed that the Partnership was in possession of the Property before the Receiver's appointment and at the time of the original complaint. Travelers Ins. Co. v. 633 Third Assocs., 816 F.Supp. at 202. To the extent, therefore, that Travelers' claims of waste relate to conduct occurring before the appointment of the receiver, they were improperly dismissed. 47 Under both federal and New York rules, an amended complaint relates back to the date of the original complaint. See, Fed.R.Civ.P. 15(c) ([a]n amendment of a pleading relates back to the date of the original pleading when ... the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading); N.Y.Civ.Prac.L. & R. 203(f) (McKinney Supp.1993). 48 Travelers' amended complaint brings claims of waste, breach of contract, and fraudulent conveyances based on the very series of transactions and occurrences alleged in the original complaint. Accordingly, the claims in Travelers' amended complaint relate back to the time of the original complaint. 49 Having determined that a mortgagor's willful failure to pay property taxes constitutes waste, it is necessary to determine the amount of the waste where the mortgagor is in possession of the property for only a portion of the period for which property taxes are assessed. Judge Haight's opinion seems to indicate that even if the willful failure to pay property taxes constitutes waste, the Partnership is not liable for waste because it paid a portion of the taxes prorated for the period of time during which the Partnership was in possession of the property. Travelers Ins. Co., 816 F.Supp. at 202-04. 50 It should first be noted, that the District Court incorrectly assumed that the Partnership paid a prorated share of this assessment to reflect the number of days it remained in possession for the period of the assessment. Id. at 202. As pointed out in Travelers' brief, however, this assumption was erroneous. Travelers' Brief at 21. The Partnership paid $426,394.99 towards the $3,803,888.04 installment of real estate taxes assessed for the 182-day period from January 1 to June 30, 1992. $3,803,888.04 divided by 182 equals $20,900.48. The Partnership was in possession of the Property for 27 days of this period. $20,900.48 multiplied by 27 is $564,313.06. The Partnership's prorated share of the assessment, therefore, was $564,313.06. This figure exceeds the sum actually paid by the Partnership by $137,918.07. 51 As discussed above, a mortgagor's willful failure to pay property taxes constitutes actionable waste because it results in the impairment of the mortgage. To determine the amount of the waste, therefore, a court need look no further than the extent to which the mortgage was impaired. 52 On January 1, 1992, property taxes for the period from January 1, 1992 to June 30, 1992 were assessed against the Property. 10 This assessment became due and payable in full on January 1, 1992. Indeed, New York law is clear in affixing liability for property tax assessments based on possession at the time the property tax liability accrued. See, e.g., Wilson & Co., Inc. v. City of New York, 73 N.Y.S.2d 206, 209 (Sup.Ct. New York County 1947), aff'd, 276 A.D. 755, 92 N.Y.S.2d 918 (1st Dep't 1949), appeal denied, 276 A.D. 894, 94 N.Y.S.2d 198 (1st Dep't 1950); Prudential Ins. Co. of Am. v. Liberdar Holding Corp., 74 F.2d 50, 52 (2d Cir.1934); Wagner v. White, 225 A.D. 227, 232 N.Y.S. 433, 434-35 (1st Dep't), appeal dismissed, 251 N.Y. 540, 168 N.E. 419 (1929). Failure to pay this assessment in full resulted in the attachment of a lien against the property for the full amount of the tax assessed. See N.Y.Real Prop.Tax Sec. 902. Because the mortgage was impaired by the full amount of the property taxes assessed, an equitable action for waste will lie for willful failure to pay the full amount of the property taxes due (less any amount actually paid) and not just for willful failure to pay a portion of the property taxes prorated for the period of the Partnership's possession. 53 Travelers' claims of waste for conduct occurring before the appointment of receiver, including the failure to pay accrued property tax assessments, state valid claims of waste under the law of New York. Accordingly, the Order of the District Court dismissing Travelers' amended complaint is reversed insofar as the claims relate to waste occurring before the appointment of the receiver. 54
55 Travelers also appeals the District Court's dismissal of its claim for specific performance. Insofar as this claim relates to obligations of the Partnership that allegedly continued after the appointment of the Receiver, we have held that an equitable action for waste will not lie against a mortgagor out of possession. Similarly, an action for specific performance against a mortgagor out of possession, although clad in the equitable raiment of specific performance, must be characterized as a claim for a money judgment. Travelers Ins. Co. v. 633 Third Assocs., et al., 816 F.Supp. at 207. Accordingly, we affirm the District Court's dismissal of that part of Travelers' claim for specific performance that relates to alleged obligations continuing after the appointment of the Receiver. Insofar as this claim relates to obligations of the Partnership before the appointment of the receiver, we have held that these obligations may be enforced through an equitable action for waste. Accordingly, we find it unnecessary to consider the District Court's dismissal of this aspect of Travelers' claim. 56
57 It is undisputed that the Partnership was in possession of the Property at the time of Travelers' original complaint. Therefore, at the time of the filing of Travelers' original complaint, an action in equity for waste would have lain against the Partnership. As discussed above, the claims set forth in Travelers' amended complaint relate back to the original complaint. Because the partnership might have been enjoined from distributing cash reserves to the partners on the grounds that such a distribution would have prevented it from paying property taxes, the distribution injured Travelers. Therefore, Travelers has standing to challenge the distributions under New York fraudulent conveyance law insofar as Travelers' claims related to the portion of the distributions against which an equitable action for waste could have been brought. We reverse the District Court's order dismissing Travelers' claims of fraudulent conveyance insofar as they relate to the portion of the Partnership's cash assets against which Travelers could have brought an equitable action for waste. We affirm the District Court's order insofar as it dismisses Traveler's claims of fraudulent conveyance of assets against which Travelers could not have brought an action in equity for waste.