SO BLUESTAR LLC v. CANARSIE HOTEL CORP (2006)

In an action to foreclose a mortgage, the defendants Canarsie Hotel Corp., Martin Rosenberg, Emil P. Klein, and Baruch Mappa appeal from an order and judgment (one paper) of the Supreme Court, Kings County (Harkavy, J.), dated June 23, 2004, which, inter alia, granted the plaintiff's motion to confirm a referee's report, confirmed the referee's report, and directed the sale of the subject property, and the plaintiff cross-appeals from the same order and judgment.

ORDERED that the cross appeal is dismissed, without costs or disbursements, as the plaintiff is not aggrieved by the order and judgment cross-appealed from (see CPLR 5511);  and it is further,

ORDERED that the order and judgment is reversed, on the law and in the exercise of discretion, without costs or disbursements, and the matter is remitted to the Supreme Court, Kings County, for a determination of the reasonableness of the attorneys' fees included in the referee's computation of the amounts due under the Note and Mortgage, following the submission of a more detailed affidavit of services and, if necessary, for a hearing on that issue, and for the entry of an appropriate amended order and judgment thereafter.

The plaintiff's predecessor-in-interest commenced this foreclosure action.   The Supreme Court awarded summary judgment to the plaintiff's predecessor-in-interest and appointed a referee to compute the amount due under the Note and Mortgage.   SO/Bluestar, LLC (hereinafter Bluestar), was substituted as plaintiff, and submitted a breakdown of all amounts due, including the unpaid principal balance, interest, late charges, prepayment consideration, and advances, including attorneys' fees.   The referee determined that the amount sought by Bluestar was the amount due.   In the order and judgment appealed from, the Supreme Court, inter alia, confirmed the referee's report and directed the sale of the subject property.

 Contrary to the appellants-respondents' contentions, prepayment consideration was properly awarded.   Prepayment clauses will be enforced according to their terms (see 3C Assocs. v. IC & LP Realty Co., 137 A.D.2d 439, 524 N.Y.S.2d 701;  George H. Nutman, Inc. v. Aetna Business Credit, 115 Misc.2d 168, 453 N.Y.S.2d 586).   The Note contained an express provision providing for the payment of prepayment consideration in the event of acceleration upon default, and such a provision is enforceable (see In re United Merchants and Mfrs., Inc., 674 F.2d 134, 143;  In re Vanderveer Estates Holdings, Inc., 283 B.R. 122, 130;  In re Financial Center Associates of East Meadow, L.P., 140 B.R. 829, 835).   Moreover, the amount of prepayment consideration was properly calculated from the date of the filing of the complaint, as the date on which the debt was accelerated and all sums became due and payable (see In re Vanderveer Estates Holdings, Inc., 283 B.R. 122, 133;  Federal Natl. Mtge. Assn. v. Mebane, 208 A.D.2d 892, 618 N.Y.S.2d 88).

 However, the Supreme Court should have made an inquiry into the reasonableness of the attorneys' fees awarded.   While the plaintiff was entitled to attorneys' fees pursuant to the Note, “[a]n award of attorneys' fees pursuant to such a contractual provision may only be enforced to the extent that the amount is reasonable and warranted for the services actually rendered” (Kamco Supply Corp. v. Annex Contr., 261 A.D.2d 363, 365, 689 N.Y.S.2d 189).

The appellants-respondents did not challenge the amount of the attorneys' fees in their submissions to the referee, or to the Supreme Court, and thus, the issue is unpreserved for appellate review (see CPLR 5501 [a] ).   However, in “recognition of the traditional authority of the courts to supervise the charging of fees for legal services under the courts' inherent and statutory power to regulate the practice of law” (Matter of First Nat. Bank of East Islip v. Brower, 42 N.Y.2d 471, 474, 398 N.Y.S.2d 875, 368 N.E.2d 1240), we reach this issue and remit the matter to the Supreme Court, Kings County, for a determination of the reasonableness of the attorney's fees included in the referee's computation of the amounts due under the Note and Mortgage, following the submission of a more detailed affidavit of services and, if necessary, for a hearing on that issue, and for the entry of an appropriate amended order and judgment thereafter.

 An award of reasonable attorneys' fees is within the sound discretion of the court, based upon such factors as the time and labor required, the difficulty of the issues involved, and the skill and effectiveness of counsel (see Juste v. New York City Tr. Auth., 5 A.D.3d 736, 773 N.Y.S.2d 597).   While a hearing is not required in all circumstances, “the court must possess sufficient information upon which to make an informed assessment of the reasonable value of the legal services rendered” (Bankers Fed. Sav. Bank v. Off W. Broadway Developers, 224 A.D.2d 376, 378, 638 N.Y.S.2d 72).   There must be a sufficient affidavit of services, detailing “the hours reasonably expended ․ and the prevailing hourly rate for similar legal work in the community” (Matter of Gamache v. Steinhaus, 7 A.D.3d 525, 527, 776 N.Y.S.2d 310;  citing Gutierrez v. Direct Mktg. Credit Servs., 267 A.D.2d 427, 701 N.Y.S.2d 116;  see Bankers Fed. Sav. Bank v. Off W. Broadway Developers, 224 A.D.2d 376, 378, 638 N.Y.S.2d 72).

 Bluestar's submission in this regard was wholly inadequate.   It submitted a one-page list of attorneys' fees and expenses.   The $143,392.25 for attorneys' fees included a $10,000 retainer, and was broken down by law firm name, date of billing, and amount charged.   There was no breakdown of services performed or hourly rates charged, nor any information from which the court could ascertain the reasonableness of the fees.

The court confirmed the referee's report without any inquiry into the reasonableness of the attorneys' fees.   In light of the inadequacy of the submission by Bluestar, the court should have required the submission of a more detailed affidavit of services by which it could assess the reasonableness of the fees, and held a hearing on that issue, if necessary (see Community Sav. Bank v. Shaad, 105 A.D.2d 1063, 482 N.Y.S.2d 162).

The appellants-respondents' remaining contentions are without merit.