Opinion
401575/08.
Decided August 20, 2008.
The only information we have regarding appearances of counsel comes from the Case Records in the County Clerk's Office. That is: Attorney for Plaintiff; Legal Aid Society, 230 East 106th Street, New York, New York 10029 and Attorney for Defendant; Sperber, Denenberg Kahan P.C., 48 West 37th Street — 16th Floor, New York, New York 10018.
Plaintiff ("Reid")'s application for an order (1) declaring the surrender agreement ("release") a nullity, and (2) ordering defendant, DDEH 103 East 102 LLC ("DDEH") to restore Reid and her family to possession of the third floor west apartment located at 103 East 102nd Street, New York, New York ("the premises"), is granted for the reasons stated more fully below, except for the portion of the application requesting the Court to set the legal rent for the premises.
The instant application came before the Court as an order to show cause. Oral argument was held on July 17, 2008. At oral argument, the Court ordered an evidentiary hearing to determine the circumstances of the signing of the release. The hearing was held on July 22, 2008. As Reid is home-bound, due to an advanced stage of multiple sclerosis for which she was first diagnosed in 1997, the hearing was conducted at the temporary shelter in which Reid and her family have resided since a fire destroyed the premises on April 26, 2006.
Prior to April 26, 2006, Reid and her four children, lived in the premises for approximately thirteen years. Reid received a subsidy to pay her rent from the New York City Department of Housing Preservation and Development ("HPD") under the Section 8 program. As a result of the April 26, 2006 fire, the entire ten unit building was evacuated. Reid and her family were among those evacuated. Upon evacuation, Reid was sent to a hospital for smoke inhalation while her four children were sent to a hotel in Queens, where Reid joined them upon her release. Soon after their placement in the hotel, the family was reassigned to a homeless shelter in the Bronx, where they have remained ever since.
Michael Kessner ("Kessner") is the son of the principal of 103 East 102nd Street Associates, LLC ("Associates"), the company which owned the premises at the time of the fire. At that time, Kessner was also working as the de facto managing agent for the premises and was a very minor partner in Associates.
Approximately three weeks after the fire, on May 19, 2006, Kessner came to visit Reid at the homeless shelter where she was residing. Kessner arrived at the meeting with two (or three) other men — one was a field supervisor for the premises and the another was a lawyer representing the owner. At the time the meeting was held in Reid's bedroom, Reid was confined to bed. The only other person in attendance at the meeting was Philip Ash, the father of Reid's children. Reid was unrepresented by counsel at the meeting. Both parties acknowledge that the meeting between Reid and Kessner was arranged by a former tenant in the building, Debra Farmer. According to Kessner's testimony, he had negotiated an agreement with Ms. Farmer, on behalf of Associates, to buy-out her rights to her apartment in exchange for $250.00. In addition, Kessner claims that Ms. Farmer had arranged for Kessner to meet Reid to arrange the same deal for Reid, at Reid's request. Reid denies that she asked Farmer to contact Kessner on her behalf. At the time of the hearing neither party was in contact with Ms. Farmer nor knew of her whereabouts. Therefore, Ms. Farmer was unavailable to testify at the hearing.
At the May 19th meeting, Kessner gave Reid a document to sign, which she signed, though Reid claims she never read it before she signed it. The release agreement, prepared by Associates' attorney, states, in pertinent part :
This release specifically includes, but is not limited to anything pertaining to the lease for the premises, 103 East 102nd Street, New York, New York, including apartment No. 3W. By signing this release form the releasor agrees to surrender apartment #3W at 103 East 102nd Street, NY, NY 10029 effective the date hereof.
Reid testified that she signed the document and accepted the check as Kessner was "polite and kind" to her. Upon signing the release, Kessner gave Reid a $250.00 pre-printed check, which she cashed. Reid claims, and Kessner never refutes that, he did not give her a copy of the release. Kessner never told Reid, at any time prior to or after signing the agreement, that she had a right to move back into the apartment. Nor did he tell her that the building was going to be repaired.
Even though plaintiff was unable to identify her signature at the hearing, there is no claim that it is not her signature on the document.
According to Reid's testimony, Kessner; ". . . gave me a paper to sign and he said he was shutting down the building and nobody else — tenants wasn't allowed to return . . . Ever." Kessner testified that, at the time Reid signed the agreement, he explicitly told Reid that the she was giving up her rights to the apartment in exchange for $250.00. When Reid was asked why Kessner was giving her the check, she testified; "I guess he never said. He said just sign this, here is a $250 check, and I took it that he was sealing the deal, being that he was giving me the check, that I had no rights to the apartment anymore."
According to DDEH, a vacate order, attached to DDEH's opposition papers, was issued by HPD after the fire. Reid testified that she was not aware that there had been a vacate order issued by HPD, nor did she receive any communication, orally or in writing, of her right to move back to her apartment by any body until she received a letter on or about May 21, 2008 from HPD informing her that :
The Department of Housing Preservation and Development "(HPD") would like to notify you that your apartment, (#3W), located at 103 East 102nd Street , in Manhattan has been repaired. The apartment has been inspected by HPD and has been deemed habitable. Please contact you landlord/managing agent Michael Kessner at (212) 289-9200 to make arrangements to return to you apartment immediately. (Emphasis in original.)
Associates obtained releases from all but two tenants in the premises. Of the eight releases, Associates paid $250 to Reid, $250 to Ms. Farmer, and $8,000 to a tenant Kessner claims had an extremely very low rent. The five other tenants who signed releases did not receive any payments. After obtaining releases from all but two tenants who Associates were not able to locate, Associates sold the premises to DDEH, a subsidiary of a British company, unrelated to Associates and/or its principals. The premises were sold with 47 other buildings (some of which also had been damaged by fires) in the 50 building inventory of companies of which Kessner's father was the principal. DDEH, the new owner of the premises, hired Kessner as the registered managing agent for the premises, a position he still holds. Since the building has been sold to DDEH, the apartments on each floor have been completely reconfigurated and renovated. The third floor has two, two-bedroom apartments, one on the east side of the building, and one on the west side of the building, but neither is Reid's original apartment. Apartment 3W was vacant at the time of the commencement of these proceedings and remains vacant based on this Court's order issued on July 8, 2008.
On June 24, 2008, a month after Reid received the letter from HPD advising her of her right to return to the apartment, Reid signed an affidavit prepared by Legal Services attorneys, in support of the instant application.
The only relevant facts in dispute are Reid's claim that Kessner explicitly told her that Associates was shutting down the building and would not reopen it and that tenants could never move back in and Kessner's claim that he explicitly told Reid that she was surrendering her rights to the apartment in exchange for the $250. However, when asked if Kessner had explained to plaintiff what "surrendering the apartment" meant, he responded: "I would think it is self-explanatory . . . ". When asked if he had ever explained to Reid that she had a right to move back into the apartment once repairs had been completed, Kessner testified that he did not remember making such statements but that; "[i]t was implied." Kessner also admitted that he had no memory of whether he told Reid the building was being repaired.
Based upon the testimony and the Court's observations of the witnesses, the Court finds Reid to be a credible witness and that her testimony of the events is more accurate than Kessner's. Reid's version of her discussion with Kessner was corroborated by Phillip Ash, the father of her children, whom Kessner admits was present during the conversation. There was no corroboration of Kessner's version of the events. The court finds that Kessner told Reid that Associates was shutting down the building and not planning to repair it and that tenants could not move back in. While Reid admits that she thought that she was taking the $250 because she had no rights to apartment anymore, her understanding in this regard was predicated upon Kessner's misrepresentation to her that neither she nor any of the other tenants could ever return to the building. There is no dispute that Kessner never informed Reid she had the right to move back into the premises once the apartment building was repaired.
Reid argues that the release agreement is invalid as it was obtained by fraud and is unconscionable.
Basic principals of contract law hold that to find a legally binding contract exists, it must be shown that there was a manifestation of mutual assent, or "meeting of the minds," in regard to all material terms of the contract. ( Joseph Martin, Jr., Delicatessen, Inc. v Schumacher, 52 NY2d 105, 109). In this case, there was no meeting of the minds.
DDEH contends that the agreement is valid even if Reid failed to read or comprehend the agreement before signing it. DDEH is correct in its contention that the failure to read a document before signing it, alone, is not a basis for invalidating an otherwise legally binding agreement. ( Metzger v Aetna Ins. Co., 227 NY 411, 416 ["He who signs or accepts a written contract, in the absence of fraud or other wrongful act on the part of the other contracting party, is conclusively presumed to know its contents and to assent to them. . . ."]). Here, however, there is not only an allegation of wrongdoing, but a finding, by this Court of wrongdoing on the part of the party who drafted the agreement. The Court credits Reid's testimony that Kessner told her Associates was "shutting down the building and nobody else tenants were not allowed to return." Kessner, knowing that the premises would be renovated, lied to Reid, telling her the building was being shut down, thus leading her to believe, as she testified, that she had no option to move back into the premises.
The facts of this case further support the conclusion that the subject release was obtained by fraud. To succeed in asserting a claim of fraud, a plaintiff must establish that 1) the defendant made a material misrepresentation or omission of fact, 2) with knowledge of its falsity, 3) with the intent to defraud the plaintiff, 4) on which the plaintiff reasonably relied, and 5) that caused damage to the plaintiff. ( The Jordan [Bermuda] Investment Co., Ltd. v Hunter Green Investments LLC, NYLJ, August 7, 2008, p. 34, col. 3 [applying New York Law]; citing Schlaifer Nance Co. v Estate of Warhol, 119 F3d 91, 98 [2d Cir. 1997]).
Here, the credible testimony establishes that Kessner misrepresented Associates intentions and plans to renovate the premises for re-occupancy and misrepresented that tenants would not be able to move back in. Presenting Reid with a pre-printed check for $250, with a lawyer at his side, knowing that Reid was not aware of Associates' plans to renovate the premises or her right to return to the premises, further evidences Kessner's intent, as an agent of Associates, to defraud Reid. The message was clear. This deal was non-negotiable and Reid had no bargaining power to assert otherwise. Reid relied on those misrepresentations in accepting the nominal $250 check, signing away rights she did not know she had, failing to pursue the right to move back into the premises, and keeping herself and her family in a shelter for the past two years, which, as the Court observed at the hearing, was in a deplorable condition. Thus, there is no question that Reid's reliance on these misrepresentations caused harm to herself and to her family.
The cases cited by DDEH to support its claim that the release is a valid, non-fraudulent agreement, are factually distinguishable from the instant action. In Merwest Realty Corp. v. Prager, ( 264 AD2d 313 [1st Dept. 1999]), the issue before the court was whether parties could agree to terminate a rent controlled tenancy by mutual agreement of the parties, both of whom were represented by counsel. In that case, the First Department held that there was nothing barring such an agreement where there was "no evidence of bad faith or overreaching by the landlord to surrender the possession of the premises. . . . " In the case presently before this Court, Reid was not represented by counsel and there is evidence of bad faith and overreaching by Associates. In Morby v. DiSierra Associates, CPA, ( 291 AD2d 604 [3d Dept 2002]), the court refused to set aside a release obtained by a party in a tort action where the party seeking vacature waited a year to move to set the agreement aside and where the written agreement clearly cited the full panoply of rights that were being given up. In the case presently before this Court, the agreement on its face did not recite what rights Reid was giving up and Reid moved for the relief sought herein within one month of learning of the misrepresentations which had been made to her.
Even if there were no fraud in the formation process of the subject release, this Court finds that the release is unconscionable and, therefore, unenforceable.
Unconscionability is a flexible doctrine, but requires some showing of an absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to the other party. ( Sablosky v Edward S. Gordon Co., Inc., 73 NY2d 133; Matter of State of New York v Avco Fin. Serv. Of NY, 50 NY2d 383; Matter of Friedman, 64 AD2d 70, 85 [2d Dept 1978]). Thus, the analysis is one of both procedural and substantive reasonableness, requiring the Court to inquire whether plaintiff was 1) "confronted with a lack of meaningful choice, resulting in inequality in bargaining power," and 2) whether "the terms of the [release] unreasonably favored" the defendant. ( Matter of State of New York v Bel Fior Hotel, 74 AD2d 692 [3d Dept 1980]; see also People v Two Wheel Corp, 71 NY2d 693).
In this case, Reid, who is clearly not a sophisticated business woman, was unrepresented by counsel when she signed the release. Reid and her children had been dispossessed from their apartment in which they had lived for 13 years by a traumatic event, a fire. Reid was separated from her children when she was sent to the hospital and rejoined her family only two weeks prior to Kessner's meeting with her. The meeting took place in a shelter, with Reid in a weakened condition, confined to her bed. This was not a negotiation. This was one visit, with a pre-prepared release, and a pre-printed check. Under these circumstances, the Court can only be left with the impression that Kessner, a savvy businessman, took advantage of Reid's precarious personal and financial circumstances to secure the subject release for Associates' own financial gain.
Substantively, there is no question that the terms of the release overwhelmingly favored Associates. Reid's tenancy was governed by the rent stabilization laws for thirteen years before the fire, keeping the rent far below market value. A payment of $250 in exchange for any claim of possession on a tenancy this long in duration, which would allow defendant to rent the subject apartment for significantly more each month than plaintiff paid, is both an indication that Reid was unaware of the rights she was being asked to give up and that the terms of the release unreasonably favored Associates.
Therefore, and for all the reasons stated above, the Court declares the release to be a nullity.
DDEH argues that, as it is not the entity which actually obtained the release, it should not have to bear the burden of the Court's determination that the release is invalid. DDEH further argues that as it bought the premises believing the building to be vacant and has totally renovated it, to such an extent that Reids's apartment is no longer configured as it was before the fire, equity does not permit the Court to reinstate Reid and her family to possession as such relief would not bring the parties back to the status quo and would greatly prejudice and work a hardship upon DDEH.
The Court recognizes that Kessner was not DDEH's agent at the time he fraudulently obtained the release from the Reid. However, having determined that the release was invalid, Reid retains the right to regain possession of the premises. The sale of the premises to a new entity does not wipe out the rights of the prior tenants. ( See Segal v Kulch, 13 AD2d 1011, 1012 [2d Dept 1961] [Lease affecting apartment in building, which had become effective between the dates of contract and closing, "was an incumbrance" upon the land's title.]) Moreover, it was up to the DDEH to investigate the status of the property at the time of the purchase. Faced with the vacate order and being charged with knowledge of the Rent Stabilization Regulations, DDEH was obligated to undertake due diligence to determine the status of the prior tenancies. If it chose to rely upon the representations of the prior owner, Associates, it did so at its own risk.There is no argument that, were the same apartment available, it would be well within the Court's discretion to reinstate Reid and her family to her apartment in order to maintain the status quo. However, DDEH has rendered that remedy an impossibility by renovating the premises in such a manner that Reid's apartment no longer exists in the same configuration as before. It would defy equitable principals to deny Reid relief because DDEH's wrongful conduct has rendered the status quo unavailable to the Court. "[I]t sometimes happens that the status quo is a condition not of rest, but of action, and the condition of rest is exactly what will inflict the irreparable injury upon [plaintiff]. . . ." ( Bachman v Harrington, 184 NY 458, 464). In this case, where Reid is entitled to relief, but restoring her to the exact position in which she could be found prior to signing the subject release is an impossibility, the Court must fashion an appropriate equitable remedy.
Citing to the rules of the New York State Division of Housing and Community Renewal ("DHCR"), defendant argues that plaintiff is not allowed to return to her apartment as plaintiff failed to pay $1.00 a month in rent required to "constructively occupy" the apartment while the repairs were being made. It is not clear to the Court that defendant has standing to raise this issue, or whether this requirement applies to the facts in this case. The Court invited the parties to this lawsuit to join DHCR as a necessary party or to call someone from DHCR as a witness to so advise the Court . Neither party did so. As such, the Court does not address this issue.
As there was no valid agreement requiring Reid to surrender her apartment in the premises, and as Reid has a right to move back in now that HPD has certified the apartment as safe, the Court orders DDEH to give possession to Reid and her four children of the third floor west apartment in the premises. Accordingly, it is
ADJUDGED AND DECLARED that the subject release is a nullity, and it is further;
ORDERED that DDEH restore Reid and her children to the third floor west apartment in the premises within thirty days of receipt of this order with notice of entry; and it is further
ORDERED that the portion of Reid's application seeking a determination of the legal rent for the premises is denied as premature. Reid must seek such determination from the appropriate administrative agency authorized to make such a determination. After such a determination is made, if Reid believes that the determination is erroneous, she may then file an Article 78 petition challenging the determination.
This constitutes the decision and order of the Court.