245 Owner LLC v Mills

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245 Owner LLC v Mills 2018 NY Slip Op 30345(U) February 23, 2018 Supreme Court, New York County Docket Number: 154050/17 Judge: Robert R. Reed Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 1] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 43 ----------------------------------------X Index No. 154050117 245 OWNER LLC, Plaintiff, - against LAWREN CE MILLS, Defendant. ----------------------------------------X ROBERT REED, J.: Defendant Lawrence Mills moves, pursuant to CPLR 3211 (a) (5) and (a) (7), for an order dismissing the complaint. Background Plaintiff 245 Owner LLC seeks: (1) to recover legal fees, costs, and expenses from defendant pursuant to a lease agreement between it, as landlord, and defendant, as tenant; and (2) to recover fair market use and occupancy from defendant from December 1, 2014 through October 29, 2015. The complaint alleges as follows: Plaintiff owns the building located at 245 West 25th Street, New York, New York, which it purchased on December 20, 2012 (complaint,~ 8). Defendant took possession of apartment 5D (Apartment) pursuant to a lease agreement dated November 10, 2010 (Lease), between defendant and plaintiffs predecessor (id.,~ 9). The Lease commenced on December 1, 2010 for a one-year term, which defendant had the option to renew for a second, third, and fourth year (id., ~ 11 ). After defendant exercised his final option to extend the Lease, the expiration date of the Lease was November 30, 2014 (Expiration Date) (id.,~ 12). 1 2 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 2] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 On or about August 28, 2013, defendant filed a fair market rent appeal (FMRA) with the Division of Housing and Community Renewal (DHCR) claiming that the Apartment was rent stabilized (id., ~ 16). Defendant remained in possession of the Apartment after the Expiration Date, allegedly without plaintiffs permission, in breach of paragraph 30 of the Lease (id., ~ 18). Shortly after the Expiration Date, plaintiff commenced a summary holdover proceeding (Holdover Proceeding) in Civil Court, New York County on December 5, 2014, to regain possession of the Apartment (id., ~ 19). In the Holdover Proceeding, defendant asserted four counterclaims in his answer, all premised on the assertion that the Apartment was rent stabilized. He sought an order: (1) declaring that the Apartment is rent stabilized; (2) directing a refund of an alleged overcharge; and (3) awarding attorney's fees (id.,~ 23). Defendant moved for an order staying the Holdover Proceeding pending DHCR's determination in the FMRA (id.,~ 26). By order dated March 25, 2015, the Civil Court stayed the proceeding pending a determination in the FMRA on the condition that defendant pay $2,600 per month without prejudice to plaintiffs claim for fair market use and occupancy (id.,~ 27). The court held that DHCR should decide the issue of whether the Apartment was rent stabilized, because it had the requisite expertise on the subject (id., ~ 28). Thereafter, the parties continued to litigate the FMRA while defendant remained in the Apartment, allegedly, without plaintiffs permission (id.,~ 30). On September 10, 2015, DHCR issued an order (Initial Order) finding that the Apartment is not rent stabilized (id., ~ 31 ). On October 29, 2015 (Vacate Date), almost one year after the Expiration Date, defendant voluntarily vacated and surrendered legal possession of the Apartment (id., ~ 32). Nevertheless, defendant continued to pursue the FMRA by a Petition for Administrative Review (PAR) (id., 2 3 of 13 ~ [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 3] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 33). The PAR was denied when DHCR issued an order dated October 12, 2016, wherein DHCR upheld its prior determination that the Apartment is not rent stabilized, and confirmed the termination of the FMRA (id., ,-r 34). In the Holdover Proceeding, the Civil Court directed plaintiff to pursue the recovery of its claims for attorney's fees and fair market use and occupancy against defendant in a separate plenary action (id., ,-i 36). This action ensued. The complaint contains one cause of action alleging that defendant breached paragraph 30 of the Lease by holding over in the Apartment following the Expiration Date. Plaintiff claims entitlement to fair market use and occupancy for the Apartment from December 1, 2014 until the Vacate Date. The complaint alleges further that the fair market use and occupancy for the Apartment from December 1, 2014 until the Vacate Date was $6,600 per month. Defendant paid monthly use and occupancy to plaintiff in the amount of $2,600 during that time period. Plaintiff calculates nine months of unpaid fair market use and occupancy totaling $36,000, plus interest from December 1, 2014. Plaintiff also seeks a contractual award of attorney's fees as the prevailing party in the DHCR administrative review, the Holdover Proceeding in Civil Court, and this action. Plaintiff alleges that as of the date of the motion, it has incurred legal fees, costs, and expenses in an amount exceeding $250,000. In support of his motion to dismiss the complaint, defendant argues that: (1) the doctrine of collateral estoppel bars plaintiff's claim for additional use and occupancy; (2) the complaint fails to state a claim for recovery of attorney's fees or other costs allegedly associated with any of the litigation related to the Apartment because: (a) pursuant to the express terms of the Lease, plaintiff may only recover attorney's fees and other costs under a narrow set of specific 3 4 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 4] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 circumstances; (b) any of plaintiffs expenses allegedly incurred in opposing defendant's application for rent stabilization status are outside the scope of the reimbursement clause; and (c) plaintiff has no right to recover expenses associated with the Holdover Proceeding. In opposition, plaintiff argues that the Appellate Division, First Department has already held, in another action, that the exact same lease provision contained in the Lease between plaintiff and defendant entitles the prevailing party to recover its costs and expenses, including attorney's fees, for any reason, including a breach of the Lease. Plaintiff also argues that defendant's reliance on collateral estoppel is based on a misreading of the Civil Court's order in the Holdover Proceeding, and it never had an opportunity to fully and fairly litigate the issue of fair market use and occupancy. Determination The motion to dismiss the complaint is granted to the extent of dismissing the claim for attorney's fees. Discussion Collateral Estoppel The doctrine of collateral estoppel "precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same" (Ryan v New York Tel. Co., 62 NY2d 494, 500 [ 1984]). Collateral estoppel applies when "( 1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was actually litigated and decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits" (Conason v Megan Holding, LLC, 25 NY3d 1, 17 [ 2015] [internal quotation marks and citation omitted], rearg denied 25 NY3d 1193 [2015]). 4 5 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 5] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 "'(C)ollateral estoppel, a flexible doctrine, should not be mechanically applied just because some of its formal prerequisites, like identity of parties, identity of issues, a final and valid prior judgment and a full and fair opportunity to litigate the prior determination, may be present"' (Jeffreys v Gr(ffin, 1NY3d34, 41 [2003], quoting People v Roselle, 84 NY2d 350, 357 [1994]). "[T]he burden rests upon the proponent of collateral estoppel to demonstrate the identicality and decisiveness of the issue, while the burden rests upon the opponent to establish the absence of a full and fair opportunity to litigate the issue in [the] prior action or proceeding" (Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 349 [1999] [internal quotation marks and citation omitted]). Defendant has not met his burden. First, defendant has not shown that the issue of the amount of the fair market use and occupancy for the Apartment from December 1, 2014 until the Vacate Date was "actually litigated and decided" (Conason, 25 NY3d at 17). Several times during the Holdover Proceeding, plaintiff and defendant entered into stipulations setting forth that defendant would pay use and occupancy at the rate set forth in the Expired Lease ($2,600 per month) during the course of the proceeding, in all cases without prejudice to all parties. On December 23, 2014, the parties stipulated that defendant will pay the amount required by the Lease "w/o prejudice" (see exhibit C to affirmation of Steven D. Greenblatt, Esq. [Greenblatt affirmation]). On July 15, 2015, the parties again stipulated that defendant would pay $2,600 "without prejudice" (see exhibit N to affirmation of Jeremy B. Honig, Esq. [Honig affirmation]). 5 6 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 6] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 Defendant asserts that when, in January 2015, he moved for a stay of the Holdover Proceeding pending DHCR's determination, plaintiff was required to directly address the use and occupancy issue in the context of making a showing to the court that the requested stay would not prejudice plaintiff. However, the statement by plaintiff that it would not suffer prejudice by the stay is not, as defendant contends, an admission that $2,600 represented fair market rent for the Apartment. Rather, it shows a willingness to maintain the status quo of the tenancy during the continuance of the DCHR review of the rent stabilization claim. "The award of use and occupancy during the pendency of an action or proceeding accommodates the competing interests of the parties in affording necessary and fair protection to both and preserves the status quo until a final judgment is rendered" (MME Assoc. v Dayan, 169 AD2d 422, 422 [1st Dept 1991] [internal quotation marks and citation omitted]). By stipulating "without prejudice," plaintiff reserved the right to renew the demand for fair market use and occupancy in an amount above the $2,600 to which the parties stipulated (see Matter of Paine Webber, Inc. v Estate of Ladd, 214 AD2d 461, 461 [1st Dept 1995] [because petitioner withdrew its submission "without prejudice," and it restored the parties to the status quo, respondent was free to make a second demand for arbitration]). Second, defendant has not shown on this record that plaintiff was afforded a "full and fair opportunity to litigate the issue" (Parker v Blauvelt Volunteer Fire Co., 93 NY2d at 349). To establish the issue of identity, the issue must have been "actually litigated" (D 'Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 666 [1990]). For "a question to have been actually litigated so as to satisfy the identity requirement ... it must have been properly raised by the pleadings or otherwise placed in issue and actually determined in the prior proceeding" (Matter 6 7 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 7] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 of Halyalkar v Board of Regents ofState ofNY, 72 NY2d 261, 268 [ 1988]). The record shows only that the issue was addressed in the context of the issuance of a stay, as discussed above. In support, defendant cites the statement by Civil Court, in its "decision/order" dated February 3, 2015 granting the stay of the Holdover Proceeding. In it, the court stated that plaintiff "concedes that [defendant] is paying current use and occupancy at the monthly market rate in the lease between the parties" and plaintiff "shows no substantial prejudice as a result of a stay herein" (exhibit H to Honig affirmation). Here, the record reflects that the statement by the court was only in the context of whether to grant a stay of the Holdover Proceeding. "The equitable doctrine of collateral estoppel is grounded in the facts and realities of a particular litigation, rather than rigid rules" (Buechel v Bain, 97 NY2d 295, 303 [2001], cert denied 535 US 1096 (2002]). The court did not render a determination on the merits. As for the court's statement in its February 3, 2015 decision/order, that plaintiff "concedes that (defendant] is current in paying the full market rent," that is not a determination of the fair market use and occupancy issue; the court also stated that defendant "is to continue to pay to [plaintiff] the full market rent in the last lease between the parties by the 5th of each month" (exhibit H to Honig affirmation). Hence, "full market rent" refers to the amount set forth in the expired Lease. There is no evidence that the court ever actually addressed or disposed of the issue on the merits. Attorney's Fees Plaintiff seeks a contractual award of attorney's fees as the prevailing party based on certain provisions in the Lease. The three leading decisions pertaining to this issue all involve 7 8 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 8] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 identical or almost identical lease provisions. 1 Although these decisions appear to lend support for plaintiffs position, in that they construe broadly the contractual right of a landlord to obtain an award of attorney's fees, they construe narrowly the contractual means by which the landlord may so recover. The situation here does not fall within that narrow construction. The Lease provides in relevant part: "D. If this Lease is cancelled, or Landlord takes back the Apartment, the following takes place: "( 1) Rent and added rent for the unexpired Term becomes due and payable. "(2) Landlord may relet the Apartment and anything in it .... Tenant stays liable and is not released except as provided by law. "(3) Any rent received by Landlord for the re-renting shall be used first to pay Landlord's expenses and second to pay any amounts Tenant owes under this Lease. Landlord's expenses include the costs of getting possession and re-renting the Apartment, including, but not only reasonable legal fees, brokers fees, cleaning and repairing costs, decorating costs and advertising costs" (exhibit G to Greenblatt affirmation). As discussed below, these provisions have been interpreted broadly in favor of the tenant: (1) ifthere is any scenario in which, under the terms of the parties' lease, the prevailing landlord may recover attorney's fees, (2) then the tenant (instead of the landlord) is also so entitled if it (rather than the landlord) is the prevailing party in their lease-related litigation, even if the lease does not grant the tenant this right contractually. This statutory right of the tenant is based upon Real Property Law § 234, which provides: "Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys' fees and/or expenses incurred as the result of the failure of the tenant to perform any covenant or agreement contained in such lease, or that amounts paid by the landlord therefor 1 Grahar'! Ct. Owners Corp. v Taylor, 24 NY3d 742 (2015); Matter of Casamento v Juaregui, 88 AD3d 345, 346 (2d Dept 2011); and Bunny Realty v Miller 180 AD2d 460 (1st Dept 1992). ' 8 9 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 9] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 shall be paid by the tenant as additional rent, there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys' fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease, and an agreement that such fees and expenses may be recovered as provided by law in an action commenced against the landlord or by way of counterclaim in any action or summary proceeding commenced by the landlord against the tenant. Any waiver of this section shall be void as against public policy." "Real Property Law § 234, which governs residential leases, establishes an implied covenant providing a tenant with the right to recover an attorneys' fee incurred in the successful defense of a summary proceeding to recover possession of a leasehold where the parties' lease provides for the landlord's recovery of an attorneys' fee if successful in such litigation" (Matter of Casamento v Juaregui, 88 AD3d 345, 346 [2d Dept 2011]). In Matter of Casamento, the Court stated: "Use of the permissive word 'may' in section 234 indicates that an attorney's fee provision in the lease will trigger the implied covenant even if it does not mandate the landlord's full recovery of his or her attorney's fee under every set of circumstances in which the parties litigate the tenant's alleged default under the lease. The word 'recover' in section 234 indicates that the triggering lease provision must simply establish a method by which the landlord may recover his or her attorney's fee; the lease provision need not expressly require a court order awarding the attorney's fee or the tenant's direct payment of the fee to the landlord. Moreover, where, as here, the tenant seeks the benefit of the implied covenant after successfully defending a proceeding alleging his or her breach of the lease, nothing in section 234 requires the court, in determining the tenant's motion, to engage in a speculative analysis of hypothetical circumstances to determine if the landlord would have, in fact, recovered his or her attorney's fee under the subject lease provision had he or she prevailed in the lawsuit" (id. at 354-355 [emphasis added]). Thus, the Court broadly interpreted the provision so that if there is any possibly that the landlord may recover attorney's fees, the tenant, as the prevailing party, may so recover pursuant to Real Property Law § 234. In Bunny Realty v Miller (180 AD2d 460 [1st Dept 1992]), the Court stated: 9 10 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 10] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 "Thus, while the subject lease clearly permits the landlord to recover legal fees for obtaining possession of the apartment, the Appellate Term has interpreted the section to mean that because it does not specifically contain the words 'due to the tenant's default', it somehow limits the latter's reciprocal rights thereunder. Yet, this clause is sufficiently broad to allow the landlord to procure counsel fees for any reason, including breach of lease, so long as the ultimate result would be to take possession or re-rent the apartment" (id. at 462-463 [emphasis added]). This broad interpretation is consistent with the remedial nature of the legislation. "The overriding purpose of Real Property Law § 234 was to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense. The statute thus grants to the tenant the same benefit the le~e imposes in favor of the landlord" (Matter of Duell v Condon, 84 NY2d 773, 780 [1995]). The Court in Matter of Casamento also stated, however: "We interpret this remedial scheme to permit the landlord to recoup any attorney's fee [it] incurs in an eviction proceeding against a defaulting tenant under circumstances in which the premises are re let prior to the defaulting tenant's satisfaction of outstanding rent and added rent. The landlord's entitlement to an attorney's fee in the eviction proceeding falls within the definition of "added rent" in such circumstances because it is a charge which the tenant "may be required to pay," albeit indirectly. Throughout the eviction process, the tenant remains liable for rent and added rent due for the remainder of the unexpired term, and if the apartment is relet during that term, the landlord is potentially made whole for all legal fees and expenses incurred in 'getting possession' of the apartment by lawsuit, over and above the rent and added rent still due and owing from the tenant" (88 AD3d at 353-354). Hence, the means by which the landlord recovers the attorney's fees is to "relet prior to the defaulting tenant's satisfaction of outstanding rent and added rent" and the tenant pays "indirectly" and "the landlord is potentially made whole for all legal fees and expenses incurred." In Graham Ct. Owners Corp. v Taylor (24 NY3d 742 [2015]), the Court of Appeals described this indirect means by which the landlord could recoup its attorney's fees: 10 11 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 11] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 "The landlord's other contention that the statute should be treated as a form of mitigation that reduces the amount owed by the tenant to the landlord disregards the import of clause (D) (3). That clause states that '[a]ny rent received by Landlord for the re-renting shall be used first to pay Landlord's expenses and second to pay any amounts Tenant owes under this Lease.' By its language, clause (D) (3) must be read to assume that, but for this sequenced payment of attorneys' fees, the tenant would be entitled to demand credit for the full rent collected by the landlord for reletting the premises, and to have that credit applied against any amount the tenant owed under the lease. Thus, because the amounts received are initially used to pay the landlord's attorneys' fees, less money remains for reducing the tenant's outstanding debt. The landlord argues otherwise, but the tenant is effectively paying the landlord's attorneys' fees by way of this 'relet and collect' lease provision" (24 NY3d at 749). In Matter of Casamento, supra, the Second Department panel acknowledged this indirect means ofrecovery, stating: "To deny the tenant's motion pursuant to section 234 simply because paragraph 16 does not include a more direct method for the landlord's recovery of his attorneys' fees would be only to reward 'artful draftsmanship' and undermine the salutary purpose of section 234" (id at 357, quoting Bunny Realty, 180 AD2d at 463]). The lease provision referred to in Matter of Casamento, importantly, is identical to the one at issue here. In Matter of Casamento, the Court described the relevant lease provision as follows: "Subparagraph 16 (A) (5) recites that, if the tenant fails to cure the default in the time stated, the landlord may cancel the lease and the tenant 'continues to be responsible as stated in this Lease.' Under subparagraph 16 (C) (1) (b), ifthe lease is cancelled, the landlord 'may, in addition to other remedies ... use eviction or other lawsuit method to take back the Apartment.' Under subparagraph 16 (D) (1), if the landlord 'takes back the Apartment, ... [r]ent and added rent for the unexpired Term becomes due and payable.' The term 'added rent' is defined in paragraph 3 as 'other charges to Landlord under the terms of this Lease' which the tenant 'may be required to pay.' Further, under subparagraph 16 (D) (2), if the lease is cancelled, the landlord 'may relet the Apartment' and the tenant 'stays liable and is not released except as provided by law.' Finally, under subparagraph 16 (D) (3), '[a]ny rent received by Landlord for the re-renting shall be used first to pay Landlord's expenses and second to pay any amounts Tenant owes under this Lease. Landlord's expenses include the costs of getting possession and re-renting the Apartment including, but not only reasonable legal fees'" ' 11 12 of 13 [*FILED: NEW YORK COUNTY CLERK 02/26/2018 03:25 PM 12] NYSCEF DOC. NO. 40 INDEX NO. 154050/2017 RECEIVED NYSCEF: 02/26/2018 (id. at 353). As quoted above, the Court held that "if the apartment is relet during that term, the landlord is potentially made whole for all legal fees and expenses incurred in 'getting possession' of the apartment by lawsuit, over and above the rent and added rent still due and owing from the tenant" (id. at 354). Plaintiff does not allege that the circumstances in which the Courts, cited above, have set forth the means by which landlords may recoup their attorney's fees are present here. Accordingly, it is ORDERED that the motion by defendant Lawrence Mills is granted to the extent of dismissing the claim for an award of attorney's fees. Dated: z_jz '3 /1 ~ ENTER: ~~--~ J.S.C. 12 13 of 13

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