OAKES, Senior Circuit Judge:
This dispute is before this court for a second time. See Travelers Ins. Co. v. 633 Third Assocs., 973 F.2d 82 (2d Cir.1992) ("Travelers I"). It is useful, however, to reiterate the basic facts.
In 1986, plaintiff, The Travelers Insurance Company ("Travelers"), a Connecticut corporation, loaned $145 million to defendant 633 Third Associates ("Partnership"), a New York limited partnership that owns a single property — a 41-story office building in New York City ("the Property"). The loan was secured by a non-recourse mortgage on the Property. In 1990, the Partnership learned that it would lose some important tenants. Facing a depressed New York real estate market and mounting vacancies, the Partnership distributed $4 million in accumulated cash assets to its partners and prepared to distribute another $17 million.
On August 22, 1991, Travelers brought suit
Judge Haight denied preliminary injunctive relief and dismissed the complaint on the ground that Travelers lacked standing to
On January 1, 1992, the Partnership failed to pay property taxes and failed to meet a payment on its loan, thereby defaulting. On January 13, 1992, the Partnership distributed $17 million to its partners. On January 14, 1992, Travelers filed for foreclosure of the mortgaged property. A receiver was appointed by a New York Supreme Court on January 27, 1992. 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).
In an opinion dated August 17, 1992, a unanimous panel of this court vacated Judge Haight's order.
On November 9, 1992, Travelers filed an amended complaint alleging that the distributions rendered the Partnership incapable of performing its obligations under the loan, including the payment of property taxes.
The District Court dismissed Travelers' amended complaint on the ground that an equitable action for waste would lie only against a mortgagor in possession. Travelers Ins. Co. v. 633 Third Assocs., 816 F.Supp. 197 (S.D.N.Y.1993). Citing the appointment of a receiver on January 27, 1993, Judge Haight found that the Partnership was no
This appeal presents two main questions of New York law. The first is whether New York law recognizes failure to pay property taxes as waste, a question which we left for the district court to answer on the prior appeal. Travelers I, 973 F.2d at 85-86. The second is whether the appointment of a receiver on January 27, 1992 ousts the Partnership of possession thereby depriving Travelers of any pre-existing (1) cause of action for waste, (2) claims for specific performance, and (3) standing to set aside the distributions as fraudulent conveyances.
A. Failure to Pay Property Taxes as Waste
The central issue in this appeal is whether failure to pay property taxes constitutes waste under New York law. This issue is important both to Travelers' claims of waste and to Travelers' claims of fraudulent conveyance.
Federal courts sitting in diversity cases will, of course, apply the substantive law of the forum State on outcome determinative issues. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); 28 U.S.C. § 1652 ("The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply."); see generally In re Eastern and Southern Districts Asbestos Litig., 772 F.Supp. 1380, 1388-91 (E. & S.D.N.Y.1991), rev'd on other grounds, In re Brooklyn Navy Yard Asbestos Litig., 971 F.2d 831 (2d Cir.1992). In ascertaining the substantive law of the forum, federal courts will look to the decisional law of the forum state, as well as to the state's constitution and statutes. Erie, 304 U.S. at 78, 58 S.Ct. at 822. Where the substantive law of the forum state is uncertain or ambiguous, the job of the federal courts is carefully to predict how the highest court of the forum state would resolve the uncertainty or ambiguity. See Minotti v. Lensink, 798 F.2d 607, 610-11 (2d Cir.1986) (predicting Connecticut law), cert. denied, 482 U.S. 906, 107 S.Ct. 2484, 96 L.Ed.2d 376 (1987).
Because the law of New York is unclear as to whether failure to pay property taxes constitutes waste, this court must "carefully review available resources to predict how the New York Court of Appeals would resolve the questions at bar." In re Eastern and Southern Districts Asbestos Litig., 772 F.Supp. at 1389. These resources include "the statutory language, pertinent legislative history, the statutory scheme set in historical context, how the statute can be woven into the state law with the least distortion of the total fabric, state decisional law, federal cases which construe the state statute, scholarly works and any other reliable data tending to indicate how the New York Court of Appeals would resolve the [issue]." Id. at 1391. In considering state decisional law, we must afford the fullest weight to the pronouncements of the New York Court of Appeals. See Sanchez v. United States, 696 F.2d 213, 216 (2d Cir. 1982). Where there is "no decision by th[e state's highest] court then federal authorities must apply what they find to be the state law after giving `proper regard' to relevant rulings of other courts of the State." Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967). We will also consider relevant cases from jurisdictions other than New York in an effort to predict "[w]hat would be the decision of reasonable intelligent lawyers, sitting as judges of the highest New York court, and fully conversant with New York `jurisprudence.'" Cooper v. American Airlines, 149 F.2d 355, 359 (2d Cir.1945); see Leon's Bakery Inc. v. Grinnell Corp., 990 F.2d 44, 48 (2d Cir.1993) (federal court may consider all sources used by the highest court of the state, including decisions of other jurisdictions).
The common law doctrine of waste emerged in response to problems of divided ownership that occurred when, say, an owner
New York has codified a common law cause of action for waste:
N.Y.Real Prop.Acts.Law, § 801 (McKinney 1979).
New York Courts have recognized two general categories of waste. First, as this court observed in the previous appeal, New York courts recognize "`a substantive cause of action for waste against one in control of real property who does no more than allow the property to deteriorate and decrease in value....'" Travelers I, 973 F.2d at 85 (quoting United States v. Miller, 400 F.Supp. 1080, 1084 (S.D.N.Y.1975) (citing 300 West Realty Co. v. City of New York, 43 A.D.2d 680, 350 N.Y.S.2d 147 (App.Div. 1st Dep't 1973))). Second, New York courts recognize a cause of action for waste by a mortgagee against a mortgagor who impairs the mortgage. See Union Mortgage Co. v. Nelson, 82 N.Y.S.2d 268, 269 (Sup.Ct.Bronx County 1948) (damages suit by mortgagee for damage to property caused by mortgagor), aff'd, 275 A.D. 1028, 91 N.Y.S.2d 839 (App.Div. 1st Dep't 1949); Syracuse Sav. Bank v. Onondaga Silk Co., Inc., 14 N.Y.S.2d 356, 357-59, 171 Misc. 993 (Sup.Ct.Onondaga County 1939) ("This action is not strictly an action for waste such as comes within the provisions of [the predecessor of N.Y.Real Prop.Acts. § 801]. The interest of the mortgagee in the property is a contingent interest.... The cause of action alleged in the complaint is for the impairment of the security of the mortgages and was formerly called an action on the case in the nature of waste.... The essence of an action of this kind is the impairment of the security of the mortgage. The mortgagee is entitled to have his mortgage security unimpaired by acts of the mortgagor or his grantee."); Van Pelt v. McGraw, 4 N.Y. 110 (N.Y.1850).
The existence of two categories of a cause of action is only rarely recognized explicitly. See Syracuse Sav. Bank, 14 N.Y.S.2d at 359, 171 Misc. 993 (providing a
The difference between the two categories of an action for waste can best be illustrated by an example. Under New York law, an action for waste will lie against a tenant who fails to undertake certain repairs on the property. See Watner v. P & C Food Mkts., Inc., 138 A.D.2d 959, 526 N.Y.S.2d 292, 293 (App.Div. 4th Dep't 1988) ("tenant has an implied obligation to refrain from affirmative acts of waste and to make `tenantable' repairs to avoid permissive waste of the leasehold"); see also Suydam v. Jackson, 54 N.Y. 450 (1873); Marcy v. City of Syracuse, 199 A.D. 246, 255-256, 192 N.Y.S. 674 (App.Div. 4th Dep't 1921); but see Staropoli v. Staropoli, 180 A.D.2d 727, 580 N.Y.S.2d 369 (App.Div.2d Dep't 1992) (failure to paint exterior of marital residence did not constitute waste). If a mortgagor were to undertake these repairs through, say, a contractor, the mortgagor could satisfy its duty and escape liability for waste for physical injury. If the mortgagor failed to pay the contractor, however, a mechanic's lien would attach against the property. N.Y.Lien § 3 (McKinney 1993). The mortgagor would then be liable for waste for the impairment of a mortgage even though no injury were done to the property. If an action for waste for the impairment of the mortgage would not lie, it would be possible for mortgagors to escape liability for permissive waste by contracting for necessary repairs, defaulting on repair bills, and allowing a mechanic's lien to attach to the property.
It is uncertain whether New York law recognizes the willful failure to pay taxes as actionable waste. In the previous appeal, this court wrote that it "believe[d] an equitable action ... may be available to plaintiff in this case, although it has not yet been adequately pled." Travelers I, 973 F.2d at 85. This court, therefore, vacated and remanded the District Court's decision with instructions to grant Travelers leave to amend its complaint. Id. at 88. This court emphasized, however, the narrowness of its decision:
Id. This court did not decide, as a matter of law, that New York law would recognize the willful failure to pay property taxes as waste remediable by an action in equity. Rather, this court merely noted,
Id. at 85-86. The reluctance of this court to more firmly set forth its view of the law of New York on this issue can, perhaps, be attributed to the fact that an action for waste had "not yet been adequately pled," id. at 85, much less briefed.
On remand, the District Court dismissed the amended complaint's claims for waste and fraudulent conveyance on the ground
While the New York cases on waste tend to deal with mortgage impairment resulting from physical injury to real property, at least one case clearly contemplates that, in certain circumstances, an action in waste will lie for financial injury to real property. In Union Mortgage Co. v. Nelson, 82 N.Y.S.2d at 270, Justice Corcoran citing a Maine case wrote,
While the court went on to hold that the case at bar did not present a situation in which an action in waste would lie, the court was more concerned with the fact that the action was brought by a junior mortgagee than with the fact that the action claimed that failure to pay taxes was waste. See Union Mortgage, 82 N.Y.S.2d at 270. In discussing this case, the District Court noted that on appeal the Appellate Division four-sentence memorandum decision wrote, "The allegations sought to be added by the amended and supplemental complaint are factually nothing more than non-payment of first mortgage interest and taxes. This is not waste in a legal sense." Union Mortgage Co. v. Nelson, 275 A.D. 1028, 91 N.Y.S.2d 839 (App.Div., 1st Dep't 1949). The District Court failed to note, however, that the Appellate Division went on to write, "In the absence of showing fraud or some obligation on the part of defendant owing to plaintiff to make such payments, neither the proposed amended nor supplemental complaint make out a cause of action." Id. This seems to suggest that the Appellate Division would countenance an action for waste for failure to pay taxes where that failure occurred in violation of the mortgagor's obligations or where the failure was willful, intentional, fraudulent, or the like.
The District Court cites another Supreme Court case, Ganbaum v. Rockwood Realty Corp., 62 Misc.2d 391, 308 N.Y.S.2d 436 (Sup. Ct.Bronx Co.1970), for the proposition that waste does not include the breach of financial conditions. Ganbaum, however, cites a single case for this proposition — Union Mortgage. Id. 62 Misc.2d at 396, 308 N.Y.S.2d 436. And, as we have seen, in considering Union Mortgage on appeal, the Appellate Division's First Department contemplated the possibility of an action in waste for failure to pay taxes upon a showing of fraud or an obligation to pay.
A line of New York cases has interpreted the scope of an action for waste broadly. In Van Pelt v. McGraw, 4 N.Y. 110, 111-12 (1850), the New York Court of Appeals said:
Justice Kimball of the New York Supreme Court has written,
Together with this line of New York cases interpreting the cause of action for waste broadly, the contemplation by the Appellate Division's First Department of an action for waste for failure to pay taxes suggests that an equitable action for waste would lie under New York law for the intentional failure to pay property taxes where there is an obligation to do so or the failure is intentional or fraudulent.
As we have previously noted, other courts have recognized the failure to pay property taxes as waste. See Pike v. Wassell, 94 U.S. 711, 715, 24 L.Ed. 307 (1876) ("The defendants admit that they have determined not to pay the taxes upon the property. The danger of incumbrance by reason of this failure to perform their duties as tenants for life is, therefore, imminent, and the case a proper one for a court of equity to interfere and grant appropriate relief."); Hausmann v. Hausmann, 231 Ill.App.3d 361, 172 Ill.Dec. 937, 596 N.E.2d 216 (App.Ct. 5th Dist.1992); Chapman v. Chapman, 526 So.2d 131, 135 (Fla.Ct.App.1988); First Nat'l Bank v. Clark & Lund Boat Co., 68 Wis.2d 738, 229 N.W.2d 221, 223 (Sup.Ct.1975); Farmers' Mut. Fire & Lightning Ins. Co. v. Crowley, 354 Mo. 649, 653, 190 S.W.2d 250, 253 (1945); Thayer v. Shorey, 287 Mass. 76, 191 N.E. 435 (Sup. Jud.Ct.1934); Straus v. Wilsonian Inv. Co., 171 Wn. 359, 17 P.2d 883 (Sup.Ct.1933); Mutual Benefit Life Ins. Co. v. Canby Inv. Co., 190 Minn. 144, 147, 251 N.W. 129, 131 (Sup.Ct.1933). Most recently, a United States District Court in Illinois held that "failure to pay taxes constitutes waste as that term has been defined by the Illinois courts." Capitol Bankers Life Ins. Co. v. Amalgamated Trust and Sav. Bank, No. 92 C 4480, 1993 WL 594103, at *5 (N.D.Ill. May 6, 1993).
We hold that the intentional failure to pay property taxes where there is an obligation to do so or where the failure is fraudulent constitutes waste under the law of New York. We note, however, the narrow limits of this holding. Not every failure to comply with loan obligations will constitute waste actionable by the mortgagee. First, the failure must be intentional or fraudulent. Second, the failure must result in the impairment of the security of the mortgage. The mere failure to pay principal and interest, for example, will not constitute waste. Such failure does not impair the mortgage. Instead, such failure triggers default provisions and gives the mortgagee the right to foreclose on the mortgaged property.
B. Possession and the Consequences of the Appointment of a Receiver
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.
1. Travelers' Claim for Waste
a. Waste After the Appointment of the Receiver
To the extent that Travelers' claims of waste relate to conduct that occurred after the appointment of the receiver, they were properly dismissed.
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.
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.
b. Waste Before the Appointment of the Receiver
It is undisputed that the Partnership was in possession of the Property before the Receiver's appointment and at the time of
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).
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.
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.
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.
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.
On January 1, 1992, property taxes for the period from January 1, 1992 to June 30, 1992 were assessed against the Property.
2. Travelers' Claims for Specific Performance
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.
3. Travelers' Standing to Bring Fraudulent Conveyance Claims
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.
The order of the District Court dismissing Travelers' amended complaint is affirmed insofar as Travelers' claims of waste and for specific performance relate to conduct occurring after the appointment of the Receiver. Insofar as Travelers' claims of waste relate to conduct occurring before the appointment of the Receiver, the District Court's order dismissing Travelers' amended complaint is reversed. The District Court's order dismissing Travelers' claims under New York fraudulent conveyance law is reversed insofar as those claims relate to a portion of the distributions against which Travelers could have brought an equitable action for waste.
Remanded for proceedings consistent with this opinion.
MISHLER, Senior District Judge, dissenting:
I record my disagreement with the holding by the majority that under New York law, the willful
Travelers' claim (First Claim for Relief) states a claim of waste based on "the Partnership's
I agree with the majority's observation that New York law is unclear as to whether the failure to pay property taxes constitutes waste. The New York Court of Appeals has not spoken on the issue. The First Department of the Appellate Division of the New York State Supreme Court in Union Mortgage Co. v. Nelson, 275 A.D. 1028, 91 N.Y.S.2d 839 (1st Dep't 1949), affirming 82 N.Y.S.2d 268 (Sup.Ct.Bx.Cty.1948) decided the issue.
In Nelson, the junior mortgagee instituted an action for waste against the mortgagor, claiming that the mortgagor committed waste in failing to make payments due the senior mortgagee. The lower court held:
Id. at 270.
The affirming opinion held:
We are required to determine how the New York Court of Appeals would rule on the issue, if the issue were presented to it. Wilson v. Asten-Hill Mfg. Co., 791 F.2d 30, 32 (3d Cir.1986). In Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967), the Court stated that "where the highest court of the state has not spoken on the point (citations omitted) ... this Court ... held that `an intermediate appellate state court ... is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise'" (citing West v. American Tel. & Tel., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940)).
This court in Leon's Bakery, Inc. v. Grinnell Corp., 990 F.2d 44, 48 (2d Cir.1993) noted that in determining how it believed the state's highest court would rule on the issue, "a federal court is free to consider all of the resources to which the highest court of the state could look, including decisions in other jurisdictions on the same or analogous issues."
Wisconsin denies a right of action by a mortgagee for waste based on the failure to pay property taxes. Chetek State Bank v. Barberg, 170 Wis.2d 516, 489 N.W.2d 385 (1992). California would deny such a right. Krone v. Goff, 53 Cal.App.3d 191, 127 Cal.Rptr. 390 (1975); but see Osuna v. Albertson, 134 Cal.App.3d 71, 78, 184 Cal.Rptr. 338, 342 (1982) ("Other authorities in California and elsewhere are in conflict, some holding that failure to pay taxes constitutes waste, and others holding that failure to pay taxes does not constitute waste.") (Footnotes omitted). New Jersey would also deny a claim of waste based on the failure to pay property taxes. Camden Trust Co. v. Handle, 132 N.J.Eq. 97, 26 A.2d 865 (1942).
States upholding an action by a mortgagee for waste for willful failure to pay property taxes, which become a prior lien, declare that the rental income during the period covered by the tax lien, after paying maintenance expenses, must be used to discharge the tax lien. Straus v. Wilsonian Inv. Co., 171 Wn. 359, 17 P.2d 883 (1933); Mutual Ben.
We turn to the question of injury to Travelers by reason of defendant's refusal to pay the tax lien.
The Receiver appointed by order of the New York State Supreme Court dated January 27, 1992, in the foreclosure action, collected rents due during the period from January 1, 1992 to June 30, 1992. For reasons best known to the Receiver, she paid the property taxes due July 1, for the period to December 31, 1992, from the rents collected during January 1 to June 30.
The order appointing the Receiver authorized her to collect all rents and pay all real estate taxes and operating expenses "which are due or shall become due...." The loss of value to the property, which in turn impairs the mortgage, should be reduced to the extent that such rental income is available for the payment of taxes. The following are the rents collected for the four month period February to May: February, $656,252; March, $2,226,172; April, $1,444,471; May, $1,446,695. After paying operating costs for the period, "Ending Cash" as of May 31, 1992 was $5,259,624 (Letter dated June 18, 1992, from Sandhurst Associates, Ltd.).
Travelers' damages "would be limited to the amount of injury to the mortgage...." Van Pelt v. McGraw, 4 N.Y. 110 (1850); President and Directors of Manhattan Co. v. Mosler Safe Co., 246 A.D. 785, 284 N.Y.S. 145 (2d Dep't 1935).
The injury to Travelers' mortgage was due to the failure of the Receiver to apply the rental income properly. Chapman v. Chapman, 526 So.2d 131, 135 (Fla.3d Dist.Ct.App. 1988) ("the remainderman is entitled to have a receiver appointed to collect the rents and apply them to discharge the tax indebtedness"); First National Bank of Neenah v. Clark & Lund Boat Co., 68 Wis.2d 738, 229 N.W.2d 221, 223 (A receiver may be appointed where rental income is in danger of being lost and "in a mortgage foreclosure action can only be justified for the purpose of preventing waste."); Mutual Benefit Life Ins. Co., 251 N.W. at 133 ("[W]hile the assigning or pledging of rents for the payment of taxes, insurance, and the saving of waste lawfully may be done, it must be clearly understood that the mortgagee will be allowed to collect only rent in an amount necessary to pay taxes then due or delinquent....")
I believe the New York Court of Appeals would deny a right of action to Travelers based on the failure of the mortgagor to pay the property taxes due January 1, 1992. I find that if New York law permitted such an action, the claim would be dismissed on the ground that the rental income, after payment of maintenance expenses, was available for the discharge of the tax lien and therefore the mortgage security was not diminished.
I dissent and vote to affirm the dismissal of the First Claim with leave to amend the claim for waste based on the failure to maintain the property in good condition and repair, and require a statement of facts upon which the claim is based.
Amended and Restated Note ¶ 15.