Millenium Cards, Inc. v Panrad Auto. Indus., Inc.

[*1] Millenium Cards, Inc. v Panrad Auto. Indus., Inc. 2011 NY Slip Op 50091(U) [30 Misc 3d 1215(A)] Decided on January 7, 2011 Supreme Court, Nassau County Driscoll, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 January 7, 2011
Supreme Court, Nassau County

Millenium Cards, Inc., Plaintiff,

against

Panrad Automotive Industries, Inc.; JULIAN G. SARGISS, M.D., Defendants.



021382-10



Plaintiff's Counsel: Janet Nina Eshaghoff, Esq.

Defendants' Counsel: Rappaport, Hertz, Cherson & Rosenthal

Timothy S. Driscoll, J.

This matter is before the court on the Order to Show Cause filed by Plaintiff Millenium Cards, Inc. ("Millenium" or "Plaintiff") on November 16, 2010 and submitted January 6, 2011 after oral argument before the Court. For the reasons set forth below, the Court denies Plaintiff's application.

BACKGROUND

A. Relief Sought [*2]

Plaintiff moves for a preliminary injunction enjoining Defendant,[FN1] its agents, servants and employees, and all persons acting on its behalf, pending the hearing and determination of this action, from commencing any summary or other proceeding to terminate or cancel the leasehold interest and the Lease of Plaintiff with respect to the Premises, including but not limited to

1) terminating or cancelling Plaintiff's leasehold interest, or the Lease, based upon the Notice to Cure, dated November 9, 2010, or the purported default alleged therein; 2) interfering with Plaintiff's right of possession of the Premises; 3) commencing a summary holdover or other proceeding to recover possession of the Premises; 4) commencing any action to declare Plaintiff's leasehold interests in the Premises canceled or terminated; 5) taking any other action to declare Plaintiff's leasehold interests in the Premises canceled or terminated; 6) terminating Plaintiff's use and right of possession of the Premises under said Lease based upon said Notice to Cure; 7) staying and tolling Plaintiff's time to cure any alleged default claimed in the Notice to Cure, pending the hearing and determination by this Court of Plaintiff's application on the grounds that a) Defendant's acts and threatened acts as to the Premises are in violation of Plaintiff's rights with respect to the lease; and b) any attempt to impair Plaintiff's rights pursuant to the Lease and Plaintiff's right to cure during the pendency of this action would irreparably and unfairly injure the Plaintiff, as Plaintiff has a right to cure any alleged default, if a default is found by this Court to exist.

Defendant Panrad Automotive Industries Inc.; Julian G. Sargiss, M.D. ("Defendant") opposes Plaintiff's application.

B. The Parties' History

The Verified Complaint ("Complaint") (Ex. D to Ali Aff. in Supp.) alleges as follows:

Plaintiff is a domestic corporation that maintains its offices at 172A Gardiner Avenue, Levittown, New York ("Premises"). On May 9, 1996, Plaintiff executed a Lease Agreement ("Lease") with Defendant regarding the Premises. The parties executed an addendum ("Rider") to the Lease on July 28, 2006. Pursuant to the Lease and Rider, annexed as Exhibits A and B to the Complaint, the term of the Lease expires in 2018.

In or about September 2010 there was a water leak ("Leak") into the Premises, resulting in damage to Plaintiff's store ("Store"). The leak caused damage ("Damage") to Store inventory ("Inventory"), including cards and wrapping papers, and ceiling tiles. This Damage allegedly resulted in a reduction in Plaintiff's gross sales. In addition, the fallen ceiling tiles allegedly created a dangerous environment for employees and patrons of the Store. The first cause of action seeks compensation for the Damage.

In the second cause of action, Plaintiff alleges that Defendant, as Landlord, has been negligent in maintaining the Premises resulting in the Leak which damaged Inventory and forced Plaintiff to close the Store for several months. Plaintiff further alleges that in September 2010, Defendant contracted with a roofing company to repair the Leak, but the work was completed negligently, resulting in further damage to the Inventory.

In the third cause of action, Plaintiff alleges that Defendant failed to enforce the provisions of the Lease relating to Plaintiff's exclusive right to sell items including lottery tickets, [*3]newspapers, cigarettes at the Premises. This resulted in a reduction in Plaintiff's profits and its ability to pay its rent. Plaintiff also alleges that Defendant has been negligent in maintaining parking spots for customers at the Premises.

In the fourth cause of action, Plaintiff alleges that Asraf Ali ("Ali"), principal of Plaintiff, has suffered mental distress as a result of Defendant's alleged negligence and violation of the Lease terms.

In his Affidavit in Support, Ali affirms as follows:

Ali is the President of Millenium, a card and gift shop that he has owned and operated since 1996 at the Premises. She affirms the truth of the allegations in the Complaint regarding the Leak and his efforts to have the Defendant remedy that situation. She affirms that, as a result of the Damage and a corresponding reduction in business, Plaintiff was unable to pay rent in August, September and October of 2010. There is currently security in the amount of 40,000 deposited with the Defendant-Landlord.

Defendant served a 5-day notice to cure ("Notice") on Plaintiff (Ex. C to Ali Aff.). That Notice, dated November 9, 2010, reads as follows:

TAKE NOTICE, THAT YOU ARE JUSTLY INDEBTED TO THE LANDLORD

OF [THE PREMISES] AS SET FORTH BELOW, WHICH YOU ARE REQUIRED

TO PAY ON OR BEFORE THE EXPIRATION OF FIVE (5) DAYS FROM THE

DAY OF SERVICE OF THIS NOTICE, OR SURRENDER UP THE POSSESSION

OF SAID PREMISES TO THE LANDLORD, IN DEFAULT OF WHICH THE

LANDLORD WILL COMMENCE SUMMARY PROCEEDINGS UNDER THE

STATUTE TO RECOVER THE POSSESSION THEREOF.

TAKE FURTHER NOTICE, THAT PURSUANT TO SAID AGREEMENT, THERE

IS DUE TO LANDLORD FROM TENANT THE FOLLOWING:

LEGAL FEES: $500

LATE FEES: AUGUST [2010] - $235.00; SEPTEMBER 2010 - $235.00;

OCTOBER 2010 - $235.00; NOVEMBER 2010 - $235.00

RENT: AUGUST 2010 - $4,717.63; SEPTEMBER 2010 - $4,717.63; OCTOBER

2010 - $4,717.63; NOVEMBER 2010 - $4,717.63

MAINTENANCE FEES: AUGUST 2010 - $25; SEPTEMBER 2010 - $25;

OCTOBER 2010 - $25; NOVEMBER 2010 - $25.00

BOUNCED CHECK FEES: $60.00

TOTAL DUE: $20,470.52

Ali submits that Plaintiff "requires" (Ali Aff. at ¶ 12) a declaratory judgment determining its liability for rent pursuant to the Lease, given the alleged Damages resulting from the Leak. Plaintiff contends that it is entitled to a Yellowstone Injunction to stop the running of the cure [*4]period set forth in the Notice, to maintain the status quo pending that determination. Ali affirms that the Complaint seeks a declaratory judgment stating that the Defendant is in violation of the terms of the Lease, and refers the Court to the Complaint (Id. at ¶ 14). The Court notes, however, that the Complaint contains only demands for monetary damages and does not request a declaratory judgment. In further support of her request for injunctive relief, Ali affirms that Plaintiff has made a substantial investment in the Premises, and has owned and operated the Store since 1996.

In his Affidavit in Opposition, Julius G. Sargiss ("Sargiss") affirms as follows:

Sargiss is the President of Defendant Panrad Automotive Industries, Inc. ("Panrad"). Sargiss affirms that he has been "flexible, understanding and lenient with plaintiff for years regarding its chronic late payment of rent" (Sargiss Aff. at ¶ 3). Sargiss also notes that Plaintiff has named Sargiss personally in this action, even though Plaintiff has no claim against him personally.

Sargiss avers, further, that he has visited the Premises almost once every week prior to, and since, Plaintiff took possession of the Premises. On those visits, he inspected the Store and spoke with Ali, her spouse or employees who always advised him that there were no problems with the Store. Neither Ali nor anyone else associated with the Store ever advised Sargiss, or his representative, of the Leak. Moreover, Sargiss never noticed a Leak, or any damage, during his frequent visits to the Store. Sargiss notes that Plaintiff has failed to provide the Court with any evidence of the alleged Leak, Damage or loss of income.

As proof of Plaintiff's chronic lateness in its payment of rent, Sargiss provides several letters (Ex. B to Sargiss Aff.) served on Plaintiff regarding their arrears. Those letters include, but are not limited to, 1) a letter dated February 12, 2002 notifying Plaintiff of its arrears of $10,372.98 regarding rent due in November of 2001, 2) a letter dated August 4, 2009 notifying Plaintiff of its arrears of $13,800.63 regarding rent due in June, July and August of 2009, and

3) a letter dated July 7, 2010 notifying Plaintiff of its arrears of $14,110.47 regarding rent due in May, June and July of 2010, as well as outstanding maintenance charges of $25.00 per month.

On several occasions, Ali advised Sargiss' daughter that they were in debt and their business had suffered a downturn because of the economy. Sargiss, in consideration of Plaintiff's difficulties, made efforts to be flexible with Plaintiff regarding its payment of rent.

In his Affirmation in Opposition, counsel for Defendant notes that the Lease specifically provides that the Landlord is not responsible for damage caused by water leaks, and that if there is damage that the Landlord is required to address, Plaintiff is required to promptly notify Defendant, which Plaintiff failed to do in this matter. Specifically, paragraph 49 of the Rider provides as follows:

The parties agree that landlord shall not be responsible for damage due to leakage

or flow of water from any part of the building, or any part of pipes, plumbing or

otherwise.

In addition, pursuant to paragraph 5 of the Lease, "Tenant must give Landlord prompt notice of fire, accident, damage or dangerous or defective condition." Counsel for Defendant notes that Plaintiff has not alleged, or provided proof, that it provided Defendant with prompt notice of the alleged Damage, and provides no details regarding the alleged notice it claims it [*5]provided. Plaintiff also has provided no evidence of the alleged Leak, Damage or loss of business income. Moreover, Plaintiff claims that it provided notice of the Leak to Defendant in September 2010 and thereafter, yet contends that the Leak affected Plaintiff's ability to pay rent, inter alia, in August of 2010, a month prior to the alleged Leak.

In her Supplemental Affirmation in Support, counsel for Plaintiff, inter alia, 1) contends that the provisions in the Lease regarding the parties' responsibilities for damage to the Premises are unconscionable; 2) disputes Defendant's assertion that Plaintiff failed to provide notice of the Leak and provides a copy of a letter from Plaintiff to Sargiss dated September 22, 2010 (Ex. B to Supp. Aff. of Eshaghoff) that makes reference to damage to the roof and ceilings resulting from severe weather conditions, and Plaintiff's concerns regarding risk to customers from the water damage; 3) affirms that the rent for August of 2010 was fully paid prior to the commencement of this action; 4) disputes Sargiss' allegations that Plaintiff has always had problems paying rent, and provides letters from 2001 and 2009 (Ex. D to Supp. Aff. of Eshaghoff) in which Sargiss describes Plaintiff as "cooperative in all dealings;" 5) provides photographs (Ex. C to Supp. Aff. of Eshaghoff) purportedly reflecting the damaged Premises; and 6) disputes Defendants' claim that Plaintiff is unwilling to cure its default, and contends that Defendant's improper conduct, including its alleged over-charging of rent, has contributed to Plaintiff's inability to make certain rent payments.

In its Supplemental Affirmation in Opposition, Defendant submits that, as the Notice/Rent Demand required no action other than the payment of rent, no injunctive protection is warranted. Defendant also notes that Plaintiff's Supplemental Affirmation was signed by counsel, who does not have personal knowledge of the facts to which she attests. Thus, the Court has no statement by a party regarding the issues raised, including the alleged over-charging of rent and the violation of Plaintiff's exclusive right to sell certain products.

Defendant also submits that the issues raised by Plaintiff do not entitle Plaintiff to withhold rent. There is no dispute that Plaintiff has failed to pay rent in the past, as well as rent due in August through December of 2010, and January of 2011. Plaintiff's counsel has provided no competent proof in support of her claim that Plaintiff paid rent for August of 2010.

Finally, Ali's assertion that "[b]efore paying any such rentals to the Defendant, the Plaintiff requires a Declaratory Judgment pursuant to its civil action against the Defendant..." (Ali Aff. at ¶ 12) demonstrates that Plaintiff is unwilling to cure its default. Thus, Plaintiff is not entitled to a Yellowstone injunction.

B. The Parties' Positions

Plaintiff submits that it is entitled to a Yellowstone injunction because it has established that 1) the Lease is a Commercial lease; 2) the Plaintiff received the Notice, which "clearly threatens termination of the lease agreement" (Eshaghoff Aff. at ¶ 19(b)); 3) Plaintiff made the application for injunctive relief prior to the expiration of the cure period in the Notice; and

4) Plaintiff intends to cure the alleged default, which requires the payment of money, but first seeks a determination as to its rights in light of damages suffered from the Leak. Plaintiff also [*6]contends that it will suffer irreparable harm without the requested injunctive relief.[FN2]

Defendant submits that Plaintiff is not entitled to a Yellowstone injunction because it 1) did not timely move for injunctive relief; and 2) has not demonstrated either the willingness or ability to cure the rent demand as set forth in the Notice. With respect to Plaintiff's failure to demonstrate its willingness or ability to cure the rent demand, Defendant notes that 1) Ali concedes that it is in default of rent obligations, and does not contest the assessment of the late, legal or bounced check fees contained in the Notice; 2) Plaintiff does not represent that it is willing and able to satisfy the rental arrears; rather, Plaintiff resists making rental payments and, instead, asserts that it requires a declaratory judgment as to its rental obligations; 3) pursuant to applicable case law, and in the absence of any contrary provision in the Lease, Plaintiff's obligation to pay rent it not obviated or suspended by a claim for damage or an alleged breach of the lease by the landlord.

Defendant also submits that, if the Court grants the requested injunctive relief, the Court should require Plaintiff to post a bond of at least $26,000, plus ongoing rent as it becomes due.

RULING OF THE COURT

A. Yellowstone Injunction

The purpose of a Yellowstone injunctionis to allow a commercial tenant confronted by a threat of termination of a lease to obtain a stay tolling the running of the cure period so that, after a determination of the merits of any action arising under the lease, the tenant may cure the defect and avoid a forfeiture of the leasehold. First Natl. Stores v. Yellowstone Shopping Ctr., 21 NY2d 630 (1968); Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assocs., 93 NY2d 508 (1999); Hempstead Video, Inc. v. 363 Rockaway Assocs., LLP, 38 AD3d 838 (2d Dept. 2007); Long Is. Gynecological Servs. v. 1103 Stewart Ave. Assocs. Ltd. Partnership, 224 AD2d 591 (2d Dept. 1996). A tenant seeking Yellowstone relief must demonstrate that: (1) it holds a commercial lease; (2) it has received from the landlord a notice of default; (3) its application for a temporary restraining order was made prior to expiration of the cure period and termination of the lease; and (4) it has the desire and ability to cure the alleged default by any means short of vacating the premises. See Hempstead Video, Inc. v. 363 Rockaway Assocs., LLP, 38 AD3d at 839; Mayfair Super Mkts., Inc. v. Serota, 262 AD2d 461, 461-462 (2d Dept. 1999).

B. Obligation to Pay RentA tenant's duty to continue to pay rent is not suspended, even if the landlord breaches its obligations under the lease, unless there is an express provision in the lease declaring the circumstances under which the tenant may withhold his rent. Westchester County Indus. Dev. Agency v. Morris Indus. Bldrs., 278 AD2d 232, 232 (2d Dept. 2000), app. den., 96 NY2d 792 (2001). Particularly in a commercial context, where both parties are represented by counsel, the obligation of a commercial tenant to pay rent [*7]is not suspended if the tenant remains in possession of the leased premises, even if the landlord fails to provide essential services. Id., quoting Towers Org. v. Glockhurst Corp., 160 AD2d 597, 599 (1st Dept. 1990).

C. The Application of these Principles to the Instant Action

The Court concludes that Plaintiff is not entitled to a Yellowstone injunction in light of its failure to establish that it has the desire and ability to cure the alleged default by any means short of vacating the premises. Defendant has provided sworn allegations, as well as correspondence, reflecting Plaintiff's failure to pay rent in 2001, 2009 and 2010. While counsel for Plaintiff affirms that the August 2010 rent was paid, she does not provide documentary proof in support of this assertion, or a sworn statement by someone with personal knowledge of that payment. Regardless, Plaintiff's counsel has neither alleged nor provided a modicum of proof that monthly rent was paid at any time after August of 2010.

In addition, Plaintiff takes the position, in the instant application, that it is entitled to a declaratory judgment regarding its rent obligations prior to any further rent payment. Preliminarily, the Court notes that the Complaint does not seek a declaratory judgment, but rather seeks damages resulting from the Leak and other alleged issues regarding the Premises, notwithstanding the provision in the Lease stating that Defendant is not responsible for damage due to leakage or flow of water. Moreover, even assuming, arguendo, that Defendant breached its obligations under the lease, Plaintiff is not relieved of its obligations to pay rent. The Court concludes, under all the circumstances, that Plaintiff has not demonstrated a willingness to cure its default and, accordingly, denies Plaintiff's application.

All matters not decided herein are hereby denied.

This constitutes the decision and order of the Court.

ENTER

DATED: Mineola, NY

January 7, 2011

__________________________

Hon. Timothy S. Driscoll

J.S.C. Footnotes

Footnote 1: Although the caption of the Verified Complaint lists two separate defendants, it refers to them as "Defendant" in the singular, and Plaintiff also refers to "Defendant," not "Defendants" in its Order to Show Cause.

Footnote 2: The parties also address the timeliness of the instant application. The Court will assume the timeliness of the application, and address whether Plaintiff has satisfied the remaining criteria to warrant the granting of a Yellowstone injunction.