Pondview Corp. v Russand, Inc.

[*1] Pondview Corp. v Russand, Inc. 2005 NY Slip Op 51950(U) [10 Misc 3d 1054(A)] Decided on November 14, 2005 Supreme Court, Rockland County Smith, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 14, 2005
Supreme Court, Rockland County

Pondview Corp., PARKFIELD PROPERTIES and THE LONG HILL ALLIANCE, Plaintiffs,

against

Russand, Inc., TAPPAN ZEE SENIOR MANAGEMENT CORP., ANDREW BLATT, individually, and ANDREW BLATT, as Administrator of the ESTATE OF ELEANOR BLATT, ANDRISSA MANAGEMENT, LTD., CHAI REALTY CORP., CHAI HEALTH, LLC, STATE OF NEW YORK DEPARTMENT OF SOCIAL SERVICES, STATE OF NEW DEPARTMENT OF HEALTH, Defendants.



822/03



Jeffrey S. Greene, P.C.

Atty. For Pltfs.

1 Barker Avenue

White Plains, New York 10601

Montalbano, Condon & Frank, P.C.

Attys. For Defts. Tappan Zee, Blatts

67 North Main Street

P.O. Box 1070

New City, New York 10956

Ross & Gess, P.C.

Attys. For Deft. Russand, Inc.

275 North Middletown Road

Pearl River, New York 10965

Mary H. Smith, J.

Upon the foregoing papers, it is Ordered and adjudged that these motions are disposed of as follows:

On June 5, 1998, The New York State Department of Health had authorized Eleanor Blatt to operate a private proprietary adult assisted living facility known as Tappan Zee Manor at real property known as 51 Mountain Avenue, Nyack, New York, which was owned by defendant Russand, Inc.[FN1] It is not disputed that plaintiffs presently [FN2] own the property pursuant to a foreclosure deed, dated October 4, 2002, granted by HUD pursuant to the Multifamily Mortgage Foreclosure Act.[FN3] At the same time that this foreclosure deed was transferred, a HUD Foreclosure Sale Use Agreement, effective for a 20-year period, also had been executed.

At the time of the foreclosure sale, defendant Tappan Zee Senior Management Corp. ("Tappan Zee") held an assignment of the lease of the property, the latter of which is dated June 18, 1998, between defendant Russand, Inc., as lessor, and the now deceased Eleanor Blatt. Defendant Andrew Blatt, individually, since had been licensed by the Department of Health as a temporary operator of Tappan Zee Manor.[FN4] After the commencement of this action, the Department of Health renewed and modified the temporary operating license to provide that defendant Blatt is operating the facility as an agent of Tappan Zee Manor. The most recent [*2]information furnished the Court indicates that a Court-appointed receiver had been certified as the new temporary operator, effective July 8, 2004.

Following plaintiffs' purchasing of the property on or about October 31, 2002, the various named defendants were served with a 30-day Notice to Terminate Tenancy. Upon defendants' refusals to vacate, this action ensued. Plaintiffs seek judgment, inter alia, ejecting defendants from the property and directing that the Sheriff of Rockland County be authorized to take all steps necessary and incidental to effectuate same, in addition to judgment declaring that the business records and accounts, as well as all rents and profits, are plaintiffs' property, and further seeking a money judgment for the use and occupancy of the property and the appointment of an Interim Operator, the latter with the required consent of the Department of Health.

At the time of their commencement of this action, plaintiffs simultaneously had sought the granting of the provisional remedies of a preliminary injunction and the appointment of a temporary receiver. Over defendants' objection, this Court (Bergerman, J.) issued its Decision and Order, dated March 24, 2004, denying defendants' cross motion for an Order dismissing the complaint in its entirety against all defendants [FN5] and granted plaintiffs a preliminary Order enjoining defendants from taking any action to prevent plaintiffs' access to the premises and from removing any chattel, financial records, accountings and business records from the premises; this Court also appointed the Jewish Home and Hospital as temporary receiver and operator of Tappan Zee Manor.[FN6]

In granting the preliminary injunction, this Court had determined that plaintiffs likely would prevail on the merits of their ejectment claim because The Multi-Family Foreclosure Act, 12 U.S.C. Chapter 38, resolved the competing possessory interest claims of the party in favor of plaintiffs. Specifically, this Court noted that Section 3713(c) thereof states that a purchaser at a foreclosure sale held pursuant to the Multi-Family Foreclosure Act is entitled to possession upon passage of titled, "subject to the terms of any lease or for one year, whichever period is shorter. Any other person remaining in possession after the sale and any residential tenant remaining in possession after the applicable period, shall be deemed a tenant at sufferance." This Court thus reasoned that even if the Blatt defendants were the legal tenants when the deed was transferred [*3]to plaintiffs on October 4, 2002, they are now tenants at sufferance since more than one year has passed since the transfer of the property.

This Court further found that there was no merit to defendants' argument that plaintiffs had ratified the lease by accepting monthly rent payments and/or requesting defendants to pay the property taxes, and that plaintiffs properly had complied with the requirement of RPL §228 regarding the service of a notice to terminate.

According to defendants, however, they are entitled as a matter of law to judgment dismissing this action. They primarily rely upon the asserted facts that they cannot surrender possession of the property to plaintiffs because of defendant Tappan Zee Manor's temporary license and the applicable regulations, and further because the New York State Department of Health has the right to determine possession of the property as part of its regulatory authority to protect the safety and welfare of the facility's residents. Thus, defendants insist that even if the Court ultimately determines that defendants have no superior leasehold possessory right, defendants' possession of the property would still be legal since only the Department of Health can require transfer of possession of the property. In this regard, defendants observe that plaintiffs failed to comply with a condition precedent to the commencement of this action by having failed to comply with the lease term (paragraph 28.01) which requires that the regulatory authority the DOH be given thirty days advance notice prior to the commencement of an action to dispossess.

Further, defendants argue that this Court previously determined that defendants, irrespective of whether they had a lease, became tenants at sufferance by operation of law. A tenancy at sufferance can only be canceled by adherence to the procedure set forth in RPL §228, which specifies that an action to recover possession cannot be maintained until 30 days after service of the demand. Accordingly, defendants argue that on the day of the foreclosure deed, plaintiffs had no right to possession, and therefore no right to demand possession or access to books and records, as allegedly was done on October 3rd and 4th, 2002. Unless and until plaintiffs can satisfy compliance with RPL §228, defendants' tenancy at sufferance continues, according to defendants. Defendants further contend that plaintiffs also need to demonstrate compliance with the extra notice provisions set forth in the lease.

In any event, even if the tenancy at sufferance was terminated, defendants nevertheless contend that they have leasehold rights which are superior to plaintiffs' right to immediate possession. Specifically, defendants refer to certain events which occurred between December 1, 2002 and February 10, [*4]2003, the date of this action's commencement, which defendants submit gave them new possessory rights. According to defendants, plaintiffs' contention that they could accept payments from a now holdover tenant "Under Protest and Without Prejudice," without creating new possessory rights, is incorrect. Defendants maintain that RPL §711(1) clearly provides that if a landlord does not want to create a new tenancy, it must not accept any performance, even under protest, before the commencement of the action. Thus, defendants argue that as a matter of law they have a superior possessory right of a month-to-month tenancy on February 10, 2003, the date this action was commenced. Defendants claim that there is no proof plaintiffs made any attempt to terminate the tenancy after the acceptance of the February, 2003, rent check (no doubt due to plaintiffs' claim that no such tenancy existed) and therefore plaintiffs have ratified and approved defendants' continued occupancy by obtaining a Court Order which directed defendant Andrew Blatt to personally remain in possession and run an adult home at the premises.[FN7]

Plaintiffs oppose defendants' motion, claiming that such in reality is an untimely ex parte Order to reargue. Plaintiffs informally seek an award of attorney's fees for this allegedly "frivolous" application.

As to the merits of defendants' motion, plaintiffs insist that they had adhered to the required procedure of serving proper Notices to Terminate. Any claim that a Temporary Operator's Certificate confers upon defendants a right of possessory possession superior to plaintiffs' is, plaintiffs argue, "patently false." Plaintiffs argue that defendants simply have confused a possessory right with rights pursuant to a temporary operator's license issued by the DOH, the latter of which is non-transferable and remains the property of the DOH, pursuant to Regulation 18 N.Y.C.R.R. §485.5(2) and (3).

Plaintiffs also argue that they are the owners of both the Tappan Zee Manor and all of the personal property used in connection therewith as of the date of the foreclosure sale, and that the deed gave plaintiffs not only the right to possession but the responsibility to continue the use of the facility as a residential adult care facility. In support of their contention, plaintiffs rely upon paragraph 12 of the Regulatory Agreement for Multi-Family Housing Projects which provides that, as security for the HUD loan, "The Owners respectively assign, pledge and mortgage to the Secretary of HUD their rights to the rents, [*5]profits, income and charges of whatsoever sort they may receive or be entitled to receive from the operation of the mortgaged property."

Plaintiffs also insist that this Court previously correctly found that the Multi-Family Foreclosure Act, 12 U.S.C. Chapter 38, is dispositive of the issue of superior possession to the property in favor of plaintiffs, and they add that this Federal law preempts any State law that contradicts it. Thus, upon transference of the deed on October 4, 2002, and the mailing of the 30-day Notices to Terminate on October 31, 2002, plaintiffs argue that the purported rights of the tenant pursuant to the Russand-Blatt lease were extinguished as a matter of law on December 1, 2002. Moreover, they note that defendants are not residential tenants at the property.

Citing various case law, plaintiffs dispute defendants' argument that plaintiffs' acceptance of rent monies under protest and without prejudice nullified plaintiffs' intent to terminate the tenancy. Plaintiffs, however, do not address the other occurrences which defendants argue are further indicia of plaintiffs' intent to accept defendants' continued tenancy, such as plaintiffs' request to defendants that they pay the state and county tax bills as additional rent under the lease, which they did, that defendants paid insurance premiums as additional rent under the lease and that defendants complied with plaintiffs' demand for proof that plaintiffs were named as additional insureds under defendants' insurance policy.

Plaintiffs further argue that they have a clear right as the titled owner to bring this action for ejectment under RPAPL §611 to obtain possession of the property and for damages incurred during the time that the property was wrongfully withheld. Plaintiffs contend that a question of fact exists with respect to the issue of damages and, specifically, whether the rents and profits or the value of use and occupation of the property applies.

Plaintiffs reject defendants' claim that the underlying lease is binding upon them; they argue that the unrecorded lease is void as to plaintiffs, good faith purchasers for value under RPL §291 and that RPL §290(1) excludes from its definition of "real property" leases exceeding three years in duration, such as the purported ten-year lease here in issue. Likewise, the unrecorded assignment of lease and the subsequent modification thereof are also void as to plaintiff.

In any event, plaintiffs further contend that the underlying lease, its assignment and modifications all fail to comply with and violate the HUD Regulatory Agreement, which by its express terms makes the Regulatory Agreement controlling with respect to the rights and obligations of the parties thereto and supercedes any other document provisions which conflict therewith. [*6]Specifically, plaintiffs argue that the Regulatory Agreement, the terms of which were expressly incorporated in the mortgage document, imposed serious restrictions on the rights of Russand as lessor and required the prior written approval of the HUD Secretary for the conveying or transferring of the mortgaged property and the personal property of the project, "including rents." According to plaintiffs, HUD never gave its written permission for the underlying 1998 Lease. Thus, to the extent that defendants are claiming rights in violation of the restrictive provisions of the mortgage and Regulatory Agreement, those rights are void as a matter of law.

Plaintiffs also argue that the Lease Amendment upon which defendants rely and which purportedly significantly reduced the monthly rent is a violation of the 1998 lease terms which provides that "in no event shall the Fixed Net Rent provided to be paid under this Lease be reduced or be less than the rent payable in any prior year."

The foregoing, plaintiffs submit, demonstrate their entitlement to judgment as a matter of law on the First Cause of Action for ejectment.

By way of reply, defendants argue, among other things, that plaintiffs wrongly maintain that the lease was void for noncompliance with HUD requirements; rather, defendants claim that the lease was merely voidable by HUD, and that HUD has not voided the lease. Defendants submit that although the lease was converted to a tenancy at sufferance, that conversion did not cancel the obligations to comply with various conditions set forth in the lease and, because plaintiffs did not comply with conditions precedent as to notice in the lease, the tenancy at sufferance was not cancelled, effective December 1, 2002.

Defendants further urge that they are correct with respect to their argument that if an owner accepts rent, even under protest, after the termination date set forth in its notice to cancel the tenancy, as here occurred, a new tenancy is created which must be cancelled anew.

Defendants also urge that plaintiffs wrongly claim that they also own the furniture, fixtures or business. According to defendants, while certain property rights were pledged to HUD as security, a security agreement and UCC-1 filing were done, and there is no proof that HUD enforced its security agreement rights so that it properly can be argued that plaintiffs also purchased the personal property in the foreclosure. Moreover, defendants argue that the deed makes no reference to including other personal property and the Form RP-5217 filled out by plaintiffs upon the transfer does not identify any personal property as having been included. According to defendants, the only action taken under 12 U.S.C. Chapter 38 was the foreclosure of the mortgage. [*7]

Initially, this Court rejects plaintiff's argument that defendants' motion fails to comply with CPLR 2217, subdivision (b) and/or is an improper attempt to reargue or renew the prior motion. Contrary to plaintiffs' instant characterization of the prior motion, the demonstrated fact is that presented at bar is defendants' first motion for summary judgment and the merits thereof properly shall be addressed. Nor does this Court agree with plaintiffs that the doctrine of law of the case applies which forecloses this Court from considering anew the facts and arguments presented plaintiffs' summary judgment motion. In its Decision and Order on plaintiffs' motion for provisional relief, the Court did not make any adjudication with respect to the merits of plaintiffs' claim that they have a superior possessory right over defendants.

The Court also rejects as being devoid of merit any argument by defendants that the HUD foreclosure procedure was defective since neither defendants Blatt nor Tappan Zee were named as parties in the HUD proceeding, as would be required in an RPAPL Article 13 foreclosure; 12 U.S.C. §7308 (1) sets forth the persons entitled to notice and nowhere therein is a "tenant" required to be notified.

Also, contrary to defendants' claim, the Court does not find that this action must be dismissed as a failure of a condition precedent simply because plaintiffs apparently have failed to comply with the requirement that the DOH be given thirty days advance notice prior to the commencement of an action to dispossess. Nowhere is such notice requirement deemed to be a condition precedent to suit, as defendants have characterized same, and the failure to have complied therewith seemingly affords only the DOH a basis for taking an action deemed appropriate upon such failing; in the absence of any supporting authority, such omission does not inure to defendants favor as a fundamental flaw requiring dismissal of plaintiffs' action.

This Court is presented with the Herculian task of sorting out the legal tangles posed by the motions sub judice, which have languished for an inordinate period of time.

After reading the record at bar and consideration of the parties' respective arguments, the Court firstly determines that plaintiffs have failed as a matter of law to demonstrate that they are entitled to possession of the personal property at the premises and which is subject to the security agreement and UCC-1 filing. The Court agrees with defendants that there is no proof that HUD had foreclosed on the security agreement, which arguably resulted in same being included in plaintiffs' foreclosure purchase, and indeed neither the deed nor plaintiffs' filed Form RP-5217 references any personal property as having been included.

The real crux of the parties' dispute, however, is which parties have the superior right to possession of the premises. [*8]As to this issue, the Court reaffirms this Court's earlier finding that, pursuant to The Multi-Family Foreclosure Act, 12 U.S.C. Chapter 38, irrespective of whether the Blatt defendants were the legal tenants when the deed was transferred to plaintiffs on October 4, 2002, the Blatt defendants necessarily became, by operation of law, tenants at sufferance on October 4, 2003, at the point when more than one year had passed since the transfer of the property. In light of this fact, the Court finds no point to addressing any raised argument regarding the legality of the lease and/or the subsequent purported assignment and modification thereof and/or the legal effect of the failure to have recorded these instruments. Given defendants' status as tenants at sufferance, it was then incumbent upon plaintiffs to adhere to the thirty-day notice procedure set forth in RPL §228 in order for them to recover possession. This they have not done.

While plaintiffs did serve purported Notices to Terminate on October 31, 2002, the inescapable conclusion is that plaintiffs did not have the legal right to serve such notices at that time; the deed did not give them immediate possession of the property and Section 3713(c) of the Multi-Family Foreclosure Act states that a purchaser at a foreclosure sale held pursuant thereto is entitled to possession upon passage of title "subject to the terms of any lease or for one year, whichever period is shorter." Plainly, the one year period, which is the shorter time period compared to the purported leasehold term, had not run on October 31, 2002, and therefore the Notices to Terminate served on said date must be found to have had no legal effect. Accordingly, since plaintiffs had failed to timely serve their Notice to Terminate after the expiration of one year measured from the date of the deed, the Court finds that defendants had the right to be in possession of the property on the date this action was commenced on February 10, 2003; consequently, plaintiffs' motion for partial summary judgment on their cause of action for ejectment is denied.

Parenthetically, the Court notes that even were it alternatively to have adopted plaintiffs' argument that their service of the 30-day Notices to Terminate had extinguished any right of defendants to be in possession on December 1, 2002, the Court finds that it nevertheless would still be compelled to deny plaintiffs' motion for judgment on their ejectment cause of action upon the required further finding that plaintiffs' actions during the period of time subsequent to service of said Notices, and prior to commencement of this action, including their continued acceptance of defendants' rent tender and payment of the County and State taxes pursuant to plaintiffs' request that they make such payments, and compliance with plaintiffs' demand that defendants submit proof that plaintiffs were named insured [*9]under defendants' policy of insurance, waived the notice sent and served to create a month to month tenancy. See RPL §232-c; RPAPL §711(1); South Park Associates, L.L.C. v. Renzulli, 94 F. Supp. 2d 460, 464 (S.D.NY 2000), 242 F.3d 368 (2nd Cir. 2000); cf. Atkinson v. Trehan, 70 Misc 2d 614 (NY Civ. Ct. 1972). In such a situation the law implies a continuance of the tenancy on the same terms and conditions contained in the original Lease. See Higbie v. Ripka, 2002 WL 126287 (NY Dist. Ct. 2002). Thus, plaintiffs would have to establish their compliance with the notice provisions under the lease, which they also have failed to prove.

The Court appreciates the fact that, in light of the receiver's now having been authorized to operate the adult facility defendants cannot simply be restored to possession. The Court is confident that defendants will immediately pursue re-issuance of the license to them.

Accordingly, under either analysis, the result would be the same. Plaintiffs motion for partial summary judgment on their First Cause of Action for ejectment must be denied and defendants' motion for summary judgment dismissing said cause of action is hereby granted. Plaintiffs' motion for partial summary judgment on their First Cause of Action is granted to the limited extent that they are hereby adjudged to be the fee simple owners of the subject premises.

The further causes of action for ancillary relief are also hereby dismissed, specifically those seeking judgment declaring that the business records and accounts are the sole property of plaintiffs herein and directing defendants to turn over all such business records and documents to plaintiffs (Second Cause of Action), and that plaintiffs are entitled to judgment declaring that the rents and profits from October 4, 2002, are the property of plaintiffs and that plaintiffs are entitled to judgment for said sum (Second Cause of Action), and that plaintiffs are entitled to judgment in the sum of $154,618.65 per month as use and occupancy from October 4, 2002, to the date plaintiffs are put into possession and that plaintiffs are entitled to judgment for said sum (Fourth Cause of Action), as well as the Third Cause of Action seeking the appointment of an Interim Operator. Although it would appear that a receiver no longer is necessary, in light of the circumstance where the receiver now is the only person authorized to operate the facility, the Court seemingly is incapable of Ordering a final accounting and the discharge of the receiver.

The Court extends its gratitude to the parties for the quality of their respective submissions.

The parties shall appear at 10:15 a.m. on December 15, 2005, for a conference. This date may not be adjourned without the Court's consent. Any party's failure to appear may result in the [*10]imposition of costs and/or sanctions. Due consideration should be given to the parties' agreeing to appear before the Court Mediator to resolve any remaining issues in this complex commercial action. If the parties agree to appear before the Court Mediator, they shall so advise the Court in writing prior to December 15th. Thereupon, the Court will arrange for a conference date and in that instance the parties need not appear before the undersigned on December 15, 2005.

Dated: November 14, 2005

New City, New York___________________________

MARY H. SMITH

J.S.C. Footnotes

Footnote 1:This Certificate was to expire on May 31, 2002, and restricted the residence capacity to 100 adults.

Footnote 2:It also is not disputed that Exchange Authority, LLP had transferred its interest to the substituted plaintiff, Parkfield Properties.

Footnote 3:For informational purposes only, the Court notes that defendant Russand had purchased the property on September 30, 1996, through a HUD loan, and it had executed a mortgage and regulatory agreement whereby the mortgage proceeds were to be used not only to purchase the property but to cover the costs of improvements and renovations so as to enable the property to be used as an adult assisted living facility.

Footnote 4:Upon the death of Eleanor Blatt, the regulations provide for approval of a spouse or representative of the estate to continue to operate the facility while they or some other applicant submits an application for a new operating certificate or a plan for closing the facility. 18 N.Y.C.R.R. 485.5(k).

Footnote 5:The complaint had been dismissed, however, against defendants Chai Realty Corp., Chai Health, LLC, Amdrissa Management, Ltd. and defendants The Department of Social Services and State of New York Department of Health.

Footnote 6:Jewish Home and Hospital regularly has caused to be sent to the Court Tappan Zee Manor's monthly operating reports.

Footnote 7:In the TRO, signed by Justice Bergerman on March 4, 2003, defendant Blatt was directed to continue to operate Tappan Zee Manor as an assisted living facility, pending further Order from this Court under the State Regulations. Notably, this directive was pursuant to plaintiffs' request.