Opinion
Index No. 652942/2022
05-25-2023
Robert Marson Testamentary Trust, Plaintiff, v. 4 W. 16 Street Corp., Defendant.
Goldberg Weprin Finkel Goldstein LLP, New York, NY (Matthew Hearle of counsel), and Cozen O'Connor, New York, NY (Scott J. Pashman of counsel), for plaintiff. Price Law Firm, LLC, New York, NY (Joshua C. Price and John M Churneftsky of counsel), for defendant.
Unpublished Opinion
Goldberg Weprin Finkel Goldstein LLP, New York, NY (Matthew Hearle of counsel), and Cozen O'Connor, New York, NY (Scott J. Pashman of counsel), for plaintiff.
Price Law Firm, LLC, New York, NY (Joshua C. Price and John M Churneftsky of counsel), for defendant.
GERALD LEBOVITS, J.
In this commercial landlord-tenant action, plaintiff-tenant Robert Marson Testamentary Trust (tenant) moves for a Yellowstone injunction against defendant-landlord 4 W. 16th Street Corp. (landlord), seeking to bar the termination of tenant's lease.
DISCUSSION
A Yellowstone injunction stays 'the landlord's termination of a leasehold" due to a claimed lease default "while the propriety of the underlying default is litigated." (Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc., 93 N.Y.2d 508, 514-515 [1999].) Yellowstone injunctions thus "maintain[] the status quo" pending a determination on the merits "so that a commercial tenant... upon an adverse determination on the merits" may still "cure the default and avoid a forfeiture" of the leasehold." (Id. at 514.)
To obtain Yellowstone relief, a tenant must demonstrate that it satisfies four conditions: (i) it holds a commercial lease; (ii) it received a notice of default, notice to cure, or threat to terminate the lease; (iii) it requested injunctive relief prior to the expiration of the cure period; and (iv) it is prepared to cure the alleged default by any means short of vacating the premises. (Elite Wine & Spirit LLC v Michelangelo Preservation LLC, 214 A.D.3d 143, 148 [1st Dept 2023].) In opposing tenant's motion, landlord argues that Yellowstone relief is unavailable because tenant failed to seek that relief in a timely manner and because the asserted breach of the lease at issue is an incurable defect.
This court concludes that tenant brought this motion in a timely fashion after receiving the landlord's notice of default. This court agrees with landlord that a tenant may not cure a failure-to-maintain-insurance lease default. Nonetheless, on the record now before this court, tenant has made out a sufficient showing that landlord waived this asserted lease default. As a result, tenant is not barred from obtaining Yellowstone relief by the incurable nature of that default. Because tenant satisfies the other preconditions of a Yellowstone injunction, the motion is granted.
I. Whether Tenant Timely Moved for a Yellowstone Injunction
Landlord argues that tenant's motion should be denied at the outset because the motion is untimely. According to landlord, it served a notice of default on July 29, 2022; and that the last day of the cure period set by the notice was August 7, 2022. (See NYSCEF No. 23 at 3 [mem. of law]; see also NYSCEF No. 24 [notice of default].) Tenant brought this action on August 9, 2022, nine days after the end of that period, and brought this motion on that same day. (NYSCEF No. 1.) As a result, landlord asserts, "appellate caselaw" that is "legion and uniform" requires that tenant's injunction motion be denied as untimely. (NYSCEF No. 50 at 1.)
This court concludes that the timeliness issue is not nearly as simple as landlord would have it. Landlord is correct that a Yellowstone motion must be denied as untimely if it is made after the applicable cure period expires. (See Tuckahoe Realty, LLC v 241 E. 76 Tenants Corp., 200 A.D.3d 629, 629 [1st Dept 2021].) But the record does not bear out landlord's contention that tenant's motion was made after expiration of the cure period.
A. Tenant's Argument for Why it Brought this Motion Within the Applicable Cure Period
The cure period set in a notice of default does not begin to run until the notice is received by the tenant. (F.W. Woolworth Co. v Center Moriches Assoc. Ltd. Partnership, 175 A.D.2d 198, 198-199 [2d Dept 1991].) Here, landlord emailed a copy of the July 29, 2022, notice to the representative of plaintiff with whom they had most frequently dealt (Bernard Marson), mailed copies of the notice to Mr. Marson's attention at the leased premises and to Mr. Marson's home address, and mailed a copy of the notice to the law firm that had drafted tenant's 2011 sublease with its subtenant (Seligson, Rothman & Rothman). (See NYSCEF No. 48 at ¶¶ 4-5, 8.) Seligson Rothman & Rothman, in turn, emailed Mr. Marson on August 1 to forward a copy of the notice it had received. (See NYSCEF No. 47 at 3-4 [copy of email].)
Unfortunately, Mr. Marson died only weeks before, on July 9, 2022. (NYSCEF No. 45 at ¶ 3.) And landlord, although notified of his passing by his widow (Ellen Marson) on July 22, 2022 (see NYSCEF No. 46 at 1), did not send notice directly to her. Nor did landlord send notice directly to Mr. and Ms. Marson's children, although it was aware that the children were actively involved in handling tenant's business affairs-including the lease at issue in this case. (See NYSCEF No. 9 [emails dated July 26, 2022, between counsel for landlord and Eve Marson].) And the Seligson firm did not forward the notice directly to Ms. Marson until August 12, 2022. (See NYSCEF No. 47 at 1.)
Bernard and Ellen Marson's son, Alexander Marson, has submitted an affidavit representing that he assumed primary management of tenant's affairs following Mr. Marson's death. (NYSCEF No. 45 at ¶ 9; see also NYSCEF No. 10 at 1 [August 6, 2022, email between Alexander Marson and counsel for landlord].) He represents that he did not learn of the notice of default until August 12, when his mother forwarded him the copy of the notice that she had just received from tenant's law firm. (See NYSCEF No. 45 at ¶ 13; NYSCEF No. 47 at 1 [email from Ellen Marson to Alexander Marson].) This motion was brought five days later, on August 17.
In light of Alexander Marson's representations and the accompanying documentation, this court concludes that tenant has sufficiently established for purposes of this motion that the cure period began to run on August 12, 2022-and therefore that tenant's motion, brought well within the 10-day cure period set by the notice of default, is timely. (See NYSCEF No. 24 [notice of default dated July 29, 2022, requiring that the asserted default be cured on or before August 7, 2022].) Landlord raises several contrary arguments. None is persuasive.
B. Landlord's Timeliness Counter-Arguments
Landlord contends that the cure period began to run on July 29, 2022, rather than on August 12, "because the parties agreed through the Lease that service of any notices would be effective when made" by the means by which landlord sent notice to tenant on July 29. (NYSCEF No. 48 at ¶ 3.) The lease provisions on which landlord relies, however, go only to what a landlord must do to serve notices on tenant properly. The question here is not whether the July 29 notice was validly served on tenant, such that the notice was sufficient to start the clock running on tenant's time to cure the asserted lease default, but instead when the cure-period clock began to run. The Appellate Division has held that for purposes of determining whether a Yellowstone motion is timely, the cure period set by a notice of default begins to run on receipt of the notice-not before. (See F.W. Woolworth, 175 A.D.2d at 198-199.) And landlord does not identify contrary caselaw.
Landlord also claims, in effect, that tenant constructively received the notice of default on July 29, through landlord's delivery of the notice to the Seligson firm. (NYSCEF No. 48 at ¶¶ 7-11.) But again, landlord does not provide authority for the proposition that constructive or vicarious notice to a tenant suffices to begin the running of a cure period. In any event, as landlord's own submission reflects (see id. at ¶¶ 8-9), the Seligson firm served as tenant's counsel and agent in connection with tenant's sublease of the premises to its subtenant, rather than with landlord's lease of the premises to tenant. It is unclear why landlord's delivery to the Seligson firm of a notice pertaining to tenant's obligations under the lease (not the sublease) should also constitute constructive notice to tenant.
Landlord asserts that tenant should be deemed to have received the notice of default on August 1, 2022, because "it is entirely fair and reasonable to assume that [Ms.] Marson promptly knew, or at least should have known," of the August 1 email from the Seligson firm to Mr. Marson's email account, forwarding the notice of default. (Id. at ¶ 14.) Landlord's only basis for its assertion about Ms. Marson's knowledge, though, is that she had used her late husband's email account on July 22 to inform landlord of her husband's passing. (Id. at ¶ 13.) This court doubts that this fact, standing alone, would put Ms. Marson on inquiry notice-let alone actual notice-of further emails to Mr. Marson's email account, particularly because her email to landlord from that account included her own personal email address and phone number (NYSCEF No. 46 at 2). (Cf. F.W. Woolworth, 175 A.D.2d at 198 [holding that landlord "failed to submit sufficient proof to establish a presumption that the [tenant] received a letter on August 21, 1990" notifying tenant of a default, and therefore that the cure period "did not begin to run until a notice dated, August 30, 1990, was received on September 5"].) Regardless, landlord provides no basis to conclude that upon Mr. Marson's death, Ms. Marson began exercising control over tenant's affairs, such that notice to her should be treated as notice to tenant. Indeed, the record contains emails from her to her son, Alexander Marson, indicating that she did not feel herself capable, so soon after her husband's passing, of acting on tenant's behalf. (See id.; NYSCEF No. 47 at 2.)
Tenant's Yellowstone motion was timely made before the expiration of the applicable cure period.
II. Whether Tenant is Foreclosed from Yellowstone Relief on the Ground that the Asserted Lease Default is Incurable
In addition to challenging the timeliness of this motion, landlord also argues that the motion must be denied because the asserted lease default on which it relies cannot be cured, as is ordinarily necessary for Yellowstone relief to be granted. This court concludes that the lease default at issue is incurable. In the circumstances of this case, however, this court disagrees with landlord's position that the incurable nature of the default requires denial of tenant's motion.
A. Whether the Asserted Lease Default is Incurable
The July 29, 2022, notice alleges that tenant is in default because it has "repeatedly and consistently failed to maintain and keep in force liability insurance in favor of and for the benefit of the landlord," as required by the lease. (NYSCEF No. 11.) It is undisputed that any insurance coverage for landlord's benefit at the leased premises has been obtained and maintained by the subtenant, not by tenant directly. (See NYSCEF No. 4 at ¶¶ 10, 16 [aff. of tenant's counsel].)
A tenant's failure to maintain the insurance coverage required by a lease is an incurable defect for Yellowstone purposes-at least absent a commitment by the tenant to obtain retroactive coverage for the period at issue. (See Bliss World LLC v 10 W. 57th St. Realty LLC, 170 A.D.3d 401, 401-402 [1st Dept 2019]; Kim v Idylwood, NY, LLC, 66 A.D.3d 528, 429 [1st Dept 2009].) Tenant has not made that commitment here. At most, Alexander Marson has submitted an affidavit in support of the motion in which he represents that tenant "stands ready, willing, and able to cure the default alleged in [landlord's] notices." (NYSCEF No. 16 at ¶ 24.) This general, conclusory statement is not sufficient to show that tenant is prepared to take the unusual step of obtaining at least a decade's worth of retroactive insurance coverage-especially given that at least one covered loss is known to have happened within that period (as discussed further in Section II.B, infra).
Crucially, a tenant's failure to obtain insurance for the landlord's benefit constitutes an incurable defect even if the landlord has enjoyed adequate insurance coverage through a subtenant's insurance policy. (See 166 Enters. Corp. v I G Second Generation Partners, L.P., 81 A.D.3d 154, 158 [1st Dept 2011].) A "landlord is not required to accept subtenant's performance in lieu of tenant's" with respect to insurance coverage-including with respect to whether the tenant's failure to maintain coverage can be cured. (Federated Retail Holdings, Inc. v Weatherly 39th St., LLC, 77 A.D.3d 573, 574 [1st Dept 2010].)
It is not immediately clear why this should be so. If neither tenant nor subtenant has maintained insurance coverage for landlord at all, that defect cannot ordinarily be cured after the fact, because obtaining coverage going forward "does not protect [landlord] against the unknown universe of any claims arising during the period of no insurance coverage." (Kim, 66 A.D.3d at 529.) But this problem does not arise if adequate coverage has been maintained, just by the subtenant rather than the tenant. The Appellate Division's rationale is that because landlord would have no recourse were subtenant to "choose, at any time, to discontinue its insurance naming landlord as an additional insured." (Weatherly 39th St., 77 A.D.3d at 574.) That consideration might explain why a landlord would regard the tenant's failure to maintain insurance directly as a material breach of the lease. But it does not show why such a breach cannot be remedied going forward by the tenant taking out a policy that affords the landlord additional-insured coverage. Nonetheless, the Appellate Division has clearly resolved this issue; and this court must follow its rulings.
B. Whether Landlord Waived its Right to Assert this Lease Default
That the default at issue is incurable, however, does not resolve this motion. The existence of an incurable lease default-such as the failure to obtain or maintain insurance-will not bar Yellowstone relief if the landlord has waived that default. (See 117-119 Leasing Corp. v Reliable Wool Stock, LLC, 139 A.D.3d 420, 421 [1st Dept 2016].)
Tenant argues that landlord waived its right to insist on insurance coverage being maintained by the tenant directly, rather than by the subtenant. (See NYSCEF No. 4 at ¶¶ 27-28.) Landlord responds by pointing to the presence of no-waiver provisions in the form lease. (NYSCEF No. 23 at 7-9.) But no-waiver clauses may themselves be waived, depending on the circumstances. (See Kenyon & Kenyon v Logany, LLC, 33 A.D.3d 538, 538-539 [1st Dept 2006]; Madison Ave. Leasehold, LLC v Madison Bentley Assocs. LLC, 30 A.D.3d 1, 5-7 [1st Dept 2006], affd on other grounds, 8 N.Y.3d 59 [2006], citing Rose v Spa Realty Assoc., 42 N.Y.2d 338, 343 [1977]; Simon & Son Upholstery, Inc. v 601 W. Assocs., LLC, 268 A.D.2d 359, 360 [1st Dept 2000]; 510 Joint Venture v Solcoor, Inc., 177 A.D.2d 465, 466-467 [2d Dept 1991]; Lee v Wright, 108 A.D.2d 678, 680 [1st Dept 1985]; see also Funk v Seligson, Rothman & Rothman, Esqs., 165 A.D.3d 429, 431 [1st Dept 2018] [noting that a "contractual prohibition against oral modification may itself be waived"] [internal quotation marks omitted]. )
Landlord argues that the First Department's decision in Reliable Wool Stock supports its argument that the no-waiver provisions in the lease at issue here foreclose tenant's waiver argument. (See NYSCEF No. 23 at 9). But the Court held in that case only that the landlord had not waived the tenant's insurance-related default. (139 A.D.3d at 421.) The Court did not rely for that conclusion on the presence of a no-waiver provision in the lease. And it is not clear from the decisions in the case whether the presence or absence of a no-waiver provision was even raised by the parties. (See 117-119 Leasing Corp. v Reliable Wool Stock, LLC, 2015 NY Slip Op 32837[U], at *3-4 [Sup Ct, NY County Mar. 25, 2015], affd 139 A.D.3d 420.)
The question, then, is whether tenant has made a sufficient showing of waiver of the default and the no-waiver clauses of the lease to permit the grant of a Yellowstone injunction. This court concludes that tenant has done so.
The underlying lease between landlord and tenant that landlord now seeks to terminate was first made in 1979. (See NYSCEF No. 5 at 1 [lease].) Tenant's current sublease with its subtenant began in 2011. (See NYSCEF No. 16 at ¶ 10 [aff. of Alexander Marson].) Landlord gave its consent to the 2011 sublease in a letter agreement among landlord, tenant, and subtenant. (See NYSCEF No. 37 [2011 letter agreement].) Section 6 of that agreement required the subtenant to name landlord and any managing agent "as additional insureds on all of [s]ubtenant's insurance coverage required to be carried pursuant to the terms of the [s]ublease." (Id. at 3.) In 2018, landlord, tenant, and subtenant executed an amendment to the 2011 sublease letter agreement. (See NYSCEF No. 13 [2018 amendment].) That amendment strengthened subtenant's insurance-related obligations toward landlord: It required subtenant not only to continue to name landlord/landlord's managing agent as an additional insured on the policy that the sublease required subtenant to maintain, but also to take out another insurance policy on which the landlord is a named insured. (Id. at 3-4.) And the 2018 amendment added a provision that expressly gave landlord the right to enforce these insurance requirements as against subtenant. (Id. at 4.)
Landlord suggests, in a supplemental letter brief submitted at the rest of the court, that subtenant did not have an obligation until 2018 to maintain insurance that afforded coverage to landlord. (See NYSCEF No. 50 at 3.) Given the terms of the 2011 sublease-consent agreement discussed above-filed in this case by landlord (see NYSCEF No. 37)-that suggestion is rejected.
As of 2018, in other words, landlord had entered into multiple written agreements with subtenant that assured landlord that it had insurance coverage through the subtenant and that it was in privity with subtenant for enforcement purposes. (Cf. Federated Retail Holdings, Inc. v Weatherly 39th St., LLC, 77 A.D.3d 573, 574 [1st Dept 2010] [holding that "landlord is not required to accept subtenant's performance in lieu of tenant's" with respect to insurance coverage, because landlord "is not in privity with subtenant" and thus could not require subtenant to continue to name landlord on subtenant's insurance policy].) These agreements would be at best redundant if landlord were insisting that tenant's insurance-coverage obligations to landlord under the lease could be satisfied only through a policy obtained and maintained directly by tenant in favor of landlord, not subtenant. Indeed, tenant suggests-and landlord does not dispute-that between 2011 and 2018, landlord did not object to tenant's providing insurance coverage for landlord through subtenant. (See NYSCEF No. 16 at ¶ 11 [aff. of Alexander Marson]; compare NYSCEF No. 22 at 5 [aff. of landlord's counsel, identifying no insurance-related questions or objections from landlord to tenant before 2020].)
In early 2020, landlord and its property manager were named as defendants in a personal-injury action brought by a former employee of subtenant who alleged that she had suffered electrocution injuries in 2019 due to a defectively installed electrical system on subtenant's premises. (See LaPaglia v 4 W. 16th St. Corp., Index No. 503845/2020 [Sup Ct, Kings County].) Landlord notified its own insurer (GNY) of this claim; and GNY tendered the defense of the claim to subtenant's insurer (Travelers) on the ground that landlord and its property manager qualified as additional insureds on the Travelers policy. (See NYSCEF No. 50 at 3 [letter brief of landlord's counsel]; id. at 57-60 [GNY's tender letter].) In July 2020 Travelers accepted GNY's tender and assigned counsel to represent landlord in the personal-injury action. (Id. at 62 [Travelers email accepting tender].)
Given subtenants' insurer's acceptance of landlord's tender in the personal-injury action, it is unclear what basis exists for landlord's statement that tenant's "failure to maintain adequate insurance as expressly required by the Lease has therefore already given rise to a risk of Defendant-Landlord being uninsured in respect of any liability arising" from that action. (NYSCEF No. 22 at ¶ 41.)
Landlord does not contend that it objected between July 2020 and July 2022 to tenant's relying on subtenant to provide the insurance coverage for landlord that is required by the lease. At most, landlord points to two 2020 requests made by its management company to tenant for proof of insurance. (See NYSCEF No. 22 at ¶¶ 23-24 [aff. of counsel].) But the first of those requests, made in April 2020, stated that the management company was "collecting evidence of insurance from all shareholders and commercial tenants as per building policy." (NYSCEF No. 27 at 1 [emphasis added].) The second request, made in November 2020, stated that the management company was "reaching out regarding the required insurance documentation for 4 West 16 Street," and asked tenant to "provide proof of property and liability insurance as per building policy." (NYSCEF No. 28 at 1.) These requests do not appear to be singling out tenant, in particular, for insurance-related scrutiny. Nor do the requests say, or suggest, that it would be impermissible for tenant to provide proof of an insurance policy maintained by subtenant for landlord's benefit, rather than by tenant directly.
In short, the record before the court on this motion reflects that (i) for nearly a decade, landlord accepted rent from tenant without ever objecting to tenant's satisfying its insurance obligations to landlord through subtenant's insurance policy; (ii) during that period landlord twice contracted directly with tenant and subtenant to require subtenant to maintain insurance coverage for landlord's benefit; (iii) when an accident on subtenant's premises led to a suit against landlord, landlord sought and obtained additional-insured coverage from subtenant's insurer; and (iv) a further two years elapsed before landlord served its notice asserting that tenant had defaulted under the lease by not maintaining its own insurance for landlord's benefit.
In these circumstances, tenant has established, for purposes of this motion, that landlord waived not only the asserted failure-to-maintain-insurance lease default, but also the lease's no-waiver provisions. (See Simon & Son Upholstery, 268 A.D.2d at 360.)
Accordingly, it is
ORDERED that tenant's motion for a Yellowstone injunction is granted; and it is further
ORDERED that the effective date of the August 8, 2022, notice of termination of tenant's lease is tolled pending further order of this court; and it is further
ORDERED that landlord and landlord's agents are preliminarily enjoined, pending further order of this court, from taking action to terminate, or otherwise interfere with, tenant's leasehold interest in the premises based on the asserted event of default described in the July 29, 2022, notice of default and the August 8, 2022, notice of termination; and it is further
ORDERED that the parties shall appear before this court for a telephonic status conference on June 16, 2023.