W Assoc., LLC v Lee

[*1] W Assoc., LLC v Lee 2022 NY Slip Op 50747(U) Decided on August 12, 2022 Supreme Court, New York County Lebovits, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 12, 2022
Supreme Court, New York County

W Associates, LLC, Plaintiff,

against

Sang Lee and Connie Lee, Defendants.



Index No. 650103/2022



Wilf Law Firm, Short Hills, NJ (Mark A. Rothberg of counsel), for plaintiff.

Ahne & Ji, LLP, New York NY (Younghoon Ji of counsel), for defendants.
Gerald Lebovits, J.

This is an action on a commercial-lease guarantee. Plaintiff, W Associates, LLC, leased commercial premises to nonparty Black Label Salon 25 for the operation of a nail salon. Defendants, Sang Lee and Connie Lee, executed a guarantee of Black Label Salon's obligations under the lease.

Plaintiff brought this action in January 2022, alleging that Black Label Salon had defaulted on its rent obligations under the lease and seeking to collect that unpaid rent from the guarantors. (NYSCEF No. 1.) Plaintiff then moved for summary judgment on those claims, returnable in late May 2022. Plaintiff's summary-judgment motion seeks approximately $744,000 in back rent.[FN1] (See NYSCEF No. 6.)

In considering this summary-judgment motion, this court became aware that in a related Civil Court Part 52 commercial nonpayment proceeding brought by plaintiff against Black Label Salon, the parties had entered into a settlement agreement in June 2022, which was then approved by the court (Ilana Marcus, J.). (See Index No. LT-305436-21, NYSCEF No. 11.) Under that settlement—of which plaintiff did not apprise this court—plaintiff agreed that it would accept $250,000 in back rent in place of the full amount owed under the lease, and reduced amounts in monthly rent going forward, in full satisfaction of Black Label Salon's obligations under the lease. (See id. at 1-2.)

This court asked the parties by email to provide their views on how the settlement in the Civil Court proceeding should affect the court's resolution of the current summary-judgment motion. Plaintiff filed a letter on that subject as requested. (NYSCEF No. 25.) Plaintiff's position, as expressed in the letter, is that the settlement should be understood merely as staying the collection of any judgment entered in this action against the guarantors—not as affecting whether a judgment should be entered against the guarantors in the first place. (See id.) This court disagrees.

A guarantee "is a contract of secondary liability," requiring the guarantor "to make payment only when the primary obligor has first defaulted." (PAF-PAR LLC v Silberberg, 118 AD3d 446, 446 [1st Dept 2014] [internal quotation marks omitted], affd on other grounds, 27 NY3d 930 [2016].) The guarantor cannot be made "liable for more than what the primary obligor [*2]was obligated to pay and did pay."[FN2] (Id.) Thus, if a landlord and tenant enter into a settlement modifying the tenant's obligations under a lease, a guarantor of the lease can be held liable only in the event that the tenant defaults on its obligations under the settlement. (See 255 Butler, LLC v Boymelgreen, 179 AD3d 876, 877-878 [2d Dept 2020].)

Here, plaintiff agreed in the Civil Court settlement that should Black Label Salon pay the reduced amounts owed under the settlement, the tenant's obligations—and thus the guarantor's obligations—will be discharged altogether. (See NYSCEF No. 11 at 3 ¶ 7.) Plaintiff has not indicated that the tenant has breached any of the settlement obligations that have come into effect so far. Thus, at present no basis exists to grant summary judgment against the guarantors for anything.

The tenant could still default on one or more of its obligations under the settlement going forward. If plaintiff then enters judgment against the tenant for the amount owed under the settlement in the event of default, the guarantors would become liable for the "[f]ull [a]rrears due and owing" under their guarantee.[FN3] (See id. at 3 ¶¶ 4 [b], 6.) But the tenant could obtain judgment in this action for that amount only upon proof both of the tenant's default and the amounts owed by the guarantor following that default.

In these circumstances, plaintiff's motion for summary judgment against the guarantors is (or has been rendered) premature. And given that the tenant's obligations under the settlement extend for another three years (see id. at ¶¶ 3, 8), the court declines to hold the motion in abeyance pending the tenant's full performance of those obligations.

Accordingly, it is

ORDERED that plaintiff's motion for summary judgment is denied without prejudice.

8/12/2022$SIG$ Footnotes

Footnote 1:A substantial increment of the claimed $744,000 accrued between March 7, 2020, and June 30, 2021. (See NYSCEF No. 12 [ledger reflecting "Tenant Unpaid Charges"]; NYSCEF No. 23 ["Lease Ledger"].) Tenant, as a nail salon, would have been subject to the COVID-19-related restrictions imposed by Executive Order 202.6. Plaintiff's claim against the guarantors for that increment of the unpaid rent thus appears to be barred by New York City Administrative Code § 22-1005—an issue that plaintiff's motion papers do not acknowledge or address. Given this court's disposition of the motion, though, this court need not reach that issue.

Footnote 2:It is possible, in an action to enforce a guarantee, that the guarantor's liability ends up exceeding that of the primary obligor, should the guarantor have agreed to waive defenses against enforcement of the obligor's contractual obligations that the obligor might have been able to assert. (See Raven Elevator Corp. v Finkelstein, 223 AD2d 378, 378 [1st Dept 1996].) But that principle does not mean the guarantor's liability can exceed the scope of the contractual obligations themselves.

Footnote 3:The extent of that liability would likely still be limited by the guarantor protections established by Administrative Code § 22-1005.