Opinion
No. 652050/15.
05-31-2017
AUDTHAN LLC, Plaintiff, v. NICK & DUKE, LLC, Defendant.
Seyfarth Shaw LLP, by Ralph A. Berman, Esq. & Jonathan P. Wolfert, Esq., New York, for Plaintiffs. Cozen O'Connor, by Kenneth K. Fisher, Esq. & Ally Hack, Esq., New York, for Defendants.
Seyfarth Shaw LLP, by Ralph A. Berman, Esq. & Jonathan P. Wolfert, Esq., New York, for Plaintiffs.
Cozen O'Connor, by Kenneth K. Fisher, Esq. & Ally Hack, Esq., New York, for Defendants.
ROBERT R. REED, J.
Motion sequence numbers 003 and 006 are consolidated for disposition. In motion 003, plaintiff Audthan LLC (Audthan) moves for an order to compel defendant Nick & Duke, LLC (Landlord) to approve and execute: (a) a "Cure Regulatory Agreement" (Cure Agreement) negotiated between Audthan and the New York City Department of Housing Preservation and Development (HPD); (b) an amendment to the lease dated May 24, 2013 (Lease), between Audthan and Landlord, to effectuate the Cure Agreement; and (c) certain easements and declarations, consisting of (i) an agreement of easements; (ii) a light and air easement agreement; and (iii) two flood zone restrictive declarations ("Lots 1 and 3"); or, in the alternative, to compel Landlord to review and approve the above-stated documents within a court-specified time.
In motion 006, Landlord moves for an order: (a) lifting the stay that this court issued on July 29, 2016 (in motion 002), to the extent of allowing it to commence a holdover proceeding against Audthan for violating this court's order to comply with its obligations under the Lease during the pendency of this action; (b) pursuant to CPLR 3211(a)(7), dismissing the first through fourth and sixth causes of action for a declaratory judgment, breach of contract, specific performance, breach of good faith and fair dealing, and injunctive relief, respectively, as moot due to the termination of the Lease as of July 8, 2016; (c) denying Audthan's motion (003) as moot, because the Lease has terminated; and (d) directing Suretec Insurance Company to release to it the $270,000 undertaking that Audthan posted, based on Audthan's violation of this court's order, entered on April 5, 2016.
Audthan cross-moves for an order preliminarily and permanently: (a) granting a Yellowstone injunction, or, in the alternative, an injunction pursuant to CPLR 6301, staying and tolling the Lease termination, as set forth in a notice of default, dated May 16, 2016 (2016 Default Notice), and a notice of termination dated June 23, 2016 (2016 Termination Notice), which Landlord claims to have served on Audthan; (b) staying and tolling the cure period, set forth in Article 15 of the Lease, applicable to the purported violations enumerated in the 2016 Default and Termination Notices; (c) preliminarily enjoining Landlord from taking any legal action, or action pursuant to the two 2016 Notices; and (d) preliminarily enjoining Landlord from commencing any special proceedings concerning the 2016 Notices.
For the reasons discussed below, the motions by Audthan and Landlord are denied. Audthan's cross motion is granted.
Background
The underlying facts were discussed in prior decisions. Briefly summarized, the Lease is a long-term ground lease for the premises known as 182–188 Eleventh Avenue, New York, New York (Property), with a term from May 24, 2013 to March 31, 2053, renewable at Audthan's discretion for an additional 48 years and 7 months. Pursuant to the Lease, Audthan plans to a construct a residential and commercial building of 58,000 square feet (Building), gut and renovate an existing building on the Property, and create 15,000 square feet for low income housing. When Audthan entered into the Lease, the Property had several violations, and the Lease provided time for Audthan to cure the violations.
On motion 002 (Prior Motion), Audthan alleged that, since the execution of the Lease, Landlord has sought to frustrate its ability to construct the Building and the low income housing unit, and to prevent it from obtaining financing. Audthan sought injunctive relief against a notice of termination that the Landlord delivered on July 18, 2015 (2015 Termination Notice), based on Audthan's alleged failure to cure the violations within one year of execution of the Lease. Audthan argued that it complied with the requirements of the Lease, by timely commencing efforts to cure the violations, many of which were not capable of being cured within the one-year period.
Section 14.01 of the Lease acknowledges that HPD had issued a harassment finding on April 2, 2009 regarding "Lot 1" of the Property, and that the New York City Department of Buildings (DOB) will not issue a building permit for the Building until a cure of such harassment (HPD Cure) is effectuated.
On the Prior Motion, the court granted Audthan's motion for a Yellowstone injunction and a preliminary injunction. The parties settled an order that: (1) enjoined Landlord, pending a final determination of the action, from (a) claiming that the Lease is terminated pursuant to the 2015 Termination Notice, and (b) commencing any summary proceedings or any other legal action against Audthan concerning the 2015 Termination Notice, disturbing Audthan's tenancy or possession of the Property on the grounds set forth in the 2015 Termination Notice, and interfering with Audthan's time to cure the violations identified in the 2015 Termination Notice, which were tolled and stayed pending a final determination of the action; and (2) required Audthan (a) to post an undertaking in the amount of $270,000; and (b) to continue to pay Landlord its rent and other payment obligations under the Lease, as agreed to by the parties, or as determined by the court.
Motion 003
Audthan states that the Lease expressly provides for the Cure Agreement, and requires Landlord's review and approval of that agreement, together with related documents, within a reasonable time. In support of its motion to compel, Audthan submitted the affidavit of Jonathan Leitersdorf, manager of Skybox/Chelsea, LLC, Audthan's managing member. Mr. Leitersdorf states that Landlord has ignored prior requests to approve and execute documents required for the DOB's building permit so as to allow the $120 million Project to proceed. He avers that Audthan has spent in excess of $19 million in rent, property taxes, improvements, demolition, developing plans, curing violations, and carrying out Audthan's other obligations under the Lease (Leitersdorf aff, sworn to March 9, 2016, ¶ 26).
Audthan also submitted the affidavit of George John Cooper, its project manager, who states that, from the Lease's inception, it was understood that the development plans for the Property require HPD approval, and compliance with the cure provisions of the zoning resolutions (Cooper aff, sworn to March 9, 2016, ¶ 7). Therefore, Article 14 of the Lease expressly acknowledges HPD's previous finding of harassment, and the need for Audthan to pursue a cure "such that the harassment finding shall not prevent, impede or adversely affect or impair the construction" of the Project (id., ¶ 8). He states that, despite several attempts, he was unable to obtain Landlord's execution of documents necessary for the HPD Cure.
In opposition, Gurdayal P. Kohly, Landlord's manager, offers four reasons that the Cure Agreement is flawed. First, according to Mr. Kohly, section seven of the Cure Agreement states that "Low Income Housing will comprise 14,825 square feet, exclusive of the so-called Non–Relocating Units" (Kohly aff, sworn to April 1, 2016, ¶ 7). Since the negotiation of the Cure Agreement, the Civil Court granted rent regulated status to four additional units contained within the 14,825 square feet of cure space (id., ¶ 8). Thus, the square footage of these units, originally part of the 14,825 square feet for low income housing, must be carved out of that space, because the tenants are now non-relocating and non-evicting "permanent tenants" (id., ¶ 9). He questions whether square footage will be taken from the non-low income portion of the project—the portion that will revert to the Landlord after the Lease expires—thereby costing the Landlord, in his view, approximately $2 million (id., ¶ 10).
Similarly, regarding four other "Non–Relocating Units"—identified under the Cure Agreement as units 3A, 3E1, 4C, and 4E, and also situated in the portion of the Project designated for low income housing—the Cure Agreement affirmatively states that their square footage will not count towards the low income cure. Again, he questions the effect of the square footage for these four units (id., ¶ 11). He claims that these are material omissions, and that the plans submitted to HPD need to be redesigned. Moreover, Mr. Kohly contends that, because of Audthan's mismanagement, resulting in additional rent stabilized units, there is a likelihood that some portion of the low income cure space will be located in the market rent condominium unit that was to revert to Landlord after execution of the Lease, necessitating a complete redesign of the Building layouts (id., ¶ 12).
Second, Mr. Kohly states that there are issues concerning disclosures that Clinton Housing Development Corporation and Clinton Housing Development Company (together, CHDC), appointed as administrator of the low income housing, should have made in the filed application to HPD regarding certain litigation involving CHDC (DHR Action), to permit HPD to appropriately consider the application (id., ¶¶ 13–14).
Third, Mr. Kohly states that the merger of "Lots 3 and 4" was improper, because Landlord failed to be a party to, or waive the right to be a part of, the submission purporting to create the merger. Consequently, the Cure Agreement is "[in]consistent with" the Lease and not "reasonably acceptable" to Landlord (id., ¶ 15).
Fourth, Lease section 19.02 provides that any Audthan sublease must end no later than one day prior to the Lease expiration date. Based on the Civil Court's decree that certain single room occupancy (SRO) tenants (Units 301, 201, 206, and 419A) have rent stabilized tenancies, their leases can exist in perpetuity, capable of being passed on to successors after expiration of the Lease (id ., ¶ 16).
Audthan argues that a preliminary injunction is warranted because: (1) the documents are necessary to obtain a building permit to proceed with the Project, and Landlord's failure to execute the documents breaches the Lease; (2) it is subject to irreparable harm, by its inability to obtain a building permit to carry out the Project; and (3) the balance of equities tips in its favor, because the Landlord's failure to act will frustrate the Project, which is the object of the Lease, and cause the loss of millions of dollars spent to date, the loss to the public of employment resulting from the construction and operation of the Project, and the loss of additional low income housing stock.
Landlord counters that the motion for injunctive relief should be denied, because (1) Audthan is actually seeking pre-discovery summary judgment; (2) there are numerous material issues of fact; and (3) it cannot be compelled to sign a flawed Cure Agreement.
Audthan's motion is denied. "The party seeking a preliminary injunction must demonstrate a probability of success on the merits, danger of irreparable injury in the absence of an injunction and a balance of equities in its favor" ( Nobu Next Door, LLC v. Fine Arts Hous., Inc., 4 N.Y.3d 839, 840 [2005] ). Audthan has not satisfied any of these elements.
As a preliminary matter, it appears that Landlord has not acted in good faith regarding the Cure Agreement. According to Mr. Cooper, by letter dated October 8, 2015, Landlord was presented with a letter (easement letter) requesting the execution of documents pertaining to the HPD Cure: (a) an agreement of easements; (b) a light and air easement agreement; and (c) two flood zone restrictive declarations (Lots 1 and 3). Landlord was requested to contact him if there were any issues (Cooper aff, ¶ 10). Mr. Cooper states that in the ensuing five months, Landlord had not contacted him or anyone at Audthan to discuss the documents, nor have they returned executed documents to Audthan ( id., ¶ 12, 800 N.Y.S.2d 48, 833 N.E.2d 191 ). Allegedly, the same is true for a letter, dated December 23, 2015 (Cure Letter), requesting the execution of the Cure Agreement ( id., ¶¶ 13–15, 800 N.Y.S.2d 48, 833 N.E.2d 191 ).
Landlord has not controverted the assertions.
The Lease provides: "Lessor shall cooperate in good faith with Lessee, at Lessee's expense, in executing any agreements, certifications, filings or similar documents as are consistent with the provisions of this Lease or otherwise reasonably acceptable to Lessor in order to effect the HPD Cure" (exhibit A to Leitersdorf aff [Lease, § 14.01] ). "[T]o the extent that the landlord's refusal was unjustified, the landlord would have breached an implied covenant not to prevent and to reasonably cooperate with the tenant's performance of its lease obligations as well as the implied covenant of good faith and fair dealing" ( Chemical Bank v. Stahl, 272 A.D.2d 1, 14, 712 N.Y.S.2d 452 [1st Dept 2000] ). "Conduct affirmatively preventing the other party from performing would materially breach the lease" and the need for Landlord's cooperation can be deemed a "constructive condition" to Audthan's own duty to perform ( id. at 15, 712 N.Y.S.2d 452 ).
That same Lease section (14.01) also provides, however, that Landlord must execute documents that "are consistent with the provisions of this Lease or otherwise reasonably acceptable to Lessor in order to effect the HPD Cure." There are issues of fact as to whether Landlord was justified in refusing to execute the agreements at issue, and whether a revised Cure Agreement is required.
Section seven of the Cure Agreement provides: "Upon completion, the Low Income Housing will comprise an aggregate Floor Area in the amount of Fourteen Thousand, Eight Hundred Twenty Five (14,825) square feet in conformance with the Cure Requirement (which floor area shall not include the floor area of the Non–Relocating Units)" (exhibit C to Leitersdorf aff). As noted above, Landlord contends that the four units that have obtained rent stabilized status must be carved out of that 14,825 square feet area, and that the Lease provides (Section 14.02) that Audthan "shall cause approximately fifteen thousand (15,000) square feet of the existing Improvements to be renovated for operation as low income housing in conjunction with the construction of the New Building." Therefore, Audthan will be unable to provide the 14,825 square feet of affordable housing required by the Cure Agreement unless additional square footage is taken from the commercial/residential project retained by Audthan, and in which Landlord has a reversionary interest.
Audthan argues, in response, that the four units (2C, 2D, 3C and 4A) that are counted in the Cure Agreement's 14,825 square feet of low income housing total a bit more than 600 square feet. It contends that adding 600 square feet to the 14,825 feet contemplated in the Cure Agreement is still within the "approximately 15,000 square feet" of low income housing expressly permitted by the Lease (Lease, § 14.02). Notwithstanding this assertion, the impact of these four units on the Lease and Cure Agreement and on the square footage discrepancy creates an issue of fact. Moreover, the court is not persuaded that these units, although rent stabilized, can still be counted toward the low income Cure amount. The temporary relocation for renovation would not solve the ultimate issue of the square footage discrepancy.
Audthan asserts that, as for units 3A, 3E1, 4C and 4E, designated in the Cure Agreement as "Non–Relocating Tenants," the square footage of their units was never counted towards the Cure amount in the Cure Agreement. Audthan contends that these tenants achieved rent stabilized status prior to the time that Audthan became involved in the Property. In support, Mr. Cooper states that exhibit B to his reply affidavit contains a copy of the New York State Division of Housing and Community Renewal (DHR) Registration Rent Roll report for the SRO hotel, dated July 25, 2012, which, he contends, shows that occupants of Units 3A, 3E1, 4C, and 4E were already rent stabilized tenants, as of July 25, 2012, nearly a year before the parties entered into the Lease, and had been filed as rent stabilized on or before October 27, 2008 (Cooper reply aff, sworn to April 25, 2106, ¶ 4; exhibit B to Cooper reply aff). Yet, a review of the rent roll does not list apartments with those designations. Even if it did, however, his assertion would not resolve the issue of the square footage discrepancy.
The other three reasons given by Landlord for opposing the motion (described above) are without consequence on this motion.
Mr. Cooper persuasively challenges Landlord's claim that the former tax Lots 3 and 4 were improperly merged, by asserting that Landlord expressly agreed to the construction of a single building on the merged lot. He claims that the New York City Department of Finance requires that such a building be deemed a single tax lot, necessitating the merger, and that, at the expiration of the Lease, Landlord can divide the tax lot again (Cooper reply aff., ¶ 7).
As for the disclosure issues involving the CHDC application, in its role as sponsor and administering agent for the low income housing portion of the Property, Joe Restuccia, its executive director, states that CHDC was required to submit a disclosure statement consisting of information and supporting documents to HPD for a process known as "Sponsor Review" (Restuccia aff, sworn to April 22, 2016, ¶ 6). He continues that, in seeking HPD approval of CHDC's participation in the Cure Agreement, CHDC was only required to update the information from its "December 2014 Sponsor Review" in the form of an "Affidavit of No Change or Affidavit of Limited Change," which is used for clearance of new projects during the 36–month period for which the full form Sponsor Review is effective ( id., ¶ 8, 712 N.Y.S.2d 452 ). Mr. Restuccia acknowledges that the existence of the "DHR Action" was inadvertently omitted from the "Affidavit of No Change" submitted for the Project. He contends that this is not uncommon, given the scope of review and the many projects for which CHDC is responsible ( id., ¶ 9, 712 N.Y.S.2d 452 ). He represents that he contacted Michael Lostocco, the deputy director of "Inclusionary Housing" of HPD, on April 13, 2016, and specifically discussed the existence of the DHR Action. He represents further that Mr. Lostocco confirmed that HPD did not view the existence of the DHR Action as material or as disqualifying CHDC from acting as administering agent under the Cure Agreement or from participating in any project under the jurisdiction of HPD ( id., ¶ 10, 712 N.Y.S.2d 452 ). These assertions are uncontroverted.
The other two objections are without relevance to the issue raised by motion 003.
Audthan has not demonstrated irreparable harm, because Audthan does not contend that denial of the motion will cause the Project to fail. A delay in the Project's progress does not equate to its failure.
The balance of equities favor Landlord because the preliminary injunction sought will change the status quo ( Buchanan Capital Mkts., LLC v. DeLucca, 144 A.D.3d 508, 509, 41 N.Y.S.3d 229 [1st Dept 2016] ). Denial of the motion will preserve the status quo until the issue of the units is resolved, whereas granting the injunction could adversely affect Landlord, prior to the resolution of the material factual issues discussed above. "The decision to grant or deny provisional relief is ordinarily committed to the sound discretion of the court. However, the function of a provisional remedy is not to determine the ultimate rights of the parties, but to maintain the status quo until there can be a full hearing on the merits" ( Lehey v. Goldburt, 90 A.D.3d 410, 411, 933 N.Y.S.2d 281[1st Dept 2011] ] [internal quotation marks and citation omitted] ).
Motion 006
Landlord argues that Audthan has continued to allow violations to be issued against the Property, and has failed to respond to a 30–day cure notice. It argues further that, because the violations remain uncured, the Lease has terminated, and the court is without jurisdiction to revive it. Consequently, Landlord argues, Audthan's motion (003) is moot.
Landlord claims that Audthan breached the Lease (section 5.02) and the July 29, 2016 order by causing or allowing violation numbers 35013876P, E189 370 060, and 35154157H (collectively, Three Violations) (exhibit E to affirmation of Kenneth Fisher, Esq., dated July 18, 2016) to be issued against the Property. Violation 35013876P, from July 31, 2013, was issued for work without a permit. Violation El89 370 060, from September 18, 2013, was a notice of hearing issued for failing to maintain the building in a code compliant manner. Violation 35154157H, from September 12, 2015, was issued for failing to file a certificate of correction.
Landlord contends that curing the Three Violations would not involve any enlargement or new construction on the zoning lot where the harassment is alleged to have occurred. Therefore, an executed Cure Agreement was not required for Audthan to resolve these violations. Audthan has not produced an "Objection Sheet" that DOB would have issued when it applied for cure permits, limited to plans for work solely related to the violations. Thus, it cannot be excused for its default in failing to have cured the violations absent the Cure Agreement. Landlord asserts that although Audthan claims to have filed plans to correct the violations, the filing is for the renovation and enlargement from the existing four story building to a seven story-mixed use building.
Landlord states further that, pursuant to sections 15.01 and 15.02 of the Lease, it served Audthan with the 2016 Default Notice advising it of the Three Violations (exhibit F to Fisher affirmation). Pursuant to Lease section 25.01, the notice was served at the Property, at the 10 East 53rd Street address designated in the Lease as Audthan's address for service, and at the 375 Park Avenue address (the address on file with the New York Secretary of State, and known to Landlord to be Audthan's principal office address). Thereafter, Landlord similarly served the 2016 Termination Notice, advising that the Three Violations were not cured (exhibit H to Fisher affirmation). Consequently, it contends, the Lease was terminated. It argues that all that remains is for the parties to adjudicate Landlord's right to a judgment of possession before the Civil Court.
Audthan responds that Landlord's notices are substantively defective, because they were served at a time when it had already commenced efforts to cure the violations during the cure period applicable under the Lease; it is diligently pursuing a cure; and Landlord's efforts are preventing it from completing the cure. Audthan's time to cure the violations has, under the terms of the Lease, been extended. Therefore, it argues, Landlord could not have served a valid notice of termination.
Audthan also claims that the 2016 Notices are ineffective, because they were never properly served on Audthan. Counsel for Audthan states that neither Landlord nor its counsel ever made any attempt to contact Audthan's counsel even though, during this period (May and July 2016), Audthan had a motion pending before the court, discovery was being pursued in this action, and counsel for Landlord and Audthan were in regular contact, both with respect to this matter and other matters being handled by both counsel.
As a preliminary matter, the court notes that Audthan's detailed explanation for why it did not receive the 2016 Default Notice is unconvincing. It is undisputed that Landlord sent the notice to the addresses set forth in the Lease. However, the matter here warrants the same disposition as motion 003, wherein, as explained above, the court found that Landlord has not acted in good faith in responding to the request to execute the Cure Agreement. In both instances, the defense is the same, namely an objection on the merits. Landlord contends that the Cure Agreement is defective and Audthan claims that there was no basis to send the notices of default. As for this defense, as with motion 003, the court finds issues of fact.
Mr. Cooper avers that Audthan was working to cure the Three Violations prior to the service of the 2016 Default Notice (Cooper aff, sworn to August 1, 2016, ¶¶ 3, 10). He claims that the main obstacle to curing the violations in full, and having them removed, is Audthan's inability to obtain a building permit. Allegedly, that inability is a direct result of Landlord's refusal to sign the Cure Agreement ( id., ¶ 4, 933 N.Y.S.2d 281 ).
Violation 35154157H is for failure to submit a certificate of correction for Violation 35013876P. Therefore, both violations relate to the same condition on the Property, and require the same work to cure ( id., ¶ 6, 933 N.Y.S.2d 281 ). Mr. Cooper states that these violations arose when a non-residential portion of the cellar and the first floor of the SRO sustained damage in Hurricane Sandy. The nature of the damage required that the affected area be demolished, that damaged equipment located there be removed, and, ultimately, that the area be reconstructed and that plumbing, mechanical and electrical upgrades be installed. In late 2012 and early 2013, he states, Audthan carried out emergency repairs that were permitted in the aftermath of Hurricane Sandy, most notably, the elimination of all hazardous conditions, including the removal of all water saturated sheet-rock and electrical outlets, as well as the removal of the building's damaged boiler, the installation of a new boiler to restore heat and hot water, and the installation of replacement electrical meters and service lines. Because of its emergency nature, this work could be carried out without a permit. Part of the Project contemplated by the Lease involved the renovation of the existing building. Mr. Cooper alleges that Audthan has been working continuously, since 2013, on preparing the Property and developing the plans necessary to proceed with the renovation work that includes the cure of the first floor violations. By April 2016, one month before the 2016 Default Notice was purportedly sent by Landlord, Audthan had already completed the design work and submitted plans to DOB to perform the work necessary to resolve the two violations. However, Audthan claims that it could not, and cannot, proceed further because of Landlord's refusal to execute the Cure Agreement ( id., ¶¶ 7–10, 933 N.Y.S.2d 281 ).
The third violation, E189 370 060 (backflow violation), involves installing "backflow prevention devices" on the pipes supplying water to the building to insure that contaminated water does not back into the City water supply. Removal of the violation requires the retroactive refitting of existing buildings built prior to adoption of the regulation. On March 11, 2016, Audthan appeared at several hearings before the New York City Environmental Control Board (ECB) regarding the violation. At a first hearing, Audthan submitted a letter from its engineer certifying that it had been retained to design and install a backflow prevention system as part of the renovation of the existing building. The hearing was adjourned to May 6, 2016 to allow Audthan to carry out the work described and report back to ECB. In April 2016, Audthan submitted to the New York City Department of Environmental Protection (DEP) plans for the installation of a backflow prevention system, subsequently approved by the DEP on April 28, 2016. The plans for the cure were incorporated into an "Alt–1" application for the renovation of the existing SRO building, and filed with the DOB on April 8, 2016. Mr. Cooper claims that Audthan cannot proceed with this work until a building permit is issued, and that DOB will not issue one unless Audthan can provide a "Certificate of Cure Compliance." Mr. Cooper claims that the ECB is satisfied with Audthan's approach to cure the backflow violation. Audthan contends, however, that none of the work can proceed, and the violations cannot be cured, until the Cure Agreement is in place ( id., ¶¶ 12–22, 933 N.Y.S.2d 281 ).
Landlord submitted the expert opinion of Robert Limandri, a senior principal at Vidaris, Inc., a specialty provider of building consulting services, and a former DOB Commissioner. Mr. Limandri opines that the violations could have been corrected within 30 days, regardless of the Cure Agreement.
As for the backflow violation, Mr. Limandri states that backflow prevention devices are listed in the Administrative Code as a "Category 2 Limited Plumbing Alteration," that any licensed Master Plumber could install such devices by filing a "Limited Alteration Application," and the installation would typically take approximately one week from start to finish (Limandri aff, sworn to September 20, 2016, ¶ 9).
Mr. Limandri states that the same open Alt–1 that led to the DEP violation also led to the other two violations. Violation 35013876P was issued because the construction described in the open Alt–1 was performed before issuance of a work permit. He states that available documents contradict the claim that it was Hurricane Sandy-related repair work. The form for the open Alt–1 describes a "Proposed Use" of the 1st floor as an "Eating and drinking establishment ... hotel lobby and accessory uses." The notice of violation states that the "Violating Conditions" are "1st floor layout altered ... to convert 1st floor into reception area for hotel, eating drinking establishment," and is silent as to the existence of storm damage or incomplete repair work.
Violation 35154157H was issued because violation 35013876P was not corrected. Therefore, if Audthan had pulled a work permit within two months of signing the Lease to address the backflow prevention device issue, violations 35013876P and 35154157H would never have been issued. He claims that these violations could have been resolved within 30 days, because if the construction described in the open Alt–1 had already been completed, Audthan simply had to pull the permit and submit proof to the DOB. If the construction differed slightly from that described in the open Alt–1, a "Post Approval Amendment" (PAA) could have been submitted, adding about one to two business days to the overall process. Instead, according to Mr. Limandri, Audthan waited eight months to get the Alt–1 reinstated and approved (on January 3, 2014), took no further action until August 4, 2014 when it submitted a revision (approved on September 2, 2014), and finally pulled a permit (on October 20, 2015), nearly 17 months after the Lease signing ( id., ¶¶ 11–15, 933 N.Y.S.2d 281 ).
Mr. Cooper responds by stating that Mr. Limandri's analysis ignores that the earlier Alt–1 was an application to carry out architectural work on the Property, and contained no provision for work on plumbing, mechanical, or electrical systems in the building—the type of work required to cure the violations (Cooper aff, sworn to October 24, 2016, ¶ 6). Moreover, carrying out the work, had it been authorized by the earlier Alt–1, would not have cured the violations. Both the Alt–1 to which Mr. Limandri refers and the Alt–1 submitted in April 2016, pursuant to which Audthan proposes to do the cure work, involve a change in use of the space in question from an eating and drinking establishment to either an "art gallery, hotel lobby, accessory use" as represented in the first Alt–1 or to a "retail and residential lobby," as represented in the second Alt–1. Presently, the building provides for use of the space for an eating and drinking establishment, stores, auto repair shop, air conditioner repairs and service and installation. Thus, a cure of the first floor violations would require a change to the certificate of occupancy ( id., ¶¶ 8–9, 933 N.Y.S.2d 281 ).
Moreover, Audthan's plan is to implement a permanent cure as part of the renovation and reconstruction of the building. He states that, as noted in his prior affidavit, regarding the backflow violation, the ECB and DEP have accepted Audthan's approach of installing the backflow preventer as part of the renovation work to be carried out under the Alt–1 submitted in April 2016. The parties agreed to adjourn adjudication of the backflow violation pending completion of the renovation work. Consequently, at Audthan's latest appearance before the ECB on October 7, 2016, the hearing on the backflow violation was again adjourned on the consent of all parties to January 20, 2017 ( id., ¶ 11, 933 N.Y.S.2d 281 ).
Audthan also submitted the expert affidavit of Cornelius F. Dennis, principal of CFD Consulting, a firm that provides consulting services and advice in relation to building and zoning codes, and a former First Deputy Commissioner of the DOB. Mr. Dennis states that the proposed alteration to the Property, as reflected in the Alt–1 filing (Job No.122761582), involves the complete gutting of the existing building located on Lot 1; replacing all the mechanical, plumbing, and electrical systems; adding new fire prevention and sprinkler system throughout the building; adding a new elevator and emergency egress and a new penthouse; and changing the basic use to a "Class A Multiple Dwelling" (Dennis aff, sworn to October 22, 2016, ¶ 3).
Mr. Dennis notes Mr. Limandri's acknowledgment that Audthan submitted the Alt–1 application by April 12, 2016, and that the Alt–1 application "cannot be approved until an anti-harassment Cure is signed." Thus, he opines, Mr. Limandri appears to agree that the work to cure the violations had already commenced during the 30–day "cure period," and that this work could not be completed within such period ( id., ¶ 6, 933 N.Y.S.2d 281 ).
Mr. Dennis challenges Mr. Limandri's claim that the violations could have been cured pursuant to an already approved Alt–1 without going through a new approval process or requiring that the Cure Agreement be in place. Job # 120837238 was an application to carry out architectural work on the Property, and contained no provision for work on plumbing, mechanical or electrical systems in the building—the type of work required to cure the first floor violations. Mr. Dennis opines that adding such work to an Alt–1 is not a "slight" change that can be accomplished through a PAA, but would require adding new work types to an existing approved application, which is not normally possible. Submission of new Alt–1 or Alt–2 applications, providing for such work, and a new review process, is required. The same is true for curing the backflow violation, which had not yet been issued at the time the earlier Alt–1 was submitted, and would require the addition of an entirely new category of work (plumbing) that could not be addressed through a PAA of the previous Alt–1 ( id., ¶ 11, 933 N.Y.S.2d 281 ).
Moreover, Mr. Dennis contends, New York City Zoning Resolution section 93–90(d)(2)(ii)(a) provides that, where there is a finding of harassment against a building, DOB "shall not issue any temporary or permanent certificate of occupancy for any new or existing structure or portion thereof" until a harassment cure is in place ( id., ¶ 17, 933 N.Y.S.2d 281 ).
He also states that Mr. Limandri fails to recognize that the work necessary to cure these violations is being carried out in the context of an overall project to substantially renovate the existing building, and to erect a mixed use office and residential tower on Lot 3. The question is not simply whether Audthan could find an existing permit on which to piggyback certain work. The Alt–1 submitted by Audthan in April 2016 provides for the cure work to be carried out as part of, and in a manner consistent with, the overall Project that is the object of the Lease ( id., ¶ 19, 933 N.Y.S.2d 281 ).
Landlord's motion is denied. The 2016 Default Notice was served in May 2016, yet the cure was begun in April 2016 (see Cooper aff, ¶ 15; exhibit G). Moreover, the conflicting expert affidavits present material issues of fact as to whether the Three Violations could have been reasonably cured within the 30–day period, set forth in section 15.1(b) of the Lease. The issues presented here directly relate to the Cure Agreement discussed above in motion 003. Mr. Limandri himself concedes that in the solution proposed by Audthan (a gut renovation wherein a brand-new Alt–1 [Job # 122761582] is filed covering the work addressed by the violations), cannot be approved until the Cure Agreement is signed. Although he opines that a simpler resolution would be to use the existing open Alt–1 in conjunction with a new "Limited Alteration Application," Mr. Limandri himself states that a PAA is available only to allow for construction that "differs slightly" from the work described in the previously approved Alt–1. As Mr. Dennis persuasively notes, Mr. Limandri does not identify or discuss what sort of amendments to the prior Alt–1 would have been required to carry out the work at issue (see Limandri aff, ¶ 12; Dennis aff, ¶ 10). The court cannot rule on these papers that Audthan's approach violates its Lease obligations.
Due to the conflicting affidavits, Landlord failed to meet its burden on summary judgment to demonstrate entitlement to judgment as a matter of law (see BLT Steak, LLC v. 57th St. Dorchester, Inc., 93 A.D.3d 554, 554, 940 N.Y.S.2d 603 [1st Dept 2012] [plaintiff "not entitled to summary judgment declaring that it did not breach the parties' lease; the conflicting expert affidavits have raised issues of fact with respect to the damage to the steel and slab underlying plaintiff's kitchen"] ). The "conflicting expert opinions raised credibility issues which can only be resolved by a fact-finder after a hearing" ( Willoughby Rehabilitation & Health Care Ctr., LLC v. Webster, 134 AD3d 811, 814 [2d Dept 2015] ).
As a result of the foregoing, Landlord's request to dismiss the first, second, third, fourth, and sixth causes of action as moot based on the alleged termination of Audthan's lease, is denied, as is the request that Suretec Insurance Company be directed to release to it Audthan's undertaking.
The court grants the cross motion for the same reasons set forth in the decision on the Prior Motion. However, the granting of the cross motion is contingent upon an increase in the undertaking because of the additional violations.
Accordingly, it is
ORDERED that motion 003 by Audthan LLC is denied; and it is further
ORDERED that motion 006 by Nick & Duke, LLC is denied; and it is further
ORDERED that Audthan LLC's cross motion is granted and it is further
ORDERED that a Yellowstone Injunction and a preliminary injunction pursuant to CPLR 6301 are hereby granted to Audthan LLC, and therefore, first, Nick & Duke LLC is enjoined, pending a final determination of this action, from (a) claiming that the Lease is terminated pursuant to the notice of termination dated June 23, 2016 and (b) commencing any summary proceedings or any other legal action against Audthan LLC concerning that notice of termination, or in any way disturbing Audthan LLC's tenancy or possession of the Property on the grounds set forth in that notice of termination, and, second, Audthan LLC's time to cure the violations identified in the June 23, 2016 notice of termination is hereby tolled and stayed pending a final determination of this action; and it is further
ORDERED that, within ten business days of service on Audthan LLC of Notice of Entry of this Order by Nick & Duke, LLC, Audthan LLC shall post an additional undertaking, pursuant to CPLR 6312(b), in the amount of $230,000.00; and it is further
ORDERED, that Audthan LLC shall continue to pay Nick & Duke, LLC as use and occupancy all base rent that may be required by the Lease, and all additional rent as agreed to by the parties or determined by this Court during the pendency of this Action.