Regatta Prop. LLC, LLC v 21 S End Hudson Inc

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Regatta Prop. LLC, LLC v 21 S End Hudson Inc 2019 NY Slip Op 30303(U) February 11, 2019 Civil Court of the City of New York, New York County Docket Number: 78825/18 Judge: Sabrina B. Kraus 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. [* 1] CIVIL COURT OF THE CITY OF NEW YORK COUNTY OF NEW YORK: PART 118 X REGATTA PROPERTY LLC, LLC, Petitioner-Landlord HON. SABRINA B. KRAUS -against- DECISION & ORDER Index No.: L&T 78825/18 21 S END HUDSON INC 21 South End Avenue Ground Floor Store and Basement at Northwest Corner of Building as shown on annexed diagram New York, New York 10280 Respondent-Tenant HUDSON SUPERCHARGE INC Respondent- Undertenant X BACKGROUND This summary nonpayment proceeding was commenced by Regatta Property LLC (Petitioner) against 21 South End Inc d/b/a Hudson (Respondent) seeking to recover possession of the northwest corner store and basement, at 21 South End Avenue, New York, New York 10280 (Subject Premises) based on the allegation that Respondent is the tenant of record and has failed to pay rent due for the Subject Premises. Hudson Supercharge Inc. (HSI) was named as an undertenant in occupancy. PROCEDURAL HISTORY Petitioner issued a three day rent demand dated November 16, 2018 seeking $176,000 in arrears for a period from August 2018 through November 2018 at a monthly rent of $40,000.00. 1 [* 2] The affidavit of service alleges that the demand was served by deliver to Zhouhni Zhou at the Subject Premises on November 19, 2018 at 1:18 pm. The petition was filed on November 29, 2018, and the notice of petition along with proof of service were filed on December 6, 2018. The petition and notice of petition were personally delivered to Chenwen Ho a/k/a Jonathan Ho (Ho) at the Subject Premises on December 4, 2018, at 2:02 pm. Ho was described as a managing agent for both Respondent and HSI in the affidavits of service. Respondent appeared by counsel on December 20, 2018, and filed an answer asserting sixteen affirmative defenses and three counterclaims. The defenses include lack of jurisdiction, failure to state a cause of action, partial payment, and insufficient description of the Subject Premises in the petition. The counterclaims seek damages for attorneys fees, illegal lockout and overcharge. The answer admits that Respondent is a tenant of the Subject Premises pursuant to a written lease agreement. The answer is verified by counsel. The proceeding was initially returnable on January 3, 2019. On February 8, 2019, the proceeding was assigned to Part 118 for trial. The trial commenced and concluded on that date, and the court reserved decision. FINDINGS OF FACT Petitioner is the owner of the Subject Premises which is a commercial condominium unit at the northwest corner store of 21 South End Avenue. The Subject Premises is more specifically identified as Section 1 of Block 16 and Lot 6001 (Ex 2). Ho first rented the Subject Premises in May 2016. Ho and Stephen Cheung (SC) both signed a lease (Ex 5), Ho signed on behalf of the named corporate tenant, S Lifestyle LLC (SL) 2 [* 3] and SC signed on behalf of Petitioner. SL is a domestic limited liability corporation pursuant to an initial filing on December 2, 2015 and retained an active status through the date of the trial herein.1 The lease provided that the Subject Premises would be used for “... Medical, Wellness and related uses including food preparation and sales, lawful or otherwise ... (Ex 5, par 45)”. Ho was originally introduced to SC as a prospective tenant by Margaret Liu (Liu). Liu has an interest in the Petitioner. Liu said that she and Ho were going to be a joint venture and would rent the space with two other doctors. Liu is also a licensed real estate broker, who works through a company known as Battery Park Realty that is also SC’s tenant. SC was also aware that Ho intended to use the Subject Premises for high end business events, but did not want the word “Club” associated with the name of any business running out of the Subject Premises. Ho ran into cash flow problems and Petitioner commenced an summary nonpayment proceeding against SL through under Index Number L&T 71993/17. Petitioner sought over $200,000 in arrears for a period from May through August 2017.2 Petitioner obtained a judgment on default and the warrant of eviction issued on September 20, 2017 (Ex 6). Petitioner executed on the warrant and received legal possession from the Marshal on October 12, 2017 (Ex 7). After the eviction, Ho approached SC and asked that SC give him a second chance at being a tenant in the space, because Ho made a significant investment in the Subject Premises through substantial renovations to the Subject Premises. Ho introduced Xin Qi (Brandon) who 1 The court takes judicial notice of the information maintained on the New York State Department of State website, Division of Corporations, Entity Information. 2 The court has requisitioned the file for L&T 71993-17 and takes judicial notice of the contents of said file. 3 [* 4] is also known as Brandon to SC. Ho introduced Brandon as his business partner. Ho told SC he wanted a fresh start with a new corporate entity. Brandon negotiated a reduced rate with SC on behalf of the new tenant and on or about February 18, 2018, Brandon and SC executed the new lease for the Subject Premises which named 21 South End Inc. (21) as the tenant of record. 21 did not exist as an entity at the time the lease was executed or at anytime after that date. However, on May 22, 2018, Ho formed a corporation named 21 S End Hudson Inc. (21 SEH). The initial filing for 21 SEH designated Ho as an agent for service of process and listed the Subject Premises as the address for the business.3 Less than one month later, on or about June 14, 2018, Ho filed for a second corporation, named as an undertenant herein, HSI . Again this filing listed Ho as the designated agent for service of process and listed the Subject Premises as the address for HSI.4 The use provision in the second lease was limited to Medical and Wellness center and provided that the premises could be used for no other purpose (Ex 1, par 45). Both leases provided that Petitioner made no warranty as to whether the intended use of tenants was lawful or permissible. Respondent had a grand opening in May 2018. SC attended the opening. 3 The court takes judicial notice of the information maintained on the New York State Department of State website, Division of Corporations, Entity Information. 4 The court takes judicial notice of the information maintained on the New York State Department of State website, Division of Corporations, Entity Information. Copies of the entity information referenced by the court are annexed to this order and incorporated by reference herein. 4 [* 5] On July 10, 2018, Respondent held an event at the Subject Premises that resulted in the issuance of violations. SC testified that the violations included selling liquor without a license. The authorities came and closed the event. SC testified, without contradiction, that on the evening in question, the occupants all left and the Subject Premises was unsecured. SC testified that he put a chain lock on the front door to secure the Subject Premises. The Subject Premises remained locked for about a week to ten days, after which, SC met with Ho at the Subject Premises and unlocked the Subject Premises so that Ho could hold another event, which Ho promised would not disturb residential occupants of the building and would not involve any unlawful conduct. SC did not learn that Respondent was not an actual corporation until well after this litigation commenced. In November 2018, the City of New York commenced an action against the Subject Premises, naming Petitioner and HSI based on the illegal sales of liquor in the Subject Premises on July 10, 2018 and other dates and declaring the Subject Premises to be a public nuisance. The action was commenced in Supreme Court, New York County under Index Number 452107/18 (see Ex 9), pursuant to an affidavit of a police officer, and supporting documentation. Said action was resolved by stipulation which was signed by Ho on behalf of Respondent and HSI as well as Ho’s attorneys and the attorney for the city (stipulations settling the action were admitted as Ex 11). In the stipulation Ho represented that 21 is the lessee of the Subject Premises, agreed to pay a $500 fine on behalf of the two named corporations and to refrain from the illegal sale of liquor going forward. The stipulation is dated December 11, 2018. 5 [* 6] SC testified that Respondent owed rent for August 2018 through February 2019, which was a total of seven months, less $40,000.00 which was paid as use and occupancy while the proceeding was pending. SC also asserts that Respondent owes $24,000.00 in late fees under the lease. Prior to the commencement of this proceeding Ho paid all monthly rent and related charges for the Subject Premises by personal checks in his own name. After the incident in July, Ho stopped making rent payments. Prior to the close of the trial, the court granted Petitioner’s motion to amend the petition to date, and reserved decision on Petitioner’s motion to amend the named Respondents to conform to the proof adduced at trial. DISCUSSION 21 S End Hudson Inc. is the tenant of record for the Subject Premises Where a lease is signed with a nonexistent corporation, and lessor did not know it was contracting with a nonexistent corporation, the individual signing the lease may be liable for the contract (Clinton Investors Co. v Watkins 146 AD2d 861; Spring Valley Improvements, LLC v Abajian 40 AD3d 619). In this case, both Ho, who acted on behalf of 21 and Brandon who singed the lease may have incurred individual liability in doing so (Bay Ridge Lumber Co, Inc. v Groenendaal 175 AD2d 94 ). Subsequent adoption of the contract by 21 SEH gives rise to corporate liability in addition to any individual liability absent a novation between the corporation and the other contracting party (Id.). However there is no pending claim for individual liability against Brandon or Ho in this proceeding. 6 [* 7] Here at the time the lease was signed there was no corporation in existence. However, by the time the opening of the business took place the corporation, albeit with a slightly different name, had been formed. Ho was listed as the designated agent and listed the Subject Premises as the address for the corporation. Ho was aware that Brandon had signed a lease, and made payments due under the lease. Through Ho and Counsel 21 purported to appear in multiple court cases and acknowledged it is the tenant of record of the Subject Premises. For example in an affidavit in support of a related Supreme Court action commenced by Respondent against Petitioner and other parties Ho stated under penalty of perjury “I am the owner of the businesses named 21 S End Hudson, Inc. A/k 21 South End Inc (Ex A) .”5 Clearly the corporation adopted the contract. At any time and in its discretion the court may allow the caption to be amended if a substantial right of the party is not prejudiced [CPLR § 305(c)]. In order to be entitled to cure the misnaming of a party sued pursuant to CPLR 305, Petitioner must show that process was properly served on the intended party and thus that jurisdiction was acquired over that party; and Petitioner must show that the intended party will suffer no prejudice as a result of the amendment, meaning that the pleadings “fairly apprised” Respondent that it was the party being sued [ Achtziger v. Fuji Copian Corp. 299 A.D.2d 946; Benware v. Schoenborn, 198 A.D.2d 710; Ober v. Rye Town Hilton, 159 A.D.2d 16, 20, 557 N.Y.S.2d 937, 939 (2d Dep't)]. Petitioner’s application to amend the caption herein meets this test. 21 SEH was incorporated on the date Respondent opened for business. Ho is the officer. Ho was aware that 5 This affidavit was submitted in a Supreme Court action that Respondent commenced against Petitioner, SC and Liu seeking damages related to the underlying lease. Respondent also sought an order from Supreme Court staying this proceeding, but that relief was denied. 7 [* 8] Brandon had signed a lease on behalf of 21 immediately upon execution of the lease. Ho performed under the lease by making rent payments. Ho only stopped making the payments when his business got into trouble for selling alcohol without a license. The notice of petition and petition were personally delivered to Ho at the Subject Premises. Ho retained counsel to appear in this case and defend it. The answer submitted by counsel acknowledges that Respondent is the tenant of record pursuant to a written lease. Ho resolved a related Supreme Court action with the City of New York by in part making a representation that 21 was the tenant of record of the Subject Premises. In addition to the fact that service was made by personal delivery to Ho at the Subject Premises, Respondent failed to preserve any defense based on lack of personal jurisdiction in its answer which is only verified by counsel and fails to allege any specif allegation in regards to service (see eg CPLR §3020). For all of these reasons Petitioner’s motion to conform the pleadings to the proof is granted and the caption herein is amended to substitute 21 S End Hudson Inc, as the respondent in place of 21 South End Inc d/b/a Hudson. Petitioner is entitled to judgment against respondents Petitioner established a prima facie case and has the right to a judgment against 21 SEH and HSI. There is unpaid rent due for August 2018 through February 2019 which totals $280,000.00. However, it is agreed that Respondent paid one month without prejudice during this period reducing the balance to $240,000.00. 8 [* 9] Petitioner’s claim for late charges of 10% per month or 120% per annum is unenforceable and claims for same are dismissed (Cleo Realty Associates LP v Papagiannakis 151 AD3d 418; Sandra’s Jewel Box Inc. v 401 Hotel LP 273 AD2d 1). The court finds that respondents were deprived of possession of the Subject Premises for 10 days in July and that Respondent is therefore entitled to a pro rata reduction of the arrears totaling $1300.00. However, the court does not find any abatement of rent is due to the pad locking of the Subject Premises that took place in November pursuant to the City’ action to enjoin Respondent’s illegal conduct at the Subject Premises. Based on the foregoing: IT IS ORDERED that the caption herein is amended to substitute 21 S End Hudson Inc, as the respondent in place of 21 South End Inc d/b/a Hudson; and IT IS FURTHER ORDERED that a judgment of money and possession be entered against 21 S End Hudson Inc in the amount of $238,700.00 for all rent due through February 2019; and IT IS FURTHER ORDERED that a judgment of possession be entered against Hudson Supercharge Inc; and IT IS FURTHER ORDERED that issuance of the warrant be stayed five days for payment; and IT IS FURTHER ORDERED that Respondent’s first and third counterclaims are dismissed with prejudice and Respondent’s second counterclaim is granted to the extent of a $1300 set off as provided above. 9 [* 10] This constitutes the decision and order of this Court. Dated: New York, New York February 11, 2019 Hon. Sabrina B. Kraus, JCC TO: DONALD ENG, ESQ Attorney for Petitioner 139 Centre Street - Suite 510 New York, New York 10013-4555 212.608.1939 KANEN LAW FIRM Attorneys for Respondent By: Alexander Kanen, Esq. 90 Park Avenue, 18th Flr New York, New York 10016 212.922.9099 10

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