Opinion
Index No. 650403/2022 Motion Seq. No. 001
01-17-2023
MACARTHUR PROPERTIES I, LLC, Plaintiff, v. PAUL KRUG, GLAZE TERIYAKI, LLC and GLAZE LEXINGTON ONE, LLC, Defendants.
Unpublished Opinion
PRESENT: HON. BARRY R. OSTRAGER, Justice.
DECISION + ORDER ON MOTION
HON. BARRY R. OSTRAGER, Justice.
The Court heard oral argument via Microsoft Teams on January 17, 2023, on the motion by defendants Paul Krug, Glaze Teriyaki, LLC and Glaze Lexington One, LLC, for an order, pursuant to CPLR 3211(a)(1) and (7), dismissing this action in its entirety, and the cross-motion by plaintiff MacArthur Properties I, LLC for summary judgment awarding the plaintiff a money judgment in its favor against all the defendants, jointly and severally. In accordance with the January 17, 2023, transcript of proceedings, and as stated herein, both motions are denied.
Plaintiff MacArthur Properties I, LLC is the owner and landlord ("the Landlord") of a commercial condominium unit at 135 East 54th Street in Manhattan. On August 1, 2020, defendant Glaze Teriyaki, LLC, as Tenant, took possession of the unit for use as a restaurant pursuant to a ten-year Lease through July 31, 2020 (NYSCEF Doc. No. 12). Defendant Paul Krug ("the Guarantor") executed a Good-Guy Guaranty (NYSCEF Doc. No. 11). Pursuant to the Decision and Order by the Appellate Division, First Department, dated November 9, 2017, in the underlying action between the Landlord and the Tenant (Index No.653883/13), the Lease was terminated as of January 21, 2014, and a warrant of eviction was issued for the removal of the
The Guarantor argues that the Guaranty covers only "rent and additional rent that has accrued or may accrue under the terms of the herein Lease..." (NYSCEF Doc. No. 7) and that Tenant from the premises. See Glaze Teriyaki, LLC v MacArthur Props. I, LLC, 155 A.D.3d 427 (1st Dep't 2017).
A money judgment for holdover use and occupancy was entered in favor of the Landlord against the Tenant in the underlying action for $600,500.62 on May 7, 2021 (NYSCEF Doc. No. 313) based on this Court's April 15, 2021, Decision and Order (NYSCEF Doc. No. 309). The First Department affirmed that Decision on June 21, 2022, only a few weeks after this motion was made (206 A.D.3d 513). A second judgment for legal fees in the amount of $257,650.46 was entered in the underlying action on December 8, 2021 (NYSCEF Doc. No. 347). The two judgments together total $858,151.08, which is the amount plus interest that the Landlord is seeking to recover here from the Guarantor. Based on the Landlord's assertion that the Tenant transferred assets to defendant Glaze Lexington One, LLC in violation of the Debtor and Creditor Law, the Landlord seeks a judgment in the same amount against the corporate defendants.
Based on the papers submitted and oral argument on January 17, 2023, the Court denies both the pre-Answer motion to dismiss by the defendants and the cross-motion for summary judgment by the plaintiff Landlord for a money judgment in its favor. It is undisputed that the money the Landlord seeks to recover consists of Use and Occupancy that accrued while the commercial Tenant was holding over and remaining in possession after the Landlord's termination of the written Lease in 2014, approximately six years before the end of the Term stated in the Lease. As previously noted, the First Department upheld that termination [see Glaze Teriyaki LLC v MacArthur Properties I LLC, 206 A.D.3d 513 (2022) and 155 A.D.3d 427 (2017)].
The Guarantor argues that the Guaranty covers only “rent and additional rent that has accrued or may accrue under the terms of the herein Lease…” (NYSCEF Doc. No. 7) and that post-termination Use &Occupancy (referred to as "U&O") does not fall into that category. As support for that position, the Guarantor cites to various Lease provisions that explicitly distinguish between "rent and additional rent", on the one hand, and "use and occupancy" on the other. In particular, the Guarantor points to Article 59B of the Lease which provides for the calculation of "use and occupancy" that accrues during the Tenant's "continued occupancy" of the premises "after the expiration date of this Lease" at a rate 200% of the Lease rent, thus clearly distinguishing between rent and U&O.
In response, the Landlord argues that the Guaranty remained in full force and effect following the termination of the Lease and covers post-termination U&O because the Tenant had failed to satisfy the conditions in the Lease relating to the surrender of the premises that were a prerequisite for ending the Guarantor's obligations. As support for its position, the Landlord point to various other broadly worded Lease provisions that arguably encompass liability for U&O, including Article 48A, which states that: "All amounts referred to as additional rent, or charges, or other sums due or payable under the terms of this Lease shall be collectible as rent and Landlord [is] entitled to all remedies for nonpayment thereof as if it were a nonpayment of rent." (Emphasis added).
In addition to these arguments and others, both sides cite numerous cases addressing the issue of a Guarantor's liability for holdover U&O. However, no single case is directly on point and dispositive of the issues here as a matter of law, as the holdings vary based on whether the tenant was residential or commercial and the specific language in the Guaranty at issue. Further, in most of the cases, the tenant was holding over after the expiration of the lease at the end of the term stated in the lease. In contrast here, the Landlord terminated the Lease in 2014, six years before the expiration of the term stated in the written Lease in 2020.
The Landlord correctly notes that the Appellate Division upheld this Court's holding that the Landlord's termination of the Lease was equivalent to the "expiration" of the Lease for purposes of calculating the amount of holdover U&O due. However, that holding is not directly applicable to the issue here as to whether the Guarantor is obligated to pay post-termination U&O when the terms of the Guaranty are arguably limited to "rent and additional rent that has accrued .. under the terms of the Lease." Similar issues preclude a determination at the pleading stage of the Guarantor's liability for any attorney's fees under Article 19 of the Lease and the Guaranty. Thus, since neither the Guarantor in its motion to dismiss, nor the Landlord in its summary judgment motion, has established its position on the alleged liability of the Guarantor for holdover U&O or attorney's fees as a matter of law, both motions are denied as to those issues. The Court declines to address the Guarantor's argument, raised for the first time during oral argument, that the Guaranty has no application whatsoever to this case.
The Landlord also seeks a judgment against the Guarantor and the two corporate defendants under the Debtor and Creditor Law, and the defendants all move to dismiss those claims. Defendants argue that the Landlord has failed to plead the fraudulent conveyance claims under DCL 274 and 275 because plaintiff has filed to identify a single transfer or conveyance alleged to be fraudulent with sufficient specificity or how any consideration was inadequate. The Court disagrees and finds that sufficient facts have been alleged to allow an inference of fraudulent intent at the pleading stage.
For example, the Complaint here alleges that defendant Glaze Lexington One, LLC was formed during the underlying litigation against the debtor Tenant Glaze Teriyaki, LLC, and significant assets were transferred to Glaze Lexington with little or no consideration. Krug is a principal of both the debtor Glaze Teriyaki and the new entity Glaze Lexington, which allegedly operates another restaurant in the vicinity of the first, and both entities are controlled by Krug. Both the transferor and transferee entities and Krug had actual knowledge of the Landlord's claim for a money judgment before assets were transferred. Thus, accepting the allegations as true, as the Court must when determining a pre-Answer motion to dismiss, the DCL claims in the Second and Third Causes of Action of the Complaint survive dismissal.
Defendants shall file an Answer to the Complaint within twenty days, and counsel shall thereafter meet and confer to agree upon the terms of a Preliminary Conference Order and efile a Proposed Order using the form available on the Part 61 website. A preliminary conference is scheduled for March 7, 2023, at 10:00 a.m. via a dial-in number to be included in a letter efiled with the Preliminary Conference Order by February 24, 2023. If the Proposed Preliminary Conference Order is acceptable, the appearance will be waived. If the parties agree upon a referral to the Court's Alternative Dispute Resolution (ADR) program, counsel shall so state in their letter, and the Court will issue an Order of Reference.