J.A.B. Madison Holdings LLC v Levy & Boonshoft, P.C.

[*1] J.A.B. Madison Holdings LLC v Levy & Boonshoft, P.C. 2009 NY Slip Op 50501(U) [22 Misc 3d 1138(A)] Decided on March 10, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 10, 2009
Supreme Court, New York County

J.A.B. Madison Holdings LLC, Plaintiff,

against

Levy & Boonshoft, P.C., Defendant.



102092/2008

Joan A. Madden, J.

In this action to enforce defendant's obligations under a lease agreement, plaintiff J.A.B. Madison Holdings, LLC ("the Landlord") moves for an order (i) granting summary judgment in its favor on its first cause of action against defendant Levy & Boonshoft, P.C. ("the Tenant") in the sum of $14,069.94, based upon certain fixed rent and additional rent owed for the month of February 2008, (ii) granting summary judgment in its favor on its second cause of action against the Tenant in the sum of $469.00, representing late charges due through July 1, 2008 on February 2008 rent and additional rent arrears, (iii) granting summary judgment in its favor on its third cause of action against the Tenant in the sum of $102,305.08, based upon unpaid rent and additional rent for the period from March 1, 2008, through and including July 1, 2008, and (iv) granting summary judgment as to liability on its claim for attorneys' fees and disbursements. Tenant opposes the motion or, in the alternative, requests that it be held in abeyance until further discovery has been completed. For the reasons set forth below, the motion is granted.

Background

The Landlord is the owner of the office building located at 477 Madison Avenue, New York, NY, ("the Building"). The Tenant entered into a written lease agreement (the "Original Lease") with the Landlord dated October 27, 1998, and a written First Amendment of Lease (the "Amendment") dated May 19, 2004, (herein collectively referred to as "the Lease"). The Lease was for a certain commercial office space on the 14th floor ("the Premises") of the Building. Pursuant to the Lease, the Tenant promised to pay to Landlord certain amounts for fixed rent and additional rent, as defined in the Lease, for a term beginning November 1, 1998, through and including December 31, 2009.[FN1]

On or about November 29, 2007, the Tenant vacated and surrendered the Premises, nearly two years before the expiration of the Lease. The Landlord signed a new lease for the Premises with Eagle Shipping ("Eagle"), a company that occupied the accompanying suite on the 14th floor in March 2008, although it appears from the record that Eagle's tenancy did not begin until after July 1, 2008. This action seeks to recover rent, additional rent, and late charges for the [*2]period after the Tenant vacated the Premises, and before Eagle's tenancy began to the extent such amounts were not covered by the security deposit.

Pursuant to subparagraph 3(b) of the Amendment, Tenant's fixed rent obligation is $17,325.42 per month during the period commencing on July 1, 2007 and ending on December 31, 2009. Paragraphs 43 of the Original Lease and subparagraphs 3(c) and (d) of the Amendment state that Tenant is also obligated to pay additional rent, based on increases in operating expenses. Paragraphs 38 of the Original Lease and subparagraph 3(e) of the Amendment, state that Defendant is also obligated to pay electric rent in the sum of $1,208.75. Pursuant to paragraph 50(e) of the Original Lease, Tenant had a security deposit of $43,700, of which, at the time of vacating the Premises, $42,607.50 remained. Landlord drew down on the security deposit to cover rent and additional rent for December 2007 and January 2008 and the balance of $4,551.84 was used to pay part of rent for February 2008.

On February 5, 2008, the Landlord commenced this action to recover unpaid rent and additional rent not covered by the security deposit, and late charges, as well as attorneys' fees, pursuant to paragraph 19 of the Original Lease, which entitles the Landlord to seek reimbursement for legal fees incurred based on Tenant's defaults on its obligations under the Lease.[FN2]

The Tenant interposed an answer generally denying the allegations in the complaint and asserting four affirmative defenses based on allegations that Tenant had an informal agreement with Eagle to take over the Premises after it left, and that the Landlord facilitated and permitted Tenant to vacate the Premises and negotiated a lease with Eagle for a higher rent amount. The affirmative defenses allege that the Landlord' s claims are barred by the doctrine of unclean hands, that the Landlord should be equitably estopped from recovering under the Lease, that the Landlord breached its obligation of good faith and fair dealing, and that the complaint fails to state a cause of action.

The Landlord now moves for summary judgment for the amounts of base rent and additional rent, and as to liability on its claim for attorneys' fees and expenses. In support of the motion, the Landlord submits the affidavit of Grace Bellino, an employee of its managing agent, a copy of the Original Lease and Amendment and records from the managing agent supporting its calculation of the amounts due to and owing, including late charges. [*3]

The Tenant opposes the motion or, alternatively, argues that the motion be held in abeyance until such time that discovery can be effectively completed. In support of its opposition, Tenant submits an affidavit from one of its shareholders, David Levy ("Levy"), who states that before the Tenant vacated the Premises, the Tenant had been in "extensive discussions" with Eagle and that by October 2007, Eagle's management had already "informally agreed" to take over the Premises, with only minimal changes made to the physical layout of the suite, and at a higher rate of rent than what the Tenant was paying.

Levy further states that some time in the beginning of November 2007, notice was given to Landlord's representatives of Eagle's desire to acquire the Premises, and that the Landlord did nothing to secure the new arrangements with Eagle. Although Levy acknowledges that Landlord is not required to mitigate its damages by reletting the Premises, "the fact that it does so cannot be ignored," and that the result of the Tenant vacating the Premises ultimately led to the Landlord entering into a more favorable deal with its new tenant, Eagle.

The Tenant contends that the above described events amount to a surrender of the Lease by operation of law, thereby terminating the Lease and its obligations thereunder. In other words, the Tenant asserts that since Tenant notified the Landlord of its intention to close operations of its law firm in September 2007, gave the Landlord notice of its intention to vacate in the beginning of November 2007, and advised the Landlord of Eagle's desire to acquire the premises, a surrender occurred.

In reply, the Landlord denies that there was a surrender of the lease by operation of law and asserts that even assuming that the Tenant advised the Landlord of Eagles's interest in leasing the Premises, and that the lease with Eagle was on more favorable terms than that with the Tenant, these facts do not give rise to a viable defense.

Although given an opportunity at oral argument to submit an affidavit or other evidence that Eagle had entered into an arrangement with the Landlord to lease prior to its being vacated, the Tenant failed to do so.

Discussion

On a motion for summary judgment, the proponent "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case " Winegrad v. New York Univ. Med. Center, 64 NY2d 851, 852 (1985). Once the proponent has made this showing, the burden of proof shifts to the party opposing the motion to produce evidentiary proof in admissible form to establish that material issues of fact exist which require a trial. Alvarez v. Prospect Hospital 68 NY2d 320, 324 (1986).

Here, the Landlord has set forth sufficient evidence to demonstrate that there was a binding Lease Agreement between the parties, that the Tenant breached the Lease by vacating the Premises and that rent and additional rent are due for the amounts not covered by the security deposit, as well as reasonable attorneys' fees and expenses, and that the Tenant has not paid these amounts.

The burden thus shifts to the Tenant to assert a defense to the enforcement of the terms of the Lease which is sufficient to raise a triable issue of fact. The Tenant has not met this burden as the defenses asserted in the answer and in opposition to the motion are unavailing. Under New York law, landlords have no duty to mitigate damages after commercial tenants vacate by [*4]re-letting the subject property. See Holy Properties Ltd., L.P. v. Kenneth Cole Productions, Inc., 87 NY2d 130,133 (1995)(holding that "[o]nce the lease is executed, the lessee's obligation to pay rent is fixed according to its terms and a landlord is under no obligation or duty to the tenant to relet, or attempt to relet abandoned premises in order to minimize damages."). Thus, the Landlord was under no obligation to mitigate any damages it incurred as a result of the Tenant vacating the Premises, by re-letting the Premises to Eagle or any other Tenant.

However, the Tenant argues that the negotiations with Eagle, the circumstances surrounding its vacating of the Premises and Eagle's acquiring the Premises on lease terms more favorable to the Landlord than the lease with the Tenant, demonstrate that there was a surrender of the Lease by operation of law, thereby releasing Tenant of its duties under the Lease. Unlike an express surrender, "a surrender by operation of law is inferred from the conduct of the parties," from which it can be inferred that there was a mutual understanding that the lease would end prior to the expiration of the lease term. Riverside Research Institute v. KMGA, Inc., 68 NY2d 689 (1986).

Here, Tenant provides no evidence to support its contention that the Landlord and it had a mutual understanding that the Landlord would excuse the Tenant from its obligation to pay rent and additional rent until the end of its lease term. Moreover, the Tenant's informal negotiations with Eagle prior to its vacating the Premises regarding leasing the Premises are insufficient to raise a factual issues regarding any such understanding.

Likewise, even assuming that the lease with Eagle was favorable to the Landlord, there can be no surrender by operation of law in the absence of any evidence of conduct by the Landlord evincing an intent to terminate its lease with the Tenant so that it could lease the Premises to Eagle. See Forty Four Eighteen Joint Venture v. Rare Medium, Inc., 18 AD3d 237 (1st Dept 2005)(rejecting Tenant's claim that the landlord accepted surrender of the lease when such claim was unsupported by evidence that the landlord acted in a manner inconsistent with the landlord-tenant relationship); compare Deer Hills Hardware, Inc. v. Conklin Realty Corp., 292 AD2d 565 (2d Dept 2002)(surrender occurred by operation of law where the tenant abandoned the premises during the lease term and the landlord's conduct indicated an intent to terminate the lease and use the property for his own benefit) .

In sum, as the record is devoid of any evidence suggesting that the Tenant's vacating of the Premises was anything other than a unilateral decision by the Tenant, there is no basis for any viable defense based on a surrender by operation of law.

Next, the Tenant's position that more discovery be permitted by the court under CPLR 3212 (f) is unpersuasive as the Tenant has not identified "an essential fact which is presently unavailable" to it. Global Minerals and Metals Corp. v. Holme, 35 AD3d 93 (1st Dep't 2006). As indicated above, evidence regarding the terms of the lease with Eagle are irrelevant since, under New York law, the Landlord is not required to mitigate its damages. Moreover, although after oral argument, the court gave the Tenant an opportunity to submit an affidavit or other evidence that Eagle had entered into an arrangement with the Landlord to lease the Premise before the Tenant vacated it to support its theory that a surrender occurred, the Tenant failed to do so.

With respect to the claim for attorneys' fees, as Landlord acknowledges, summary judgment is warranted as to liability only, since a hearing is required regarding the reasonable [*5]value of the services rendered. Matter of First National Bank of East Islip v. Brower, 42 NY2d 471 (1977); Community Natl. Bank & Trust Co. v. I.M.F. Trading, Inc., 167 AD2d 193 (1st Dept. 1990).

Conclusion

In view of the above, it is

ORDERED that the motion for summary judgment on the first cause of action is granted, and the Clerk of the Court is directed to enter a judgment in favor of plaintiff J.A.B. Madison Holdings, LLC and against defendant Levy & Boonshoft, P.C. in the sum of $14,069.94 with interest to be calculated by the Clerk from February 1, 2008; and it is further

ORDERED that the motion for summary judgment on the second cause of action is granted, and the Clerk of the Court is directed to enter a judgment in favor of plaintiff J.A.B. Madison Holdings, LLC and against defendant Levy & Boonshoft, P.C. in the sum of $469.00 with interest from July 1, 2008 as calculated by the Clerk; and it is further

ORDERED that the motion for summary judgment on the third cause of action is granted, and the Clerk of the Court is directed to enter a judgment in favor of plaintiff J.A.B. Madison Holdings, LLC and against defendant Levy & Boonshoft, P.C. in the sum of $102,305.08 with interest from July 1, 2008 as calculated by the Clerk; and it is further

ORDERED that summary judgment is granted as to liability only on the fourth cause of action for attorneys' fees and costs; and it is further

ORDERED that the issue of the amount of attorneys' fees and costs is referred to a Special Referee to hear and report with recommendations; and it is further

ORDERED that when the parties appear at the hearing before the Special Referee, counsel for the Landlord shall provide copies of its specific billing and time records, together with a summary and breakdown of the categories of legal services provided, and the hours attributed to each category of services, and counsel shall arrange for the requisition of the Court files so that they are available at the hearing for the Referee's inspection and evaluation of written work performed; and it is further

ORDERED that the Referee's report and recommendations shall include specific findings identifying counsel's hourly rate and a breakdown of the nature and category of the legal services performed, and the hours attributed to each category; and it is further

ORDERED that counsel for the Landlord shall, on or before April 3, 2009 serve a copy of this order with notice of entry, together with a completed Information Sheet [FN3] upon the Special Referee Clerk in the Motion Support Office in Rm. 119 at 60 Centre Street, who is directed to place this matter on the calendar of the Special Referee's Part (part 50R) for the earliest convenient date; and it is further

ORDERED that failure to timely comply with the immediate preceding paragraph will result in the dismissal of the fourth cause of action.

A copy of this decision and order is being mailed by my chambers to counsel for the parties.______________________

J.S.C. [*6]

Dated March 10, 2009 Footnotes

Footnote 1:The term of the Original Lease ended on December 1, 2004, but was extended for five years pursuant to the Amendment

Footnote 2:Paragraph 19 provides, in relevant part, that:

If [Landlord] in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonably attorneys' fees, in instituting, prosecuting or defending any action or proceeding, and prevails in any such action or proceeding than Tenant will reimburse [Landlord] for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant' s default shall be deemed to be additional rent hereunder and shall be paid by Tenant [Landlord] within ten (10) days of rendition of any bill or statement to Tenant therefor. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by [Landlord], as damages.

Footnote 3:Copies are available in Rm. 119 at 60 Centre Street, and on the Court's website.