Concord Delivery Serv., Inc. v Syosset Props., LLC

[*1] Concord Delivery Serv., Inc. v Syosset Props., LLC 2006 NY Slip Op 51260(U) [12 Misc 3d 1177(A)] Decided on June 30, 2006 Nassau Dist Ct Fairgrieve, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 30, 2006
Nassau Dist Ct

Concord Delivery Service, Inc., Plaintiff

against

Syosset Properties, LLC, Defendant



9521/05



Representation: John T. Miller, Esq., attorney for Plaintiff, 301 Elton Court North, Saint James, New York 11780, 631-261-3216; Berkman, Henoch, Peterson & Peddy, P.C., attorneys for Defendant, 100 Garden City Plaza, Garden City, New York 11530, 516-222-6200.

Scott Fairgrieve, J.

The Plaintiff-Tenant, Concord Delivery Service (hereinafter referred to as "Concord Delivery") leased a premises, located at 121 and 123 Eileen Way from Defendant-Landlord, Syosset Properties, LLC (hereinafter referred to as "Syosset") over a period of nine (9) years through two consecutive leases. Plaintiff now seeks to recover the security deposit of $6,500.00, with interest given in connection with the leases. Syosset asserts counterclaims based upon conversion and unjust enrichment stemming from a prior proceeding decided by this Court (J. Gross).

FINDINGS OF FACT

Based upon the credible evidence adduced at trial, this Court makes the following findings of fact and legal conclusions:

Syosset, landlord of 121 and 123 Eileen Way, leased 121 Eileen Way to Concord Delivery, on July 7, 1995 for a period of five years with a three-year option to renew (the "first lease"). Concord Delivery paid $6,500.00 as security for 121 Eileen Way. In 2000, after negotiations between the [*2]parties concerning the sale of 121 and 123 Eileen Way failed, Syosset claimed that the optional renewal period had passed and the entire premises of 121 and 123 Eileen Way would only be leased together. Concord Delivery then opted to sign a new four-year lease in 2000 for both 121 and 123 Eileen Way (the "second lease"). No new security was paid nor was a provision for new security so noted in the second lease.

During the initial lease term from 1995-2000, Concord Delivery's affiliated business, Concord Endoscopy ("Concord Endoscopy"), rented the front offices of 123 Eileen Way from tenant Horan Contracting ("Horan Contracting"). Horan Contracting continued operating in 123 Eileen Way into the second lease term, despite no such provision regarding its occupancy in the second lease. Concord Delivery claimed that, for its second lease term running from 2000-2004, Syosset did not deliver the entire premises of 123 Eileen Way due to Horan Contracting's continued partial occupation of half of 123 Eileen Way.

In 2004, a prior proceeding was instituted by Syosset (in the District Court of Nassau County under Index No. SP 1701/04) in which Syosset alleged that Concord Delivery failed to pay rent, pursuant to the lease between the parties. Concord Delivery counterclaimed alleging entitlement to an abatement of rent based on their contention that the entire premises of 123 Eileen Way was not delivered.

In a decision, dated November 3, 2004, this Court (J. Gross) awarded Syosset unpaid rent in the amount of $137,000.00 dollars. However, this Court also awarded $144,000.00 dollars to Concord Delivery, as an abatement of rent, due to the failure of Syosset to deliver possession of 123 Eileen Way; thus, Concord Delivery received a judgment of $7,000.00.

INSTANT ACTION

Concord Delivery brings this action to recover the $6,500.00 security deposit paid at the time of the first lease in 1995. Syosset contends in its Fourth Counterclaim that plaintiff improperly received rent from both Horan Contracting and its affiliate Concord Endoscopy Services in the sum of $4,375.00, which was used by plaintiff to reduce its monthly rent obligation to the defendant in the sum of $8,750.00. The said counterclaim reads in relevant part as follows: 36.Upon information and belief, during the term of the Second Lease, i.e. during the period beginning on September 1, 2000 and ending on August 31, 2004, plaintiff entered into an agreement with its affiliate, Concord Endoscopy Services, Inc. ("Endoscopy") for Endoscopy to occupy one-half of the premises covered by the Second Lease.37.Upon information and belief, pursuant to plaintiff's arrangement with [*3]Endoscopy, Endoscopy was to pay rent directly to defendant in the sum of $4,375.00 per month, thereby reducing the obligation of plaintiff to the defendant for rent each month by the sum of $4,375.00.38.Upon information and belief, Endoscopy permitted Horan Construction Corp. ("Horan") to occupy a portion of one-half of the leased space, and agreed to receive the sum of $3,000 per month from Horan for its occupancy of said space.39.Upon information and belief, plaintiff, through its affiliate, Endoscopy, received the sum of $3,000.00 per month from Horan for its occupancy of said space at the leased premises, and converted sums to its own use and benefit.40.In previous litigation between the plaintiff herein and the defendant herein, one or more of the officers of plaintiff testified that plaintiff did not receive any such rental income from Horan.41.Such retention of the payments from Horan by plaintiff and Endoscopy, and the reduction of plaintiff's obligation to defendant for monthly rental payments, amounts to a conversion of said sums.42.Upon information and belief, such sums totaled in excess of $87,000.00.43.Plaintiff is therefore indebted to defendant for three hundred percent (300%) of such converted sums, amounting to at least $261,000.00 as well as other such sums which the Court shall deem proper.

To put this counterclaim in its proper context, Syosset is claiming that the plaintiff improperly received (in the prior proceeding) a rent abatement in the sum of $144,000.00 concerning 123 Eileen Way, because Concord Delivery was in fact receiving rent from the two entities, Horan Contracting and Concord Endoscopy, which occupied 123 Eileen Way, in the sum of $4,375.00. The evidence adduced during the instant trial confirmed the foregoing arrangement that Concord Delivery used the $4,375.00 to pay its rent obligation to Syosset.

LEGAL ANALYSIS

SECURITY DEPOSIT & INTEREST

The first lease, running from 1995 through 2000, was not introduced into evidence. However, both parties stipulated to the payment of $6,500.00 as security under the first lease. (Compl. ¶ 5; Answer and Countercl. ¶ 5.) The parties also admit that the sum of $6,500.00 was carried forward [*4]as security for the second lease. (Compl. ¶ 11; Answer and Countercl. ¶ 11.) Thus, the Court finds that $6,500.00 paid as security rolled over into the second lease.

It is well-settled law that in the absence of statute or special agreement to pay interest, interest is not recoverable on a deposit. (NY Pub. Serv. Law § 117 (McKinney 2000); Levy v. Shellsey, 30 Misc 789, 63 NYS 150 [App. Term 1900]). In the instant case, the second lease references the $6,500.00 security deposit and interest in paragraph 32: "Tenant shall receive interest earned on the security less 1% to be retained by the Landlord." Both parties also agree that interest was provided in the first lease. (Compl. ¶ 6, Answer and Countercl. ¶ 6.) However, neither the second lease nor the pleadings provide an interest rate.

The phrase "with interest" whether found in a statute, court order, or other writing means the legal rate of interest. (See, 72 NY Jur. 2d Interest and Usury § 21; Syracuse Engineering Co. v. Brown, 73 NYS2d 446 [Mun. Ct. 1947]). Furthermore, if an agreement to pay interest does not specify a rate, or the parties merely agree to "legal interest," the landlord must pay the legal statutory interest rate of six per cent per annum. (See, NY Gen. Oblig. Law § 5-501 (McKinney 2001); 72 NY Jur. 2d Interest § 10; 1 NY Landlord & Tenant Incl. Summary Proc. § 13:25; Caldecott v. Long Island Lighting Co., 417 F.2d 994 (2nd Cir. 1969); Levy v. Shellsey, 30 Misc 789, 63 NYS 150 [App. Term 1900]); Syracuse Engineering Co. v. Brown, 73 NYS2d 446 [Mun. Ct. 1947]). Therefore, the Court finds that the legal rate of interest, six per cent, shall apply to the $6,500.00 security deposit calculated annually from July 27, 1995.

RES JUDICATA & COLLATERAL ESTOPPEL

Syosset alleges that Horan Contracting was paying approximately $3,000.00 per month by check payable to "Concord" over a period of 39 months. Syosset contends that, because Horan Contracting was paying Concord Delivery for half of the space at 123 Eileen Way and Concord Delivery received a rent abatement for the entire premises of 123 Eileen Way, Concord Delivery received a windfall amounting to $117,000.00.

In the instant action, Burleigh Horan, principal of Horan Contracting at 123 Eileen Way, testified that at the time of the second lease in September 2000, he began paying rent of $3,000.00 per month to "Concord" - not "Concord Delivery" or "Concord Endoscopy" - with the knowledge of Alex Miller, a principal of Concord Delivery, and Gary Gelman, an officer of Syosset. That particular testimony is relevant as Judge Gross, in the proceeding action, granted Syosset permission to call a rebuttal witness from Horan Contracting to testify similarly after Concord Delivery closed its case. However, the witness could not appear on the day reserved for rebuttal. Judge Gross thus denied Syosset a continuance and closed all hearings without testimony from Horan Contracting. Horan Contracting's testimony could have impacted the issue of whether Concord Delivery converted funds and was unjustly enriched. In other words, whether Concord should have received the abatement of $144,000.00, in light of the fact that Concord was using the Horan Contracting [*5]payments of $3,000.00, together with the Concord Endoscopy payment of $1,375.00, to satisfy it's monthly rent obligation to Syosset, is a question not resolved by the prior trial. Syosset filed a notice of appeal on the ruling but subsequently withdrew it. Due to the appeal's withdrawal, they charted their own course.

Syosset's counterclaims are dismissed with prejudice as they are barred by the doctrines of res judicata and collateral estoppel. The claims of conversion and unjust enrichment could and should have been litigated in the prior action: they are directly related to the issue of rent payment and arose "out of the same transaction or series of transactions." Restatement (Second) of Judgments, § 24 (1982). As suggested by the Restatement, a "transaction" or related "series of transactions" are tied by time, place, origin, motivation, and the parties' understanding and expectations.

Two suits constitute a single cause of action if they both arise from the same transaction or nucleus of facts or from a single core of operative facts. The number of substantive theories that may be available to plaintiff is immaterial, since if they all arise from the same factual underpinnings, they must all be brought in the same action or barred from further consideration.

47 Am. Jur. 2d Judgments § 479 (2006); Northern States Power Co. v. Bugher, 189 Wis. 2d 541, 525 N.W.2d 723 (1995).

Syosset was on notice of the payments made by Horan Contracting and Concord Endoscopy prior to and at the time of the first trial, but failed to properly raise these payments to defeat Concord's claim of rent abatement. Any error stemming from the first trial should have been pursued through the appeal, which was withdrawn.

Res judicata precludes matters that were "actually put in issue in the prior action, [and] also those that might have been." Schuylkill Fuel Corp. v. B. & C. Nieberg Realty Corp., 250 NY 304, 165 N.E. 456 (1929). Additionally, res judicata and collateral estoppel bar the litigation in "a subsequent action of matters actually litigated or which might have been litigated in a prior matter." New Horizons Investors, Inc. v. Marine Midland Bank, N.A. 248 AD2d 449, 669 NYS2d 666 (2d Dept. 1998). These principles of law apply herein.

Concord Delivery's claim to the security deposit is not barred by res judicata or collateral estoppel because the lease had not yet concluded when the first action's decision was rendered and, as such, was not yet ripe for adjudication.

HOLDOVER TENANCY

No adequate proof has been presented by landlord Syosset to sustain any claim concerning tenant Concord Delivery staying past the lease term.

CONCLUSION

Therefore, defendant Syosset is liable to pay five per cent interest on the $6,500.00 amounting to $325.00 per year calculated from the start of the first lease on July 27, 1995 through June 21, 2006 for a total of ten years, ten months, and 25 days, equaling $3,543.09. Thus, $10,043.09 is awarded to plaintiff as return of the security deposit plus interest.

So ordered:

DISTRICT COURT JUDGE

Dated:June , 2006

CC:John T. Miller, Esq.

Berkman, Henoch, Peterson & Peddy, P.C.

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