Ark. Leasing Co. v Gabriel

Arkansas Leasing Co. v Gabriel 2004 NY Slip Op 24120 [3 Misc 3d 46] Accepted for Miscellaneous Reports Publication AT2 Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected through Wednesday, July 21, 2004

[*1] Arkansas Leasing Co., Respondent,
v
George Gabriel, Appellant.

Supreme Court, Appellate Term, Second Department, April 9, 2004

APPEARANCES OF COUNSEL

Goldberg, Scudieri, Lindenberg & Block, P.C., New York City (Ivy B. Alexander of counsel), for appellant. Pennisi, Daniels & Norelli LLP, Rego Park (Denise M. May of counsel), for respondent.

{**3 Misc 3d at 47} OPINION OF THE COURT

Memorandum.

Final judgment reversed without costs, underlying order vacated, landlord's motion for [*2]summary judgment and to strike the affirmative defenses and counterclaim granted only to the extent of striking the affirmative defenses, tenant's cross motion for leave to amend his answer to assert a Martin Act defense granted, the answer is deemed served and filed, and the matter is remanded to the Civil Court for further proceedings.

In this holdover proceeding, the Housing Court denied a cross motion by tenant seeking to amend his answer to assert a Martin Act defense (General Business Law § 352-eeee), reasoning that this defense was "impliedly waived" by virtue of a stipulation in a 1993 holdover proceeding. In that stipulation, tenant, then sued as a subtenant but claiming tenancy rights by virtue of landlord's or landlord's predecessor's acceptance of rent payments directly from him, agreed that he (and his now-deceased wife) would be given a two-year lease with a one-year renewal option, that he would have no further renewal rights, and that the apartment would be "destabilized." While we agree with the Housing Court's further ruling that this stipulation was not invalidated by section 2520.13 of the Rent Stabilization Code (9 NYCRR) (see Matinzi v Joy, 60 NY2d 835 [1983]; Eckstein v New York Univ., 270 AD2d 208 [2000]; Merwest Realty Corp. v Prager, 264 AD2d 313 [1999]; Kent v Bedford Apts. Co., 237 AD2d 140 [1997]; Veski v Connors, 2002 NY Slip Op 50201[U] [App Term, 1st Dept]; 437 Palisade Ave. Realty Corp. v Boyd, 124 Misc 2d 759 [App Term, 2d Dept 1984]), we disagree{**3 Misc 3d at 48} with the court's conclusion that the Martin Act defense was waived. Landlord's entry into a lease for the 1997-1999 term with tenant, after the lease and renewal option provided for in the stipulation had been exhausted, created a tenancy that may well be subject to the Martin Act (Geiser v Maran, 189 Misc 2d 442 [2001]; Paikoff v Harris, 185 Misc 2d 372 [1999]), and nothing in the 1993 stipulation waived the Martin Act rights which might arise from this subsequently-created tenancy. Moreover, landlord failed to adequately establish that it would be unfairly surprised and significantly prejudiced by allowing the answer to be amended (Edenwald Contr. Co. v City of New York, 60 NY2d 957 [1983]; Hilltop Nyack Corp. v TRMI Holdings, 275 AD2d 440 [2000]). We note that the delay in asserting the defense may have been attributable, at least in part, to landlord's failure to allege in the petition that it is a sponsor or holder of unsold shares, that the building was converted to cooperative ownership pursuant to a noneviction plan and is subject to the Martin Act, and the reason, if any, why tenant is not protected by said act.

The arguments raised by the dissent with respect to the proper interpretation of the Martin Act were amply addressed by this court in Paikoff v Harris (185 Misc 2d 372 [1999], supra) and Geiser v Maran (189 Misc 2d 442 [2001], supra) and will not be further addressed here.

Patterson, J., dissents and votes to affirm in the following memorandum: Because I disagree with the majority's decision to permit the tenant to assert a Martin Act defense, I respectfully dissent.

In 1993, after the subject premises converted to a cooperative apartment, the landlord, Arkansas Leasing Co., commenced an illegal sublet holdover proceeding against the then tenants of record, and George and Shadia Gabriel, their undertenants. On July 23, 1993, the proceeding was settled by stipulation, which provided that the previous tenants would surrender possession and terminate their rent stabilization, and that the Gabriels would be the new tenants with a lease that would afford them no further right to renew past 1996. Despite this latter provision, the landlord entered into a new lease with the Gabriels from 1997 to 1999. Upon the expiration of that lease, the Gabriels{**3 Misc 3d at 49} failed to vacate the premises, prompting the landlord to commence this holdover proceeding.[FN*]

At issue on this appeal is whether the Gabriels may amend their answer to assert a defense under the Martin Act. While I recognize that leave to amend the pleadings should be freely granted (CPLR 3025 [b]), I do not agree that the court below improvidently exercised its discretion in refusing to do so here (see Rose v Velletri, 202 AD2d 566 [2d Dept 1994]). The tenant waited almost two years after submitting an answer to raise the defense. Other than contending that there had been no guidance from this court on the defense, the tenant proffers no reasonable excuse for failing to assert the defense in a timely manner. General Business Law § 352-eeee was in effect more than a decade before this action commenced. Surely, the tenant was aware of it, and could have raised the defense despite the absence of any decisional law. Because the tenant's nearly two-year delay in asserting the defense necessarily prejudiced the landlord, I would affirm the order appealed from.

Even if the tenant had timely asserted the defense, I would still affirm the order. The majority concludes that the 1997-1999 lease, which was entered into almost four years after the conversion, created a tenancy that may be protected under the Martin Act. While I recognize that our decision in Paikoff v Harris (185 Misc 2d 372 [App Term, 2d Dept 1999] [Patterson, J., on panel]) supports the majority's conclusion, I strongly suggest that we reexamine that decision.

In Paikoff, this court held that a tenant who rents an apartment from a sponsor after a cooperative conversion qualifies as a "non-purchasing tenant" within the meaning of the Martin Act. In reaching this conclusion, we first looked to the language of General Business Law § 352-eeee (1) (e), which defines a "non-purchasing tenant," in part, as a person "to whom a dwelling unit is rented subsequent to the effective date" of the conversion plan (emphasis added). Relying on the plain wording of the statute, we rejected the landlord's reading of the statute as requiring the tenant to have leased the apartment prior to the closing date of the conversion (Paikoff v Harris, 185 Misc 2d at 376). The court found no "distinction between tenants in possession at the time of the conversion and those who rent from sponsors after the conversion" (id. at 377-378). This court reasoned {**3 Misc 3d at 50}that if, in response to market conditions, a sponsor chooses to rent an apartment after a conversion, rather than sell it, then the tenants who lease the apartment should be afforded the same protections as those in possession at the time of the conversion (id. at 378).

Since Paikoff, there has been a split between the Appellate Terms in the Second and First Departments on this issue (compare Geiser v Maran, 189 Misc 2d 442 [App Term, 2d Dept 2001] [Patterson, J., on panel], with Park W. Vil. Assoc. v Nishoika, 187 Misc 2d 243 [App Term, 1st Dept 2000]). Contrary to Paikoff, the Appellate Term, First Department, refuses to extend the Martin Act protections to tenants of cooperative apartments who enter into leases years after the conversion. In Park W. Vil. Assoc. v Nishoika (187 Misc 2d 243 [2000], supra), the court rejected a tenant's claim that he was entitled to noneviction protection despite the fact that he entered into the lease five years after the building converted to condominium ownership. While recognizing that the statute's plain language appears to confer such protection on tenants who enter postconversion leases, the court refused to read the statute literally. Instead, the court relied heavily on the statute's legislative intent, which was to " 'restrict . . . rents and evictions during the process of conversion from rental to cooperative or condominium status' and to 'protect . . . tenants in possession who do not desire or who are unable to purchase the units in which they reside from being coerced into vacating such units by reason of deterioration of services or otherwise or into purchasing such units under the threat of imminent eviction' " (id. at 244-245, quoting Legislative Findings, L 1982, ch 555, § 1).

Upon closer examination of the statute's legislative history, I agree with the Appellate Term, First Department's reasoning and would vote to affirm the judgment below.

In interpreting a statute, courts must first look to the statutory language (see Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]). If the meaning of the statute is clear as written, then the courts generally may not look beyond that language to ascertain legislative intent. However, where a literal interpretation of a statute would produce an absurd result or would otherwise "defeat the general purpose and manifest policy intended to be promoted," such an interpretation{**3 Misc 3d at 51} should not be followed (People v Ryan, 274 NY 149, 152 [1937] [internal quotation marks omitted]; see Matter of Sutka v Conners, 73 NY2d 395, 403 [1989]). In the end, it is the Legislature's intent, not its language, that controls (see Patrolmen's Benevolent Assn. of City of N.Y. v City of New York, 41 NY2d 205, 208 [1976]; People v Ryan, 274 NY at 152).

Applying these principles here, I conclude that the Legislature never intended to protect tenants entering into postconversion leases. General Business Law § 352-eeee (1) (e) defines a "non-purchasing tenant" as "A person who has not purchased under the plan and who is a tenant entitled to possession at the time the plan is declared effective or a person to whom a dwelling unit is rented subsequent to the effective date. A person who sublets a dwelling unit from a purchaser under the plan shall not be deemed a non-purchasing tenant."

The statute, as written, appears to confer protections to tenants who enter into leases "subsequent to" a conversion. However, to read the statute literally, as we did in Paikoff, would afford all tenants Martin Act protections, including those who enter into leases years beyond the conversion. Surely this was not the objective of the Legislature.

Indeed, the purpose of General Business Law § 352-eeee, as amended, was "to increase protections for tenants living in buildings undergoing conversion" (Governor's Approval Mem, Bill Jacket, L 1982, ch 555). Responding to the steady increase in cooperative and condominium conversions, and the tight rental market, the Legislature amended the General Business Law to "provide adequate protection to tenants faced with losing an apartment which may have been their dwelling place for many years . . . [B]ecause of the scarcity of apartments, conversion sponsors often have an unfair bargaining position vis a vis the tenants in occupancy of a building facing conversion" (Sponsors' Mem, Bill Jacket, L 1982, ch 555). Clearly, in amending the statute, the Legislature's goal was to protect only those tenants who faced eviction during the conversion process, and not those, like the Gabriels, who freely entered into leases years beyond the completion of that process.

Finally, in light of the direct conflict of authority on this issue, I respectfully invite the Legislature to clarify the meaning of a nonpurchasing tenant to ensure its consistent application in all cases.{**3 Misc 3d at 52}

Accordingly, I would affirm the order of the court below.

Pesce, P.J., and Aronin, J., concur; Patterson, J., dissents and votes to affirm in a separate memorandum. Footnotes

Footnote *: Although the landlord, in its petition, does not indicate whether it is a sponsor or shareholder of the cooperative, it is implicit from the briefs that the landlord is a sponsor.