Opinion
600215/06.
Decided January 7, 2009.
Nixon, Peabody, LLP., By: Thomas T. McLaughlin, Esq., Attorney Plaintiff.
John A. Coleman, Jr., Esq., P.C., New York, NY, Attorney Defendant.
This is a motion for summary judgment demanding the return of plaintiff's security deposit of $75,000, together with interest, costs, disbursements and attorney's fees. The motion is granted to the extent of awarding plaintiff the sum of $75,000 with interest and costs because the defendant commingled the security deposit with its own general funds instead of depositing it in a separate interest-bearing account in accordance with RPL § 7-103.
Defendant claims that the Court should not award the plaintiff judgment as defendant's expenses in restoring the premises to a rentable state due to the failure of plaintiff to properly maintain the premises, restore it to a broom-clean condition, and by altering the premises without giving prior notice exceed the $75,000 security deposit. It argues that even if the Court determines that plaintiff is entitled to the return of the security deposit, the deposit should be held in escrow by the Court until the defendant's counterclaims are determined.
It also makes the imaginative but flawed argument that RPL § 7-103 does not apply because the rights appurtenant to a proprietary lease of a cooperative apartment are not an interest in Real Property because such an interest is "separate and distinct from real property."
The lease that defendant holds in an assignment from its predecessor in interest is a sublease from the holder of a proprietary lease. Such a lease has been consistently interpreted by New York courts as an interest in real property ( Maloney v Weingarten , 118 AD2d 836, 500 NYS2d 30 [2d Dept 1986], app den 118 AD2d 836 [2d Dept 1986]), subject to the provisions of the Real Property Law and the Real Property Actions and Proceedings Law ( Ryfun v 406 West 46th Street Corp. , 297 AD2d 202, 746 NYS2d 21 [1st Dept 2002], lv to app dismd , 99 NY2d 611 [2/20/03]). The New York City Housing Court has specifically held that a security deposit held by a cooperative corporation is subject to RPL § 7-103 ( Shearman v Betts , 2007 WL 3353570, 2007 NY Slip Op 52153 [Civ Ct NY Cty 2007]). Certainly, since the cooperative shareholder is entitled to the protection of the Real Property Law, then the same reasoning should be accorded to the sublessee of that shareholder; although neither party nor was the Court able to find a reported case on point. This comports with the general notion in the interpretation of contracts that the parties' reasonable intentions should govern. There is no reason to expect that either side expected the security deposit to be considered anything other than the usual understanding of what a security deposit is and does.
It is axiomatic that when the landlord departs from RPL § 7-103 and commingles the funds with its own funds, there is an illegal conversion entitling the tenant to the immediate return of the security deposit, despite any defenses or counterclaims.
"[Where there is] commingling at the time of lease expiration, in violation of General Obligations Law § 7-103 (i), . . . defendant forfeited any right he had to avail himself of the security deposit for any purpose entitling plaintiff to its immediate return notwithstanding that plaintiff may have breached the lease."
( Dan Klores Associates v Abramov , 288 AD2d 121, 733 NYS2d 388 [1st Dept 2001]; accord Finnerty v Freman , 176 Misc 2d 220, 673 NYS2d 843 [App Term 2d Dept 1998])
The original lease is dated June 13, 2000. Accordingly, interest should be assigned as of that date. Prejudgment interest shall accrue from the earliest time of the breach. According to the deposition testimony, the funds were commingled in the defendant's account at the time the lease was signed, that is the date on which the interest began to accrue ( West Seventy-Ninth Street Associates v Lemi , 144 Misc 2d 216, 226, 242 NYS2d 942, 948 [Civ Ct NY Cty 1989]).
Although plaintiff has asked for attorney's fees, it has failed to establish any agreement, statutory or case law authority to establish an exception to the general rule that each side is responsible for the payment of its attorney's fees. Therefore, attorney's fees are denied. The defendant remains free to pursue its counterclaims in the action. I have considered defendant's remaining arguments and find them to be without merit.
Accordingly, it is
ORDERED and ADJUDGED that plaintiff is awarded the sum of $75,000, together with interest at the statutory rate of 9% $_______________as calculated by the Clerk of the Court together with costs and disbursements of $______________ as taxed by the Clerk of the Court; and it is further
ORDERED that this action shall continue with respect to defendant's counterclaims.