Singh v Ernestus

[*1] Singh v Ernestus 2005 NY Slip Op 51991(U) [10 Misc 3d 1056(A)] Decided on October 12, 2005 Supreme Court, New York County Madden, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 12, 2005
Supreme Court, New York County

Ravi M. Singh, Plaintiff,

against

Michael Ernestus, Defendant.



111230/04

Joan A. Madden, J.

In this action to recover damages for breach of contract and conversion in connection with plaintiff's sublease of a cooperative apartment owned by defendant, plaintiff moves for an order pursuant to CPLR 3212 granting partial summary judgment on his second cause of action for conversion of his security deposit and prepaid rent, in the amount of $37,500, together with interest and attorney's fees. Defendant opposes the motion and cross-moves for partial summary judgment dismissing plaintiff's third cause of action for recovery of the last month's rent, and for summary judgment on defendant's third counterclaim for additional rent consisting of electricity charges in the amount of $5,745.41.

The following facts are not disputed, unless otherwise noted. By a written sublease dated April 1, 2001, defendant subleased his residential cooperative apartment to plaintiff for a two-year term commencing on June 1, 2001 and expiring on May 31, 2003, at a monthly rent of $12,500. The apartment is located at 10 West 66th Street, Unit 28 A/H, in Manhattan. In accordance with the terms of the sublease, plaintiff gave defendant three separate checks, each dated April 30, 2001: one check in the amount of $25,000 for the security deposit, one check in the amount of $12,500 for the first month's rent, and another check in the amount of $12,500 for the last month's rent. The backs of all three checks show that defendant deposited them into the same bank account, which is defendant's personal bank account at JP Morgan Chase. In his answers to plaintiff's interrogatories, defendant admitted that at the time the sublease was signed, he deposited plaintiff's $25,000 security deposit into his personal bank account at JP Morgan Chase, and that the funds remained in that account until June 26, 2004.

Upon expiration of the sublease on May 31, 2003, plaintiff remained in the apartment as a month-to-month tenant. According to defendant, in September 2003, due to pressure from the coop's board of directors, he served a notice terminating plaintiff's month-to-month tenancy as of October 31, 2005, and thereafter commenced a summary holdover proceeding to recover possession of the premises.

By a stipulation dated December 1, 2003, the parties settled the summary proceeding. The stipulation permitted plaintiff to remain in the apartment through May 31, 2004, under the same terms as the sublease, except as amended by the stipulation. Specifically, the stipulation [*2]provided for the termination of the landlord/tenant relationship and deemed the stipulation "to be a U&O agreement between Petitioner and Respondents for the term ending May 31, 2004, whereby Respondents shall be holding over after termination, the terms and conditions of which U&O agreement are those set forth in the Sublease, except as modified or contravened hereby." The stipulation also included, inter alia, an acknowledgment by defendant that he had "heretofore received, without prejudice, payments from Respondents representing fair value of use and occupancy ("U&O") for the Apartment, through December 31, 2003" and "receipt heretofore of the installments due on January 1, 2004 and February 1, 2004." The stipulation neither mentions nor references plaintiff's security deposit or the prepaid last month's rent. However, paragraph 17 is a release clause, which provides as follows:

Except for the Petitioner's [Michael Ernestus'] and Respondent's [Ravi Singh's] respective rights and obligations under this Stipulation, each hereby releases the other from any and all claims and/or obligations that the releasing party has, ever had, or may have, against the other, under or arising from Respondent's occupancy of the Apartment and/or the Sublease, through the date hereof.

On or about August 4, 2004, plaintiff commenced the instant action seeking recovery of his $25,000 security deposit, the $12,500 he paid as the last month's rent, attorney's fees and punitive damages. The complaint asserts three causes of action. The first cause of action alleges that defendant breached the lease by wrongfully refusing to return his $25,000 security deposit. The second cause of action alleges that defendant's wrongful commingling of the $25,000 security deposit was contrary to General Obligations Law §7-103 and constitutes a conversion. In the third cause of action, plaintiff alleges that he overpaid the last month's rent of $12,500, and that defendant "acted in bad faith and with a high degree of moral culpability" in failing to return the overpayment.

Defendant's answer denies the allegations in the complaint, and asserts several affirmative defenses and counterclaims, seeking damages based on breach of the sublease, property damage to the premises, and outstanding electricity charges. Defendant also seeks an award of reasonable attorney's fees.

Plaintiff now moves for partial summary judgment on his second cause of action for conversion. In support of the motion, he submits an affidavit, the pleadings, an attorney's affirmation, and documents including the sublease agreement and copies of the cancelled checks. Plaintiff contends that he is entitled to immediate return of his $25,000 security deposit and the last month's rent of $12,500 based upon defendant's admission that he commingled these funds with his own personal funds.[FN1] Citing to section 7-103 of the General Obligations Law, plaintiff argues that a landlord is required to hold a tenant's security deposit "in trust," and is prohibited from commingling the security deposit with the landlord's own funds, and that when a landlord [*3]violates this provision and commingles the tenant's funds, the tenant is entitled to a money judgment against the landlord for the full amount commingled. Plaintiff also argues that section 7-103 is applicable to prepaid rent, and therefore, covers the $12,500 payment for the last month's rent, which defendant also admits he commingled with his personal funds. Finally, based upon the attorney's fees provision in the sublease, plaintiff contends he is entitled to an award of reasonable attorney's fees.

In opposition to the motion and in support of his cross-motion, defendant submits an affidavit, and documents including correspondence between the parties, the sublease agreement, the notice of petition and petition in the summary holdover proceeding, the stipulation settling that proceeding, and copies of the electric bills and a summary of the electricity charges defendant claims are due and owing. Defendant argues that plaintiff is not entitled to partial summary judgment on his claims for return of the security deposit and the last month's rent, as such claims were waived in the stipulation settling the holdover proceeding. Defendant further argues that even with the commingling, plaintiff is entitled only to that portion of the total pre-paid amounts that have not been applied in accordance with the lease terms. Specifically, defendant alleges that since he applied the $12,500 prepaid last month's rent, to the rent that was due and owing for the last month under the lease, May 2003, plaintiff is not entitled to a refund of that amount.

After reviewing the parties' affidavits and the supporting documentation, this Court concludes that plaintiff is not entitled to partial summary judgment on his claim for conversion based upon commingling in violation of General Obligations Law §7-103. To the contrary, upon searching the record pursuant to CPLR 3212(b), plaintiff's second cause of action for conversion is dismissed.

Pursuant to the clear and express terms of the broad release contained in paragraph 17 of the December 1, 2003 stipulation settling the holdover proceeding, the parties agreed to release one another from "all claims and/or obligations that the releasing party has, ever had, or may have, against the other, under or arising from Respondent's occupancy of the Apartment and/or the Sublease, through the date hereof." Notwithstanding the undisputed fact that defendant

commingled plaintiff's security deposit and last month's rent with his personal funds, any claim for conversion based upon a violation of GOL §7-103, arose at the latest, when the commingling commenced in April or May 2001, with defendant's deposit of plaintiff's checks in to his personal bank account. Thus, as the claim for conversion was a claim that arose prior to the execution of the stipulation in December 2003, by the terms of the stipulation, plaintiff released his rights to assert that claim.

While plaintiff argues that such release is void under section 7-103(3) of the General Obligations Law, plaintiff misreads the plain language of the statute. GOL §7-103(3) states that "[a]ny provision of such contract or agreement whereby a person who so deposits or advances money waives any provision of this section is absolutely void." Reading this provision in the context of the statute as a whole, its scope is limited to voiding a specific a agreement by the parties to a lease or sublease, waiving the requirements of GOL §7-103 for a landlord to hold a tenant's security deposit "in trust" and not to "mingle" it with his own personal funds. GOL §7-103(1). Section 7-103(3) places no restrictions on the ability of a landlord and tenant to negotiate a settlement that includes a tenant's agreement to forego his right to assert a claim [*4]based upon a violation of the statute. Thus, based upon the release contained in the stipulation, the second cause of action for conversion must be dismissed.

However, notwithstanding plaintiff's release of his conversion claim, he did not release or waive his right to assert claims for breach of the sublease agreement which arose after the date of the stipulation settling the holdover proceeding. The stipulation is limited by its terms to claims "arising from Respondent's occupancy of the Apartment and/or the Sublease, through the date hereof" [emphasis added]. Under the terms of the sublease, which continued after the parties' settlement, plaintiff was entitled to the return of his security deposit once he vacated the apartment. Accordingly, plaintiff did not release or waive his claim for breach of the sublease, based upon defendant's failure to return the security deposit, as that claim did not arise until after he vacated the apartment in May 2004, which was well after the date of the stipulation. Likewise, plaintiff did not release or waive any claim for breach of the sublease relating to his alleged overpayment of the last month's rent, as that claim did not arise until the last month he occupied the apartment, May 2004. Based on the foregoing, plaintiff can continue to pursue his first and third causes of action which are both based on breach of the sublease agreement.

Turning to defendant's cross-motion, defendant seeks to dismiss the third cause of action alleging that plaintiff overpaid the last month's rent. Defendant argues that under the stipulation, plaintiff waived his right to assert this claim. As determined above, this argument is without merit. Defendant further argues that he applied plaintiff's prepaid last month's rent to the last month of the term of the sublease, May 2003. Defendant distinguishes between rent due under the original sublease, and use and occupancy, as the stipulation terminated the landlord/tenant relationship and provided for the payment of use and occupancy. In any event, this issue cannot be resolved as a matter of law, as plaintiff submits an affidavit that he erroneously made two payments for May 2004, when he forgot that he had prepaid the last month's rent and mistakenly sent a check for May 2004, and defendant refused to return the overpayment. In view of these factual disputes as to the application of the prepaid last month's rent, and plaintiff's alleged overpayment of rent for May 2004, defendant is not entitled to summary judgment dismissing the third cause of action.

That portion of defendant's cross-motion for summary judgment on his third counterclaim for electricity charges is also denied. Defendant seeks unpaid electricity charges for the period from June 2002 through May 2004, in the total amount of $5,745.41. On the record before the Court, triable issues of fact exist as to whether the release contained in the stipulation settling the holdover, bars at least some portion of this claim, and whether plaintiff received timely notification of these charges in accordance with the terms of the sublease. Plaintiff submits an affidavit that the bills for electricity were not presented to him on a regular basis, that defendant did not demand payment of the $5,745.41 amount until after he vacated the apartment in May 2004, and that he did not see all the electric bills until after he commenced this action.

Accordingly, it is hereby

ORDERED that plaintiff's motion for partial summary judgment on the second cause of action is denied; and it is further

ORDERED that upon a search of the record pursuant to CPLR 3212(b), defendant is entitled to partial summary judgment dismissing the second cause of action, and the second cause of action is dismissed and the Clerk is directed to enter judgment accordingly; and it is further [*5]

ORDERED that defendant's cross-motion is denied in its entirety.

DATED: October 12 , 2005ENTER:

_________________________

J.S.C. Footnotes

Footnote 1:Acknowledging that the claim for the $12,500 last month's rent was not pleaded as part of the second cause of action for conversion, plaintiff moves under CPLR 3017(a) for relief in accordance with the proof submitted. For the purpose of determining this motion, the Court will consider the last month's rent as included in the second cause of action.