Forrester v American Package Co., Inc.

[*1] Forrester v American Package Co., Inc. 2006 NY Slip Op 51079(U) [12 Misc 3d 1166(A)] Decided on June 6, 2006 Supreme Court, Kings County Lewis, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 6, 2006
Supreme Court, Kings County

Sophie Forrester et ano., Plaintiffs,

against

American Package Company, Inc., Defendant.



11143/05

Yvonne Lewis, J.

Plaintiffs Sophie Forrester & Sarah Won move, by order to show cause, for an order 1) granting them a Yellowstone injunction staying and enjoining defendant from terminating plaintiffs' tenancies in their respective units at 226 Franklin Street in Brooklyn or taking any action to recover possession of the subject units, and allowing plaintiffs a reasonable opportunity to cure any alleged defaults and 2) consolidation of this action with an action entitled American Package Company, Inc. v Kocik (Index No. 29825/02)(the "Kocik action").[FN1] Defendant American Package Company, Inc. (APC) cross-moves for an order, pursuant to 3211 and/or 3212, dismissing the complaint, pursuant to RPL § 601, ejecting plaintiffs from the premises and awarding APC a judgment of possession, and awarding APC attorneys' fees in connection with this proceeding. By separate order to show cause, APC moves for an order, pursuant to RPL § 220, RPAPL § 749(3) and the report of Hon. Dominic J. Lodato, J.H.O., in the Kocik action, directing that plaintiffs must pay rent due as of the date of commencement of this action, plus use and occupancy pendente lite through the date of plaintiffs' surrender of the premises.

Plaintiffs commenced this action seeking, inter alia, a declaratory judgment that their units are entitled to the protections of the Rent Stabilization Law and Code and that APC may not recover any rent from plaintiffs as there is no residential certificate of occupancy for the subject building. Plaintiffs allege that they entered into leases for their respective units as commercial tenants even though they responded to an advertisement for "residential space." Thereafter, with the alleged knowledge and consent of APC's principal, Martin [*2]Kofman, plaintiffs installed residential fixtures, including plumbing and electrical installations. According to plaintiffs, the building, located in the Greenpoint section of Brooklyn, presently contains at least 30 residential units, with the occupants of some now involved in similar litigation concerning their rent regulated status, including the defendants in the Kocik action and the action entitled Caldwell v American Package Company, Inc. (Index No. 24241/05), both of which are presently before the court on similar applications being heard together with the instant matter. Following the expiration of the leases, APC sent each plaintiff a "notice to cure" alleging various defaults of plaintiffs of the commercial lease terms, including the unauthorized use of the spaces as residences.

As an initial matter, plaintiffs' motion for a Yellowstone injunction is denied. The purpose of a Yellowstone injunction is to permit a tenant confronted with the threat of the termination of a lease to obtain a stay, tolling the cure period, so that, after the action has been resolved on its merits, the tenant may cure the defect and avoid the loss the leasehold (Kings Party Ctr. v Minco Rlty., 286 AD2d 373 [2001]). In order to obtain a Yellowstone injunction, the tenant must hold a commercial lease and must have received from the landlord a notice of default, a notice to cure or a threat of termination of the lease. The application for a temporary restraining order must be made prior to the termination of the lease and the tenant must establish its willingness and ability to cure the alleged default by means other than vacating the premises (Purdue Pharma, LP v Ardsley Partners, 5 AD3d 654 [2004]; Long Island Gynecological Servs. v 1103 Stewart Ave. Assocs., 224 AD2d 591 [1996]). Since plaintiffs' lease expired prior to the time of the instant motion, a Yellowstone injunction is unavailable.

It is not in dispute that plaintiffs entered into commercial leases for loft spaces in a building with a commercial certificate of occupancy and that they use the spaces as residences. Recently, the Court of Appeals issued a decision in Wolinsky v Kee Yip Realty Corp. (2 NY3d 487 [2004]) which involved the residential conversion of commercial spaces in a building zoned for manufacturing and the issue of whether the occupants of those spaces were afforded the protection of either the Loft Law or the Emergency Tenant Protection Act (EPTA), a statutory expansion of the Rent Stabilization Law. After finding that the tenants' residential occupancies of the commercially leased units were not within the purview of the Loft Law, since the residential occupancies did not exist during the "window period" of April 1, 1980 to December 1, 1981, the Wolinsky court determined that the tenants were not entitled to protection under the broad language and scope of the EPTA. The Wolinsky court stated: "Reading the ETPA and Loft Law together, we agree with the courts below that tenants' illegal conversions do not fall under the ambit of the ETPA. As reflected in the legislative history and intent of the Loft Law, the fixed eligibility period was designed to address the public safety and municipal zoning emergency caused by the expansion of illegal conversions at that time. The statute was not intended to foster future illegal conversions or undermine legitimate municipal zoning prerogatives. If the prior-enacted ETPA already protected illegal residential conversions of manufacturing space, significant portions of the [*3]Loft Law would have been unnecessary. Thus, although such illegal conversions are not expressly exempted from ETPA coverage, it is evident that the Legislature did not view the ETPA as safeguarding the interests of the loft pioneers'" (Wolinsky, 2 NY3d at 493 [citations omitted]). Some courts have interpreted the Wolinsky decision to stand for the proposition that commercial spaces used residentially which were not covered by the Loft Law may still be entitled to coverage under rent stabilization, so long as the premises are capable of being legalized (480-496 Broadway, LLC v No Mystery Sound, Inc., NYLJ, Feb. 16, 2006, at 19, col 3; First Flatiron LLC v Irizarry, NYLJ, Mar. 30, 2005, at 23, col 1). However, in Gloveman Realty Corp. v Jefferys (18 AD3d 812 [2005]), the Appellate Division, Second Department, citing Wolinsky, held that the Supreme Court erred in determining that illegal conversions of loft space were entitled to the protections of the ETPA. While not explicitly addressed by the Appellate Division, the subject building in Gloveman was not prohibited by the zoning law from residential use. Very recently, the Appellate Term, Second Department, citing both Wolinsky and Gloveman, determined that illegal loft conversions not subject to the Loft Law which occurred in a building which was capable of and in the process of being legalized were not subject to the ETPA (Corastor Holding Co. v Mastny, 2006 WL 623092 [2006]). Until the Appellate Division vacates its order or the order is reversed on appeal, this court is constrained by Gloveman to hold that the illegally converted spaces in this matter, which undisputedly are not covered by the Loft Law, are not entitled to rent stabilization protection even where residential use of the spaces may become legalized (see generally DaSilva v Musso, 76 NY2d 436, 440 [1990]["It is elementary that a final judgment or order represents a valid and conclusive adjudication of the parties' substantive rights, unless and until it is overturned on appeal. Furthermore, while an appeal from a final judgment or order may leave an inchoate shadow on the rights defined therein, those rights are nonetheless fully enforceable in the absence of a judicially issued stay pending disposition of the appeal"]). Accordingly, plaintiffs' first, third, fourth and sixth causes of action seeking rights under the Rent Stabilization Law and Code are dismissed.

Turning to plaintiffs' fifth cause of action seeking damages under General Business Law § 349, plaintiffs allege that APC was deceptive in permitting plaintiffs to reside in their units despite the fact that the building had no residential certificate of occupancy and in renting the units with the intent of having plaintiffs reside therein. However, as stated by the Court of Appeals in New York University v Continental Insurance Company (87 NY2d 308 [1995]): "[P]arties claiming the benefit of [GBL § 349] must, at the threshold, charge conduct that is consumer oriented. The conduct need not be repetitive or recurring but defendant's acts or practices must have a broad impact on consumers at large; [p]rivate contract disputes unique to the parties ... would not fall within the ambit of the statute.' If a plaintiff meets this threshold, its prima facie case may then be established by proving thatdefendant is engaging in an act or practice that is deceptive in a material way and that plaintiff has been injured by it" (New York Univ, 87 NY2d at 320 [internal citations omitted]). Here, plaintiffs have not established that the alleged deceptive acts by APC were [*4]"consumer oriented" or have a "broad impact on consumers at large." Further, even if plaintiffs were deceived into believing that the units were legal for residential use, there is no assertion that APC represented to plaintiffs that they would be able to reside in the units beyond their subject lease terms. As plaintiffs have achieved the full benefit of their leases, which are now expired, plaintiffs cannot argue that the alleged deception caused them injury. At any rate, while plaintiffs may have been attracted to the property with the impression that the spaces were available for residential use, they nonetheless executed commercial loft leases specifying that the units were to be used solely for the manufacture of art objects and not for any use which would violate the certificate of occupancy.

As a result, plaintiffs' fifth cause of action for damages under General Business Law § 349 is dismissed.

Plaintiffs' second cause of action seeks a declaration that since their residential occupancy is in violation of the buildings' certificate of occupancy, APC is not entitled to collect rent so long as the violation persists. Pursuant to Multiple Dwelling Law §§301, 302 and 325, no rent or use and occupancy may be collected where an owner has failed to obtain a proper certificate of occupancy or multiple dwelling registration (Jalinos v Ramkalup, 255 AD2d 293, 294 [1998]; 99 Commercial Street, Inc. v Llewellyn, 240 AD2d 481, 483 [1997]; 468-470 Ninth Ave. Corp. v Randall, 199 AD2d 13 [1993]; Hornfeld v Gaare, 130 AD2d 398, 400 [1987]). However, there have been courts which permitted a landlord as a matter of equity to collect rent or use and occupancy absent a conforming certificate of occupancy upon landlord's proof of substantial conformity to building code standards and conditioning such payments on landlord's actual procurement of the requisite certificate (Zane v Kellner, 240 AD2d 208, 209 [1997]; Lipkis v Pikus, 99 Misc 2d 518, 521 [1979] affd 72 AD2d 697 [1979] appeal dismissed 51 NY2d 874 [1980]). In the Kocik action, this court referred the issue of whether use and occupancy may be collected by APC to a referee to hear and report.[FN2] Following the hearing, at which testimony was offered by Mr. Kocik and Mr. Kofman, and at which the affidavit of Mr. Kocik's architect was introduced as evidence, the referee found that APC was entitled to use and occupancy. The referee stated: "Defendants knew or should have known under the terms of its lease, together with the surrounding conditions known to them, that their occupancy could be found to be illegal. They were in possession for a period of five years, paid rent fully knowledgeable of the existing realities. The plaintiff is in the process to legalize the conversion and obtain a valid certificate of occupancy. Defendant should not be permitted to occupy the premises and not be responsible for payment of it." An examination of the evidence presented at the Kocik hearing as well as relevant case law leads this court to conclude that APC is not precluded from recovering use and occupancy, despite the non-conforming certificate of occupancy. This court takes particular note of the affidavit of Mr. Kocik's architect which supports a finding that the [*5]building as a whole, and plaintiffs' units in particular, substantially conform to building code standards. As such, plaintiffs' second cause of action for a declaratory judgment that APC is not entitled to use and occupancy is dismissed.

Accordingly, APC's cross-motion for summary judgment dismissing the complaint in its entirety is granted. In light of this disposition, that branch of plaintiffs' motion for consolidation is rendered moot.

As plaintiffs are occupying the unit without a lease and there is no question that they are not entitled to protections under rent stabilization or the Loft Law, APC's motion for a judgment of possession is granted. However, in consideration of equity, that part of APC's cross motion for an award of attorneys' fees is denied. As stated above, this court finds, based on the report of the referee, that APC is

entitled to use and occupancy through the date of plaintiffs' surrender of the unit. Accordingly, this court directs that each plaintiff pay APC on the first of each month

following the date of this decision use and occupancy equal to the monthly amount charged for the final year of each lease through the date of plaintiffs' surrender of the premises.

Settle order.

E N T E R,

___________________________

J. S. C. Footnotes

Footnote 1:In their moving papers, plaintiffs mistakenly identify this action as "American Package Company, Inc. v Kocik, Inc., Index No. 24874/03." However, said index number identifies another action entitled American Package Company, Inc. v Gavin Anderson and Anton Vojacek which was consolidated with the Kocik action. It is presumed that plaintiffs seek consolidation with the Kocik action.

Footnote 2: A motion to confirm the referee's report has been made by APC in the Kocik action which is being considered with the motions herein.