Opinion
110178/1999
Decided October 15, 2004.
Joseph Z. Epstein, Esq., Pryor Cashman Sherman Flynn LLP, New York NY, for the Plaintiff.
Jeffrey P. Wade, Esq., Robert M. Abrahams, Esq., Schulte Roth Zabel LLP, New York NY, for the Defendant Duane Reade.
Upon consideration of the above-enumerated papers and after oral argument, the defendant 405 Lexington, LLC's motion for an order directing plaintiff to pay it $1,302,196.61 in attorney's fees, plus interest, is granted to the extent that the court finds that defendant was the prevailing party. The issue of the amount of reasonable attorney's fees is referred to a Special Referee to hear and determine.
This litigation proceeded to trial before another Justice of this court who is now retired. In a post-trial decision dated November 23, 2003, the court found that plaintiff Duane Reade was in default of its two "almost identical" lease agreements with defendant for premises located at 405 Lexington Avenue and 666 Third Avenue respectively, both part of the Chrysler Center (Not. of Mot. Ex. L, Dec., Judg. Ord., Nov. 26, 2003, esp. at 2 [Gans, J.]). The decision found Duane Reade in default of its leases as concerns certain items of decor and signage. However, it also held that Duane Reade was not in default in its refusal to pay either for relocating the building systems in order to install an escalator or for certain plumbing ( Id. at 12-13).
Defendant now seeks payment of its attorney's fees pursuant to Article 20 of the lease agreements (Not. of Mot. Ex. A [405 Lexington Ave.], Ex. B [666 Third Ave.]). Article 20 states, in relevant part, that where
Tenant fails to cure a default or commence cure immediately after notice thereof from Landlord. . . . all costs and expenses, including reasonable counsel fees and disbursements, incurred by Landlord in any action or proceeding (including any summary dispossess proceeding) brought by Landlord to enforce any obligation of Tenant under this Lease and/or right of Landlord in or to the Premises, shall be paid by Tenant to Landlord.
(Not. of Mot. Ex. A [Lease at 56]; Ex. B [Lease at 55]). Defendant seeks attorney's fees following the trial as concerns the decor and signage issue and claims a total of $1,302,196.61, as detailed in the billing records (Abrahams Reply Aff. Ex. O), plus interest.
Duane Reade maintains that defendant is not entitled to fees. It argues first that, under the terms of the lease, the defendant can recover attorney's fees only when it has "brought" an action to enforce the lease, and here, defendant merely asserted counterclaims in response to plaintiff's bringing a declaratory judgment action. Second, it argues that even if defendant's counterclaims are sufficient under Article 20 of the lease, defendant was not the "prevailing party" in this litigation, given that it was awarded only partial relief, and even then, the court did not order Duane Reade to upgrade its premises to be exactly the same as the store located in the former World Trade Center. Finally, plaintiff argues that defendant's invoices do not distinguish the legal work done concerning the decor and sign issues from all its other work concerning this tenancy, thus greatly inflating the amount claimed due.
In support of its interpretation of the lease's attorney's fees provision, Duane Reade relies upon Frank B. Hall Co. v. Orient Overseas Assocs., 84 AD2d 338, 341 (1st Dept.), aff'd 56 NY2d 965 (1982). In that case, the court denied the landlord's application for attorney's fees because the lease provided that fees could only be awarded in a situation where the tenant defaults and the landlord reenters the premises and dispossesses the tenant. It was held that the lease could only serve as a basis to recover attorney's fees "where the landlord has taken some action, either by summary proceeding or otherwise, to re-enter the demised premises." ( Id. at 342). Duane Reade also analogizes to H.L Klion, Inc. v. Venimore Bldg. Corp., 39 Misc2d 547 (Sup.Ct., Nassau County 1963), mod 21 AD2d 673 (2nd Dept.), mod 15 NY2d 601 (1964). In H.L. Klion, the tenant sought a declaratory judgment concerning the payment of certain taxes, and the landlord's answer included counterclaims for payments allegedly due under that lease clause, as well for attorney's fees. The lower court found for the landlord and awarded attorney's fees because "the insertion of counterclaims in the action . . . is tantamount to the institution of an action or summary proceeding within the meaning of [the lease]." ( 39 Misc2d at 551). The Appellate Division held that under the facts, the tenant was not "in default," and moreover that the landlord's counterclaim for a declaratory judgment and additional rent was not "the equivalent of the institution by [landlord] of 'an action or summary proceeding.'" ( 21 AD2d at 674). The Court of Appeals found for the tenant and dismissed the counterclaims.
Both Frank B. Hall, and H.L. Klion are distinguishable from the instant matter. In those cases, the tenants apparently commenced their declaratory actions following receipt of invoices or bills with which they disagreed. Here, the defendant-landlord first took action by serving a notice of default, which is the necessary predicate to commencement of a summary proceeding. After receipt of each notice, Duane Reade applied for temporary restraining orders, in the form of Yellowstone injunctions, which precluded defendant from actual commencement of a summary proceeding. However, the granting of a Yellowstone injunction does not change the landlord-tenant relationship created by the lease nor the rights created under the lease nor nullify the remedies to which a landlord is otherwise entitled under the lease ( Graubaud Mollen Horowitz Pomeranz Shapiro v. 600 Third Ave. Assocs., 93 NY2d 508, 515). Nonetheless, because the defendant could not institute a summary proceeding, its remedy lay in counterclaiming once Duane Reade commenced an action for a declaratory judgment concerning its rights under the two lease agreements (Rose Aff. in Opp. Ex. 1). Thus, unlike the two cases above cited by Duane Reade, here the fact that defendant served notices of default and made its counterclaims in response to Duane Reade's declaratory judgment action is sufficient to find that under Article 20 of the lease agreements attorney's fees may be awarded ( see, Tige Real Estate Devel. Co., Inc. v. Rankin-Smith, 233 AD2d 227 [1st Dept. 1996] [declaratory judgment action brought by tenant after receiving notice of imminent default]).
Duane Reade also argues that defendant was the not prevailing party as it was granted only partial relief. The November 26, 2003 post-trial decision found that while "the parties intended that the decor of the Chrysler Center stores meet the minimum standard of the World Trade Center store in terms of quality and overall appearance," the leases "do not require the Chrysler Center stores to be literally the same as the World Trade Center store, but did require that they resemble that store in overall quality and appearance." (Not. of Mot. Ex. L [Dec. at 5-6]). However, the court held Duane Reade in default as concerns the window displays at 666 Third Avenue, and the flooring, metal shelving and aisle appearance in both stores. Duane Reade was directed to remodel the window displays of the 666 Third Avenue store and replace miscolored flooring tiles, upgrade the metal shelving and clear the aisles in both stores "to be consistent in quality and general appearance with the former World Trade Center store" (Dec. at 8). The court further held that Duane Reade was in default for using improper electrical hardware to connect the signs and had failed to submit plans for electrifying the signs (Dec. at 11). However, the court held that Duane Reade was not in default as concerned the escalator installation at the 666 Third Avenue building or for the plumbing in either store.
When determining which party prevailed in an action for purposes of awarding attorney's fees, the court shall first consider the "true scope" of the dispute and then compare what was achieved within that scope ( Excelsior 57th Corp. v. Winters, 227 AD2d 146, 147 [1st Dept. 1996], citing Solow v. Wellner, 205 AD2d 339, 340 [1st Dept. 1994], aff'd 86 NY2d 582). The court need not adopt each claim raised in a lawsuit, but the claimant to attorney's fees must be the prevailing party on the central claims advanced and must receive substantial relief ( Board of Managers of 55 Walker St. Condominium v. Walker Street, LLC, 6 AD3d 279; 774 NYS2d 701 [1st Dept. 2004]; 501 East 87th St. Realty Co., LLC v. Ole Pa Enterpr. Inc., 304 AD2d 310 [1st Dept. 2003]). Thus, in Excelsior 57th Corp., where the tenants claimed they had been constructively evicted for 24 months, and the landlord claimed it was owed rent for 54 months, and the trial court found that the landlord was entitled to more than $110,000 in back rent and the tenants were entitled only to a rent abatement for 4½ months, the Appellate Division vacated the award of attorney's fees to the tenants on the ground that it was "clear" that the landlord was the prevailing party ( Id. at 146). In Peachy v. Rosenzweig, 215 AD2d 301 (1st Dept. 1995), the landlord was the prevailing party based on winning a money judgment and judgment of possession, whereas the tenants were successful only on their affirmative defense of breach of warranty, and were unsuccessful as to their twelve other affirmative defenses ( Id. at 302). In 25 E. 83 Corp. v. 83rd St. Assocs., 213 AD2d 269 (1st Dept. 1995), the plaintiff was held not to be the prevailing party where "all of its substantive claims," including its cause of action for unpaid maintenance, were dismissed ( Id. at 269). The court declared that the defendant, by successfully defending itself against the lawsuit, was the prevailing party ( Id.).
Here, the "true scope" of the dispute, brought as a declaratory action, concerned whether or not Duane Reade was in default of any of its lease obligations. After a bench trial, the court determined that Duane Reade was, in fact, in default of certain, but not all, of its lease obligations. If Duane Reade did not cure those items in which it was found to be in default, the petitioner could bring a summary proceeding to evict plaintiff. This fact alone is determinative in holding that the petitioner is the prevailing party ( cf., Altieri v. Net Realty Holding Trust, 237 AD2d 551 [2nd Dept. 1997] [where tenants were not in default of any lease term, even though they lost their declaratory judgment action concerning the amount of rent due, the landlord was not entitled to attorney's fees]).
Duane Reade also contends that those items which the court directed it to cure, are of less import and significance than the items for which the court held Duane Reade was not in default.
It is not for this court to comment on the priority of defaults, nor upon the litigation tactics apparently used by either side to this litigation. Simply put, Duane Reade's argument that the defendant "wasted almost four years and allegedly over a million dollars on litigation" in order to obtain "minor" decor changes that Duane Reade "would likely have agreed to make" without resort to litigation (Pl. Memo of Law in Opp. at 20) does not answer the question of what the lease provides. However, since plaintiff raises the issue, it bears noting that there is no evidence that Duane Reade ever actually made such a tender to the defendant or that defendant refused such an offer in bad faith or merely to promote litigation.
The core issue in this litigation was whether Duane Reade was in compliance with its lease agreements, and the trial court determined that it was not. Accordingly, by the terms of the lease agreement, defendant-landlord as the prevailing party is entitled to attorney's fees.
The determination of reasonable counsel fees is a matter within the sound discretion of the court ( Hinman v. Jay's Village Chevrolet, Inc., 239 AD2d 748 [3rd Dept. 1997]). Defendant initially claimed fees for its work concerning the signage and decor issues in the amount of $1,600,357.11 plus interest, but subsequently recalculated and reduced the amount to $1,302,196.61 plus interest (Abrahams Reply Aff. ¶ 3, Ex. O). Duane Reade argues that defendant is not entitled to the amount claimed, alleging that defendant was "unrelenting[ly] aggressive" and caused much of the legal expense that was incurred and, of more concern to the court, that defendant seeks fees on issues other than those on which it prevailed at the trial (Rose Aff. in Opp. ¶¶ 12-13; 20). It is unclear, based on the materials before the court, what could be considered reasonable fees in this case. Accordingly, a hearing is required to determine the appropriate amount of attorney's fees to be awarded. It is therefore
This amount was reduced from $1,379,227.06, upon defendant's discovery that it had inadvertently claimed more than $77,000.00 worth of work that was inapplicable to the motion (Abrahams Reply Aff. ¶ 3). Defendant alleges an additional $509,445.44 in attorney's fees, plus interest, which is not at issue in this motion (Abrahams Reply Aff. ¶ 4).
ORDERED that defendant's motion for an award of attorney's fees is granted to the extent that the court holds that defendant is the prevailing party and that its successful prosecution of its counterclaims brings it within the meaning of Article 20 of the lease agreements; and it is further
ORDERED that pursuant to CPLR 4317 (b) the issue of the amount of reasonable attorney's fees is referred for assignment to a Special Referee to hear and determine; and it is further
ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Judicial Support Office (Room 311) to arrange a date for the reference to a Special Referee.
This constitutes the decision and order of the court. The court has mailed courtesy copies of this decision to counsel.