Opinion
512987/2016
10-25-2017
The Art Factory Corporation and TONY SHAFRAZI, Plaintiff, v. 740-748 Hicks Realty LLC, YOEL GUTTMAN, FIRST QUALITY ELECTRIC CORPORATION, TOVIA WERTZBERGER, SCHNEIDER ASSOCIATES, STEVEN SCHNEIDER, YAAKOV STERN, P.E., and YAAKOV STERN, Defendant.
Atty for petitioner: Boies, Schiller & Flexner LLP by Christopher Daniel Belelieu, Esq., Benjamin Margulis, Esq.Atty for respondent: Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. by Joseph I. Farca, Esq. Milber Makris Plousadis & Seiden, LLP by Mark Seiden, Esq. and Jeffrey J. Fox, Esq. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP by James F. O'Brien
Atty for petitioner: Boies, Schiller & Flexner LLP by Christopher Daniel Belelieu, Esq., Benjamin Margulis, Esq.Atty for respondent: Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. by Joseph I. Farca, Esq. Milber Makris Plousadis & Seiden, LLP by Mark Seiden, Esq. and Jeffrey J. Fox, Esq. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP by James F. O'Brien Kathy J. King, J.
The following e-filed papers read herein: NYSCEF Numbered Notice of Motion/Order to Show Cause/Petition/Cross Motion/Memoranda of Law, and Affidavits (Affirmations), Exhibits Annexed Opposing Affidavits (Affirmations) and Memoranda of Law Reply Affidavits (Affirmations) and Memoranda of Law
In this commercial landlord-tenant action, plaintiff The Art Factory Corporation and Tony Shafrazi (collectively referred to as "the Tenant") move by Order to Show Cause (Motion Sequence No.3) for a Yellowstone injunction, or, in the alternative, a preliminary injunction, pursuant to CPLR §6301, enjoining defendant 740-748 Hicks Realty LLC ("the Landlord") from terminating plaintiff's tenancy. The underlying action arises from breach of a lease agreement wherein the Tenant seeks to recover damages from defendants 740-748 Hicks Realty LLC, Yoel Guttman, First Quality Electric Corporation, Tovia Wertzberger, Scheneider Associates, Steven Schneider, and Yakkov Stern, P.E.
In a companion motion (Motion Sequence Nos. 1 & 2, respectively), defendants Yaakov Stern, P.E. and Yaakov Stern (collectively "Stern") and Schneider Associates and Steven Schneider (collectively "Scheneider"), move to dismiss the complaint for failure to state a cause of action pursuant to CPLR §3211(a)(7).
FACTS AND BACKGROUND
The Landlord is the owner of 740 Hicks Street, located on Block 534 Lot 29, Brooklyn, NY, the property that is the subject of this action. 740 Hicks Street is one of two buildings located on Block 534 Lot 29. A second building known as 39 West 9th Street, Brooklyn, NY is also located on Block 534 Lot 29. The Tenant, with the assistance of Edward Ziggy Rutan, a real estate consultant, identified the Demised Premises for the development of a non-commercial art gallery and art foundation, and pursuant to a lease and rider to the lease dated May 1, 2015 (collectively referred to as "the Lease"), between the Landlord and Tenant, the Landlord leased a portion of the building located at 740 Hicks Street consisting of approximately 7,000 square feet plus basement ("the Demised Premises") to the Tenant.
Plaintiff Tony Shafrazi is the principal of Art Factory Corporation., and guarantor of the Lease. Defendant First Quality Electric Corporation ("First Quality"), is an electrical contracting business and occupies 39 West 9th Street ("the owner's building"). Defendant Yoel Guttman, is a principal of 740-748 Hicks Realty LLC and the owner of First Quality. Defendant Tovia Werzberger is an employee of First Quality. Defendants Steven Schneider and Yakov Stern are the respective principals of Schneider Associates and Yakov Stern, P.E.
In addition to the rental terms set forth above, the Lease provided the Tenant with an option to purchase the building and premises in which the Demised Property is located. As a pre-condition to exercising the option, the parties agreed that the Tenant may subdivide the single tax and zoning lots into two (2) separate tax and zoning lots with each of the respective properties, 740 Hicks Street, and 39 West 9th Street, resting on and within their own tax and zoning lot. The parties further agreed that the option to purchase is not entered into in reliance upon any representation or warranty made by either party." (Emphasis added) (Lease Rider, Paragraph 32)
Upon execution of the lease by Mr. Shafrazi and Mr. Guttman, the Tenant began renovating the Demised Premises for use as a non-commercial art gallery. As part of this process, the Tenant, working with their contractors and architects, completed an Alteration Type 1 ("Alt-1") application filing to the Department of Buildings ("DOB") seeking approval for its proposed use of the property. In October 2015, the Landlord, by Mr. Werzburger, signed the DOB Alt-1 application, however, the Tenant claimed that it could not file its plans because First Quality's electrical contracting business was not a permitted use, and the owner's building was not a permitted structure. In response, relying on Paragraph 15 and 20 of the Lease and Paragraph 17 of the Rider, the Landlord indicated that it made no representations as to the Demised Property or the option to purchase. The Landlord further indicated that pursuant to Paragraph 22(b) of the Rider, it was required only to cooperate at no cost to itself. Notwithstanding these provisions contained in the Lease, at the request of the Landlord, the Tenant did not submit its Alt-1 application to the DOB in an attempt to address the issues related to the development of the property.In this regard, both the Tenant and Landlord acknowledge that the parties held a meeting, together with their respective consultants, on February 17, 2016, however, the parties were unable to reach a resolution.
Following this impasse, the Landlord, submitted a request for a Letter of No Objection to the DOB regarding its use of the owner's building based on a 1926 Certificate of Occupancy that it had obtained from the Tenant. By letter dated February 26, 2016, DOB issued a Letter of No Objection to First Quality's use of the owner's building for "electrical contractor use." According to the Tenant, the Letter of No Objection, did not legalize the building occupied by First Quality since it was built in 1988, and such objection letters can only confirm the legal use of a building constructed before 1938.
On July 27, 2016, plaintiffs filed the within action and notice of pendency. The complaint alleges that the Landlord is in breach of the lease for failing to cooperate with the Tenant to legalize the property, since the owner's building which shares the same tax and zoning lot, is a commercial establishment, does not comply with the zoning regulations applicable to the predominately residential neighborhood, and, prevents the Landlord from exercising the option under the lease.
On August 3, 2016, the Tenant filed the Alt-1 application that had been previously signed off by the Landlord in October 2015.
Thereafter, the Landlord served the Tenant with a Notice to Cure dated August 9, 2016, which alleged the following defaults and violations under the lease:
1) deviation from the project plans previously submitted to the Landlord in that the basement work:(a) encroaches upon the party foundation wall separating the demised premises from the "Adjacent Property"(as that term is defined in the Rider) by approximately 22 to 24 inches beyond the centerline of the party wall/piles; and (b) has resulted in a lowering of the cellar floor 12 feet below the first floor, which is greater than the 10.5 feet proposed on said plans;
2) excavation of the basement portion of the demised premises, and the locking of the door and removal of the stairs leading from the "Adjacent Property" into the basement of the demised premises, because such excavation, locking and removal was performed without first obtaining the Landlord's written approval and/or permission from the DOB and because it has and continues to prevent and/or interfere with the Landlord's right of access to the basement within the demised premises.The Notice to Cure provided that, if the alleged defects under the lease were not corrected by August 31, 2016, the Landlord would terminate the lease and evict the Tenant from the demised premises upon five (5) days notice. Thereafter, by consent of the parties, the cure period was extended several times during the period from August 31, 2016 to October 14, 2016, in order to address the claimed defaults contained in the Notice to Cure. According to the Landlord, as of October 13, 2016, the tenant continued to be in default of the lease pursuant to the Notice to Cure. By Order to Show Cause dated November 23, 2016, the Tenant now requests a Yellowstone injunction or, alternatively, a preliminary injunction, pursuant to CPLR §6301. Upon signing the Order to Show Cause, over opposition, the Court granted the Tenant's request for a temporary restraining order enjoining the Landlord from terminating or interfering with the lease pending the determination of the requested relief. PLAINTIFF'S ORDER TO SHOW CAUSE FOR A YELLOWSTONE INJUNCTION , OR , IN THE ALTERNATIVE A PRELIMINARY INJUNCTION
3) failure to (a) promptly furnish the Landlord with copies of the application documents and drawings that Tenant filed with the DOB on or about August 3, 2016; (b) submit for the Landlord's approval, before any work is allowed to commence, the proposed contractors which your client seeks to use for the work; and (c) furnish the Landlord with evidence that the requisite insurance is in effect on or before commencement of your client's work.
Adjacent Property refers to the building located at 39 West 9th Street, Brooklyn, NY.
The Landlord acknowledged (1) receipt of copies of drawings that the Tenant filed with DOB as sought in the Third Default; and (2) that the Tenant had provided access to the basement entry of the Demised Premises and its installation of a staircase as sought in the Second Default.
A Yellowstone injunction maintains the status quo by tolling the cure period so that a commercial tenant faced with a threat of the termination of its lease can protect its leasehold and, where there is an adverse determination on the merits, cure the default and avoid a forfeiture (see Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc., 93 NY2d 508). The purpose of a Yellowstone injunction is to stop the running of the cure period and maintain the status quo while the underlying dispute is litigated (see E.C. Elec., Inc. v Amblunthorp Holding, Inc., 38 AD3d 401; First Natl. Stores, Inc. v Yellowstone Shopping Ctr. Inc., 21 NY2d 630,). "[F]ar less than the normal showing required for preliminary injunctive relief" is needed, as the "threat of termination of the lease and forfeiture, standing alone, has been sufficient to permit maintenance of the status quo by injunction" (see Post v 120 East End Ave. Corp., 62 NY2d 19; 406 Broome St Rest Inc. v. Lafayette Center, LLC, 2011 NY Slip Op. 34099[U]).
A party seeking Yellowstone relief must establish that: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises [internal quotation marks and citation omitted]. Id.; (see Purdue Pharma, LP v Ardsley Partners, LP, 5 AD3d 654 [2d Dept 2004]). Unlike a preliminary injunction under CPLR Article 63, the plaintiff does not have to show a likelihood of success on the merits. (see WPA/Partners LLC v Port Imperial Ferry Corp., 307 AD2d 234; Stuart v D & D Associates, 160 AD2d 547). However, a plaintiff must demonstrate that "a basis exists for believing that a tenant ... has the ability [to] cure through any means short of vacating the premises [internal quotation marks and citation omitted]." id. at 237; see also Jemaltown of 125th Street v Leon Betesh/Park Seen Realty Associates, 115 AD2d 381, Boulevard. Bistro, LLC v. Allard, 2014 WL 2042296 (N.Y.Sup.).
In the case at bar, the parties do not dispute that the Art Factory is a commercial tenant, has received a notice of termination, and requested injunctive relief prior to the expiration of the time set forth in the notice and agreed upon extension. The issue for the Court to determine is whether the Tenant has the ability [to] cure through any means short of vacating the premises.
Article 3 of the lease expressly provides that the Tenant shall make no changes in or at the demised premises of any nature without the owner's prior written consent. Further Paragraph 8 of the Rider provides in relevant part that alterations by the Tenant in the Demised Premises, as per plans, specifications and applications approved by the DOB, if required, shall be subject to the written approval of the Owner before filing its Alt-1 application. It is well settled that courts adhere to the "sound rule in the construction of contracts, that where the language is clear, unequivocal and unambiguous, the contract is to be interpreted by its own language' [citation omitted]" (see R/S Assoc. v New York Job Dev. Auth., 98 NY2d 29).
While the Tenant contends that it has "made efforts and cured some of the purported breaches and is continuing to take various steps to remedy the other alleged defaults", a review of the record indicates that at least three of the defaults under the lease are incurable due to the Tenant's failure to obtain prior written approval from the Landlord pursuant to the lease. Prior to filing its Alt-1 application, the Tenant performed construction work in the Demised Premises which deviated from the project plans previously submitted to the Landlord. This deviation was determined after inspection by the Landlord's engineer whose findings were contained in a report dated May 22, 2016. Additionally, the October 16, 2015 plans that the landlord signed-off on were altered, added or deleted by the Tenant without the Landlord's approval, and submitted to DOB in its August 16, 2016 filing. Exhibit "I" annexed to the Landlord's opposition papers shows that seven of the drawings filed with the DOB are dated April 25, 2016, which establishes that the Landlord's approval and sign-off predates the Tenant's August 2016 filing with the DOB. "When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms' [citation omitted]" (id. at 33). Moreover, the Tenant does not dispute that it failed to obtain insurance coverage as set forth in the Third Default in the Notice to Cure, which the Landlord argues is an incurable. The Court agrees. The case law has consistently held that a tenant's failure to maintain insurance coverage as required by the lease is an incurable default. (see Kyung Sik Kim v. Idylwood, NY LLC, 66 AD3d 528; see also Kramer v Bohensky, 2010 NY Slip Op. 51089(U)).
Citing WPA/Partners LLC v Port Imperial Ferry Corp., 307 AD2d 234, the Tenant argues that it "need not at this juncture prove [their] ability to cure," rather it takes the position that it can (and did) cure the alleged defaults set out in the Notice to Cure. In WPA/Partners LLC, the Appellate Division, First Department reversed the Supreme Court's determination denying the tenant a Yellowstone Injunction, citing the underlying declaratory judgment action and the tenant's 49 year lease, in which 70 percent of the development project under the lease had been completed at a cost of 22 million dollars. In the instant case, unlike the tenant in WPA/Partners LLC, declaratory relief has not been sought and the construction work undertaken by the Tenant as part of the art gallery's development was, in large part, contrary to the express provisions of the lease requiring prior written approval of the Landlord. Additionally, notwithstanding the claimed amount expended by the Tenant on the development project, there is no indication that the construction work performed by the Tenant prior to the filing of the Order to Show Cause was substantially complete.
The Court also finds that the Tenant has not established the grounds for a preliminary injunction pursuant to CPLR §6301. Notwithstanding the Landlord's argument that the Tenant failed to establish a jurisdictional predicate for the relief requested under CPLR §6301, the breach of contract cause of action alleged in the complaint is sufficient for the Court to address the relief sought.
It is well settled that a party moving for a preliminary injunction must establish: (1) a likelihood of success on the merits, (2) irreparable injury, and (3) a balance of the equities in the movant's favor. (CPLR § 6301) The record establishes that the Landlord made no contractual representations regarding the Demised Premises, the improvements thereon, and/or the use thereof, and that the Landlord engaged in good faith to cooperate with the Tenant by retaining consultants, at its own expense, to resolve the issues relating to the development of the Demised Premises. These circumstances, taken together with the incurable nature of the Tenant's default, does not support a likelihood of success on the merits as to the causes of action asserted in the complaint, which include, breach of contract, specific performance, fraud, fraudulent inducement and unjust enrichment. The Court also finds a balance of the equities favors the Landlord, since the purchase option is inchoate and does not ripen until the property is subdivided at the tenant's own cost. Finally, the Tenant has failed to demonstrate that it will suffer irreparable injury since it plans a non-commercial use of the demised premises. As a result, the Court finds that the Tenant has not met the criteria for the issuance of a preliminary injunction.
DEFENDANTS STERN AND SCHNEIDER MOTIONS TO DISMISS
Defendants Yaakov Stern, P.E. and Yaakov Stern (collectively "Stern") and Schneider Associates and Steven Schneider (collectively "Scheneider"), respectively, move to dismiss the complaint in the underlying action for failure to state a cause of action pursuant to CPLR §3211(a)(7).
On a motion to dismiss, pursuant to CPLR §3211, the Court must accept as true the facts as alleged in the complaint and submissions, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged, fit within any cognizable legal theory (see Leon v. Martinez, 84 NY2d 83, 614 N.Y.S.2d 972, NE.2d 511 [1994]). The case law has consistently established that "the criterion is whether the proponent of the pleading has a cause of action not whether he has stated one" id. at 88.
The Landlord retained Schneider as professional engineers and Stern as consulting engineers to draft, coordinate, certify and file documents with the DOB. The sole cause of action of the plaintiffs, Art Factory Corporation and Tony Shafrazi, against Stern and Schneider is conspiracy to defraud, based on the allegation that the moving defendants acted as agents for the Landlord and filed incorrect documents with the DOB and certified the adequate completion of the work detailed in those documents. The Court finds that the allegations contained therein are insufficient, as a matter of law. It purports to allege a conspiracy but, it is well settled under New York law that, a mere conspiracy to commit a [tort] is never of itself a cause of action (see Brackett v Griswold, 112 NY 454; Manning v Beck, 129 NY 1; Manning v Turtel, 135 AD2d 51, Alexander & Alexander of NY v Fritzen, 68 NY2d 968).
The filing of an Alt II application as opposed to an Alt I application is insufficient to establish that defendants knowingly advanced a fraudulent scheme or purpose.
Plaintiff in the case at bar, contrary to its assertions, did not properly plead a cause of action for fraud under a theory of conspiracy, since there were no facts pled to support an inference that defendants, as agents, knowingly agreed to cooperate in a fraudulent scheme or shared a perfidious purpose with Hicks Realty and Yoel Guttman. Accordingly, dismissal is warranted under CPLR §3211(a)(7).
Based on the foregoing, it hereby,
ORDERED, that the plaintiff's Order to Show Cause (Motion Sequence No.3) is denied; and it is further,
ORDERED, that all stays are vacated; and it is further,
ORDERED, that defendants Stern and Schneider's motions to dismiss (Motion Sequence Nos. 1 & 2, respectively) the complaint are granted and the action is severed as to Stern and Schneider.
This constitutes the decision and order to the Court. ENTER, _______________________ HON. KATHY J. KING J.S.C