Harlorn LLC v Poy Ao Cheng

[*1] Harlorn LLC v Poy Ao Cheng 2018 NY Slip Op 50642(U) Decided on May 4, 2018 Supreme Court, New York County Reed, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 4, 2018
Supreme Court, New York County

Harlorn LLC, Plaintiff,

against

Poy Ao Cheng, CHUNG AONG CHENG and JIN QUAN DONG, Defendants.



155333/2017



For Plaintiff
Belkin Burden Wenig & Goldman LLP
270 Madison Avenue
New York, NY 10016
By: Lewis A. Lindenberg, Esq.For Defendants

Zingman & Associates PLLC
110 East 42nd Street
New York, NY 10017
By: Mitchell S. Zingman, Esq.
Robert R. Reed, J.

In this action for breach of a lease guaranty and assignment, defendants Poy Ao Cheng (Poy Ao) and Chung Aong Cheng (Chung Aong) (collectively, moving defendants) move, pre-answer, for an order: (a) pursuant to CPLR 3211 (a) (1), CPLR 3211 (a) (5) and CPLR 3211 (a) (7), dismissing the complaint raised against them; or (b) pursuant to CPLR 3211 (f), in the event the motion is denied, granting moving defendants time to serve and file an answer. Defendant Jin Quan Dong has not appeared in this matter.

Plaintiff, Harlorn LLC (Landlord), opposes.

For the reasons set forth more fully below, the motion is denied, except as to the alternative relief of permitting moving defendants time to serve and file an answer.

Background

Landlord is the owner and landlord of the building located at 845 Soundview Avenue, Bronx, New York 10473 (the Building). In September 1994, defendant Poy Ao (Assignor) [*2]entered into a lease agreement, with the predecessor in interest of the plaintiff, leasing the first floor retail space and basement directly under the Building (the Premises). The lease was twice modified: the first time pursuant to a "Modification of Lease" executed as of October 1, 1998; the second time pursuant to a "Second Modification of Lease" executed on June 25, 2004. The initial lease and two modifications are collectively referred to herein as "the Lease." The Lease permitted the Premises to be used and occupied as a Chinese take-out restaurant, and was set to expire on August 31, 2014.

On December 6, 1994, defendant Chung Aong (Guarantor), the assignor's father, executed a "Guaranty to the Lease," wherein the guarantor unconditionally guaranteed to the Harlorn Realty Company the full payment, performance and observance of all Lease terms. Specifically, paragraph 2 states that

"[t]he undersigned unconditionally guarantees to Owner the full payment, performance and observance of all the Terms of the Lease on the part of the Tenant to be paid, performed and observed, and payment of all damages that may arise in consequence of the non-payment, non-performance or non-observance of said Terms, without requiring any notice to the undersigned of non-payment, non-performance or non-observance, or proof, or notice of demand, to hold the undersigned responsible under this Guaranty, all of which the undersigned expressly waives."

In addition, paragraph 3 of the Guaranty provides that the liability of the Guarantor is unaffected by

"(i) any amendment, modification, renewal or extension of the Terms of the Lease, or any other instrument made to or with the Owner by the named Tenant, or by any assignment or subletting," or "(iii) any extensions of time for performance of any of Tenant's obligations under the Lease" or by "(iv) the release of Tenant from performance or observance of any of the Terms contained in the Lease by operations of law."

Paragraph 4 of the Guaranty to the Lease provides: "This Guaranty shall survive the termination of the Lease and shall remain in full force and effect until such time as all of Tenant's obligations under the Lease are satisfied in full . . .."

On October 24, 2007, Assignor assigned the Lease to Jin Quan Dong (Assignee), pursuant to a "Commercial Lease Assignment" executed that same day (Assignment). The Landlord agreed to execute the Assignment. Paragraph 3 of the Assignment provides:

"All parties acknowledge and hereby specifically agree that Assignor shall be jointly and severally liable under the terms and conditions of the above-referenced Lease Agreement. Assignor understands and agrees that Landlord may sue Assignor under the assigned Lease Agreement for damages (including but not limited to, unpaid rent) caused by Assignee."

According to plaintiff, after the Assignment was executed, the Assignor continued to be the person the Landlord communicated with about issues concerning the Premises and questions and disputes arising out of the Lease.

In or about the summer of 2014, the Landlord, Assignor and Assignee discussed executing an agreement to renew or extend the Lease. The Assignee was present for some of the negotiations, but, according to plaintiff, most of the discussion about continuing the Lease involved Assignor. Assignee remained in possession of the Premises doing business as "New Kee Hing Restaurant" after the expiration of the Lease. No written lease agreement was ever executed, as the parties had not reached an agreement.

According to Corey Shanus, manager of plaintiff, the parties agreed that they would maintain the "status quo," in that, while negotiations for the Lease extension were underway, Assignee remained a month-to-month tenant and moving defendants remained jointly and severally liable under the Lease and Guaranty (Shamus aff, ¶ 12). According to Shanus, he "personally negotiated the terms of the modification and extension agreement with Assignor. It was never the intent of the parties to release defendants from liability under the Lease upon its expiration" (id., ¶ 20). Shanus affirms that this was how the parties proceeded through the previous modifications and extension of the original lease (id., ¶ 23).

After Assignee stopped paying rent, and neither Assignor and Assignee were responding to plaintiff's emails and phone calls, plaintiff terminated Assignee's right to occupy the Premises on March 31, 2016 by service of a "Notice to Quit" dated February 22, 2016. Thereafter, Landlord commenced a summary holdover proceeding in the Civil Court of the City of New York, Bronx County, by notice of petition and petition dated April 6, 2016, Index No. 900583/16, to recover possession of the Premises (Summary Proceeding).

Landlord was awarded a judgment of possession and directed to a separate hearing to determine the amount of outstanding use and occupancy and attorneys' fees owed to Landlord pursuant to a decision and order dated September 29, 2016. After the hearing, pursuant to a decision and order dated November 15, 2016, Landlord was awarded a money judgment in the amount of $64,978.37 plus interest at 9% per month. The money judgment included use and occupancy for the period of March 1, 2016 through November 30, 2016, which was calculated at $4,300.00 per month, along with attorneys' fees in the amount of $25,278.37. On January 24, 2017, a warrant of eviction was issued.

On February 14, 2017, Assignee was evicted from the Premises.

Damages Incurred by Landlord in Addition to the Money Judgment

On October 1, 2015, Landlord was issued three summonses due to conditions in the Premises that violated the applicable laws, regulations and codes of the City of New York, and, as such, the terms of the Lease. Landlord incurred legal fees in the total amount of $2,360.00 and settled the summonses for $1,500.00. Plaintiff alleges that Assignee failed to remediate the [*3]conditions of the Premises that caused the violations and summonses to be issued. Plaintiff undertook the remediation work, which totaled $8,502.00 for the installation of a new master fire hood system and plumbing work. Landlord seeks damages totaling $12,262.00.

Plaintiff also contends it is owed use and occupancy for the months Assignee occupied the Premises after the money judgment through to Assignee's eviction from the Premises, or use and occupancy for the months of December 2016 through and February 2017 in the total sum of $12,900, i.e., $4,300 per month.

In addition, plaintiff seeks $7,033.50 for legal fees incurred for the period subsequent to the legal fees awarded to Landlord pursuant to the money judgment.

Finally, relying on article 75(g) of the Lease, after Assignee vacated the Premises, plaintiff conducted an environmental audit which cost $2,500.00. Pursuant to ¶ 75 (g) of the Lease, the tenant "shall remain liable for any environmental condition related to its operations regardless of when such conditions are discovered and regardless of whether or not Owner conducts and environmental audit at the termination of this Lease. The obligations set forth in this paragraph shall survive the termination of the Lease."

Discussion

"Generally, on a motion to dismiss brought pursuant to CPLR 3211, the court must accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit into any cognizable legal theory" (Bishop v Maurer, 33 AD3d 497, 498 [1st Dept 2006], affd 9 NY3d 910 [2007] [internal quotation marks and citation omitted]). "The court, however, is not required to accept factual allegations, or accord favorable inferences, where the factual assertions are plainly contradicted by documentary evidence" (id.).

Under CPLR 3211 (a) (1), "[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that . . . a defense is grounded upon documentary evidence." The court may grant dismissal when the "'documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law'" (Goldman v Metropolitan Life Ins. Co., 5 NY3d 561, 571 [2005] [citation omitted]). Construction of an unambiguous contract is a matter of law that may be decided by the court on a CPLR 3211 (a) (1) motion to dismiss (Beal Sav. Bank v Sommer, 8 NY3d 318, 325 [2007]).

An action may also be dismissed pursuant to CPLR 3211 (a) (5) on the ground that the action may not be maintained based on the statute of frauds.

Plaintiff's causes of action sound in breach of contract. On a motion to dismiss, plaintiff must plead the elements of a breach of contract claim, which are: (1) the existence and terms of a valid, binding contract; (2) performance under the contract; (3) a breach of that contract, and (4) resulting damages (JP Morgan Chase v J.H. Elec. of NY, Inc., 69 AD3d 802 [2d Dept 2010]; Gordon v Dino DeLaurentiis Corp., 141 AD2d 435 [1st Dept 1988]). When enforcing the terms [*4]of a contract, the court must look within the four corners of the document which give effect to the parties' intentions based on the plain meaning of the language within (South Rd. Assoc. LLC v International Bus. Machs. Corp., 4 NY3d 272, 277 [2005]). If there is any ambiguity in the contract, the court may turn to "extrinsic evidence for guidance as to which interpretation should prevail" (Evans v Famous Music Corp., 1 NY3d 452 [2004]).

Moving defendants argue that plaintiff's causes of action against Assignor and Guarantor arising under the Lease must be dismissed because they fail to state a cause of action, as neither can be liable to plaintiff for damages arising after the expiration of the Lease, which expired on August 31, 2014. Article 57 of the Lease provides:

"Tenant's occupancy subsequent to such expiration or termination, whether or not with the consent or acquiescence of Owner, shall be deemed to be that of a tenancy-at-will and in no event from month-to-month or from year to year and it shall be subject to all terms, covenants, provisions and conditions of this Lease applicable thereto, including, without limitation those set forth in this holdover provision."

However, moving defendants argue that, in the Complaint at paragraph 18, plaintiff alleges that, upon expiration of the Lease, plaintiff deliberately agreed to treat Assignee as a month to month tenant — thereby, they argue, creating a new landlord-tenant relationship with Assignee.

Real Property Law 232—c provides,

"Where a tenant whose term is longer than one month holds over after the expiration of such term, such holding over shall not give to the landlord the option to hold the tenant for a new term solely by virtue of the tenant's holding over. In the case of such a holding over by the tenant, the landlord may proceed, in any manner permitted by law, to remove the tenant, or, if the landlord shall accept rent for any period subsequent to the expiration of such term, then, unless an agreement either express or implied is made providing otherwise, the tenancy created by the acceptance of such rent shall be a tenancy from month to month commencing on the first day after the expiration of such term."

"A tenancy at will is usually at the will of the landlord, although it may be at the will of both parties" (Lewittes & Sons v Spielmann, 190 Misc 35, 36 [1st Dept 1947] [citation omitted]). A tenancy at will is a property tenure that can be terminated at any time by either the tenant or the owner. A month-to-month tenancy is an arrangement where the lease may be altered or terminated by either party after giving notice, typically at least 30 days in advance.

Acceptance of rent checks from a tenant after a lease expires merely creates a month-to-month holdover tenancy (Omansky v 160 Chambers St. Owners, Inc., 155 AD3d 460, 461 [1st Dept 2017]). "The legal theory underlying the notion of a periodic tenancy is that of an implied agreement. The holdover tenant is viewed as proffering, through his tender of rent, an option to the landlord to continue the tenancy upon the same terms (except as to duration) as the just expired lease" (Park Summit Realty Corp. v Frank, 107 Misc 2d 318, 3222 [App Term, 1st Dept [*5]1980], affd 84 AD2d 700 [1st Dept 1981], affd 56 NY2d 1025 [1982]; see also R & R Stone Assoc. v Café Gerardo, 37 Misc 3d 1231[A] [City Ct, City of Rye 2012] [holding no new tenancy absent 30-day notice of termination]). "The change sought must be effected by an agreement of the parties, either express or implied, or by some act of the tenant other than just holding over, from which it appears that he[/she] has agreed to a new tenancy" (id., quoting Matter of Reimer v Kaslor, 61 Misc 2d 960 [Civ Ct, Kings County 1970]).

Based on the plain language of the Lease together with the Assignment and Guaranty, the court finds moving defendants' reliance on plaintiff's reference to a month-to-month tenancy in its complaint is of no consequence, as it does not necessarily signify a new landlord-tenant relationship between plaintiff and Assignee per se, but rather may signify continued tenancy after the Lease's expiration (Teri-Nichols Inst. Food Merchants, LLC v Elk Horn Holding Corp., 64 AD3d 424, 425 [1st Dept 2009] ["It is of no consequence that defendant billed plaintiff for the expired rent . . . as opposed to the holdover rate in view of the express "no waiver" provision of the lease, which states that receipt of a lesser rent shall not constitute a waiver of landlord's rights"]; 430 Broome St. Realty Corp. V Bonnouvrier, 17 Misc 3d 1128 [A] [Sup Ct, NY County 2007]).

For these reasons, and for the reasons set forth below, at this stage of the proceedings, dismissal under CPLR 3211 (a) (5) is unwarranted.

Here, plaintiff alleges that the moving defendants are jointly and severally liable with the Assignee for the terms and conditions of the Lease (see R & E Prop. Corp. v Sky Opticians, Inc., 2008 NY Slip Op 30435[U] [Sup Ct, Nassau County 2008] [finding lease and guaranty are considered to be a single transaction]). Plaintiff claims it performed its contractual obligations to defendants by allowing them to operate their business in the Premises pursuant to the Lease, but that defendants breached their contractual obligations by failing to: (1) effectuate delivery of the Premises vacant to plaintiff at the expiration of the Lease or continue to pay rent and additional rent while the parties' negotiated the further modification and extension of the Lease; and (2) failing to reimburse plaintiff for fees and costs incurred (a) as a result of summonses issued to plaintiff due to the conditions the Premises were left, (b) in conducting an environmental audit to ensure there were no other violations, and (c) in evicting Assignee from the Premises.

As noted above, paragraph 3 of the Assignment states that the Assignor "shall be jointly and severally liable" under the terms and conditions of the Lease. "An assignment of a lease by the lessee does not release the lessee of its obligations under the assigned lease absent an express agreement to that effect or one that can be implied from facts other than the lessor's mere consent to the assignment and its acceptance of rent from the assignee" (City of New York v Evanston Ins. Co., 129 AD3d 760, 760 [2d Dept 2015]). However, it has been held "that when a tenant assigns his lease, and the assignee holds over, such holding over is not that of the tenant assignor" (Cirigliano v Cirigliano, 53 Misc 2d 167, 170 [Civ Ct, Queens County 1967];Wallace v Wood, 200 NYS 2d 712 [App Term, 1st Dept 1960]).

Here, there is a question of fact as to whether the Assignor was still responsible under the Assignment as the Assignment provides that the Assignor is responsible for "all Terms" of the Lease and there is no express release of liability upon the expiration of the Lease. Further, plaintiff avers through its manager that it was negotiating with Assignor in connection with renewing the Lease. Therefore, the court, may not, at this stage of the proceedings, make any determinations as a matter of law. The motion to dismiss this branch of the motion is, therefore, denied.

It is well established that "[a] guaranty is to be interpreted in the strictest manner . . . particularly in favor of a private guarantor . . . and cannot be altered without the guarantor's consent" (Lo-Ho LLC v Batista, 62 AD3d 558, 560 [1st Dept 2009] [internal quotation marks and citation omitted]). Here, the Guarantor (1) unconditionally guaranteed the full payment, performance and observance of all the terms of the lease (see Guaranty, paragraph 2); (2) agreed that the Guaranty was unaffected "by any amendment, modification, renewal or extension of the Terms of the Lease . . . or by any assignment or subletting", "the assignment of the Lease for any extensions of time for performance of any obligations of the Tenant's under the Lease" (id., paragraph 3), and (3) agreed that the Guaranty would "survive the termination of the Lease" and remains in full force and effect until the tenant's obligations are fully satisfied (id., paragraph 4) (see Aspenly Co. LLC v Pirgousis, 2017 WL 3449270 [Sup Ct, NY County July 31, 2017, index No. 1513141/2014] ["Where an individual unconditionally guarantees a tenant's performance of a lease, the guaranty survives the expiration of the lease term, and the guarantor remains personally liable thereunder, where, as here, any of the conditions of the guaranty are not satisfied"]; cf. HLL 135 E. 45th Family v Kwong, 2013 WL 8434253 [Sup Ct, NY County Nov. 20, 2013, index No. 6521812013] [guarantees do not explicitly apply to any obligation accruing during a period of possession under a future or subsequent Lease]).

Plaintiff also contends that the parties agreed to extend the Guarantor's obligations while the parties were in negotiations of the terms and potential modification of the Lease (Shamus aff,¶¶ 12-14, 20-25). While moving defendants argue that because the Lease expired they are not obligated to pay, the Guaranty provides that it guaranteed "all the Terms of the Lease" and "payment of all damages that may arise." The Lease provides that the "Term" was upon the Lease expiration "or any renewal thereof" (Lease, article 21). Further, while there is a holdover provision requiring payment of higher rent beyond the expiration of the lease term (Lease article 57), there are also two "No Waiver" provisions, stating that acceptance of a lower rent does not waive the Landlord's right to seek redress under the Lease (see Lease, articles 24 and 62; see also Teri-Nichols Inst. Food Merchants, LLC, 64 AD3d at 425).

Taking the facts in the light most favorable to plaintiff, at this stage of the proceedings, the court finds question of law and fact remain as to whether there was a renewal, modification or extension of the original lease or a new lease agreement between the Landlord and Assignee relinquishing the Guarantor's obligations upon the expiration of the Lease(see 300 Park Ave., Inc. v Café 49, Inc., 89 AD3d 634 [1st Dept 2011]; 404 Park Partners, L.P. v Lerner, 75 AD3d 481 [1st Dept 2010]; 300 E. 96th St. LLC v Saka, 49 Misc 3d 144[a] [App Term, 1st Dept 2015]).

The court considers the remainder of the moving defendants' arguments and finds them without merit.

Conclusion

Accordingly, it is

ORDERED that the motion of defendants Poy Ao Cheng and Chung Aong Cheng to dismiss this action is denied; and it is further

ORDERED that said defendants are directed to serve an answer to the complaint within 20 days after service of a copy of this order with notice of entry; and it is further

ORDERED that counsel are directed to appear for a preliminary conference in Room 581, 111 Centre Street, on July 19, 2018, at 9:30 a.m.

Dated: May 4, 2018
ENTER:
_____________________________
J.S.C.