143-145 Madison Ave. LLC v Tranel, Inc.

[*1] 143-145 Madison Ave. LLC v Tranel, Inc. 2009 NY Slip Op 52783(U) [29 Misc 3d 1233(A)] Decided on October 13, 2009 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 13, 2009
Supreme Court, New York County

143-145 Madison Avenue LLC and BANK OF SMITHTOWN, Plaintiffs,

against

Tranel, Inc., Defendant.



100254/06



For plaintiff, Nesenoff & Miltenberg LLP, 363 Seventh Avenue, 5th floor, NY NY 10001, (212) 736-4500.

For defendant, Belkin Burden Wenig & Goldman, 270 Madison Avenue, 5th floor, NY NY 10016, (212) 867-4466.

Joan A. Madden, J.

In this action involving the breach of a net lease for a commercial building, defendant landlord moves for an order pursuant to CPLR 3212 granting summary judgment declaring that plaintiffs are in violation of the lease, dismissing the second and third causes of action in the complaint, and vacating the Yellowstone injunction issued by this Court on September 19, 2006. Alternatively, the landlord seeks an order vacating the Yellowstone injunction, based on plaintiffs' alleged failure to take any significant steps to cure the lease violations since the issuance of the Yellowstone injunction. Plaintiffs oppose the motion and cross-move for summary judgment, seeking rescission of the Fourth Lease Modification Agreement (hereinafter the "Fourth Modification") on the grounds of impossibility.[FN1]

Plaintiff tenant143-145 Madison Avenue LLC (hereinafter "143-145 Madison" or the "tenant") received a Thirty (30) Notice of Default and Opportunity to Cure (hereinafter "Notice to Cure") dated August 12, 2005, listing several alleged lease violations, the most substantial of which involved the tenant's obligation under the Fourth Modification to install separate sprinkler and heating systems:

PLEASE TAKE NOTICE, that you have violated and continue to violate substantial obligations of your tenancy in that in violation of paragraph 1(a) of the Fourth Lease Modification Agreement dated January 28, 2005 you have failed, within one hundred and twenty days (120) [*2]from the date of the Fourth Lease Modification Agreement, to provide Landlord with (i) evidence that you have filed with the Department of Buildings of the City of New York (the "DOB") all plans and specifications (the "Plans") for separation of the sprinkler system serving the building adjacent to the Premises known as 135 Madison Avenue, New York, from the sprinkler system serving the Premises (the "Sprinkler System Work") and for the construction of a fully integrated independent heating system in the Premises (the "Heating System Work"), and (ii) evidence that you have paid all fees required by the DOB to obtain a permit to perform the Sprinkler System Work and the Heating System Work.

Although the original cure period would have expired on October 3, 2005, the parties agreed to several extensions, with the final extension expiring on January 10, 2006.

On January 9, 2006, the tenant commenced the instant action by securing an order to show cause for a Yellowstone injunction tolling the running of the cure period. The tenant simultaneously served and filed a complaint asserting three causes of action for a judgment declaring that it is not in breach of the lease (First Cause of Action), a permanent injunction enjoining defendant from terminating the lease based on the August 12, 2005 notice to cure (Second Cause of Action), and attorney's fees (Third Cause of Action). The landlord answered asserting several affirmative defenses and a counterclaim for attorney's fees.

By a decision and order dated September 19, 2006, this Court issued a Yellowstone injunction, finding, inter alia, that the tenant satisfied its burden of demonstrating both a willingness and ability to cure, by submitting sworn statements from its principal, James Ludow, as to the efforts it had already taken and was continuing to take to address the purported breaches in the lease. Specifically, the Court relied on Ludlow's representations that plaintiff had been working with a plumbing engineer and heating specialists, and had engaged an expediter to assist in the preparation and processing of its applications to the Department of Buildings for the necessary approvals regarding the sprinkler and heating systems work.

On August 22, 2007, the landlord secured an order to show cause for leave to renew the Court's prior decision and order issuing a Yellowstone injunction; upon renewal the landlord sought an order denying and vacating the Yellowstone injunction. In support of renewal, the landlord cited to "new facts" arising after the issuance of the Yellowstone injunction, and argued that such facts demonstrated that when the tenant originally made its motion, it "had absolutely no desire or ability to cure" the defaults listed in the notice to cure. The landlord asserted that the tenant's undisputed failure, since the issuance of the Yellowstone injunction more than a year before, to perform the sprinkler or heating system work, "has made it abundantly clear that, at the time of the issuance of the Order, Tenant had absolutely no desire or ability to cure those alleged defaults."

By a decision and order dated January 2, 2008, this Court denied the landlord's motion, determining that while the tenant acknowledged that no construction work had taken place with regard to the sprinkler or heating systems, the affidavits submitted by tenant provided a reasonable explanation for the delays in performing that work. Specifically, the Court found that the tenant's subsequent default on its mortgage and failure to pay its plumber, did not, in retrospect necessarily establish or create a reasonable inference that at the time the tenant sought [*3]Yellowstone relief, it had neither the willingness or ability to cure the defaults regarding the

sprinkler and heating systems. The court also found that the affidavits from the plumber and engineer demonstrated that the sprinkler work was more complicated than originally thought, and emphasized that "what is important here, is that substantial steps are being taken toward that end." The court concluded that "under circumstances presented, where the Bank [the Bank of Smithtown] has taken over control of the premises and is actively engaged in taking the many steps needed before the sprinkler work can commence, including hiring a plumber, engineer and architect, and paying the plumber $27,000, the court is not persuaded that a Yellowstone injunction is not warranted to maintain the status quo. However, in view of the fact that more than a year has passed since the Yellowstone injunction was issued, the Bank must move forward expeditiously" (emphasis added).[FN2]

Now, the parties are each moving for summary judgment. The landlord asserts that it is entitled to summary judgment declaring that plaintiffs are in default of the lease based on the undisputed fact that for the past three years, plaintiffs have not even begun to the cure the lease violations, since they have yet to provide defendant with a diagram, drawing or valid contract demonstrating that they are actually conducting the sprinkler system or heating system work in the building. The landlord maintains that the tenant actually had more than five years to separate the sprinkler system from the adjacent building, since that work was first required in the Third Lease Modification Agreement (hereinafter "Third Modification") dated December 10, 2003. The landlord also asserts that it is entitled to judgment dismissing the second cause of action for a permanent injunction, since the equities balance in its favor to the extent plaintiffs have admittedly breached the lease; and dismissal of the third cause of action for attorney's fees, since lease does not give the tenant a right to recover attorney's fees. In the alternative, the landlord asserts that the Yellowstone injunction should be vacated based on plaintiffs' failure to take any significant action to correct the lease violations since service of the Notice to Cure in August 2005.

Plaintiffs oppose the motion, and cross-move for summary judgment. Although the complaint does not include a claim for rescission, plaintiffs are seeking to rescind the Fourth Amendment on the grounds of impossibility. Specifically, plaintiffs assert that performance as contemplated in the Fourth Amended is impossible, as "subsequent investigation has proved" that the installation of separate sprinkler and heating systems is impossible.

It is well settled law that "once a party to a contract has made a promise, that party must perform or respond in damages for its failure, even when unforeseen circumstances make [*4]performance burdensome." Kel Kim Corp. v. Central Markets, Inc., 70 NY2d 900, 902 (1987). Although the defense of impossibility of performance has been recognized in common law, it is applied "narrowly, due in part to judicial recognition that the purpose of contract law is to allocate the risks that might affect performance and that performance should be excused only in extreme circumstances." Id. Consequently, "[i]mpossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes

performance objectively impossible. Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract." Id; accord Estates at Mountainview, Ltd v. Nakazawa, 38 AD3d 828 (2nd Dept 2007); Kapur v. Stiefel, 264 AD2d 602 (1st Dept 1999); LeRoy v. Sayers, 217 AD2d 63 (1st Dept 1995).

Under the circumstances presented, plaintiffs' failure to comply with the lease obligations to separate the sprinkler system and provide for an independent heating system cannot be excused. The undisputed record establishes that any inability on the part the tenant to perform the sprinkler and heating system work could have been foreseen and guarded against when it specifically undertook those obligations in the Fourth Modification, and therefore the obligations cannot be avoided on the basis of impossibility. See Kel Kim Corp. v. Central Markets, Inc., supra.

Notably, the tenant's obligation to separate the sprinkler system originated well before the January 28, 2005 date of the Fourth Modification. On December 10, 2003, the parties executed the Third Modification, which provided in relevant part as follows:

Whereas, the Premises utilize a portion of the sprinkler system from the Adjacent Building to supply sprinkler services to the Premises; and

Whereas, the Landlord is desirous of having Tenant separate the sprinkler system serving the premises from the sprinkler system servicing the Adjacent Building; and

Whereas, in order to induce Landlord to execute a certain estoppel certificate in favor of the Bank of Smithtown, Tenant is willing to under [take] a separate of the sprinkler system

NOW THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:

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2. Tenant agrees to perform the following work at the Premises as contained on Schedule A annexed hereto (the "Work") [lists 12 items, including engineering design, sprinkler water service, physical separation from 135 Madison, Siamese connection, interconnection of new service and existing sprinkler piping];

3. Within six (6) months from the date hereof (the "Plan Date") Tenant will submit plans and specifications suitable for filing with the Department of Buildings of the City of New York (the "DOB") for Landlord's written approval, and within forty five (45) days of receipt of Landlord's approval deliver evidence to Landlord that it has filed all plans and paid all fees required by the DOB to obtain a permit to perform the Work.

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4. On or before the date that is Twenty Four (24) months after the date hereof (the "Completion Date"), Tenant shall complete the work.

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5. The failure to Tenant to (i) file plans to separate the sprinkler system by the plan Date, or (ii) having filed the plans, the failure of Tenant to complete the Work by the Completion Date (or the Extended Completion Date, as the case may be) shall be deemed a material event of default under the Lease, entitling the Landlord to terminate the Lease by notice to Tenant as contained in the Lease.

The landlord states, and plaintiffs do not dispute, that none of the foregoing work was performed within the 24-month period as required in the Third Modification, and as a result of such default, the landlord served the tenant with a 30-Day notice of Default and Opportunity to Cure dated August 5, 2004. The landlord thereafter commenced a holdover proceeding in Civil Court, which was settled on January 28, 2005 pursuant to a stipulation providing for the parties simultaneously to enter into the Fourth Modification that is the subject of the instant action.[FN3] As noted above, the Fourth Modification, also dated January 28, 2005, included the identical provisions from the Third Modification obligating the tenant to separate the sprinkler system, and added new provisions requiring the tenant to install an independent heating system.[FN4] Once again, the tenant defaulted and the landlord served a Notice to Cure, dated August 12, 2005. After several consensual extensions, the cure period was set to expire on January 10, 2008, but [*6]the day before, January 9, 2008, the tenant commenced the instant action seeking a Yellowstone injunction tolling the cure period. An essential element of that application, was plaintiff's willingness and ability to cure, as demonstrated by the sworn statements from its principal that plaintiff had been and was continuing to work with a plumbing engineer, heating specialists and an expediter, to obtain the necessary DOB approvals for the sprinkler and heating system work. Although the tenant was awarded Yellowstone relief on September 19, 2006, nearly a year later on August 22, 2007, the landlord moved for leave to renew and to vacate the Yellowstone injunction, based on the tenant's failure to obtain any approvals or commence any work. Again relying on sworn statements submitted by the tenant, the court found that the tenant had provided a reasonable explanation for the delay, based on affidavits from a plumber and an engineer that the sprinkler system work was more complicated than originally thought, and the fact that the Bank had taken over control of the premises and represented that it was actively engaged in hiring a plumber, engineer and architect. At that time, however, no one even hinted that the sprinkler system work was impossible or impracticable.

Now, three years have passed since the Court issued the Yellowstone injunction and five years have passed since the tenant originally agreed to separate the sprinkler system, yet it is undisputed that neither the tenant nor the Bank has complied with the obligations under the Fourth Modification to separate the sprinkler system and install an independent heating system. Rather, for the first time and only in response to the landlord's motion for summary judgment, it is clear that neither the tenant nor the Bank has any intention of complying and instead are seeking to avoid the lease obligations altogether by requesting equitable relief in the nature of rescission. In view of the totality of the circumstances, plaintiffs are not entitled to such relief. Moreover, plaintiffs are no longer entitled to a Yellowstone injunction, since it is clear they are seeking to discharge their default by rescinding the Fourth Modification, and not to cure the default. See Rappa v. Palmieri, 203 AD2d 270 (2nd Dept 1994). As noted above, the tenant's willingness to cure the default short of vacating the premises is an essential element of an application for a Yellowstone injunction. See Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Avenue Assocs., 93 NY2d 508, 514 (1999). Based on the foregoing, the court is issuing a declaratory judgment in favor of the landlord as to plaintiffs' default, and an order vacating the Yellowstone injunction and dismissing the second and third causes of action in the complaint.

Accordingly, it is hereby

ORDERED that defendant's motion for summary judgment is granted; and it is

ORDERED, ADJUDGED AND DECLARED that plaintiffs 143-145 Madison Avenue LLC and Bank of Smithtown are in violation of the lease, specifically paragraph 1(a) of the Fourth Lease Modification Agreement; and it is further

ORDERED that the second and third causes of action in the complaint are dismissed; and it is further

ORDERED that the Yellowstone injunction issued by order of this Court dated September 29, 2006, is vacated; and it is further

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

DATED: October 13, 2009ENTER: [*7]

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J.S.C. Footnotes

Footnote 1:Although the tenant's counsel asserts that "the parties were operating under a mutual mistake of fact when they entered into the Fourth Amendment of Lease,"it is clear from the motion papers that the tenant is seeking rescission on the grounds of impossibility alone.

Footnote 2:On September 8, 2006 plaintiff/net lessee 143-145 Madison Avenue LLC as "Debtor" and the Bank of Smithtown, as mortgagee, executed a "Possession Agreement," in which they agreed that the premises would be "placed in possession of the bank as mortgagee-in-possession." The agreement stated that plaintiff "is now in default under the terms of the notes and mortgage [Leasehold Mortgage] . . . and as of September 1, 2006 there is due and unpaid . . . the principal amount of $7,226,210.74."

On December 18, 2008, this court issued an order amending the caption to add the Bank of Smithtown as a party-plaintiff.

Footnote 3:The Fourth Modification agreement is signed by defendant Tranel as "Landlord," plaintiff 143-145 Madison Avenue as "Tenant," and the Bank of Smithtown as (the "Bank").

Footnote 4:The Fourth Modification states that "the parties hereto desire to amend the lease to provide certain obligations of Tenant with respect to the performance of sprinkler system and heating system work at the Premises," specifically:

(a) Within one hundred twenty (120) days from the date of this Agreement, Tenant shall provide Landlord with (i) evidence that Tenant has filed with the Department of Buildings of the City of New York (the "DOB") all plans and specifications (the "Plans") for separation of the sprinkler system serving the building adjacent to the Premises known and known as 135 Madison Avneu, New York, New York (the "Adjacent Building") from the sprinkler system serving the Premises (the "Sprinkler System Work") and for the construction of a full integrated independent heating system in the Premises (the "Heating System Work"), and (ii) evidence that Tenant has paid all fee required by the DOB to obtain a permit to perform the Sprinkler System Work and the Heating System Work.

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(c) Within nine (9) months following the approval of the Plans by the DOB or approval of the Plans to the extent of the Sprinkler System Work by the DOB, Tenant shall complete the Sprinkler Systems Work in a manner consistent with the Plans as permitted by the DOB;

(d) Within eighteen (18) months after completion of the Sprinkler System work Tenant shall complete the Heating System Work in a manner consistent with the Plans and as permitted by the DOB.

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