Matter of Laszlo M. Tauber & Assoc. I LLC v Alliance Capital Mgt. L.P.
Annotate this CaseDecided on May 18, 2005
Supreme Court, New York County
Application of LASZLO M. TAUBER & ASSOCIATES I, LLC, 135 WEST 50TH OWNER LLC, 135 WEST 50 LLC and THE DURST ORGANIZATION, INC., Petitioners, For a Order Pursuant to Article 75 of the CPLR Staying Arbitration of a Certain Controversy,
against
ALLIANCE CAPITAL MANAGEMENT L.P., Respondent.
118107/04
Holland & Knight, LLP, attorneys for petitioners Laszlo N. Tauber & Associates I, LLC and 135 West 50th Owner LLC, 195 Broadway, New York, NY 10007, (212) 513-3200
Rosenberg & Estis, P.C., attorneys for petitioners The Durst Organization, Inc. and 135 West 50 LLC, 733 Third Avenue, New York, NY 10017, (212) 867-6000
Seward & Kissel LLP, attorneys for respondent, One Battery Park Plaza, New York, NY 10004, (212) 574-1200
Edward H. Lehner, J.
Before the court is a motion by petitioners-landlord ("Landlord") to permanently stay the arbitration demanded by respondent-tenant ("Tenant") and to dismiss the challenge to the rent escalation charges billed by the Landlord for the years 2000, 2001, 2002 and 2003 on the basis that the challenge was not timely made.
Article 40 of the two substantially identical leases for the fifth and sixth floors (the "Lease") for the premises at 135 West 50th Street in Manhattan (the "Building") provides for an adjustment of the base rent for the Tenant's proportionate share of any increase in the operating expenses of the Building compared to such expenses in the base year, and contains detailed provisions with respect to the calculation of such escalations.
The pertinent Lease provisions relating to Tenant's claim to now be entitled to proceed to arbitration with respect to said challenge are:
"51. ARBITRATION. Either party may request arbitration of any matter in dispute wherein arbitration is expressly provided for in this Lease as the appropriate remedy. All such controversies shall be settled by The American Arbitration Association in New York City in accordance with the procedural rules then obtaining of The American Arbitration Association or any successor thereto."
* * *
"40-L. Binding Effect. Every notice, demand or statement given by Landlord pursuant to of this Article ... shall be conclusive and binding upon Tenant, unless within one hundred twenty (120) days after the receipt of such notice Tenant shall [*2]notify Landlord that it disputes the correctness of the notice, specifying the particular respects in which the notice is claimed to be incorrect. If such dispute shall not have been resolved by parties within ninety (90) days after Tenant notifies Landlord of the dispute, Tenant shall submit the dispute to arbitration within ninety (90) days thereafter failing which, Tenant shall be deemed to have waived its objections."
* * *
"59-B. This lease shall be governed in all respects by the laws of the State of New York applicable to contracts made and to be performed wholly within New York."
* * *
"28. Bills and Notices: Except as otherwise in this lease provided, a bill, statement, notice or communication which Owner may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered if, in writing, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant at the building of which the demised premises form a part or at the last known residence address or business address of Tenant and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed .... (See Article 60)"
While the above Article concludes by a reference to "Article 60," the parties agree that this is intended to be a reference to Article 62, which provides as follows:
"62. ADDENDUM TO ARTICLE 28 (BILLS AND NOTICES).Notwithstanding the provisions of Article 28, notices may be given by personal delivery or a recognized overnight courier service. Copies of all notices to Landlord shall be sent to Hofheimer Gartlir & Gross, LLP, 633 Third Avenue, New York, New York 10017, Attn: Gerald H. Morganstern, Esq. Copies of all notices to Tenant shall be sent to David R. Brewer, Jr., Esq., General Counsel, 32nd Floor, 1345 Avenue of the Americas, New York, New York 10105, with an additional copy to Seward & Kissel, One Battery Park Plaza, New York, New York 10004, Attention: Mark A. Brody, Esq."
Annually the Landlord sent to the Tenant letters enclosing accountants' statements showing actual operating expenses of the Building and indicating the amount to be billed to the Tenant for its proportionate share. It is acknowledged by Landlord that such letters were not sent to either counsel referred to in Article 62. Tenant acknowledges receiving the statements from the Landlord, but maintains that the time to demand arbitration has not expired because Landlord failed to send copies to its lawyers. Tenant's response was not to specifically challenge the "correctness" of the notice, but rather stated that the "detail provided in Landlord's reconciliation statements transmitted to us ... is not sufficient for us to determine that the expenses passed-through in the escalation [*3]comply with the terms of the Lease (and) we are exercising our rights under Article 40, Section II of the Lease ... to review the books and records relevant to 2002 Operating Expenses (and) a certified public accountant ... will be contacting you to arrange to review the building's books and records" (letter dated November 12, 2003 of Wanda Billington). A similar letter was sent on March 6, 2003 with respect to the operating expenses of 2000 and 2001, and on July 23, 2004 with regard to the expenses of 2003. Landlord contends that such letters did not constitute a dispute as to "the correctness of the notice" and hence the figures shown on the various statements sent by it are now binding upon Tenant.
In its statement of claim dated December 3, 2004 filed with the American Arbitration Association, Tenant asserts that: it "has not been allowed to review the complete books and records relevant to the Operating Expenses for 2001 and 2002" (¶14); based on a permitted limited review of the Landlord's books, Tenant has been overcharged "approximately 425,000 for 2000, 2001 and 2002" ¶16); "it has paid for 2003 ... approximately $101,710.64 more than it should be paying under the Leases because Operating Expenses for the Base Year (1999) were miscalculated" (¶22); and the "Landlord must pay back the amounts overpaid" (¶23).
Discussion
The first issue to be resolved is whether this dispute is governed by the Federal Arbitration Act ("FAA"). In Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., ____ NY3d ____, NYLJ, March 25, 2005, p. 18, c. 3, which involved the repair and reconstruction of a roof of a commercial building in Manhattan, it was held that the FAA governed the subject dispute because it affected interstate commerce in that "numerous out-of-state entities were involved"; "the engineer's drawings were created ... in Illinois"; the "largest supplier of materials ... was a New Jersey Company"; and "various additional materials, equipment and services for the project were obtained from Oklahoma, Maryland and Kansas." The court stated that "[q]uestions concerning whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate are generally for the arbitrators to decide ... (except) where the parties explicitly agree to leave timeliness issues to the court."
However, in a case involving this very same building as involved herein [Laszlo N. Tauber & Associates I, LLC v. American Management Association, 304 AD2d 413 (1st Dept. 2003)], it was ruled that the FAA is not applicable because the "subject lease is for office space in Manhattan and does not, by its terms, contemplate any involvement in interstate commerce." The case also dealt with the issue raised herein as to whether the request to audit the Landlord's books constituted a notice of disagreement, the court concluding that such request "did not constitute notice of disagreement as required by the lease particularly in view of the affirmative lease language to the contrary." Thus, in that case the landlord's motion for a permanent stay of arbitration was granted. The conclusions therein reached on the foregoing issues are equally applicable to the present case and thus will be followed herein.
Also to be followed, and similar to the procedure employed in the foregoing case wherein it was observed that the "arbitration clause at issue was a narrow one" (as is the provision of paragraph "L" of Article 40), is the ruling that left "the threshold determination of whether the condition precedent of timely notice of disagreement with the landlord's statement was met by the tenant for judicial, rather than arbitral, resolution." In so holding, the court cited Silverstein [*4]Properties, Inc. v. Paine, Webber, Jackson & Curtis, Inc., 65 NY2d 785 (1985), wherein it was stated that "[a]lthough a broad arbitration clause will generally be deemed to reserve for the arbitrator all questions regarding compliance with time restrictions for demanding arbitration, that is not true where parties have chosen a narrow clause limiting the arbitrator's power to a particular dispute." There, as in the case at bar, "the parties have employed a narrow clause limiting the arbitrator to deciding substantive disputes commenced within the time fixed by the contract" (p. 787). See also, United Nations Development Corporation v. Norkin Plumbing Co., Inc., 45 NY2d 358, 363 (1978); Evan Louis Realty Corp. v. Flagg Properties, LLC, 306 AD2d 409 (2d Dept. 2003).
Thus, the issues remaining to be resolved herein are whether the statements regarding escalation sent by the Landlord were notices that required sending copies thereof to the attorneys referred to in Article 62 and, if so, what is the consequence of the failure to do so.
Although ordinary monthly rent bills need not be sent in accordance with the provisions of Article 62 since rent is due and owing without there being a written demand therefor, the sending of the escalation statements has a significant legal effect in that it starts the running of a contractual period of limitations. While paragraph "L" of Article 40 refers to "every notice, demand or statement given by Landlord pursuant to this Article," the balance of the paragraph in referring thereto uses only the term "notice," which Landlord's counsel referred to as "lazy" and "poor" draftsmanship (Tr. pp. 27-28). A fair reading of the paragraph, however, is that the said term "notice" as used in that paragraph includes the escalation "statements" sent by the Landlord, and thus the Landlord was required to comply with the Article 62 provisions relating to the sending of notices.
The question then posed is whether the failure of the Landlord to send copies of the escalation statements to the attorneys prevented the commencement of the running of the 120-day challenge period of Article 40. In support of its position the Landlord relies on cases that have held that service by an improper means may be waived absent a timely objection where the notice was in fact received. E.g., Rower v. West Chamson Corp., 210 AD2d 7 (1st Dept. 1994)(notice mailed by certified rather than registered mail); Mlcoch v. Smith, 173 AD2d 443 (2nd Dept. 1991)(notice sent by regular rather than certified mail); Dean v. Tappan Wire & Cable, Inc., 2002 WL 2008229 (A. Term, 9th & 10th Dists.)(option excise not sent by certified mail).
However, while the "how" a notice is received may be waived as having no prejudicial effect when dealing with contractual provisions (as contrasted to jurisdictional requisites), there is a difference in examining lease provisions relating "to whom" notice is to be sent. The rent escalation article in the Lease is spread over more than 8 legal sized (8½ x 14) pages of single-space type setting forth in detail the complicated manner by which the adjustments are to be calculated. It is thus reasonable for a client to desire and require that the demand for a rent escalation be sent to its counsel for examination.
Landlord argues that the Tenant waived this requirement by not forwarding the statements to its counsel, and further maintains that only notices that provide for a short period in which the Tenant is required to take action need be sent to the attorneys (Landlord's March 15, 2005 memorandum of law, pp. 4, 10). However, the parties negotiated the provisions of Article 62 as part of the rider to the Lease, the basic form of which is the Real Estate Board standard form of office lease. In Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Company, 1 NY3d 470 (2004), the Court of Appeals set forth the following basic rules regarding contract interpretation (p. 475): [*5] "When interpreting contracts, we have repeatedly applied the familiar and eminently sensible proposition of law, that when parties set down their agreement in a clear, complete document, their writing should ... be enforced according to its terms .... We have also emphasized this rule' s special import in the context of real property transactions, where commercial certainty is a paramount concern, and where ... the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length .... In such circumstances, courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include .... Hence, courts may not by construction add or excise terms, nor distort the meaning of those used and thereby made a new contract for the parties under the guise of interpreting the writing ...." (internal quotation marks and citations omitted).
Since the parties herein negotiated a provision specifically requiring service of notices upon attorneys, the court finds no basis to conclude that this provision may be ignored by the Landlord and deemed waived if the Tenant does not object. A failure by a landlord to send a notice to a tenant's attorney was held in Intell 157 Street Realty, LLC, v. Winston Harris Galleries, Ltd., 2002 WL 759125 (A. Term, 1st Dept.), to be one of the "deficiencies in landlord's notice (that was) not merely technical or insubstantial in nature."
In light of the foregoing, the court concludes that since the Landlord failed to comply with the Lease provision specifying the persons to whom notices are to be sent, it therefore cannot claim that the Tenant's current challenge is untimely pursuant to the Lease provision limiting challenges to rent escalation charges to those made within 120 days after "receipt of such notice." Accordingly, petitioners' motion to permanently stay the arbitration demanded by the Tenant is denied.
This decision constitutes the judgment of the court.
Dated: May 18, 2005_____________
J.S.C.
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