Opinion
CV-00176/18
09-26-2019
KEE'S CHOCOLATES LLC, Plaintiff, v. CHARLES THOMPSON LLC, Defendant.
ATTORNEY FOR PLAINTIFF: Shoeman Updike Kaufman & Gerber LLP By: Charles B. Updike & Jeremy Miguel Weintraub, 551 Fifth Avenue, New York, NY 10176-0001, (212) 661-5030 ATTORNEY FOR DEFENDANT: Greenberg Freeman LLP By: Michael A. Freeman, 110 East 59th Street, 22nd Floor, New York, NY 10022, (212) 838-3121
ATTORNEY FOR PLAINTIFF: Shoeman Updike Kaufman & Gerber LLP By: Charles B. Updike & Jeremy Miguel Weintraub, 551 Fifth Avenue, New York, NY 10176-0001, (212) 661-5030
ATTORNEY FOR DEFENDANT: Greenberg Freeman LLP By: Michael A. Freeman, 110 East 59th Street, 22nd Floor, New York, NY 10022, (212) 838-3121
Elena Baron, J.
Recitation, as required by CPLR 2219(a), of the papers considered in the review of this motion
PAPERS NUMBERED
Notice of Motion, Affidavits and Exhibits, and Memorandum of Law 1, 2
Notice of Cross Motion, Affidavits and Exhibits, and Memorandum of Law 3, 4
Reply Affirmation and Exhibits, and Memorandum of Law 5, 6
Reply Memorandum 7
Upon the foregoing cited papers, the Decision/Order on this motion is as follows:
Plaintiff-tenant Kee's Chocolates LLC (Tenant) filed this action alleging breach of contract, conversion, and commingling of the security deposit, all stemming from defendant-landlord Charles Thompson LLC's (Landlord) failure to return the security deposit. Landlord moves for summary judgment in its favor on its first, second, third, and fifth counterclaims, which allege, among other things, Tenant's failure to indemnify Landlord in the federal action in breach of paragraphs 6, 8, and 19 of the lease, Tenant's failure to pay real estate taxes, and Landlord's right to costs and attorneys' fees in this action. Landlord seeks a declaration from this court as to its right to retain Tenant's security deposit. Landlord also moves for summary judgment dismissing the first, second and third causes of action in the complaint. Tenant cross-moves for summary judgment in its favor on its first and second causes of action, for summary judgment dismissing all five of Landlord's counterclaims with prejudice, for discovery sanctions and for costs incurred in this action. For the reasons stated below, Landlord's motion is granted in part and denied in part. Tenant's cross motion is granted in part and denied in part.
I. Background
By lease dated June 1, 1996, Landlord leased "The South Store (ground floor and basement)" at 80 Thompson Street (premises) to Le Corset, Inc. The lease was amended pursuant to a First Amendment to the Lease dated June 26, 2004. By an Assignment and Assumption of Lease dated December 7, 2006, and entered between Landlord, Tenant and Le Corset, Tenant assumed and accepted the lease. Kee Ling signed a personal guaranty for the lease. On June 8, 2009, Landlord and Tenant entered into a Second Amendment to the Lease. On May 30, 2012, Landlord and Tenant entered into a Third Amendment to the Lease, which, among other things, extended the lease term to June 30, 2017.
On March 3, 2017, while the Third Amendment to the Lease was still in effect, Graciela Bretschneider Doncouse commenced a federal action against Landlord and Tenant, alleging, among other things, that they violated the Americans with Disabilities Act (ADA) by denying her access to the premises. The matter was settled by a Confidential Settlement Agreement between the plaintiff in the federal action and Landlord, without a finding of fault. Marc S. Shore, Managing Member of Landlord, avers in his affidavit in support of Landlord's motion in this action that Landlord paid $8,000 to the plaintiff's counsel on October 4, 2017, and that after the settlement was consummated, the ADA action was dismissed and discontinued as to all parties.
On June 29, 2017, while the federal action was pending, Tenant vacated the store, a day before the expiration of the lease. By letter dated August 7, 2017, from Mr. Shore to Kee Ling Tong, founder and President of Tenant, Mr. Shore noted that Tenant vacated the premises on or about June 29, 2017 and stated that it was "currently in possession of a security deposit made by [Tenant] in the amount of $10,272.00" (Landlord's exhibit N [letter] ). Mr. Shore added that it would retain the "full amount of the security deposit" if Tenant did not reimburse Landlord for attorneys' fees and expenses incurred in the federal action in the amount of $4,336.00 and if Tenant did not "guaranty payment of all future amounts incurred" by Landlord (id. ). Mr. Shore asserted that Tenant was obligated to indemnify Landlord pursuant to paragraphs 6, 8 and 19 of the lease.
On August 16, 2017, Tenant's counsel sent Landlord's counsel an email in response to Landlord's letter dated August 7, 2017. Tenant's counsel demanded that Landlord's counsel return the security deposit to Tenant and stated that the deposit should have been returned "upon termination of the lease on June 30, 2017" (Tenant's exhibit 10). Tenant's counsel asserted that any costs incurred in the federal action were "entirely the result of [Landlord's] own conduct with respect to [an] exterior step" (id. ). Tenant's counsel also requested that Landlord's counsel provide the name and address of the financial institution where the security deposit was deposited and held, as well as the name on the account (id. ). Tenant's counsel renewed this request by letter dated October 10, 2017. Landlord claims that it provided the security deposit information on November 2, 2017. It is undisputed that Landlord sent a notice on December 18, 2017 requesting that Tenant pay unpaid real estate taxes. Landlord failed to return the security deposit, and Tenant commenced this action.
II. Analysis
A. Landlord's Motion for Summary Judgment
1. Landlord is not Entitled to Summary Judgment on its First Counterclaim
Landlord's first counterclaim alleges that Tenant breached the lease by, among other things, failing to indemnify Landlord for costs incurred in settling and defending the federal action and by failing to comply with all federal, state, and local laws with respect to Tenant's use and occupancy of the leased premises. The counterclaim alleges that Landlord is entitled to indemnification under paragraphs 6, 8, and 19 of the lease. In its motion, Landlord also argues that it is entitled to indemnification under paragraph 9 of the assignment agreement. Landlord seeks the following damages plus prejudgment interest for Tenant's alleged breach: (1) $8,000.00 for the settlement payment plus interest from October 4, 2017, the date of payment; and (2) $10,689.60 in legal fees and costs plus interest from the date of invoices submitted as Landlord's exhibit P.
In order to determine whether Landlord is entitled to summary judgment on this claim, the court must first determine whether Tenant had an obligation to indemnify Landlord in the federal action. Thus, the court will set forth and analyze the aforementioned provisions of the lease.
Paragraph 6 of the lease, entitled "Requirements of Law, Fire Insurance, Floor Loads," provides, in pertinent part, the following:
"Prior to the commencement of the lease term ... and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, order and regulations of all state, federal, municipal and local governments, departments, commissions and boards ... or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, whether or not arising out of Tenant's use or manner of use thereof ... or, with respect to the building if arising out of Tenant's use or manner of use of the premises or the building ... Nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto ... Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law ... or which shall or might subject Owner to any liability or responsibility to any person or for property damage ... Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be imposed upon Owner by reason of Tenant's failure to comply with the provisions of this article."
Paragraph 8 of the lease, entitled "Property — Loss, Damage, Reimbursement, Indemnity," provides, in pertinent part, as follows:
"Owner or its agents shall not be liable ... for any injury or damage to persons or property resulting from any cause of whatsoever nature caused by or due to the negligence of Owner, its agents, servants or employees ... Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorneys fees, paid, suffered or incurred as a result of any breach by Tenant ... of any covenant or condition or this lease, or the carelessness, negligence or improper conduct of the Tenant ... In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld."
Paragraph 19 of the lease, entitled "Fees and Expenses," provides, in pertinent part, as follows:
"If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligations of Tenant thereunder. If Owner, in connection with the foregoing ... makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorney's fees, in instituting, prosecuting or defending any action or proceeding, then Tenant will reimburse Owner for such sums so paid or obligations incurred with interest and costs ... If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Owner as damages."
The First Amendment to the lease, entered as of June 25, 2004, did not change the aforementioned paragraphs of the lease.
Pursuant to paragraph 3 of the Assignment and Assumption of Lease, Tenant "assume[d] and agree[d] ... to pay, perform, observe and discharge all of the covenants, conditions, agreements, terms and obligations ... to be performed under the Lease and accruing on or after the Effective Date" of the assignment agreement, which was December 7, 2006 (Landlord's exhibit G). Paragraph 3 further provided that the assignment agreement was "subject and subordinate to the Lease" (id. ). Paragraph 9, which is at issue here, provides as follows:
"[Tenant] and [Le Corset] jointly and severally hold Landlord harmless from and against any claim, judgment, liability, cost and expense arising form [sic] any event connected with this Lease. The indemnities contained in paragraphs 6 and 7 above shall not limit Landlord's rights to seek payment and performance of the obligations under the Lease from [Le Corset], [Tenant] or both" (id. ).
The Second Amendment to the Lease was entered June 8, 2009, and the Third Amendment to the Lease was entered as of May 30, 2012 and in effect until June 30, 2017. The First, Second, and Third Amendments provide that "[t]he provisions of the Lease shall govern" except in the event that there have been any changes by the Amendments" (Landlord's exhibit F at ¶ 14; Landlord's exhibit I at ¶ 12; Landlord's exhibit J at ¶ 13). The second and third amendments define "Lease" in that provision as the initial lease, as amended by the prior amendment(s) and, notably, do not define Lease as including the assignment agreement (see Landlord's exhibit I at 1; Landlord's exhibit J at 1). The second and third amendments did not change the aforementioned paragraphs of the original lease.
The plaintiff in the federal action alleged that on December 1, 2016, while the Third Amendment to the Lease was in effect, she attempted to enter the premises but "because of the architectural barriers at the entrances of the store, s[he] was denied full and equal access to, and full enjoyment of, the facilities at Defendants' Property" (Landlord's exhibit M at ¶ 12). In particular, the plaintiff alleged that the defendants' premises violated the ADA because it failed to (1) "provide an accessible entrance at street level door, due to [a] step at the entrance"; (2) "install a ramp with appropriate slope and signage"; (3) "provide a safe and accessible means of egress for emergencies"; (4) "provide adequate directional and accurate informational signage throughout the Premises"; (5) provide accessible countertops; and (6) "provide signage addressing people with disabilities informing them that accessible services are provided" (id. at ¶ 21). As stated above, the matter was settled, without a finding of fault.
The proponent of a motion for summary judgment must "make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact" ( Alvarez v. Prospect Hosp., 68 NY2d 320, 324 [1986] ). Failure to make this prima facie showing requires denial of the motion, "regardless of the sufficiency of the opposing papers" (id. ). Once this showing has been made, the burden shifts to the opposing party "to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact" (id. ).
Indemnification clauses "must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed" ( Hooper Assoc., Ltd. v. AGS Computers, Inc. , 74 NY2d 487, 491 [1989] ). "The promise should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances" ( id. at 491-492 ). The intent to indemnify and the scope of the indemnification must be clear and unmistakable (id. ; see also Fresh Del Monte Produce N.V. v. Eastbrook Caribe A.V.V., 40 AD3d 415, 418 [1st Dept 2007] ). If it is not, summary judgment in favor of the party seeking indemnification must be denied (see Gotham Partners, L.P. v. High Riv. Ltd. Partnership , 76 AD3d 203, 204 [1st Dept 2010], lv denied 17 NY3d 713 [2011] ). The strict standard for interpreting indemnification clauses set forth in Hooper requires more than a mere rational interpretation ( id. at 207 ) — the intent and scope of indemnification must be unmistakably clear ( id. at 207-208 ).
Landlord argues that the federal action "based upon [Tenant's] failure to comply with the ADA and other laws" constituted a "breach of [Tenant's] obligation under [paragraph] 6 of the Lease" to "conduct its operations at the Building in compliance with applicable laws," and triggered Tenant's "obligation under [paragraph] 8 of the Lease to indemnify" Landlord for costs incurred as a result of any breach by Tenant of the lease (see Landlord's memorandum of law at 18-19). In addition, Landlord asserts that paragraph 9 "creates a separate and independent contractual right of indemnity" and that "[t]here can be no reasonable debate that the ADA Action ... constitutes an ‘event connected with’ the lease" pursuant to that paragraph (Landlord's memorandum at 20). The court finds that Landlord's arguments are unavailing.
The court finds that, even without considering Tenant's opposition, summary judgment is not warranted in favor of Landlord, as Landlord has not established that it is entitled to indemnification of costs incurred in the federal action. Paragraph 8 of the lease requires a finding of breach or fault by Tenant in order to trigger indemnification. There has been no finding of a breach or fault by Tenant in federal court or state court and triable issues of fact exist as to whether Tenant has breached any provisions of the lease or was otherwise at fault in the underlying federal action. Under paragraph 20 of the lease, Landlord had the right to "change the arrangement and/or location of public entrances ... or other public parts of the building" (Landlord's motion, exhibit E). Further, paragraph 4 of the lease provides that Landlord "shall maintain in good working order and repair the exterior and the structural portions of the building, including the structural portions of its demised premises" (id. at ¶ 4). The lease further provides, as a footnote to paragraph 4, that "[e]xcept as herein provided Owner shall make all structural repairs." Accordingly, the lease appears to place responsibility upon Landlord for repairing the exterior step at issue in the ADA action.
Moreover, Landlord has not indicated whether any of the costs incurred in the federal action have been or will be reimbursed by insurance. Under paragraph 8, if Landlord's expenses have been or will be reimbursed by insurance, it is not entitled to indemnification. Additionally, there is no showing that Landlord made a written request that Tenant, at its expense, resist or defend the ADA action.
Further, Landlord has not shown that Tenant breached paragraph 6 of the lease. There is no showing that any government body has imposed any violation, order, or duty upon Owner or Tenant with respect to the demised premises, or that Tenant has failed to comply with any law, order or regulation imposed by such body. Nor is there any showing that Landlord is entitled to indemnification of expenses incurred in the ADA action pursuant to paragraph 19 of the lease. Paragraph 19 requires a finding of a default by Tenant, and there has been no such finding with respect to the ADA action.
Landlord's reliance on Grunberg 77 LLC v. B.R. Guest Parent Holdings, LLC (2018 WL 5791969, 2018 U.S. Dist LEXIS 189091 [SD NY, Nov. 5, 2018, 17 Civ 5627 (RWS) ] ) is misplaced. Grunberg involves a motion to dismiss for failure to state a claim, which is a different standard of review than a motion for summary judgment. The court in Grunberg merely held that the plaintiff pleaded a viable claim for reimbursement of attorneys' fees incurred in connection with a federal ADA action and a related state action; Grunberg , unlike this case, did not involve a motion for summary judgment, and did not decide the merits of the claim. Moreover, Grunberg is a federal decision not binding on this court. Accordingly, it is inapplicable.
Equally unavailing is Landlord's reliance on K.L.M.N.I., Inc. v. 483 Broadway Realty Corp. (117 AD3d 654, 655 [1st Dept 2014] ). The lease provisions that the First Department relied on in granting summary judgment in favor of the landlord in K.L.M.N.I. are not similar to the provisions here (see 117 AD3d 654 ). Moreover, the First Department did not disturb Supreme Court's finding that paragraph 19 of the lease, which is similar to paragraph 19 here, does not provide "a sufficient ground for awarding judgment as a matter of law" on counterclaims for attorney's fees incurred in defending a federal ADA action, where the tenant "has never been found in default of the lease either by the Federal court or [state] court" ( Klmni, Inc. v. 483 Broadway Realty Corp. , 2013 NY Slip Op 31699[U], *4 [Sup Ct, NY County 2013], affd as mod sub nom. K.L.M.N.I., Inc. v. 483 Broadway Realty , 117 AD3d 654 [1st Dept 2014] ; Landlord's exhibit W [Supreme Court decision and order] ).
The court also finds that Landlord has not established that it is entitled to indemnification pursuant to paragraph 9 of the assignment agreement. First, Landlord's first counterclaim did not seek indemnification under paragraph 9 of the assignment agreement. Nor has it sought to amend its answer to assert this paragraph in its first counterclaim. Moreover, the court finds the terms of the assignment agreement to be ambiguous. It is not clear whether paragraph 9 is a separate and independent indemnity provision from the one asserted in the lease, thereby enlarging Tenant's indemnity obligation, as Landlord argues, or just limited to events occurring under the term of the original lease and first amendment, as Tenant argues. The court cannot glean the parties' intent from the four corners of these documents.
2. Landlord is not Entitled to Summary Judgment on its Second Counterclaim
Summary judgment is denied as to the second counterclaim, as the Civil Court does not have subject matter jurisdiction to hear this claim for declaratory relief (see Civil Court Act §§ 208; 212-a; see Lex 33 Assoc. v. Grasso , 283 AD2d 272 [1st Dept 2001] ; Green v. Glenbriar Co. , 131 AD2d 363, 364 [1st Dept 1987] ).
3. Landlord is Entitled to Summary Judgment on its Third Counterclaim
The third counterclaim alleges, among other things, that Tenant failed to pay real estate taxes due under the terms of the lease and that such failure constitutes a breach under the lease (see Landlord's motion, exhibit B at ¶¶ 134-135). The counterclaim further alleges that Landlord is entitled to damages "to be proven at trial, but no less than $6,370.79, which is the difference between the full amount of real estate taxes owed by [Tenant] during the two-year period prior to December 18, 2017 [the date Landlord allegedly sent a letter to Tenant demanding payment of the unpaid taxes], and the amount of real estate taxes actually paid by [Tenant] during that period" (id. at ¶ 136). In its motion papers, Landlord seeks only $6,054.06 plus prejudgment interest from the date of the December 18, 2017 demand (see Landlord's memorandum at 26). The court finds that Landlord is entitled to summary judgment only as to liability on this counterclaim.
Paragraph 9 of the Third Amendment to the Lease, which modifies paragraph 47 of the rider to the lease, provides, among other things, that "[c]ommencing on July 1, 2012 and for the remainder of the term of this Lease, Tenant shall pay, as additional rent, eleven (11%) of any and all real estate taxes covering the land and building of which the Demised Premises forms a part" (see Landlord's motion, exhibit J at ¶ 9[a] ).Paragraph 47(f) of the rider, which was not modified by the Third Amendment to the Lease, provides that "[p]ayment of additional rent pursuant to this paragraph shall be made on a semi-annual basis, unless otherwise billed by the City of New York or any other governmental agency, after demand based upon a statement furnished by Landlord to Tenant with each such demand" (id. ).
Paragraph 47(h), the nonwaiver provision, which was not modified by the Third Amendment, provides as follows:
"Any delay or failure of Landlord in billing any payable under this Article shall not constitute a waiver or in any way impair the continuing obligation of Tenant to make all payments hereunder, so long as the Landlord notifies Tenant of the amount payable within two (2) years of its due date" (Landlord's motion, exhibit E).
Mr. Shore avers, in his affidavit in support of Landlord's motion, that Landlord issued two invoices to Tenant, one on or about July 1, 2015 and the other on or about July 1, 2016, reflecting that Tenant owed real estate taxes for the last two years of the lease term. Mr. Shore attaches the invoices, one dated July 1, 2015 and the other dated July 1, 2016, which show that Landlord issued a "courtesy discount" to Tenant by not charging the full amount of the taxes allegedly owed under the lease (see Landlord's motion, exhibits K and L). Mr. Shore states that Landlord, "having received no additional consideration from [Tenant]," provided Tenant with a courtesy discount in the amount of $3,801.43 for the period of July 1, 2015 to June 30, 2016, as reflected on the invoice dated July 1, 2015 (Landlord's motion, Shore affidavit at ¶ 21 and exhibit K). According to Mr. Shore, Tenant paid only $600 per month during this period, or $316.79 less than would otherwise have been due. Mr. Shore also avers that Landlord provided Tenant with a courtesy discount of $4,153.26 for the period of July 1, 2016 to June 30, 2017, as reflected on the invoice dated July 1, 2016 (id. at ¶ 25 and exhibit L). According to Mr. Shore, Tenant paid only $650.00 per month, or $346.11 less than what was otherwise due. Mr. Shore attaches copies of the real estate tax bills purportedly from the New York City Department of Finance for the aforementioned periods, as well as a ledger showing that Tenant was billed on the first of the month for the real estate taxes and that Tenant paid the total amount billed each month (Landlord's motions, exhibits K and L).
Mr. Shore asserts that Landlord decided to revoke the courtesy discounts given Tenant's failure to indemnify Landlord in the ADA action, and that he sent a notice to Tenant on December 18, 2017 revoking the courtesy discount and demanding that Tenant pay all unpaid real estate taxes for the prior two years. Landlord asserts that it is entitled to unpaid taxes pursuant to the nonwaiver clause set forth in paragraph 47 of the lease, titled "Adjustment of Rent For Increases In Real Estate Taxes and Assessments." In support, Mr. Shore attaches a copy of the second page of the letter purportedly sent to Tenant on December 18, 2017. The second page states, in pertinent part, that "Tenant immediately pay the amount of $7,954.67 in unpaid real estate taxes due under the lease" (Landlord's motion, exhibit Q), which is two cents less than the amount Mr. Shore avers was unpaid. According to Mr. Shore, Tenant has refused to pay the unpaid taxes demanded by Landlord.
In opposition and in support of its cross motion for summary judgment dismissing the third counterclaim, Kee Tong, Tenant's founder and President, avers in her affidavit that "[d]uring the last two years of the Lease, Landlord sent [her] monthly invoices" setting forth the rent and additional rent owed that month (Tenant's cross motion, Tong affidavit at ¶ 11). According to Kee Tong, "[t]he additional rent was calculated as a portion of the real estate taxes owed by Landlord" and Tenant "paid all rent and additional rent in full" (id. ). Tenant attaches, as exhibit 6, "examples of monthly invoices that Landlord sent during the last two years of the Lease" (id. ). Those invoices do not reflect any courtesy discount. However, they show that Tenant was billed the same monthly real estate taxes as set forth on the invoices submitted by Landlord. Kee Tong asserts that "[a]t no time was there ever an agreement concerning a ‘courtesy discount’ " (id. at ¶ 12). She avers that she "never discussed a courtesy discount with Landlord or with Marc Shore" (id. ), and that "while [Tenant] was leasing the [premises]," she "never saw th[e] invoices" Landlord submitted with its motion (id. at ¶ 13). However, she does not deny that she received the December 18, 2017 letter from Landlord demanding that she pay unpaid taxes in the amount of $7,954.67.
The court finds that Landlord has established its entitlement to judgment as a matter of law. First, regardless of whether Tenant ever received the invoices submitted by Landlord, Tenant acknowledges that Landlord sent Tenant monthly bills, and those bills set forth monthly real estate tax charges in the same amount charged on Landlord's invoices. Whether Tenant was aware of the courtesy discount is irrelevant, given the nonwaiver provision set forth in paragraph 47(h) of the lease. Tenant's argument that Landlord waived its claim to unpaid taxes is unavailing, given the nonwaiver provision. The cases Tenant relies upon do not address nonwaiver clauses (see 308 E. 39th St. Corp. v. Tres Carabelas , 79 AD2d 952 [1st Dept 1981] ; Greenberg v. Furrer , 56 NYS2d 340 [App Term, 1st Dept 1945] ; Leland House v. Antar , 74 Misc 2d 188 [Civ Ct, NY County 1973] ).
Tenant does not indicate how Landlord failed to bill Tenant in accordance with the terms and conditions set forth in the lease. As noted, Tenant acknowledges receiving monthly invoices for taxes and it does not dispute that it received the December 2017 notice demanding unpaid taxes due under the lease. Tenant's reliance on Ginsberg v. Lo Bright Mfg. Co., Inc. , 2001 NY Slip Op 40147[U] [Sup Ct, Nassau County 2001] ) is misplaced because, in that case, no real estate tax bills were provided to Tenant until days prior to the expiration of the original lease and no demand for additional rent attributable to tax increases was made until days prior to the expiration of the renewal term. Moreover, Ginsberg, which is not binding on this court, does not set forth the language of the nonwaiver provision in that case. The First Department has enforced nonwaiver provisions similar to the one in this case (see e.g. Mount Sinai Hosp. v. 1998 Alexander Karten Annuity Trust , 110 AD3d 288 [1st Dept 2013] ; Triborough Bridge & Tunnel Auth. v. Wimpfheimer , 6 Misc 3d 127[A], 2004 NY Slip Op 51693[U] [App Term, 1st Dept 2004] ; Triborough Bridge & Tunnel Auth. v. Wimpfheimer , 10 Misc 3d 138[A] [App Term 2004], 2004 NY Slip Op 51896[U] [App Term, 1st Dept 2004] ).
The court finds that Landlord complied with paragraph 47(f) by sending either yearly invoices for the last two years of the lease term, as Landlord alleges, or monthly bills showing the amount of real estate taxes and rent due, as Tenant asserts. Landlord also complied with the nonwaiver provision by sending the December 2017 notice seeking additional taxes. As Landlord notes in its memorandum of law, under paragraph 47(h), Tenant must pay all of the unpaid real estate taxes that were due from two years before the December 18, 2017 notice. Since real estate taxes were due by the first of the month, Tenant was required to pay monthly real estate taxes from January 2016. Tenant does not dispute the tax bills submitted by Landlord or the calculations set forth by Landlord in its memorandum of law. Accordingly, Landlord is entitled to summary judgment on its third counterclaim in the amount of $6,054.06.
Tenant does not dispute that this provision survives termination or expiration of the lease.
4. Landlord is not Entitled to Summary Judgment on its Fifth Counterclaim or for Leave to Submit Further Evidence of Attorneys' Fees and Costs after February 7, 2019
Landlord's fifth counterclaim seeks a judgment declaring that it is entitled to indemnity from Tenant under paragraph 9 of the assignment agreement with respect to costs and expenses, including damages and attorneys' fees, incurred in this action. Landlord also seeks damages, to be determined at trial.
Landlord is not entitled to declaratory relief since, as noted above, Civil Court cannot grant such relief (see Civil Court Act §§ 208; 212-a). Further, given the triable issues of fact set forth above, it is not entitled to an award of attorneys' fees at this juncture. Landlord can renew its motion at trial, as well as its request to submit further evidence of attorneys' fees and costs.
5. Landlord is Entitled to Summary Judgment Dismissing the First and Second Causes of Action
The first cause of action alleges that Landlord breached the lease by failing to return the security deposit and seeks damages in the amount of $10,580 plus interest. The second cause of action alleges that Landlord wrongfully converted the security deposit for its own use and benefit and that Tenant has suffered damages in an amount not less than $10,580 plus interest. Tenant alleges in its complaint that it is entitled to a return of the security deposit because it fully complied with the terms of the lease.
Paragraph 34 of the lease provides, in pertinent part, the following:
"[I]n the event Tenant defaults in respect of any of the terms, provisions and conditions of this lease ... Owner may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of ... any other sum as to which Tenant is in default or for any sum which Owner may expend or may be required to expend by reason of Tenant's default, in respect of any of the terms, covenants and conditions of this lease ... In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenant and conditions of this lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Owner" (Landlord's motion, exhibit E).
Landlord asserts that it is entitled to dismissal of the first and second causes of action because Tenant "defaulted under the Lease, as a matter of law, when it operated the Store in a ma[nn]er that allegedly failed to comply with the ADA accessibility standards and failed to indemnify and hold [Landlord] harmless" (Landlord's memorandum at 22). The court finds this argument to be unavailing. As noted above, there has been no finding of a default in the federal action or in state court, and issues of fact exist as to whether Tenant failed to comply with the ADA or was obligated to indemnify Landlord for costs incurred in the federal action.
Nevertheless, Landlord is entitled to summary judgment dismissing these causes of action, given Tenant's default in failing to pay the real estate taxes.
6. Landlord is not Entitled to Summary Judgment Dismissing the Third Cause of Action
The third cause of action alleges that Landlord's failure to provide, upon Tenant's request, the name and address of the banking organization in which the security deposit was deposited "permits an inference of commingling" (Landlord's exhibit A, ¶ 37) and entitled Tenant to the "immediate return of the security deposit [in the amount of $10,580] plus interest" (id. at ¶ 38).
In support of its motion for summary judgment dismissing this cause of action, Landlord's attorney, Michael Freeman, avers in his affirmation that on November 2, 2017, over two months before the commencement of this action, he provided Tenant's counsel with a bank statement via email showing the name and address of the bank where Landlord maintained Tenant's security deposit in a segregated account and that he was "surprised to see a cause of action for ‘commingling’ " (Landlord's motion, Freeman affidavit at ¶¶ 19, 23). Landlord does not submit a copy of the email.
Mr. Shore, Landlord's managing member, avers in his affidavit that Landlord maintained Tenant's security deposit in a segregated security deposit account maintained by Landlord at Capital One Bank through December 2012, and that the balance less "multiple credits to Tenant" were transferred to Dime Bank on January 4, 2013" where it remained, along with additional deposits, through the end of the lease term in June 2017 (Landlord's motion, Shore affidavit at ¶ 12). Landlord attached as exhibit H copies that Mr. Shore averred were "true and correct copies of business records maintained in the ordinary course of business" showing the initial deposit, credits, and transfer of the security deposit (id. at ¶ 12 and exhibit H).
In opposition, Tenant's counsel, Jeremy Miguel Weintraub avers in his affirmation that by letter dated August 16, 2017 and October 10, 2017, both of which are submitted with Tenant's cross motion and opposition (see Tenant's exhibits 10 and 11), he asked Mr. Freeman to provide the name and address of the financial institution as well as the name on the account, "but Landlord refused to provide that information" and "[e]ventually Landlord provided a single page from Dime bank indicating that the deposit was held at Dime in June 2017, the final month of the lease" (Tenant's cross motion, Weintraub affidavit at ¶ 3). Tenant argues that Landlord's failure to timely provide the requested information gives rise to a presumption of commingling, which Landlord failed to rebut because the "purported bank records submitted by Landlord in support of its motion are unauthenticated and fail to prove that the security deposit was held in a segregated bank account during the entirety of the term of the Lease" (Tenant's memorandum at 20-21).
General Obligations Law (GOL) § 7-103(1) forbids landlords from commingling security deposit monies with their own funds (see Tappan Golf Dr. Range, Inc. v. Tappan Prop., Inc. , 68 AD3d 440, 440 [1st Dept 2009] ). The commingling of the deposit vests in the plaintiff an immediate right to receive the deposit (id. ). Further, GOL § 7-103(2) provides that "[w]henever the person receiving" a security deposit deposits the money in a banking organization, "such person shall thereupon notify in writing each of the persons making such security deposit ..., giving the name and address of the banking organization in which the deposit of security money is made, and the amount of such deposit." If a landlord does not timely provide such written notice, the violation would create a rebuttable presumption that the funds were commingled, which the landlord must rebut ( Urban Soccer Inc. v. Royal Wine Corp. , 53 Misc 3d 448, 461 n 10 [Sup Ct, NY County 2016], judgment entered 2016 WL 5548073 [NY Sup Ct, Aug. 22, 2016], affd 148 AD3d 576 [1st Dept 2017] ).
The record shows that Landlord gave written notice at the earliest on November 2, 2017, which is several years after Landlord allegedly made the deposits. Accordingly, this untimely notice raises a presumption of commingling, which Landlord must rebut. Even if the court were to find the records Landlord submitted as exhibit H admissible as business records under CPLR 4518, as Landlord urges, those records do not show that Landlord held the security deposit in a separate account for the entire lease term. Rather, they show an initial deposit on November 13, 2007 in the amount of $10,830.00. The lease term began on June 1, 1996 and paragraph 34 of the lease as well as the rider to the lease provide that Le Corset deposited with Landlord the sum of $5,700 at signing (see Landlord's motion, exhibit E). Tenant assumed the lease on December 7, 2006. Paragraph 13 of the assignment agreement provides as follows regarding the security deposit:
"[Tenant] shall simultaneously herewith deposit with Landlord a check in the amount of Six Hundred ($600.00) dollars representing the additional balance due under the Lease for the Security Deposit. [Le Corset] hereby acknowledges and represents that it will have increased the Security Deposit so that Landlord shall then have on hand the sum of Ten Thousand Five Hundred ($10,500.00). [Le Corset] waives and disclaims any interest in the security deposit. Landlord shall hold the proceeds of the Security Deposit in accordance with the Terms of the Lease for the benefit of [Tenant]" (Landlord's exhibit G).
Kee Tong avers in her affidavit that she gave Landlord a security deposit upon leasing the premises (see Tenant's cross motion, Tong affidavit at ¶ 10). Landlord failed to submit any evidence showing that it held the security deposit in a separate account prior to November 13, 2007, as required. Therefore, its motion for summary judgment dismissing this cause of action is denied.
B. Tenant's Cross Motion
1. Tenant is not Entitled to Summary Judgment on its First and Second Causes of Action
Given Tenant's default in failing to pay its real estate taxes, it is not entitled to summary judgment on its first and second causes of action.
2. Tenant is not Entitled to Summary Judgment Dismissing the First Counterclaim
Tenant, in support of its cross motion to dismiss the first counterclaim, argues that
Landlord is not entitled to indemnification for several reasons, none of which the court finds availing. First, Tenant asserts that the duty to indemnify is only triggered if there is a breach of the lease by Tenant in failing to indemnify Landlord for costs incurred in the ADA action, and that it did not breach the lease. The court finds this argument to be unavailing, since an issue of fact exists as to whether Tenant breached the lease by failing to indemnify Landlord for costs incurred in the ADA action, given the allegations in the federal action and the terms of the lease, as noted below.
Second, Tenant argues that, even if it breached the lease by failing to indemnify Landlord for costs incurred in the ADA action, the ADA action arose solely from Landlord's breach of its obligation to ensure that the exterior step outside the premises complied with the ADA and similar state and city laws, and that Tenant has no duty to indemnify Landlord against a claim that arises from Landlord's own conduct. The court finds this argument to be unavailing, as the federal action alleges more than just the failure to maintain the exterior step. Rather, it also alleges failures inside the premises, such as lack of appropriate signage and accessible countertops, and it is not clear from the record that Tenant had no control or responsibility for these alleged breaches. Mr. Shore avers, in his affidavit in support of Landlord's motion, that after Tenant took possession of the premises, it made improvements to the store, including the installation of countertops and signage. Under paragraph 72 of the rider to the lease, Tenant was required to "make all ordinary non-structural interior repairs, ... and all repairs whether structural or non-structural interior or exterior caused by Tenant" (Landlord's exhibit E). Accordingly, it appears that Tenant is responsible for any violations of the ADA regarding the lack of appropriate signage and accessible countertops. However, because there is no affidavit from the plaintiff in the ADA action, nor any expert affidavit, it cannot be determined on this record whether Tenant violated the ADA.
Third, Tenant asserts, without providing any law in support, that Landlord's "attempt to exercise its purported indemnification rights was too late" because Landlord asserted its rights after the lease terminated and the lease does not provide that the right to indemnification survives the termination of the lease (Tenant's memorandum at 14). The court finds this argument to be unavailing. Landlord submits an email from Landlord's counsel to Tenant's counsel, dated April 28, 2017, prior to the lease's termination, stating that while Landlord "agree[d] that neither [party] should assert cross-claims against the other [in the federal action] ... all future rights [were] reserved" (Landlord's exhibit X). Thus, there is evidence that Landlord reserved its right to assert a claim for indemnification against Tenant shortly after the commencement of the federal action. Moreover, as Landlord notes, paragraph 19 of the lease provides that Landlord may recover as damages any expenditures Landlord makes in connection with Tenant's default in the "performance of any term ... of th[e] lease" if "Tenant's lease term shall have expired at the time of making of such expenditures" (Landlord's motion, exhibit E). Accordingly, pursuant to paragraph 19, if Tenant is found to have defaulted under the terms of the lease by violating the ADA, Landlord may be able to recover the costs it incurred in defending that action even if Landlord made such expenditures and demanded reimbursement after expiration of the lease.
Fourth, Tenant argues that, because Landlord chose not to timely assert its indemnification rights at the outset of the federal action, it "proceeded at its own peril" and must prove that it "would have been liable" in the federal action and that it had "no good defense to liability" in that action in order to obtain indemnification (see Tenant's memorandum at 14). Tenant asserts that Landlord failed to establish this. The court finds this argument to be unavailing. The cases Tenant cites in support of its argument provide that the indemnitee (landlord, in this case) must make the aforementioned showing only in the event that the indemnitee fails to notify the indemnitor (tenant, in this case) of the claims against the indemnitee, or "having notified [the indemnitor], refuses to accept proffered assistance" from the indemnitor ( L.B. Kaye Assoc. v. Libov , 139 AD2d 440 [1st Dept 1988] ; Feuer v. Menkes Feuer, Inc. , 8 AD2d 294, 299 [1st Dept 1959] ).
In this case, Tenant was obviously aware of the claims against Landlord in the federal action, as Tenant was also sued in that action. Moreover, Landlord's counsel asserts that both parties had retained separate counsel in the ADA action and that they initially agreed to try to work together to settle the lawsuit, but the agreement fell apart and Landlord settled the action without any contribution from Tenant (see Landlord's motion, Freeman's affidavit at ¶¶ 12-14). Tenant does not refute these contentions and there is no indication that Tenant proffered assistance and Landlord refused it. Accordingly, the cases Tenant cites are inapplicable (see e.g. L.B. Kaye Assoc. , 139 AD2d 440 [motion for summary judgment premature where movant-indemnitee elected to proceed with counsel of her own choosing, rather than the counsel proffered by the indemnitor] ).
Given the foregoing, Tenant is not entitled to summary judgment dismissing the first counterclaim.
3. Tenant is Entitled to Summary Judgment Dismissing the Second Counterclaim
Summary judgment dismissing the second counterclaim is granted, as the Civil Court does not have subject matter jurisdiction to hear this claim for declaratory relief (see Civil Court Act §§ 208; 212-a).
4. Tenant is not Entitled to Summary Judgment Dismissing the Third Counterclaim
Tenant is not entitled to summary judgment dismissing the third counterclaim pertaining to unpaid real estate taxes, given the court's finding that Landlord has established summary judgment on this claim.
5. Tenant is Entitled to Summary Judgment Dismissing the Fourth Counterclaim
The fourth counterclaim alleges, among other things, that Tenant breached the lease by failing to remove all improvements, fixtures and custom fits prior to vacating the premises, and that Landlord incurred damages to remove the improvements, fixtures and custom fits in an amount to be proven at trial, but no less than $2,500.
Tenant's president avers in her affidavit that she left the premises the day before the lease expired and that the premises were left in clean, good condition, without damage. She further asserts that on June 14, 2017, Mr. Shore, Landlord's managing member, sent her an email asking Tenant what she is "planning to remove from the store, and what if anything [she] [is] planning to leave in the store" (Tenant's cross motion, Tong affidavit at ¶ 15). In response, she stated that everything would be removed from the store, "except perhaps for for [sic] the wall panels and cabinets. In a week or so I will have a better idea as to what I plan on doing with those. I'll let you know ASAP. If you want me to remove everything I can, just let me know" (id. ). Mr. Shore replied, "What ever [sic] you would like to do is fine." In support, Tenant submits the email string as Tenant's exhibit 7. Tenant argues in its memorandum of law that Landlord waived any breach by expressly agreeing in the email that Tenant need not remove everything from the premises.
Landlord does not make any argument with respect to its fourth counterclaim, and the court finds that it should be dismissed. Paragraph 3 of the lease provides the following with respect to fixtures:
"All fixtures and all paneling, partitions, railings and like installations, installed in the premises at any time, either by Tenant or by Owner in Tenant's behalf, shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner, by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owner's right thereto and to have them removed by Tenant, in which event the same shall be removed from the premises by Tenant prior to the expiration of the lease, at Tenant's expense."
Here, there is no evidence that Landlord gave notice to Tenant to remove any fixture, improvement or custom fit prior to vacating the premises. Rather, the evidence shows that Landlord allowed Tenant to remove everything, except the wall panels and cabinets. Accordingly, Landlord is not entitled to recover damages for the costs incurred in removing any fixtures, improvements or custom fits.
6. Tenant is Entitled to Summary Judgment Dismissing Part of the Fifth Counterclaim
Landlord's fifth counterclaim is dismissed to the extent it seeks declaratory relief, as the Civil Court cannot grant such relief. The request for damages, costs, expenses and attorneys' fees incurred in this action, however, is not dismissed, given the triable issues of fact discussed above.
7. Tenant is not Entitled to Discovery Sanctions
Tenant seeks discovery sanctions pursuant to CPLR 3126 for Landlord's alleged backdating of two real estate tax invoices and for its alleged failure to produce certain documents and answer interrogatories. To the extent Tenant is not precluded from seeking sanctions (see Williams v. Laura Livery Corp. , 173 AD3d 497, 498 [1st Dept 2019] ["Once plaintiff filed the notice of issue and certificate of readiness certifying to the court that all discovery was complete without reserving his rights or preserving objections, he waived his right to seek preclusion"] ), the court finds that sanctions are not warranted under CPLR 3126. Tenant has failed to show that Landlord refused to obey an order for disclosure or willfully failed to disclose information (see CPLR 3126 ).
C. Conclusion
In conclusion, plaintiff's first two causes of action, alleging breach of contract and conversion for defendant's failure to return the security deposit, are dismissed because plaintiff breached the lease by failing to pay taxes. However, plaintiff's third cause of action regarding commingling of the security deposit remains, as defendant failed to submit any evidence showing that it held the security deposit in a separate account prior to November 13, 2007. Plaintiff's request for discovery sanctions is denied.
Defendant's first counterclaim for failure to indemnify defendant in the ADA action is not dismissed, as issues of fact exist as to whether defendant is entitled to indemnification. Defendant's second counterclaim and the part of the fifth counterclaim seeking declaratory relief are dismissed, because the Civil Court does not have jurisdiction to render the requested relief. Defendant is entitled to summary judgment only as to liability on its third counterclaim regarding plaintiff's failure to pay real estate taxes. Defendant's fourth counterclaim is dismissed, because there is no evidence that Landlord gave notice to Tenant to remove any fixture, improvement or custom fit prior to vacating the premises, as required under the lease. Lastly, defendant's request for attorneys' and costs incurred in this action and to submit further evidence of attorneys' fees and costs is denied at this juncture.
The MP1 Clerk is directed to notify the parties of the trial date.
The foregoing constitutes the decision and order of this Court.