Gershwin Partners, Inc. v Hotel Lounge, Inc.

[*1] Gershwin Partners, Inc. v Hotel Lounge, Inc. 2005 NY Slip Op 50295(U) Decided on January 28, 2005 Civil Court, New York County Hagler, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 28, 2005
Civil Court, New York County

Gershwin Partners, Inc., Petitioner,

against

Hotel Lounge, Inc., and HAROLD KNECHT, Respondents.



L&T056296/04

Shlomo S. Hagler, J.

In this acrimonious commercial holdover proceeding, petitioner Gershwin Partners, Inc. ("petitioner" or "Gershwin") moves by order to show cause for an order as follows:

1)lifting the stay of the execution of the warrant of eviction issued pursuant to a so-ordered stipulation dictated on the record on October 26 and 27, 2004 ("Stipulation") due to respondents Hotel Lounge, Inc. and Harold Knecht's ("respondents" or "Hotel Lounge") alleged breaches of ¶ 11(C) & (H) thereof (See, Petitioner's Exhibit "1"); and

2)granting petitioner a money judgment against respondents in the sum of $234,000, plus $15,000 as stipulated attorneys' fees in making the instant motion to enforce the terms of the Stipulation.

Respondents oppose the motion and separately move by order to show cause for an order staying and extending respondents' deadline of November 27, 2004 to "demolish"the bathroom situated in the lobby of the Gershwin Hotel ("Hotel") pursuant to ¶ 29 of the Stipulation on the grounds that the term "demolish" is ambiguous and the Department of Buildings ("DOB") has revoked the permit for said work.

Petitioner opposes the respondents' motion and cross-moves for an order directing the court to "so-order" the Stipulation of Correction modifying the initial stipulation dictated on the record (See Exhibit "D" to the Cross-Motion).

Respondents only oppose the cross-motion to the extent that petitioner seeks an additional $30,000 payment to be made on or before February 1, 2005, instead of the alleged agreed upon date of August 1, 2008. Both parties consent to the other minor corrections of the Stipulation [*2]as specified in Exhibit "D" to the cross-motion. The motions and cross-motion are consolidated herein for disposition.

Significantly, neither party moved to vacate the Stipulation on the ground of mutual mistake. Indeed, both parties have sought affirmative relief and consented to this Court determining various ambiguities in the Stipulation and enforcing its terms. By their express actions, the parties have effectively ratified the terms of the Stipulation.

Issues

On the return date of the motions and cross-motion, this Court set this matter down for a hearing on December 24, 2004 to determine the following four issues:

1)Did the respondents breach ¶ 11(C) of the Stipulation by virtue of the alleged November 2, 2004 "trespass" on the 13th floor and roof area of the Hotel without petitioner's consent;

2)Did respondents breach ¶ 11(H) of the Stipulation by failing to submit "plans . . . for renovations in the kitchen no later than November 16, 2004";

3)What is the meaning of ¶ 29 of the Stipulation which obligates respondents to "demolish" the bathroom in the lobby of the Hotel; and

4)When is an additional $30,000 payment due that was inadvertently omitted at the time the Stipulation was dictated on the record.

Hearing

The hearing was conducted on December 22, 2004, January 11 and 12, 2005.

Witnesses

Petitioner called Michael Zenreich ("Zenreich"), a licensed architect, Gail Calemno ("Calemno"), general manager of the Hotel, Joel Oury ("Oury"), assistant general manager of the Hotel, Janusz Maziarz ("Maziarz"), chief engineer for the Hotel, and Susan Tremblay ("Tremblay"), shareholder, officer and director of the petitioner, as witnesses.

Respondents called Timothy Valenti ("Valenti"), general manager of the Hotel Lounge, Joel A. Miele, Jr. ("Miele"), a licensed professional engineer, and Michael Miceli ("Miceli"), treasurer of the Hotel Lounge, as witnesses.

Burden of Proof

Petitioner has the burden of proof based on the preponderance of the credible [*3]evidence on issues 1, 2 and 4; respondents have the burden of proof on issue 3.

Applicable Law

It is well settled law that stipulations of settlement are essentially contracts which must be construed in accordance with contract principles and the intent of the parties. Sharp v Stavisky, 221 AD2d 216, 633 NYS2d 488 (1st Dept 1995) lv dismissed 87 NYS2d 968 (1996); Davis v Sapa, 107 AD2d 1005, 484 NYS2d 568 (3d Dept 1985); Serna v Pergament Distributors, Inc., 182 AD2d 985, 582 NYS2d 550 (3d Dept 1992).

Contracts should be enforced in accordance with their own terms. When the terms of a contract are clear and unambiguous, they should be enforced according to their plain meaning without resort to extrinsic evidence. However, when the terms of a contract are ambiguous and incomplete, extrinsic evidence may be permitted. "If there is ambiguity in the terminology used, however, and determination of the intent of the parties depends on the credibility of extrinsic evidence . . . then such determination is to be made by the [trier of fact] . . ." Serna v Pergament Distributors, Inc., 182 AD2d at 986, 582 NYS2d at 552 (citations omitted). The issue of whether a written agreement or stipulation is ambiguous is a question of law to be resolved by the court. Sharp v Stavisky, 221 AD2d at 216, 633 NYS2d at 489.

Another well established principle is that the law abhors a forfeiture of a lease. See Mooney v. Bryne, 163 NY 86, 57 NE 163 (1900). The courts are reluctant to enforce a forfeiture of a leasehold interest and loss of substantial improvements under varying circumstances. For instance, the court stated in Fly Hi Music Corp. v 645 Restaurant Corp., 64 Misc2d 302, 304, 314 NYS2d 735, 737 (1970) affd 71 Misc2d 302, 335 NYS2d 822 (App Term, 1st Dept 1972), as follows:

The law abhors a forfeiture of a lease and where, as here, no substantial injury resulted to the landlord for the failure to comply strictly, the tenant should not be unduly penalized. A forfeiture of the lease herein particularly after the tenant's expenditure of $7,000 for improvements, would be unduly harsh, especially in light of the fact that the condition complained of was not hazardous.

Where the covenants of lease are substantially performed and no substantial injury results to landlord from the failure to comply strictly, the tenant should not be subject to the severity of a forfeiture (citations omitted).

See also Lake Anne Realty Corp. v. Sibley, 154 AD2d 349, 545 NYS2d 828 (2d Dept 1989).

Findings of Fact & Conclusions of Law

Trespass (Issue 1)

Paragraph 11(C) of the Stipulation restricts respondents' access as follows:

Respondents, employees, and agents [shall] not enter, be present, loiter, or trespass in the Gershwin Hotel; Respondents are to remain within the Premises, except for their need to access the [*4]mezzanine and basement office and storage area.

Petitioner claims that respondents breached ¶ 11(C) of the Stipulation by entering a guest elevator, exiting on the 13th floor and then entering the roof area of the Hotel without its consent.

It is uncontroverted that on November 8, 2004, Valenti sought Oury's consent to have respondents' contractor, Steven Cheung ("Cheung") of J & S Exhaust Systems, examine the Hotel's exhaust system in connection with the required installation of the exhaust system in the kitchen. Oury and Maziarz testified that Valenti only received permission to enter the second floor inside courtyard at the Hotel where the exhaust stack originates.

However, Valenti testified that he also sought and obtained permission to take Cheung to the 13th floor and roof area where the exhaust system ends. Valenti and Cheung were on the 13th floor and roof area for a few minutes. At the very worst, Valenti testified that there was a miscommunication or misunderstanding with Oury about obtaining his permission to view the latter area where the exhaust system ends. Valenti credibly testified that he neither intentionally nor knowingly circumvented ¶ 11(C) of the Stipulation. Indeed, Valenti sought in good faith to comply with this "notice" provision of the Stipulation.

Moreover, the adoption of petitioner's version of the facts would give rise to an ironic result in that respondents would supposedly ignore or allegedly breach ¶ 11(C) of the Stipulation in

order to comply with another substantive provision of the Stipulation (i.e., the installation of a legal kitchen exhaust system). This is factually implausible and unpersuasive. Respondents' testimony is more credible and persuasive.

Accordingly, this Court finds that respondents did not breach ¶ 11(C) of the Stipulation.

Kitchen Renovation Plans (Issue 2)

Paragraph 11(H) of the Stipulation provides that respondents must submit kitchen renovation plans to petitioner as follows:

. . . Plans shall be submitted by Respondents for renovations in the kitchen no later than November 16, 2004 that being 15 business days from the date herein. Thereafter the Petitioner shall have no longer than 10 business days to approve or reject the plans. The parties architects shall speak and attempt to resolve any and all differences in good faith. The construction is to promptly commence after approval by the Petitioner and is to be complete within 60 days of the approval.

Petitioner claims that respondents breached ¶ 11(H) of the Stipulation by failing to submit kitchen renovation plans by the deadline, November 16, 2004. In support thereof, Zenreich testified that the "as built" plans dated August, 2003 (Respondents' Exhibit "A") which respondents submitted to petitioner are not plans depicting the kitchen renovation as they only reflect the "as built" conditions mandated by ¶ 18 of the Stipulation.

However, Miele credibly testified that Respondents' Exhibit "A" constitutes both the [*5]"as built" and kitchen renovation plans. Miele averred that he revised the old plans and drafted Respondents' Exhibit "A" based on the discussions he had with Zenreich at their October 22, 2004 meeting. Miele offered his expert opinion that Respondents' Exhibit "A" is a viable kitchen renovation plan which he "signed and sealed" and is "ready to be submitted" for approval at the DOB. After Miele ultimately received Zenreich's outline of changes discussed in their October 22, 2004 meeting, Miele partially incorporated his suggestions in a revised plan (Respondents' Exhibit "E"). While Miele conceded that Zenreich had some viable and constructive changes to the plan which he partially disputes, the ultimate decision for approval of said plans lies with the DOB.

A review of Respondents' Exhibits "A" and "E" show various substantive changes articulated by Miele and Zenreich, but they are, for all intents and purposes, kitchen renovation plans and not merely "as built" plans. If petitioner had substantive objections to Respondents' Exhibit "A," the Stipulation provides a mechanism for petitioner to exercise its right to reject said plan.

Accordingly this Court finds that respondents have not breached ¶ 11(H) of the Stipulation. Of course, petitioner retains its right to reasonably reject the kitchen renovation plans as per the express terms of the Stipulation.

Meaning of "Demolish" Bathroom in the Hotel Lobby (Issue 3)

Paragraph 29 of the Stipulation provides that "[a]t its sole cost, respondents shall demolish the bathroom situated in the lobby of the Gershwin Hotel" by November 27, 2004 (emphasis added).

Respondents claim that the meaning of the term "demolish" is ambiguous and susceptible to varying interpretations. Initially, respondents argued that the term "demolish" only entails the removal of all the fixtures and lighting and capping of the plumbing lines in the bathroom. At the hearing, respondents conceded that they would also remove non-load bearing partitions and the existing suspended ceiling in the bathroom as indicated in Respondents' Exhibit "E." However, Miele testified that respondents could not demolish the non-load bearing partitions of the bathroom without the petitioner first removing the HVAC unit and the beams and/or framing attached to a light fixture above the bathroom.

It is uncontroverted that said light fixture is essentially an "artist's sculpture that is approximately 25 feet long made with a steel framework covered with clear fiberglass coating with lights on the inside. The lights extend through the outside of the building, the additional outside fixtures are each approximately ten feet in size, and are supported by an existing 6 x 6 metal I-beam structure in the vestibule." (See Reply Affidavit of Todd J. Sturm, sworn to on December 10, 2004, at ¶ 5, footnote 1).

On the other hand, Tremblay testified that it was parties' intention that the interior and exterior walls of the bathroom be demolished so as to remove it completely from Hotel lobby. She testified that petitioner did not want a bathroom in the lobby facing the front desk. Petitioner envisioned the use of only one bathroom in the lobby which was located in the space of the Hotel Lounge. As such, Tremblay concludes that demolishing the bathroom would entail removing and reconfiguring of the HVAC unit, light fixture and rerouting connecting electrical and plumbing lines, if any, that service the lower and upper floors of the Hotel.

This Court finds that respondents' interpretation of the Stipulation, as modified at the hearing, reflects the parties' understanding and meaning of the term "demolish" as embodied in ¶ 29 [*6]of the Stipulation. In other words, it is petitioner's responsibility to remove and reconfigure the HVAC unit, the artwork/light fixture attached to a framing and/or beam prior to respondents removing the exterior non-load bearing partitions and existing suspended ceiling. In addition, respondents must remove all fixtures in the interior of the bathroom including, but not limited to, the washbasin, commode and urinal as well as to cut and cap or reroute the water, waste and vent lines as indicated in Respondents' Exhibit "E." Respondents are not obligated to reroute the electrical and plumbing lines that service the HVAC unit and/or the lower and upper floors of the Hotel. All refinishing work is the exclusive responsibility of the petitioner. Respondents shall have thirty days from the date petitioner concludes the structural support work to demolish the bathroom in the lobby as described above and agreed to in ¶ 29 of the Stipulation on the express condition that petitioner cooperates fully and in good faith with respondents in obtaining any necessary documents for the work such as alteration applications and permits from the DOB.

Omitted Payment (Issue 4)

Both parties admit that one payment of $30,000 was inadvertently omitted from

¶ 11(A) of the Stipulation. However, the parties dispute the due date for this $30,000 payment. Petitioner claims the payment is due on February 1, 2005 and respondents claim it is due on August 1, 2008.

Tremblay testified that she was involved in settlement negotiations with respondents from May 1, 2004 through October, 2004. She averred that petitioner wished to receive as much money from respondents "up-front" because it was "money we already spent." Based thereon, she stated that petitioner expected the $30,000 payment to be due on February 1, 2005.

In support of this assertion, petitioner introduced two written draft stipulations of settlements dated in August and October, 2004 (Petitioner's Exhibits "10" & "11"). Initially, Tremblay asserted in her direct testimony that Petitioner's Exhibit "10" dated August, 2004 was the last written draft of the Stipulation. Later in cross-examination, Tremblay indicated she made a mistake and concluded that Petitioner's Exhibit "11" dated October, 2004 was the last written draft of the Stipulation

Petitioner's Exhibit "10" is very instructive as to the intent of the parties. In

¶ 11(a) thereof, the parties modified the typewritten schedule of payments in pertinent part, as follows:

I)$50,000 on execution of the Stipulation;

ii)$25,000 on or before December 31, 2004

iii)$30,000 on or before August 1, 2005;

iv)$30,000 on or before February 1, 2006;

v)$30,000 on or before August 1, 2006;

vi)$30,000 on or before February 1, 2007;

vii)$30,000 on or before August 1, 2007;

viii)$30,000 on or before February 1, 2008; and

ix)$30,000 on or before August 1, 2008.

Petitioner's Exhibit "11" also has a typewritten payment schedule with handwritten corrections as ¶ 11(a). The typewritten portion of ¶ 11(a)(iii) of Exhibit "11" provides for a payment [*7]of "$30,000 so as to be received on or before February 1, 2006." The number "6" in the year "2006" is crossed-out and in its place the number "5" is inserted by hand. The word "February" is also crossed-out and underneath the entire date, a new date of "August 1, 2005" is inserted by hand. Then, consecutive semi-annual payments are listed as due every February and August. The final payment due date of August 1, 2008 is crossed-out and a new date of February 1, 2008 is inserted by hand below it. See Petitioner's Exhibit "11" at ¶ 11(a)(iii) - (viii).

Miceli testified that he was also involved in settlement negotiations with petitioner for the same period that Tremblay described. Miceli credibly testified that the parties essentially agreed to the payment schedule set forth in ¶ 11(a) of Petitioner's Exhibit "10." Miceli averred that a total of $75,000 was to be paid by the end of 2004. Thereafter, semi-annual payments of $30,000 were due every August and February, commencing on August, 2005 and ending August, 2008. Miceli candidly testified that respondents would not have agreed to a $30,000 payment in February, 2005 because respondents would not have the "financial means to pay" and yet comply with its other pressing obligations to renovate the kitchen, install an exhaust system, demolish the bathroom and to erect a demising wall separating the Hotel Lounge from the Hotel lobby as set forth in the Stipulation.

Miceli's testimony was more persuasive and credible than Tremblay's testimony.

It also appears that Petitioner's Exhibit "10" and "11" support respondents' position that the initial semi-annual $30,000 payment was to commence on August 1, 2005, and not on February 1, 2005. Petitioner's Exhibit "10" explicitly provides for an August 1, 2005 commencement date and Petitioner's Exhibit "11" reinforces it by the handwritten modification of the February 1, 2005 date with an August 1, 2005 commencement date. While the last semi-annual payment of August 1, 2008 is crossed-out and February 1, 2008 is inserted by hand in Petitioner's Exhibit "11," this tracks the same error in the Stipulation that omitted the last $30,000 payment. However, Petitioner's Exhibit "10" is the only written draft of the Stipulation which contains the schedule of payments that actually totals the agreed sum of $285,000 due under the Stipulation. Thus, Petitioner's Exhibit "10" coupled with Petitioner's Exhibit "11" best embodies the intent and understanding of the parties with respect to the schedule of payments.

Accordingly, this Court finds that it was the intent of the parties for the omitted $30,000 payment to be due on August 1, 2008, and not on February 1, 2005.

Conclusion

Petitioner's initial order to show cause to lift the stay of execution of the warrant of eviction for various alleged breaches of the Stipulation is denied in its entirety. Respondents' motion to stay and extend respondents' deadline of November 27, 2004 to demolish the bathroom in the Hotel lobby is granted to the extent provided herein. Petitioner's cross-motion to correct and/or modify the Stipulation is granted except that ¶ 10 of the Stipulation of Correction dated November, 2004 shall read "$30,000 so as to be received on or before August 1, 2008," and not February 1, 2005.

The foregoing constitutes the decision and order of this Court. Courtesy copies of this decision and order have been mailed to counsel for the parties.

Dated:New York, New York /s/ Shlomo S. Hagler [*8]

January 28, 2005 Judge of the Civil Court