Superior Rest. NYC, L.P. v 316 Bowery Realty Corp.

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Superior Rest. NYC, L.P. v 316 Bowery Realty Corp. 2012 NY Slip Op 30905(U) April 2, 2012 Supreme Court, New York County Docket Number: 100922/12 Judge: Joan M. Kenney Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. NNED ON41912012 [* 1] SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY n PART MOTION DATE - v MOTION SEQ. NO. The following papers, ndnbered 1 to 1 were read on this motion to/for PAPERS Nyn(ll3ERED Notice of Motion/ Order to Show Cause Answering Affidavits Replying Affidavits - - Affidavits - Exhibits ... Exhibits - - Cross-Motion: Yes n No Upon the foregoing papers, I is ordered that this motion t CISION. APR 09 2012 NkW YORK COUNTY CLERK'S OFFICE Dated: Check one: F I N A L DISPOSITION Check if appropriate: n NON-FINAL DISPOSITION rj DO NOT POST c1 SUBMIT ORDER/ JUDG. 1 ' -7 1 REFER ENC E r SETTLE ORDER/ JUDG. 1 [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORE: PART: 8 _ _ _ _ _ _ _ _ _ _ l _ _ - - - - l _ - - - - - - - - - - - - _ - - - - - -x - Index # SUPERIOR RESTAURANT NYC, L . P . , 100922/12 Plaintiff, -against- DECISION & ORDER 316 BOWERY REALTY CORP., Kenney, J., M., J. Roseriberg 6, Es t,i 5 , 1'. C. Counsel f 01- DcifcndaIit 7 3 3 'Third Avenue N c w Yor-k, New York 1001'1 (212) 8 6 7 - G O 0 0 P a p e r s considered in review of this motion: Papers FILED Numb e red : i U I ~ C ! ~'I'n . sliuw miise, ALfii-rnation, N L i d a v i t , b:xiiihi,t..q, Ai f irrnat.i on, A f f; i d i i v i t in Opposi tion, Memorilnduiii 01' l,<iw arid E x h i b i ts 1-9 APR 09 2012 10-22 Hcply Affirmation NEW YUHK 23 CLEWS O F p In this l a n d l o r d tenant action, plaintiff, Superior Restaurari Iric. ( t h e tenant) , moves for a Yellowstone injunction FACTUAL On November commercial lease & P R O C E D U M L HISTORY 15, 2007, t h e parties executed a five year (the l e a s e ) f o r a restaurant and bar in t h e premises located at 316 B o w e r y and 2 , 4 , and 6 , Bleecker S t r e e t , N e w York, N e w York ( t h e premises). On or about January 3 , 2012, during t h e pendency of a summary non-payment proceeding entitled, 316 B o w e r y R e a l t y C a r p . v S u p e r i o r Restaurant NYC, L.P . , L&T Index # 81388/11 (the non-payment [* 3] proceeding) , defendant, 316 Eowery Realty Corp. (the landlord) served S u p e r i o r Hestaurant NYC, L.P. (the t e n a n t ) , with a E ive Day Notice of Security Deposit Draw and Demand to Replenish Security Deposit. T h i s notice stated that the landlord had drawn down the tcnant s $105,000.00 security deposit and credited the amount toward the tenant s alleged outstanding rent arrearaqeu. landlord a l s o demanded The that the tenant replenish the security deposit within the same five day p e r i o d . On January 13, 2012, the landlord served a 15 day Notice to Cure relative to t h e tenant s alleged failure to r e p l e n i s h t h e security deposit. The 15 day notice also stated that in the event the tenant: did not c u r e the alleged default, the lease would be The parties do not dispute that the l e a s e terms that t h e landlord can, and may, utilize the tenant s terminated. provide security deposit to defer any rent, or additional rent a r r e a r s , that may accrue during t h e term of the lease. Furthermore, the parties do not contest that the security deposit was not^ held in an interest bearing bank a c c o u n t in accordance with the terms of the lease. The tenant has appeared in the non-payment proceeding, and has pled several affirmative defenses. In particular, the tenant challenges the landlord s alleged entitlement to be paid twice f o r the same rent arrears, which include attorneys fees that have n o t been accounted for with proper supporting documentation. T h i s C o u r t will only address the specific r e l i e f sought by the movant in t h i s action, not whether the allegations made by the parties in the non-payment proceeding have merit. -2- [* 4] DISCUSSION The treatment of money given as a security deposit; in connection with the use or rental of real p r o p e r t y is governed by GOL §7-103. GOL §7-103 (a) provides, in unambiguous language, as follows: money shall be deposited or advanced on a contract or license agreement f o r the use or r e n t a l of real property as security f o r performance of t h e contract or agreement or to be applied to payments upon such contract or agreement when due, such money . . . shall be held in trust by t h e person with w h o m such deposit or advance shall be made and shall n o t be mingled w i t h the personal moneys or become an asset of the person receiving the same . . . . Whenever GOL S7-103 (2) provides, in relevant p a r t : Whenever t h e person receiving money s o deposited or advanced shall deposit such money in a banking organization, such person shall thereupon notify in writing each of the persons making such security d e p o s i t or advance, giving t h e name and address of the banking o r g a n i z a t i o n in which the deposit of security money is made, and the amount of s u c h deposit. Where a landlord has deposited a security deposit in a bank and fails to comply with the notice provision of GOL c o u r t may draw t h e § 7 - -103(2),a rebuttable inference that the landlord has mingled that s e c u r i t y deposit with the landlord's own money, in violation of GOL 5 7-103(1), Patelrno v Carroll, 7 5 AD3d 6 2 5 (2"" Dept 2010); Dan K l o r e s Assoc. v Abramoff, 2 8 8 AD2d 121 (l''L Dept 2001). The landlord's papers are silent as to where or how t h e -3- [* 5] security deposit was h e l d , or that the security deposit ever made its way into an interest bearing bank account. Such commingling constitutes a conversion, as well as a breach of fiduciary d u t y (LeRoy v S a y e r s , 217 AD2d 63 [lst Dept 1 9 9 5 1 ) , and regardless of any noncompliance by the tenant with the terms of the l e a s e , it entitles the tenant to an immediate return of the d e p o s i t - . Id. ; accord Tappan G o l f Dr. Range, Inc. v Tappan P r o p . , Inc., 68 AD3d 440 (1" Dept 2009). In the event of such commingling, the landlord may not use any portion of the deposit, even f o r othcrwise legitimate purposes, e . g . arrears allegedly due and owing. The reason f o r this is that GOL transformed § to extinguish rent Id.; Dan K l o r e s Assoc, s u p r a . 703-1 and its predecessor statute landlord-tenant the I relationship with regard to security deposits from a creditor-debtor relationship to one in which the landlord is the trustee of t h e deposit. A tenant seeking the return of a deposit may not "be subject to setoffs or counterclaims asserted against him in a different capacity." Matter of P e r f e c t i o n Tech. S e r v s . Press [Cherno-Dalecar R e a l t y Co.rp.1, 22 AD2d 352, 356 ( 2 n d Dept 1965). For t h e reasons set forth above it is clear that t h e landlord has "drawn down" the tenant's security deposit in violation of the General Obligations L a w . F i r s t Nat. Stores, I n c . v. Yellowstone Shopping C t r . , I I I C . ,21 NY2d 6 3 0 (19G8), and its progeny established a four prong t e s t for determining whether a "Yellowstone" injunction should be g r a n t e d . -4- [* 6] The requirements for obtaining Yellowstone relief a r e as follows: (1) plaintiff holds a commercial lease, (2) the landlord has served (3) the r e f e r e n c e d c u r e p e r i o d has n o t expired,' a notice to c u r e , and ( 4 ) p l a i n t i f f has to demonstrate an ability and willingness to \\cure.'' ERS E n t e r p r i s e s , I n c . v E m p i r e Holdings, LLC, 286 Acl2d 206 (1"' Uept 2001) ; Purdue Pharma LP v A r - d s l e y P a r t n e r s , LP, 5 AD3d 654 (2d Dept 2004) A Yellowstone injunction maintains the status quo s o t h a t a commercial t e n a n t , when confronted by a threat of termination of jks a l e a s e , may protect its investment in the leasehold by o b t a i n i n g stay tolling the cure period so that upon an adverse d e t e r m i n a t i o n on the merits the tenant may cure the default and avoid a forfeiture of the lease (Post v 220 E. End Av. C o r p . , 62 NY 2d 19, 26 [1988]). Additionally, the v e r y nature of this kind of injunction is designed to "forestall the cancellation of a lease to afford the tenant an opportunity to o b t a i n a judicial determination of its b r e a c h , the measures necessary to c u r e it, and those required to b r i n g the tenant in future compliance with the terms of the lease" ( s e e , Waldbaum, I n c . v. F i f t h A v e . of Long Is. Realty A s s o c s . , 85 NY2d 6 0 0 , 6 0 6 [1995]) . Furthermore, "[t]he purpose of a notice to c u r e is to specifically apprise the tenant of claimed defaults in its obligations u n d e r the lease and of the forfeiture 'The parties do not dispute that the instant application is timely. -5- [* 7] and termination of the lease if the claimed default is not c u r e d within a set period of time 542 Holding COI-p. v. Prince F a s h i o n s , I n c . , 4 6 AD3d 309 (1 Dept 2 0 0 7 ) . Thus, the tenant has made a prima f a c i e showing of entitlement to injunctive relief as a matter of law, and the landlord has supplied no evidence sufficient to defear the g r a n t i n g of this m o t i o n . All arguments or contentions not specifically addressed h e r e i n have been considered and determined to be unpersuasive. Consequently, the motion is granted. Accordingly, it is OKDERED that plaintiff s time to c u r e u n d e r the Notice to Cure dated January 13, 2012 is hereby tolled; and it is further ORDERED that defendant is directed to segregate and re-credit plaintiff s security deposit ( $ 1 0 5 , 0 0 0 . 0 0 ) in an interest b e a r i n g bank account forthwith; and i + is further t ORDERED that within thirLy days of service of notice of e n t r y of t h i s O r d e r , defendant is to identify the bank and account number for- the re-deposited security deposit to t h e tenant. FILED Dated: April 2 , 2012 E N T E R : kion . ~ o a n pi. K e r i r i e y -6-

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