Rosenthal & Rosenthal, Inc. v. Benun

Rosenthal & Rosenthal, Inc. (Rosenthal) (plaintiff) entered into a factoring agreement with a group of commercial entities (the Jazz entities) pursuant to which Rosenthal purchased the Jazz entities’ accounts receivable, advanced funds to the Jazz entities, and agreed to make optional future advances. Vanessa Benun (defendant) secured Rosenthal’s financing of the Jazz entities with personal guarantees, backed by mortgages on her home. Benun owed legal fees to the law firm of of Riker, Danzig, Scherer, Hyland & Perretti, LLP (Riker), and she granted Riker a mortgage securing the debt. Before Rosenthal made any optional additional advances to the Jazz entities, Riker notified Rosenthal of Riker’s mortgage on Benun’s home. After receiving notice of Riker’s mortgage, Rosenthal advanced the Jazz entities additional funds. The Jazz entities defaulted on their obligations to Rosenthal and declared bankruptcy, and Benun defaulted on both her guarantees to Rosenthal and her obligation to Riker. The combined amount owed to Riker and Rosenthal exceeded the value of Benun’s home. Rosenthal filed a lawsuit to foreclose on its mortgages. Benun did not file an answer, but Riker intervened to contest the priority of the liens on the home. Riker argued that its mortgage took priority over any mortgages securing funds advanced by Rosenthal after Rosenthal received notice of Riker’s intervening mortgage. Rosenthal and Riker filed cross-motions for summary judgment. The trial court granted Rosenthal’s motion, reasoning that Riker’s mortgage was junior to Rosenthal’s’ mortgages because Riker had accepted its mortgage from Benun with knowledge of Rosenthal’s mortgages. The Appellate Division reversed, holding that, under common- law rules of priority, Riker’s mortgage was senior to Rosenthal’s mortgage. Rosenthal appealed.