Opinion
657107/2019
03-30-2021
MALCOLM SHABAZZ DEVELOPMENT CORPORATION, Plaintiff, v. Ruth WU, Defendant.
Reid Rodriguez & Rouse, LLP, New York, NY (Gregory L. Reid of counsel), for plaintiff. Taylor & Cohen LLP, New York, NY (Robert Cohen of counsel), for defendant.
Reid Rodriguez & Rouse, LLP, New York, NY (Gregory L. Reid of counsel), for plaintiff.
Taylor & Cohen LLP, New York, NY (Robert Cohen of counsel), for defendant.
Gerald Lebovits, J. This is the latest of several motions seeking to modify a prior order of this court granting on default plaintiff's motion under CPLR 3213 for summary judgment in lieu of complaint, and awarding plaintiff $2,284,590 plus interest, costs, and disbursements.
In 2018, defendant entered into a ten-year commercial lease of premises owned by plaintiff. Defendant also executed a personal guarantee of her obligations under the lease. In 2019, plaintiff terminated the lease upon defendant's default in rent, and obtained a judgment of possession for the premises from New York City Civil Court.
Plaintiff then brought a motion under CPLR 3213 for summary judgment in lieu of complaint, relying on defendant's guarantee as an instrument for the payment of money only. Plaintiff sought judgment for $2,284,590 (plus interest), which represented rent, real-estate tax payments, and other expenses over the full 10-year term of the lease. Defendant appeared but did not oppose the motion. This court granted the motion on default and without opposition on August 24, 2020. Because plaintiff's motion papers did not provide a means for the court to calculate accrued interest on the $2,284,590, the court directed the parties to settle an order to clarify that point. (See NYSCEF No. 22.)
Defendant immediately moved to vacate her default. This court held that defendant's arguments were not sufficient to establish a potentially meritorious defense to liability under the guarantee, and therefore denied the motion to vacate. (See NYSCEF No. 58.) Defendant then moved to renew the denial of the motion to vacate. This court, holding that defendant had not shown a sufficient basis for renewal, again denied the motion. (See NYSCEF No. 84.)
Defendant, having changed attorneys, now moves to modify this court's order granting summary judgment in lieu of complaint. Defendant's latest motion does not dispute liability. Instead, she argues that under the terms of the lease and guarantee, plaintiff is not entitled to the $2,284,590 that plaintiff claimed in her motion (and that this court awarded on defendant's original default).
This court agrees with defendant that the terms of the lease foreclose plaintiff's claim to the full $2,284,590—and that, at most, plaintiff is entitled only to a fraction of that sum. This court therefore exercises its discretion in the interests of justice to reconsider and vacate the branch of its prior order that granted summary judgment on damages, and to direct further submissions by the parties on damages.
Plaintiff also submitted a proposed order for settlement that detailed accrued interest on the $2,284,590 awarded in damages, as directed in the summary-judgment order. (See NYSCEF No. 53.) Given its vacatur of that award, this court declines to sign plaintiff's proposed order.
DISCUSSION
I. Whether This Court Should Revisit Its Order Granting Plaintiff's CPLR 3213 Motion
In considering defendant's motion, the first question for this court is whether it should even revisit its earlier order granting summary judgment in the first place.
Defendant argues that this court should treat its motion as a submission at an inquest on damages. Defendant is correct that where liability has been determined upon a party's default, the defaulting party may still file papers contesting damages at a hearing or trial on that issue. (See Rokina Optical Co. v. Camera King, Inc. , 63 N.Y.2d 728, 730, 480 N.Y.S.2d 197, 469 N.E.2d 518 [1984].) In this case, however, this court concluded on plaintiff's initial motion that no hearing on damages was required. Instead, this court held that plaintiff's papers sufficiently fixed and supported the damages that it was entitled to recover from defendant. (See NYSCEF No. 22 [holding that plaintiff had established its right to judgment for at least $2,284,590].) This court's order left open only the question of the total amount of interest on that sum. And defendant's current motion is directed only toward the principal amount awarded to plaintiff in damages—not interest.
Defendant's motion is thus not the equivalent of a submission at an inquest on damages after liability has been determined. Rather, it is in substance a motion to reargue this court's conclusion that plaintiff has shown entitlement as a matter of law to $2,284,590 in damages plus interest. Plaintiff correctly points out that, construed as a motion to reargue under CPLR 2221, this motion is untimely. (See CPLR 2221 [d] [3].) This court, however, concludes that it should not refrain on this basis even from considering defendant's motion.
Courts have the inherent discretionary power, acting in the interests of justice, to modify an award granted in a judgment on the ground that it is excessive—even after an inquest on damages. (See Wiebusch v. Hayes , 263 A.D.2d 389, 391, 693 N.Y.S.2d 120 [1st Dept. 1999] ; Boorman v. Deutsch , 152 A.D.2d 48, 54, 547 N.Y.S.2d 18 [1st Dept. 1989] ; Cervino v. Konsker , 91 A.D.2d 249, 253, 458 N.Y.S.2d 891 [2d Dept. 1983].) The considerations in favor of recognizing such power are only heightened where, as here, damages were awarded upon a party's default without an inquest.
This court concludes that it is in the interest of justice to consider anew the damages portion of the court's initial summary-judgment ruling here. That ruling awarded $2,284,590; and plaintiff's claimed interest on that award would be at least another $400,000. (See NYSCEF No. 53 at 3.) That is a substantial sum. Yet as discussed below, defendant has made a strong showing on the current motion that plaintiff is entitled to no more than 25% of that $2.28 million in damages—and quite possibly less than that. It would be manifestly unjust for this court to award plaintiff at least four times as much money as plaintiff is in fact entitled to under the lease and guarantee, without ever hearing defendant's arguments for a lesser amount. This court therefore exercises its discretion to consider defendant's arguments for a reduction in damages.
Plaintiff also argues that modifying this court's initial ruling would be inappropriate under the law-of-the-case doctrine. But that doctrine "is not implicated" when a court is "not alter[ing] a ruling by another court of coordinate jurisdiction but rather its own ruling." (Kleinser v. Astarita , 61 A.D.3d 597, 598, 878 N.Y.S.2d 28 [1st Dept. 2009].) In any event, the law-of-the-case doctrine is not a "rigid rule[ ] of limitation," but a "judicially crafted policy," which "directs a court's discretion" without "restrict[ing] its authority." (People v. Evans , 94 N.Y.2d 499, 503, 706 N.Y.S.2d 678, 727 N.E.2d 1232 [2000].) This court concludes in its discretion that defendant has sufficiently established that it would be appropriate to reconsider and to modify the court's initial award of damages in this case.
II. Whether This Court Should Modify Its Award of Damages to Plaintiff
The vast majority of this court's initial award to plaintiff consists of liquidated damages equal to the total amount of rent owed under the lease between 2019 (when defendant defaulted) and 2028 (when the original lease term expired). Plaintiff does not contest defendant's argument that plaintiff could be entitled to that sum now only if the lease contained an acceleration clause entitling plaintiff to claim those damages at default , rather than once a given month's rent would actually have come due absent default. Instead, plaintiff argues that the lease did contain the necessary acceleration clause. (See NYSCEF No. 99 at 10-12.) This court disagrees.
In particular, plaintiff misplaces its reliance on 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528, 2 N.Y.S.3d 39, 25 N.E.3d 952 (2014). The lease provision at issue in 172 Van Duzer differs subtly—but crucially—from the purported acceleration clause in this case. There, the lease provided that upon its termination, the "Landlord shall be entitled to recover, as liquidated damages a sum of money equal to" the total of "the unpaid rent earned at the time of termination, plus interest thereon" as well as late charges," and also "the balance of the rent for the remainder of the term. " (See 172 Van Duzer Realty Corp v. Globe Alumni Student Assistance Ass'n, Inc. , 2010 WL 9479032, at *7 [Sup. Ct., N.Y. County Dec. 3, 2010] [emphasis added; subsequent history omitted].) Additionally, the lease provided that "[i]n the event of Lease termination Tenant shall continue to be obligated to pay rent and additional rent for the entire Term as though this Lease had not been terminated." ( Id. ) Those provisions do not appear in the lease at issue here. Rather, the lease provides that if a default by defendant leads to plaintiff dispossessing defendant of the premises by summary proceeding, "the rent, and additional rent, shall become due thereupon and be paid up to the time of such ... dispossess." (Lease § 18 [a], NYSCEF No. 13 at 3.) The landlord may (but need not) then re-let the premises. (Id. § 18 [b].) And defendant must pay plaintiff "as liquidated damages ... any deficiency between the rent" provided for by the lease and "the net amount, if any, of the rents collected" from a new tenant "for each month of the period which would otherwise have constituted the balance of the term of this lease." (Id. § 18 [c].) "Any such liquidated damages shall be paid in monthly installments ... on the rent day specified in this lease." (Id. )
The liquidated damages provided for by § 18 (c) also include several categories of specified expenses. (See NYSCEF No. 13 at 3.)
The Appellate Division, First Department, has squarely held that this precise language is not an acceleration clause, "the damages being payable from month to month." ( 812 Park Ave. Corp. v. Pescara , 268 A.D. 436, 441, 51 N.Y.S.2d 538 [1st Dept. 1944].) And the Court distinguished the obligation imposed on the tenant by this language from lease language like that employed in 172 Van Duzer , under which rent for the balance of the lease term would "become immediately due and payable" upon the landlord resuming possession. (See id. at 440, 51 N.Y.S.2d 538.) This makes perfect sense. Section 18 (c) necessarily cannot be an acceleration clause because it does not fix any damages obligation at the time of the tenant's dispossession by the landlord. Rather, damages cannot be calculated at all for a given month until it is clear whether, and how much, rent the landlord will be collecting from a new tenant; and, as the First Department noted in Pescara , under § 18 (c) damages for each month cannot accrue until the day that rent for the month would have become due and owing absent a default.
Put differently, among other things plaintiff's initial motion claimed (and this court initially awarded) damages for the 88-month period of April 2021 through July 2028 inclusive; yet defendant's obligation to pay rent for that period—if any exists—is still yet to come due at all. Thus, at a minimum, plaintiff's motion necessarily failed to establish plaintiff's entitlement to at least $1,760,000 of the $2,284,590 claimed in damages, or 77% of the total. Moreover, the record does not reflect whether plaintiff re-let the premises between resuming possession and now, nor what monthly rent (if any) plaintiff has been able to collect over the past 18-24 months. Any such collected rent would, of course, further diminish the damages that plaintiff could obtain from defendant under the lease and guarantee.
This figure comprises 88 months of rent at $20,000/month. (See Lease § 39.2, NYSCEF No. 13 at 10 [setting monthly rent].)
In these circumstances, this court concludes that the only tenable course is to vacate the damages portion of the court's order granting plaintiff summary judgment, which had awarded plaintiff $2,284,590 plus costs and disbursements and provided for the determination of interest to be awarded on that sum. (See NYSCEF No. 22.) Given the language of § 18 (c) of the lease, plaintiff is entitled to damages under its CPLR 3213 motion only through and including the current month of March 2021—and the proper amount of that damages award remains unclear.
To determine the proper amount of damages, the parties shall within 30 days of service of notice of entry submit papers on that issue (by e-filing and email to mhshawha@nycourts.gov). Those papers shall address (i) the date of dispossession, and any other information required to determine the amount of already accrued rent, additional rent, and holdover rent that defendant owes under §§ 18 (a) and 58.1 of the lease; (ii) whether and when plaintiffs have re-let the subject premises to subsequent tenants; (iii) the amount of rent and additional rent collected by plaintiff from subsequent tenants (if any) from the time of re-letting through March 2021 inclusive, and the deficiency (if any) between the rent and additional rent that defendant here would have owed and the rent and additional rent collected from subsequent tenants; (iv) the expenses specified under lease § 18 (c) that plaintiff incurred in reletting the premises (if any); (v) the amount that defendant owes (if any) to the Clara Mohammed School of New York through March 2021 inclusive; (vi) the amount by which defendant's obligations should be set off by payments that defendant has already made to plaintiff (including defendant's security deposit); and (vii) any other information that the parties believe to be necessary and material in determining the proper amount of plaintiff's damages in this case.
As this court previously held, plaintiff is not entitled to claim as damages the attorney fees incurred in bringing and litigating this CPLR 3213 motion-action, because fees were not sought in plaintiff's original notice of motion. (See NYSCEF No. 22.)
Accordingly, for the foregoing reasons it is hereby
ORDERED that defendant's motion to modify this court's August 24, 2020, order, entered on default and granting summary judgment on liability and damages, is granted to the extent that the branch of the August 24 order awarding $2,284,590.00 in damages plus costs and disbursements (and interest in an amount to be determined) is hereby vacated; and it is further
ORDERED that this court declines to sign plaintiff's proposed order for settlement, submitted in conformity with this court's August 24, 2020, order, for the reasons stated above; and it is further
ORDERED that the parties shall within 30 days of service of a copy of this order with notice of its entry file submissions on the amount of plaintiff's damages as discussed above; and it is further
ORDERED that defendant shall serve notice of entry on plaintiff and on the office of the General Clerk, which is directed to restore this action to active status.