2626 Bway, LLC v Broadway Metro Assocs., L.P.

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2626 Bway, LLC v Broadway Metro Assocs., L.P. 2010 NY Slip Op 34014(U) June 21, 2010 Supreme Court, New York County Docket Number: 105635/10 Judge: Eileen Bransten Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] SUPRElvIE COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 3 ---------------------~------------------------------------....·-------X 2626 f!>WAY, LLC, Plaintiff, Index.No.: 105635/10 Decision After Hearing · -againstBROADWAY METRO ASSOCIATES, L.P ., Defendant. --------------------------------------------------------------------){ PRESENT: EILEEN BRANSTEN, J. The parties, 2626 BWAYLLC ("Tenant" and/or "2626") and BROADWAYivJETRO ASSOCIATES, L.P. ("Landlord" and/or "BROADWAY") appeared for a hearing on a Yellowstone Injunction on June 10, 11, 14 and 15, 2010. At the conclusion of plaintiff's case, and after hearing argument from both sides, the Court denied plaintiff's motion for a Yellowstone Injunction. Plaintiff's motion for a Yellowstone Injunction was brought before this Court, and the Orderto Show Cause signed, onApril29, 2010. Plaintiff asked the Court to: (1) enjoin and restrain the defendant BROADWAY from tenninating the commercial lease (the "Lease") .entered into by the parties for the premises located at2624-2626 Broadway (the "Premises"); (2) enjoin and restrain the defendant, BROADWAY, from ejecting and/or ousting 2626 from the Premises; and (3) extending the time for 2626 to cure any default under the Lease as 00/ [* 2] 2626 BWAY LLC v. BROADWAY METRO ASSOCIATES, L.P. Index No.: 105635/10 page2 alleged in the Notices of Default until such time as this Court determined that such a default had occurred and granting 2626 sufficient opportunity to cure the default by tolling the May 3, 2010 expiration date of the three (3) notices of default sent to the 2626,s counsel on or about March 18, 2010. On April 29, 2010, the Court granted plaintiff's request for Temporary Restraining Order until BROADWAY had an opportunity to oppose 2626's request for a Yellowstone Injunction and the plaintiff could reply to defendant's opposing papers. The parties were ordered to appear on June 10, 2010, for a hearing on 2626's request for a Yellowstone Injunction. Pursuant to the Court's direction, BROADWAY submitted its opposition on May 27, 2010. Broadway also cross-moved for an order directing 2626 to pay use and occupancy, deposit all rent that had accrued to date into an escrow account and to post a bond/or an undertaking in the amount of a minimum of $1 million. 2626 opposed BROADWAY's cross motion. Applicable Standards for a Yellowstone Injunction A Yellowstone Injunction is different from the usual request for a Temporary Restraining Order (TRO) or for a Permanent Injunction. [* 3] 2626BWAYLLC v. BROADWAYivIBTRO ASSOCIATES, L.P. Index No.: 105635/10 page3 The New York Court of Appeals, in First National Stores, Inc. v. Yellowstone Shopping Center, Inc., (21 NY2d 630 [1968]), reversed the Appellate.Division to the extent that the Second Department gave the tenant additional time to cure after the lease had terminated due to the tenant's failure to cure a default caused by citation issued by the New York City Fire Department. The Court of Appeals stated that where a tenant had effectively surrendered its commercial lease prior to seeking redress in the court, the courts were powerless to remedy the situation. As a result ofthe Court ofAppeals' decision and subsequent case law, it is now black letter law that the Court will grant a tenant a Yellowstone injunction ifthe tenant can establish by the preponderance of the credible evidence that the tenant: 1. Holds a valid commercial lease; 2. Received notice of default, notice ~o cure or a concrete threat of the termination of the lease from the landlord; 3. Sought injunctive relief from the New York State Supreme Court before the termination of the lease; and 4. Has the desire and ability to cure the alleged default in any manner short of vacating the premises (225 East 361h Street Garage Corp. v. 221East361h Street Owners Corp. 211A.D.2d420, 421 (1 51 Dept. 1995] [internal citations omitted]). The First Department also stated that the standard that courts should apply in determining a Yellowstone injunction is "far less than the [* 4] . 2626BWAYLLC Index No.: 105635/10 v. BROADWAY Iv.IETRO ASSOCIATES, L.P. page4 showing normally required for obtaining preliminary injunctive relief (id [internal citations omitted]). Indeed, in 225 East 3611' Street Garage Corp., the court determined that when the tenant "contended" that it had made efforts and cured some of the purported breaches, and that the tenant was "continuing to take various steps to remedy the alleged defaults,'' that these actions "satisfie[d] the requirement that the plaintiffs have the desire and ability to cure" (id. at 422). ' Finally, the 225 East 36'1 Street Garage Corp. court concluded that: Since a Yellowstone injunction's primary purpose is to maintain the status quo and as the law does not favor forfeiture of the leasehold (internal citations omitted) the relief [the Yellowstone injunction] should be granted (id.). Elements of a Yellowst011e Injunction in this Case The parties agree that 2626 holds a valid commercial lease and that the lease was in full force and effect at the time the request for a Yellowstone injunction was filed. The parties also agree that 2626 had filed three Notices of Default. The first Notice of Default, dated March 18, 2010, claimed that the Tenant was in violation of Article 13 of the Lease in that: [* 5] 2626BWAYLLC v. BROADWAY IvlETRO ASSOCIATES, L.P. Index No.: 105635/10 pages Tenant failed for more than thirty (30) days after Tenant received Landlord's Notice dated January 7, 2010 ... to comply with and perform its obligations under Article 13 of the Lease. . . (namely) in that you must provide and maintain in full force and effect insurance, as more specifically required by Article 13 of the Lease, with insurers approved by the Landlord and provide the Landlord with a copy of the original insurance policies or other appropriate evidence of the existence. of all policies or renewal policies bearing notations evidencing the payment of premiums .... The Thirty Day Notice of Default was to end on May 3, 2010. (Plaintiff's Order to Show Cause ["OSC"] of April 29, 2010, Souto Aff., Ex. A). The second Notice of Default, also dated March 18, 2010, claimed the Tenant was in default of Article 9 of the Lease in that: [the tenant failed] to comply with and perform Tenant's obligations as set forth in Article 9 of the Lease and as directed to do so in the attached January 7, 2010 Notice by promptly and diligently curing and removing ECB Violation Number: 34784275Z issue date- 7/14/2009, and ECB Violation Number 34741559K issue date - 9/1/2009 from the Building's record, and/or pay the fines or fees imposed thereby, and provide and file a certificate of correction as required by the governmental authority having jurisdiction over said violations and their cure and to provide Landlord with written proofthat Tenant has done so ... The Thirty Day Notice of Default was to end on May 3, 2010. (Plaintiff's OSC of.April 29, 2010, Souto Aff., Ex. B). [* 6] 2626 BWAY LLC v. BROADWAY METRO ASSOCIATES, L.P. Index No.: 105635/I 0 page6 The parties conceded that the third Notice of Default sent by Landlord for 2626's failure to provide Landlord access to the premises was cured when the Tenant provided access to the Landlord and his representatives. The Evidence The Court heard from four witnesses: three for the plaintiffand one for the defendant. The main witness for the plaintiff was the JOHN SOUTO who testified that he was 2626's · "managing partner ... the manager member" of2626 (Tr. 16:10-11). The other witnesses for the plaintiff were HASHEM K.HASAWNEH, a structural engineer called as an expert on behalf of 2626, and JAMES J. TOOlvlEY, JR., a managing counsel for the Travelers Insurance Company. BROADWAY called one witness, out ofturn, STEVEN LOWMAN, a building inspector for Deparbnent of Buildings. The parties presented the evidence as follows: On September 1, 2006, 2626 and BROADWAY entered into a commercial lease for a period of 48 years, from September 1, 2006 to August 31, 2054, for a two story building that had previously been used as a movie theater (the "Premises"). The Premises consisted of a basement, an orchestra floor and a mezzanine. Outside of the Premises was a marquee or, as it was sometimes described, a canopy, which stretched the width of the sidewalk and [* 7] 2626 BWAYLLC v. BROADWAY:METRO ASSOCIATES, L.P. Index No.: I 05635/l 0 page7 around 40 feet in length parallel to the outside wall of the building. It was the condition of this marquee which was the subject matter of the two ECB violations which the Landlord notified to the tenant as his Second Notice of Default and later, after the Yellowstone motion . was made, a third ECB violation, dated May 4, 2010, calling for a structural engineer to report on the integrity of the marquee. The Court heard extensive testimony and had the opportunity of considering the numerous pieces of evidence submitted by both the Tenant and the Landlord concerning the ECB violations placed upon the marquee, including the testimony of a structural engineer. The totality of the testimony and the evidence submitted by the Plaintiffwould certainly have caused the court, on a motion for a directed verdict at the end of the Plaintiff's case, to reserve its decision on a Yellowstone injunction until after hearing the Landlord's witnesses and seeing the evidence to be submitted on behalf of the defendant. However, other issues presented obviated the need for the Court to do so. Tlie 111s11ra11ce lss11e The Landlord moved for a 30 day Notice of Default on the Tenant's failure to abide by the requirements of Article 13 of the Lease, specifically the Tenant's failure to obtain an insurance policy for the Premises acceptable to the Landlord. The issue of insurance is a matter of contention in this and related cases. [* 8] 2626 BWAYLLC v. BROADWAY :METRO ASSOCIATES, L.P. Index No.: 105635/10 page 8 In a prior case brought by the same parties before this Court under Index No. 600035/09, 2626 moved for a Yellowstone Injunction. In that case, there was testimony that in September, 2009, the Tenant notified Landlord that it intended to purchase an insurance policy from the Lloyd's of London. The Landlord refused to accept the draft form of the policy because Lloyd's of London stated in the draft language of the policy that Lloyd's of London was not licensed by the State of New York, that it would not be subject to the rules and regulations of the New York State Department of Insurance and that it would not participate in the New York State Department of Insurance Insolvency Fund (Hearing Transcript of Jan. 12, 2009, at 9: 11-17). As a result ofthe Landlord's objections to the Lloyd's ofLondon proposed policy, the Tenant brought a motion to obtain a Yellowstone Injunction. The Court refused to grant the injunction because: it is ordered that this OSC for a Yellowstone injunction is denied for the reasons stated at a hearing on the record on this date (David Teich SCR) namely that plaintiff has not procured insurance which is satisfactory to the Landlord. While the name "Lloyd's of London" is venerable, it is not in conformity with the Insurance Laws of the State of New York, namely it is not a member of the NYS Insurance Insolvency Fund. This is the 2nd attempt by the Plaintiff for a Yellowstone Injunction. The first was withdrawn w/o prejudice. This constitutes the decision and order of the court. The Court signed the order on January 12, 2009. The Court's decision was not appealed. [* 9] 2626BWAYLLC v. BROADWAY Iv.IBTRO ASSOCIATES, L.P. Index No.: 105635/10 page9 Throughout this hearing, there were again questions concerning the Tenant's insurance coverage of the Premises. Mr. Souto stated, in response to the Court's question, that he had insurance on the premises (Hearing Transcript of June 10, 2010 ["June 10, 2010 Tr."], at SO: 12). A few lines later, the following testimony was adduced: The Court: When did you procure the policy? Mr. Tendler (Mr. Souto's attorney) Do you understand the question? The Court: You asked him the question, 'Did you procure a policy?' and he answered .. 'Yes, I did.' And I asked, 'when did you procure such a policy?' The Witness (Mr. Souto): The actual policy? I don't understand the question? The Court: You are the one that answered, 'I procured a policy.' The Witness: Several months ago, about two months ago. And I believe I just got a copy of the policy a couple of - about a day ago or a couple of minutes ago (June 10, 2010 Tr. at 50:21-51:10). During the course of the testimony by JA1v1ES J. TOOlvIEY, JR., managing counsel for the Travelers Insurance Company, the plaintiff introduced into evidence certified copies [* 10] 2626 BWAY LLC v. BROADWAY :METRO ASSOCIATES, L.P. Index No.: 105635/10 page 10 ofthe insurance policies covering the Premises. The policies ran from April l, 2010, to April 1, 2011. Even providing 2626 the benefit of the Travelers' policies~ the Tenant never • submitted these policies to the Landlord prior to the Tenant's reception of the policy documents on or around June 10, 2010. On his redirect, Mr. Souto established that during the early years ofhis tenancy he had numerous insurance policies to which the Landlord did not object. It was only after 2626's Senaca Insurance policy expired in or about September 2009, that the Landlord, upon being informed of the draft policy from Lloyd's of London, objected to the Tenant's policy. After the Court denied the Tenant's Yellowstone injunction application on January 12, 2009, and found that the Lloyd's ofLondon policy did not satisfy the insurance requirements, Mr. Souto testified that he had not sought to purchase any further insurance because, Mr. Souto claimed, the Landlord had told him that the Landlord had purchased insurance on 2626's behalf: (By Mr Tendler, Mr. Souto's attorney on redirect) Q. Mr. Souto, did you ever have a conversation with Mr. Bialek (the Landlord's representative) regarding the insurance for the building? A. Yes. Q. When did you have this conversation? A. In February or March1of2009. [* 11] 2626 BWAYLLC v. BROADWAY IvIETRO ASSOCIATES, L.P. Q. Index No.: 105635/10 page 11 What did he say to you and what did you say to him? (Objection overruled) The Court: Did he have a conversation? A. Yes. Q. Where did you have this conversation? A. I believe we were having lunch on 55th and Third. I forget the name of the place. Q. Who was present? A. Just him and I. Q. What did he say to you, what did you say to him, regarding the insurance? A. I said that my insurance with Lloyd's of London was still in effect and he said that he sent me a notice of termination on the lease and that he had gotten insurance and why was I paying for insurance lf he had already got it with the money from the security account? (Objection) The Court He said that he got insurance? A. He said that he had already gotten insurance and I told him that I had a Lloyd,s of London policy still in effect. He said he sent me a notice [* 12] 2626 BWAY LLC v. BROADWAY 1v.IETRO AS SOCIATES, L.P. Index No.: 105635/10 page 12 of termination and he had gotten insurance with money from the security account. Q. (By Mr. Tendler) You said he had gotten insurance. A. Yes. Q. What type of insurance? Did he state for whom the insurance was for? A. He said it was for the building at 2626 Broadway. Q. Not for what, but for whom? A. No. I don't believe he said from whom. Q. . . . What did he state specifically with regard to the security account? A. He said he took the money out of the security account to pay for the insurance. Q.. What did you do as a result of this conversation regarding your insurance? (Objection withdrawn) A.· I left the Lloyd's of London in effect. I had already paid for it and I asked Mr. Bialek to send a copy of the insurance policy over which he never sent me. [* 13] 2626BWAYLLC v. BROADWAY METRO ASSOCIATES, L.P. Q. Did the Lloyd's ofLondon policy expire? A. Index No.: 105635/10 page 13 I think in June or July of2009. (June 14, 2010 Tr. 541:16 .. 543:25) 2626 introduced no documentary proof as to the validity or existence of this conversation. The Tenant never followed up this conversation with an e-mail, a letter or a fax. Apart from Mr. Souto's totally unsubstantiated statements there is nothing to verify the allegations made. Further, the Tenant, should the Tenant have desired, could have called Mr. Bialek, who was present in court during the hearing, to the witness stand for the purpose of corroborating his statements concerning insurance. The Court must therefore discount Mr. Souto's statements. Yellowstone Injunctions and the Failure to Procure Insurance At the end of the Tenant's case, the Landlord made a motion for a directed verdict based on the issue of the Tenant's failure to maintain insurance pursuant to Article 13 of the Lease. Article 13 of the Lease reads, in pertinent part: 13.1: Tenant, at all times during the Lease Tenn and at Tenant's expense, shall provide and maintain in full force and effect with insurers approved by the Landlord: (a) insurance with respect to the Improvements against loss or damage by fire, lightning etc. [* 14] 2626BWAYLLC v. BROADWAY lvIBTRO ASSOCIATES, L.P. Index No.: 105635/10 page 14 . . included under "all risk,, policies, in an amount equal to at least 100% of the full replacement value of the improvements. . . (b) public liability and property damage insurance protecting the Landlord against any and all liability occasioned by negligence, occurrence, accident or disaster in or about the Demised Premises or any" part thereof . . . or adjoining sidewalks, curbs. . . Or any appurtenances thereto . . . in the amounts in the case ofpublic liability $1,000,000 per person and $2,000,000 per occurrence, and in addition an umbrella liability policy in an amount of no less than $5,000,000 and in the case of property damage, $1,000,000 ... The Tenant's failure to procure and maintain insurance in conformity with Article 13 of the Lease is fatal in an application for a Yellowstone injunction where the Landlord has notice the default for the Tenant's failure to secure insurance pursuant to the Commercial Lease provision. The First Department, in affirming the trial court's (Justice Michael Stallman's) decision to deny a tenant a Yellowstone injunction, stated: The motion court found, after a hearing, that plaintiffs had not previously and continuously maintained insurance coverage as required by their commercial lease. This violation was a material breach of the lease (internal citations omitted) and, in these circumstances, an incurable violation that is an independent basis for the denial of Yellowstone relief. (internal citations omitted). Plaintiffs' attempt to demonstrate their ability and readiness to cure the alleged violation by procuring, during the cure period, insurance coverage prospectively for the remaining 10 months of their lease term is unavailing, as s11cl1 policy does 11ot protect defe11da11t agai11st tl1e unknown tmiverse of any claims arisi11g dnri11g tl1e period of 110 i11s11ra11ce coverage. (Kyung Sik Kim v ldylwood, N.Y., LLC, 66 AD3d 528, 529 [P' Dept 2009] [emphasis added]). [* 15] 2626 BWAYLLC v. BROADWAY lMETRO ASSOCIATES, L.P. Index No.: 105635/10 page 15 In this case, Mr. Souto himselftestified that he was without insurance for a substantial periods of time. The Court finds that Mr. Souto admitted that h~ had no insurance prior to April 10, 2010 (see Transcript ofJune 15, 2010 at 602: 14-19). The Court must therefore find that the Tenant's failure to insure the Pr~mises as required by the Lease is a material violation thereof (Kyung Sik Kim, 66 AD3d at 529). The Court thus denies the Tenant's motion for a Yellowstone injunction. Use a11d Occ11pa11cy Upon good cause shown, the Court grants the Plaintiff remuneration of $48,250 per month for the Tenant, s use and occupancy ofthe Premises. This sum is equal to the rent that would be paid by the Tenant as per the tenns of the Lease, and, but for the payment due for June 2010, is to be paid as per the terms of the Lease, for the time period beginning in June 2010 and throughout the pendency of this action, including any time accruing during any appeal of any Order of this Court. Conclusion Accordingly, it is ORDERED that Defendant Broadway Metro Associates, L.P. 's motion for a Yellowstone injunction is denied; and it is further . .. . [* 16] Index No.: 105635/10 page 16 2626BWAYLLC v. BROADWAY METRO A~SOCIATES, L.P. ORDERED that Defendant is required to pay for use and occupancy of 2626 Broadway, at a rate of $48,250 per month (the "Rent"), for the time period beginning in June 2010 and lasting throughout the pendency of this action, payable as per the terms of the Lease between Plaintiff and Defendant; and it is further ORDERED that Defendant is required to pay to Plaintiff June's Rent by June 25, 2010. This constitutes the decision and order of the court. Dated: New York, New York JuneL\, 2010 ENTER: G . C? ~ ~\.e.- '\Is\~ Hon. Eileen Bransten, J.S.C.

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