M & B Joint Venture, Inc. v. Laurus Master Fund, Ltd., 12 N.Y.3d 798 (2009)
An equitable lien requires an express or implied agreement clearly demonstrating the intent that specific property be held as security for an obligation; a mere expectation is insufficient.
Summary
M & B Joint Venture sought to establish an equitable lien on a property after loaning money to a holding company, EH. Realty. M & B claimed it was promised a second priority mortgage. However, documentation revealed the mortgage was intended for another entity, 21st Century Technologies, Inc. The New York Court of Appeals held that M & B failed to demonstrate a clear agreement that the property would serve as security for their loan. The Court reversed the Appellate Division’s order in part, dismissing M & B’s claim against Laurus Master Fund, the mortgagee, and 14-16 East 67th Street Holding Corp., the property owner, and canceling the notice of pendency.
Facts
Penthouse International secured a $24 million loan from Laurus Master Fund, using a mortgage on a New York City townhouse as collateral. Penthouse then transferred the property to EH. Realty Associates, LLC, a company Penthouse largely owned. M & B Joint Venture, Inc. (M & B) alleges it loaned $490,000 to EH. Realty, expecting a second-priority mortgage on the same property. M & B sent a letter instructing the escrow agent not to release the funds until it received a promissory note and the mortgage. The escrow agent allegedly released the funds without securing the mortgage for M & B. Penthouse defaulted on its loan, leading to foreclosure, and the property was conveyed to 14-16 East 67th Street Holding Corp., wholly owned by Laurus.
Procedural History
M & B Joint Venture sued Laurus and 14-16 East, claiming an equitable lien and filing a notice of pendency. The defendants moved to dismiss the equitable lien claim and cancel the notice of pendency. Supreme Court denied the motions. The Appellate Division modified the Supreme Court’s order by dismissing a claim for unjust enrichment, but otherwise affirmed the denial of the motion to dismiss the equitable lien claim. The Court of Appeals reversed the Appellate Division, granting the motion to dismiss the equitable lien claim and cancel the notice of pendency.
Issue(s)
Whether M & B Joint Venture presented sufficient evidence to establish an express or implied agreement demonstrating a clear intent that the property would be held as security for its loan, thereby justifying the imposition of an equitable lien.
Holding
No, because the evidence submitted by M & B itself indicated that any mortgage on the property was to be in favor of 21st Century Technologies, Inc., not M & B, and M & B provided no evidence of assignment or ownership interest in the alleged lien.
Court’s Reasoning
The Court of Appeals relied on the principle that an equitable lien requires an express or implied agreement demonstrating a sufficiently clear intent to hold property as security for an obligation. Citing Teichman v Community Hosp. of W. Suffolk, 87 NY2d 514, 520 (1996), the court emphasized that there must be an agreement “that there shall be a lien on specific property.” The court found M & B’s evidence contradicted its claim. The February 2004 letter, which M & B offered as proof, stated that any mortgage was to be in favor of 21st Century Technologies, Inc., not M & B. The Court noted that a party’s “mere expectation, however sincere, is insufficient to establish an equitable lien” (Scivoletti v Marsala, 61 NY2d 806, 809 (1984)). Because M & B’s own submissions proved it lacked a cause of action, the Court dismissed the complaint. The court referenced Rovello v Orofino Realty Co., 40 NY2d 633, 636 (1976) and Leon v Martinez, 84 NY2d 83, 88 (1994), underscoring that dismissal is appropriate when the plaintiff’s evidence conclusively negates their claim.