B. Bros. Broadway Realty LLC v Universal Fabric, Inc.
Annotate this CaseDecided on July 23, 2009
Civil Court of the City of New York County, New York County
B. Bros. Broadway Realty LLC, Petitioner/Landlord,
against
Universal Fabric, Inc., Respondent/Tenant.
L & T 65911/09
Adam Paul Pollack, Esq. - for petitioner
Pollack & Sharan, LLP
15 Maiden Lane - Suite 1400
New York, NY 10038
Stephen Latzman, Esq - for respondent
276 Fifth Avenue - Suite 306
New York, NY 10001
Eric S. Horowitz, Esq. - for third party
Zane and Rudofsky
601 West 26th Street
New York, NY 10001
Tanya R. Kennedy, J.
FACTUAL AND PROCEDURAL BACKGROUND [*2]
Respondent entered into possession of the subject premises pursuant to a February 13, 2004 lease agreement with non-party 1385 Broadway, as landlord, for a term through April 30, 2009, and tendered the sum of $6,314.88 as a security deposit. 1385 Broadway subsequently assigned the lease to non-party 1385 Broadway LLC (hereinafter Broadway LLC) pursuant to an agreement, dated June 30, 2006.
By agreements dated June 6, 2008, Broadway LLC surrendered the subject premises and assigned its interest to petitioner. Thereafter, by notice dated June 11, 2008, Broadway LLC informed respondent that it assigned its interest in the premises to petitioner and transferred to petitioner the funds sufficient to cover respondent's security deposit.
Petitioner then commenced this nonpayment proceeding against respondent for rent and additional rent owed for February through April of 2009 in the sum of $6,314.88. In its amended verified answer, respondent asserts as an affirmative defense and counterclaim, inter alia, that Broadway LLC transferred to petitioner funds sufficient to cover respondent's security deposit and that respondent is entitled to the return of its security deposit. Additionally, respondent alleges, inter alia, that it is entitled to an offset against any amounts due and owing to petitioner. However, petitioner denies receiving any security deposit from Broadway LLC.
Respondent, which surrendered and delivered possession of the subject premises on or before April 30, 2009, now seeks leave to commence a third party action against Broadway LLC. According to respondent, Broadway LLC may be liable for all or part of petitioner's claim against respondent as there is a factual dispute as to whether said entity transferred the security deposit to petitioner. Respondent notes that while petitioner would be liable for the security deposit if Broadway LLC transferred such deposit to petitioner, petitioner has no liability to respondent for its return if Broadway LLC failed to effectuate such a transfer and that Broadway LLC would remain liable.
Petitioner has submitted response papers in support of the motion, annexing, inter alia, a copy of a June 9, 2008 letter petitioner forwarded to Broadway LLC indicating that "no amounts have been paid or transferred to [petitioner] on account of any security deposits under tenant leases for space at the Premises" (see Exhibit 1 to Pollack Affirmation).
Counsel for non-party Broadway LLC submitted opposition to the motion, arguing that the
relief sought herein is tantamount to rendering a declaratory judgment, which is beyond the
jurisdiction of this Court. Additionally, counsel for Broadway LLC maintains that the
documentary evidence submitted with his affirmation establishes that Broadway LLC transferred
all security deposits to petitioner and that there is no other evidence to the contrary. Further,
counsel for Broadway LLC argues that the Civil Court has no jurisdiction over security deposits,
and that such funds are not recoverable in a nonpayment proceeding.
DISCUSSION
Under General Obligations Law §7-103, money advanced on a contract for the use or rental of real property as security for performance of such contract continues to be the tenant's property which shall be held in trust without being commingled with the landlord's personal assets.
In the event the owner or landlord conveys property or assigns the lease to another, the owner or landlord must turn over to the grantee or assignee the tenant's security deposit and notify the tenant of such transaction (see General Obligations Law §7-105[1]). Once the owner [*3]or landlord turns over the security deposit to its grantee or assignee, the landlord is relieved from liability to the tenant for repayment, and the transferee of such deposit is responsible to the tenant for its return (see General Obligations Law §7-105[2]).
"[T]he return of a security deposit is viewed as a collateral agreement that does not run with the land and transferees of the land would not be liable for the security deposit unless they actually received the money or otherwise covenanted to pay it" (Bayside Plaza Assoc. LLC v Deli Bizz 24 Inc., 14 Misc 3d 1233[A] [Civ Ct, Queens County 2007]).
While counsel for Broadway LLC correctly cites 930 Fifth Ave. Corp. v Shearman (17 Misc 3d 1126[A] [Civ Ct, NY County 2007]) for the proposition that the Civil Court does not have jurisdiction over security deposits and that such funds cannot be recovered in a nonpayment proceeding, such case is inapplicable to the instant matter.
In 930 Fifth Ave. Corp., the landlord consented to the tenant's use of an escrow account for rent once the tenant stopped paying rent. After the funds in the escrow account were entirely drawn down, the landlord in 930 Fifth Ave. Corp sought a possessory judgment against tenant to replenish the escrow account and the tenant counterclaimed for an order directing the landlord to return the funds to such account. Although the parties in 930 Fifth Ave. Corp. agreed to treat the escrow account as additional rent, the court therein determined that the account was a security deposit since the landlord was to use the funds to ensure the tenant's compliance with the terms of the proprietary lease, to keep such funds in a separate account, and to return same if the tenant sold the shares allocated to the cooperative apartment. As such, the court concluded in 930 Fifth Ave. Corp., inter alia, that the escrow account was a security deposit and, thus, not rent which is recoverable in a nonpayment proceeding. Additionally, the court concluded in 930 Fifth Ave. Corp., inter alia, that it had no jurisdiction to order the replenishment of funds to the escrow account or to direct its return. Here, there is no claim that the security deposit at issue constitutes additional rent and no request for the Court to return such funds.
In the instant case, petitioner may apply the security deposit to any rent owed, pursuant to paragraph 44 of the lease (see generally Daniel Finkelstein and Lucas A. Ferrara, Landlord and Tenant Practice in New York §7:20 [2002 ed.]). However, if Broadway LLC failed to turn over the security deposit to petitioner, Broadway LLC, and not petitioner, would be liable to respondent for its return.
If at trial, the evidence establishes that respondent is liable for the amount sought in the petition and that the security deposit was not transferred to petitioner, respondent would still be required to satisfy the judgment against it and then commence a separate plenary action against Broadway LLC to recover the amount paid to satisfy the judgment. Such a result is nonsensical and a waste of judicial resources.
CPLR 401 provides, in pertinent part, that "[a]fter a [special] proceeding is commenced, no party shall be joined or interpleaded and no third-party practice or intervention shall be allowed, except by leave of court."
Although there is authority for the proposition that Civil Court does not have jurisdiction to allow third-party practice in summary proceedings as there is no provision in the RPAPL to incorporate a third-party judgment in a final order (see Gorman v Gorman, 77 Misc 2d 687, 688 [Civ Ct, Kings County 1974]), other judges have exercised their discretion to permit such practice (see Lawrence v Martin, 131 Misc 2d 256 [Civ Ct, NY County 1986]; Manhattan Plaza, [*4]Inc. v Snyder, 107 Misc 2d 470 [Civ Ct, NY County 1980]).
While the aforementioned cases permitting third-party practice were in furtherance of public policy and to ensure proper housing maintenance standards in summary nonpayment proceedings involving residential tenants, and the instant case does not present such implications, this Court is nonetheless of the opinion that third-party practice is appropriate due to the common questions of fact that exists and the need to litigate all issues in a single forum to provide complete relief to the parties. Permitting impleader herein will "expedite disposition of the entire controversy, avoid multiplicity of other lawsuits between the parties to accomplish the same result and, at the same time, do speedy justice for all" (Manhattan Plaza, Inc. v Snyder, supra at 477).
Contrary to Broadway LLC's counsel's contention, granting the relief herein is not tantamount to rendering a declaratory judgment, would have "the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy" (CPLR 3001). Rather, the Court has jurisdiction in this proceeding "to render judgment for rent due without regard to amount" (CCA 204) and to "direct that a final judgment be entered determining the rights of the parties" (RPAPL 747[1]).
While the purpose of a summary proceeding is to provide for an expeditious determination, any delay which may result by allowing third-party practice would not harm the parties herein since justice would be best served by allowing the parties to simultaneously litigate all claims in a single forum.
Accordingly, it is
ORDERED that respondent's motion for leave to commence a third party action against Broadway LLC is granted.
This matter will appear on the Part 52 calendar for trial on August 25, 2009 at 9:30 a.m.
This constitutes the decision and order of the Court.
Dated: July 23, 2009
New York, New York
___________________________________
Judge of the Civil Court
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