Opinion
L & T 078745/10
04-27-2015
C & A 483 Broadway LLC, Petitioner-Landlord, v. KLMNI Inc., Respondent-Tenant.
For Petitioner C & A 483 Broadway, LLC. Jerry Montag, Esq. Seyfarth Shaw, LLP 620 8th Ave #33 New York, NY 10018 Tel: 212-218-5500 For Respondent KLMNI, Inc. Kenneth M. Lieblich, Esq. Mishaan Dayon & Lieblich 1370 Broadway Suite 802 New York, NY 10018 Tel: 212-944-0900
For Petitioner C & A 483 Broadway, LLC.
Jerry Montag, Esq.
Seyfarth Shaw, LLP
620 8th Ave #33
New York, NY 10018
Tel: 212-218-5500
For Respondent KLMNI, Inc.
Kenneth M. Lieblich, Esq.
Mishaan Dayon & Lieblich
1370 Broadway
Suite 802
New York, NY 10018
Tel: 212-944-0900
James E. d'Auguste, J.
This Court conducted a multi-day non-jury bench trial in this commercial landlord-tenant holdover proceeding. Having considered the credible evidence, this Court hereby finds for the petitioner C & A 483 Broadway LLC ("C & A").
As directed below, execution on a warrant of eviction issued pursuant to the judgments entered as a result of this decision will be stayed sua sponte pending appellate proceedings provided use and occupancy is timely remitted by KLMNI as previously directed by this Court.
Respondent KLMNI Inc. ("KLMNI") occupied commercial premises located at 483 Broadway, New York, New York pursuant to a 2002 lease (the "Lease") that it entered into with its prior landlord, 483 Broadway Realty Corp. ("484 Corp."). The Lease mandates that rent is required to be paid on the first of each month. A failure to timely pay rental obligations constituted an event of default under the terms of the Lease. The Lease provided an express conditional limitation that permitted the landlord to terminate the Lease should a default in paying the rental obligations continue for a period of ten days. Lease ¶ 17. The Lease was assigned to C & A as part of a net lease dated December 2, 2009 (the "Master Lease") that it entered into with 484 Corp. KLMNI was served with a notice to attorn dated June 1, 2010 (the "Notice to Attorn") notifying it that the Lease would be assigned to C & A as of July 1, 2010. When KLMNI failed to timely pay its July 2010 rent and this default continued beyond the cure period set forth in the Lease, C & A terminated the Lease. This commercial holdover proceeding was thereafter commenced by C & A. As a result of a prior decision of the Appellate Term, First Department, KLMNI was limited at trial to its third affirmative defense, which raises as the doctrines of equitable estoppel, waiver, laches, and unclean hands. KLMNI failed to meet its burden of demonstrating by a preponderance of the credible evidence that it is entitled to relief under any of the above equitable defenses. To the extent deemed necessary, the Court addresses the various legal arguments below.
KLMNI relies heavily on a typographical error in the Notice to Attorn, which is addressed below.
C & A argues that the Appellate Term's decision limited KLMNI solely to the defense of equitable estoppel. This Court disagrees with C & A's interpretation of the appellate decision. As such, the Court permitted KLMNI to pursue at trial the multiple legal theories set forth in its third affirmative defense.
Equitable Estoppel Defense
KLMNI has failed to demonstrate an entitlement to relief pursuant to the doctrine of equitable estoppel. In reaching this conclusion the Court finds that KLMNI did not justifiably rely on any word or deed by either C & A or 483 Corp. that mislead it into failing to timely pay its rent. Nor did either entity conceal from KLMNI any material fact. KLMNI was aware that it was required to pay its July 2010 rent to C & A, but failed to meet this obligation. In reaching this factual conclusion, the Court notes that KLMNI was not genuinely confused as to the identity of its landlord given both its knowledge of the Master Lease's existence and the service upon it of the Notice to Attorn. While there was a typo in the Notice to Attorn, the Court finds as a factual matter that this did not confuse KLMNI in any manner. Indeed, the very purpose of a Notice to Attorn is to direct a tenant to pay rent to an entity other than the original landlord. Cf. Chase Manhattan Bank v. Brown & E. Ridge Partners, 243 AD2d 81, 82-83 (4th Dep't 1998); Bank of Tokyo Trust Co. v. Urban Food Malls Ltd., 229 AD2d 14, 21 (1st Dep't 1996). KLMNI's principal, who is sophisticated in commercial real estate matters, was aware that it was required to timely pay its rent to C & A and failed to comply with this contractual obligation as required by the Lease.
The Court also finds that KLMNI did not rely on the Yellowstone injunction order dated May 8, 2008 (Braun, J.) when it failed to pay C & A. To support the position that it did, KLMNI cites to a provision in that order providing for the timely payment of rent to its then-landlord, 483 Corp. As a legal matter, the Court finds that KLMNI's putative mistaken reliance on the May 8 order is not inequitable conduct on the part of C & A. As a factual matter, the Court finds that KLMNI did not rely on the May 8 order when it failed to timely pay its rent. KLMNI knew that it was required to pay its rent to C & A and failed to meet this obligation. Notably, KLMNI did not timely pay its rent to either C & A or 483 Corp., which belies its asserted reliance on the May 8 order. KLMNI's belatedly rental payment of its rent to 483 Corp. after C & A terminated the Lease is not proof of confusion because the Court finds that it was designed to obfuscate the fact of KLMNI's default to shield it from the consequences of its default. As such, the Court finds that, as a legal and factual matter, the May 8 order as a basis for excusing it from its Lease default.
Accordingly, the Court finds that KLMNI has not demonstrated by a preponderance of the credible evidence the defense of equitable estoppel.
Waiver Defense
483 Corp., as the predecessor to C & A, did not waive KLMNI's obligation under the Lease to timely pay its rent. The record demonstrates that 483 Corp. sent multiple letters to KLMNI relating to the late payment of its rent. 483 Corp. did not waive legal remedies under the lease by only mentioning in the letters a potential application to dissolve the Yellowstone injunction. Once KLMNI was on notice that it was required to pay the rent in a timely fashion than any waiver that could have been asserted to exist was effectively withdrawn. Madison Avenue Leasehold, LLC v. Madison Bentley Associates LLC, 30 AD3d 1 (1st Dep't 2006) ("[A] party that has repeatedly waived a condition of performance, particularly the timeliness of payment, is required to give notice that its waiver has been withdrawn before demanding strict compliance with the condition."). The Court finds that KLMNI was repeatedly notified that its late payment of rent was unacceptable and, as such, any waiver that arguably existed was effectively withdrawn. Medlock Crossing Shopping Ctr. Duluth, Ga. Ltd. P'ship v. Kitchen & Bath Studio, Inc., 126 AD3d 1463 (4th Dep't 2015).
This Court used Madison Avenue to illustrate this legal proposition because KLMNI heavily relied upon the decision in its post trial submission. It is noted, however, that the Court of Appeals affirmed the result reached in that litigation on contractual interpretation grounds, not on a finding of waiver. 8 NY3d 59, 64-65 (2006) ("[W]e now affirm, although our analysis differs from that of the Appellate Division majority.").
The argument that these letters modified the Lease itself to eliminate the landlord's ability to terminate the leasehold on the grounds of a rent default is devoid of any merit.
Accordingly, the Court finds that KLMNI has not demonstrated by a preponderance of the credible evidence the defense of waiver. Laches Defense
KLMNI has failed to demonstrate an entitlement to relief based upon the doctrine of laches. As an initial matter, it is unlikely that a sophisticated commercial tenant, such as KLMNI, would be entitled to invoke this doctrine, particularly when the Lease contains a "no waiver" provision. In any event, the Court finds, as a factual matter that KLMNI has failed to demonstrate an entitlement to abrogate its default on the ground of laches. To be entitled to rely on the doctrine of laches, KLMNI was required to demonstrate: "(1) conduct by an offending party giving rise to the stipulation complained of, (2) delay by the complainant in asserting his or her claim for relief despite the opportunity to do so, (3) lack of knowledge or notice on the part of the offending party that the complainant would assert his or her claim for relief, and (4) injury or prejudice to the offending party in the event that relief is accorded the complainant." Dwyer v. Mazzola, 171 AD2d 726, 727 (2d Dep't 1991). Here, KLMNI has not demonstrated any of the factors necessary for being entitled to an application of this doctrine.
E.g., 501 Seventh Ave. Assoc. v. 501 Seventh Ave. Bake Corp., 2002 WL 31065240 (N.Y.C. Civ. Ct. 2002).
E.g., 626 E. 9 St. Hous. Dev. Fund Corp. v. Collins, 185 Misc 2d 628 (N.Y.C. Civ. Ct. 2000).
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Accordingly, the Court finds that KLMNI has not demonstrated by a preponderance of the credible evidence the defense of laches.
Unclean Hands Defense
KLMNI has failed to demonstrate an entitlement to relief under the doctrine of unclean hands, which is available when a party is guilty of immoral or unconscionable conduct directly related to the subject matter at issue in the litigation and the party seeking to invoke the doctrine has been injured by such conduct. Frymer v. Bell, 99 AD2d 91 (1st Dep't 1984). KLMNI demonstrated C & A's willingness to engage in bare-knuckled tactics to obtain the commercial premises, as evidenced by an email submitted by KLMNI and C & A terminating the Lease. Despite the foregoing, the Court finds that C & A did not engage in any conduct that encouraged KLMNI to default on its Lease obligations. C & A's reliance on its contractual right to terminate the Lease does not constitute unclean hands. As such, the Court finds that sole responsibility for KLMNI's default, and corresponding loss of a valuable leasehold rests entirely on its own shoulders.
Accordingly, the Court finds that KLMNI has not demonstrated by a preponderance of the credible evidence the defense of unclean hands.
Conclusion
Based upon the foregoing, the Court finds, after trial, that C & A is entitled to judgment in this matter. The parties are to settle order on notice with the proposed order including the issuance of appropriate judgments together with a stay of a warrant of eviction pending the conclusion of proceedings before the Appellate Term provided, as an express condition of the stay, the continued timely payment of use and occupancy.
This constitutes the decision of this Court.
Dated: April 27, 2015
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J.C.C.