Opinion
Index No. 656078/2021
02-28-2024
652 Hudson Retail Partners LLC, Plaintiff, v. Nonoo LLC and MISHA NONOO, Defendants.
Charles E. Boulbol, P.C., New York, NY (Charles E. Boulbol of counsel), for plaintiff. J. Mark Lane, Esq., Larchmont, NY, for defendants.
Unpublished Opinion
Charles E. Boulbol, P.C., New York, NY (Charles E. Boulbol of counsel), for plaintiff.
J. Mark Lane, Esq., Larchmont, NY, for defendants.
Gerald Lebovits, J.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33 were read on this motion for SUMMARY JUDGMENT.
In this action on a commercial lease and guarantee, plaintiff, 652 Hudson Retail Partners LLC, sues defendants, Nonoo LLC (Tenant) and Misha Nonoo (Guarantor), for unpaid rent and use and occupancy (U&O).
BACKGROUND
On January 6, 2020, plaintiff and Nonoo LLC signed a one-year lease for commercial premises located at 652-654 Hudson Street in Manhattan. (NYSCEF No. 3.) The first payment of rent was due February 1, 2020. (NYSCEF No. 3 at 12.) Ms. Nonoo signed a guarantee to ensure Tenant would pay the rent under the lease. (Id. at 10, 40.) Tenant has not paid rent since March 2020. In November 2020, landlord served Tenant with a notice of default. At that time Tenant remained in possession of the premises. (NYSCEF No. 5.) According to plaintiff, Tenant did not pay the rent or additional rent requested in the default notice. (NYSCEF No. 2 at 4.)
In a letter to plaintiff dated November 27, 2020, Tenant explained that it had incurred business difficulties due to the COVID-19 pandemic. Tenant requested that the parties negotiate to modify to the lease and that plaintiff withdraw its default notice. (NYSCEF No. 7.) According to plaintiff, Tenant failed to pay the base and additional rent owed in December 2020. (NYSCEF No. 2 at 4.) Plaintiff served a termination notice on Guarantor on December 8, 2020. (NYSCEF No. 2 at 4.) The termination notice stated that Tenant must vacate the premises before December 21, 2020. (NYSCEF No. 8.) According to plaintiff, Tenant did not vacate the premises until October 25, 2021. (NYSCEF No. 14 at 2.)
Plaintiff brought this action claiming that Nonoo LLC is liable for all unpaid rent and additional rent from February 2020 through December 21, 2020, plus U&O accrued between December 2020 and October 2021. (NYSCEF No. 2 at 5.) Plaintiff claims that Guarantor is liable for Tenant's obligations due before March 7, 2020-when NYC Administrative Code § 22-1005 temporarily suspended guarantor payment obligations due to the COVID-19 pandemic-and holdover U&O due from July 1, 2021, through Tenant's asserted surrender of the premises in October 2021. Plaintiff also seeks an award of attorney fees.
Plaintiff now moves for summary judgment on its complaint and to dismiss defendants' affirmative defenses. (NYSCEF No. 21 at 7.) Plaintiff's motion is granted with respect to the claim against Tenant for unpaid rent/additional rent from February 2020 through December 21, 2020; and U&O from December 22, 2020, through February 16, 2021. The motion is denied with respect to plaintiff's claim against Tenant and against Guarantor for unpaid U&O from February 17, 2021, through October 25, 2021. Plaintiff's motion to dismiss defendants' affirmative defenses is granted except with respect to the affirmative defense of surrender. Plaintiff's request for attorney fees is denied without prejudice.
DISCUSSION
Plaintiff is moving for summary judgment on its claims against defendants for unpaid rent/holdover U&O under the lease and guarantee. In opposing the motion, defendants argue first that summary judgment should be denied-and, indeed, the entire action dismissed-because all of plaintiff's claims are assertedly barred by claim preclusion. Although defendants have not cross-moved to dismiss, this court may, in appropriate circumstances, grant summary judgment to the nonmoving party under CPLR 3212 (b). And given that defendants' claim-preclusion argument could potentially resolve this motion and the entire action at the threshold, the court considers that argument first.
I. Whether the Action is Barred by Claim Preclusion
Plaintiff previously sued Nonoo LLC (defendant-tenant here) in January 2021, based on the same facts and lease as in this case. On October 21, 2021, plaintiff filed a CPLR 3217 notice of discontinuance in that action "with prejudice." (See NYSCEF No. 29.)
Defendants contend that a stipulation of discontinuance with prejudice must be afforded claim preclusive effect. Defendants add that the preclusive effect of the stipulation applies also to parties not named in the previous action when the claim against them stems from the same claim asserted against the prior party in the prior case. (NYSCEF No. 26 at 6.) Given that prior with-prejudice dismissal, defendants argue, this action is barred by claim preclusion.
In response, plaintiff argues that it inadvertently filed the discontinuance "with prejudice." It also notes that the stipulation was never served upon Tenant. Plaintiff says that the court may consider whether plaintiff intended to discontinue the prior action with prejudice. Plaintiff adds that most of the claims against defendants here had not accrued when the prior action was brought and that rent or U&O not due at the time of the prior action cannot be precluded.
The court concludes that claim preclusion does not bar plaintiff's claims in this action or require denying plaintiff's summary-judgment motion.
When interpreting voluntary discontinuances, courts apply a presumption that "the use of such terms as 'with prejudice' or 'on the merits'... [means] that the stipulation is to be given res judicata effect in a subsequent action on the same cause of action." (Singleton Mgt., Inc. v Compere, 243 A.D.2d 213, 216 n 1 [1st Dept 1998].) Nonetheless, "a court may always consider evidence that the parties intended otherwise." (Id.) The phrase "with prejudice" may be "narrowly interpreted when the interests of justice, or the particular equities involved, warrant such an approach." (Dolitsky's Dry Cleaners, Inc. v Y L Jericho Dry Cleaners, Inc., 203 A.D.2d 322, 322-23 [2d Dept 1994].)
Indeed, courts have looked beyond the wording of the stipulation or notice of discontinuance to the circumstances of the case. (See e.g. Karniol v Good Move Trucking, Inc., 281 A.D.2d 287, 287 [1st Dept 2001] ["[I]nclusion of the words 'with prejudice' in the order discontinuing the prior action may well have been attributable to a unilateral mistake by plaintiffs' counsel and [were] contrary to the previously reached understanding of the parties and the court as to the effect of the discontinuance."]; Matter of Horton's Estate, 51 A.D.2d 856, 856-857 [4th Dept 1976] [stipulation of discontinuance containing phrase "discontinued on the merits" did not preclude pursuit of the claim in another forum when opposing counsel knew of this intent from correspondence with claimant's counsel].)
Here, plaintiff's attorney's affirmation represents that he inadvertently used the term "with prejudice" in the notice of discontinuance-as shown by, among other things, the fact that counsel filed the notice on the same day he brought this action. This court finds that plaintiff has shown that its intent was not to terminate the claims of the prior action with prejudice, but to preserve those claims in the subsequent action. And plaintiff sought to correct its error by filing an "amended" notice of discontinuance in the first action, this time without prejudice, before defendant had filed an answer or other responsive papers in this action.
This court therefore considers the merits of plaintiff's summary-judgment motion.
II. Whether Plaintiff Has Shown Entitlement to Summary Judgment
Plaintiff is seeking summary judgment on (i) its claim for unpaid rent during the term of the lease; and (ii) its claim for unpaid U&O (at triple rent), running from the termination of the lease in December 2020 through what plaintiff claims to have been Tenant's surrender of the premises in October 2021. This court concludes that plaintiff has established its entitlement to unpaid rent accruing during the term of the lease, and U&O accruing from the termination of the lease in December 2020 through February 16, 2021; and that material factual disputes require a trial with respect to plaintiff's claim for U&O from February through October 2021.
A. Whether Plaintiff Has Shown as a Matter of Law that Defendants Did Not Surrender the Premises Until October 2021
Plaintiff has made out its prima facie case that it is entitled to unpaid rent and U&O through October 2021. Defendants do not contend otherwise.
Instead, defendants argue that material disputes of fact exist about when Tenant surrendered the premises to plaintiff that preclude the grant of summary judgment for U&O accruing after February 16, 2021. This court agrees with defendants.
Guarantor (Tenant's principal) represents in an affidavit that on February 16, 2021, she attempted to find the building's superintendent to return the keys and surrender the premises. She further represents that, unable to find the super, she "messaged him that we were leaving the keys on the counter in the space, and that is what we did, locking the door on the way out with the one extra key we had." (NYSCEF No. 30 at ¶ 5.) At that point, defendants contend, they had left the premises vacant and did not reenter the premises thereafter.
Plaintiff does not deny that defendants notified a building superintendent in February 2021 that Tenant had vacated the premises and left behind a set of keys. At most, plaintiff's counsel argues on reply that summary judgment should be granted because (i) defendants did not provide "objective" or "tangible" evidence that "Landlord was told by Defendants" at the time that "the keys had been locked in the Premises" (NYSCEF No. 32 at ¶ 3 [H]; NYSCEF No. 33 at 4); and (ii) defendants did not "proffer any tangible evidence" that defendants' vacatur of the premises (and relinquishment of the keys) had been "communicated directly to Landlord" before October 2021 (NYSCEF No. 33 at 5 [emphasis added]). That argument is materially different from disputing the accuracy of defendants' account.
Plaintiff also argues that this account "is meaningless in light of the express disclaimer made in paragraph 24 of the lease." (Id. at 5.) This court is unpersuaded that ¶ 24 applies here. That paragraph provides that "[n]o act or thing done by Owner or Owner's agents during the term hereby shall be deemed in acceptance of a surrender of the premises," and that "no agreement to accept such surrender shall be valid unless in writing signed by owner." (NYSCEF No. 3 at ¶ 24 [emphases added].) Paragraph 24 also provides that no employee or agent of plaintiff "shall have any power to accept the keys of the premises prior to the termination of the lease," and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises." (Id. [emphases added].) This provision, as the court reads it, provides a safeguard to the landlord against the tenant's trying to escape its rent obligations during the term of a lease by unilaterally vacating the premises. It is not most naturally read as governing the circumstances under which a tenant's surrender will end a post-termination holdover. Nor does plaintiff supply any authority interpreting it that way.
At the same time, this court is not prepared to grant summary judgment to defendants as non-moving parties with respect to the February-October 2021 period. Plaintiff's party affidavit, submitted in support of the motion, asserts that during that period "Tenant was in possession of the Premises[] and Plaintiff had no means whatsoever by which to gain entry." (NYSCEF No. 14 at ¶ 42.) This representation, albeit somewhat conclusory, is significant. If it were to the case that the only keys to the premises were either in defendants' possession or locked inside the premises between February and October 2021-such that only defendants had the ability to enter or use the premises in that period-plaintiff's argument for requiring defendants to pay U&O for that period would be much stronger, regardless whether defendants were continuing to use the space to operate a retail store.
Given the factual questions presented by the parties' briefing on this motion, the court concludes that summary judgment must be denied with respect to plaintiff's claims against defendants for U&O accruing during the February-October 2021 period.
That still leaves plaintiff's claims against defendants for rent and additional rent accruing from February 1, 2020, through December 21, 2020; and U&O accruing from December 22, 2020, through February 16, 2021. More precisely, it leaves plaintiff's claims against Tenant for that full period; and plaintiff's claims against Guarantor for rent/additional rent accruing from February 1, 2020, through March 7, 2020. Any claim against Guarantor for rent or U&O coming due between March 7, 2020, and February 16, 2021, is barred by the protections of Administrative Code § 22-1005.
As noted above, plaintiff has made out a prima facie case for the February 2020-February 2021 period. Thus, absent a valid defense to liability under the lease and guarantee, plaintiff's motion should be granted to that extent. Defendants' proffered defenses are discussed below.
B. Whether a Dispute of Fact Exists About Defendants' Affirmative Defenses of Frustration of Purpose and Impossibility
Defendants argue that they have raised material disputes of fact with respect to their frustration-of-purpose and impossibility defenses to liability.
Defendants contend that the COVD-19 pandemic prevented them from operating their business on the premises. Defendants argue that the circumstances here are not like those in cases where courts have denied use of these defenses. They claim that in those cases, the defenses were unavailable because the tenants were still able to operate their business at least to some extent or were shut down only for brief periods of time compared to the length of the lease. But here, they argue, "Nonoo was shut down almost immediately upon signing the Lease, was completely prevented from operating its business out of the Premises, and never re-entered or used the Premises at all for the entire one-year period of the Lease." (NYSCEF No. 26 at 13.)
Plaintiff contends that defendants' contentions are contrary to Appellate Division precedent rejecting impossibility and frustration-of-purpose defenses asserted in commercial-landlord-tenant actions. Plaintiff also contends that Nonoo LLC was "was open for business when both the Notice of Default and Notice of Termination were served upon Tenant's Store Manager at the Premises in November 2020." (NYSCEF No. 33 at 4; see NYSCEF No. 9.) The affidavit of plaintiff's process server represents that he served the notice of termination on the store manager. (See NYSCEF No. 9.)
This court is unpersuaded that factual disputes exist with respect to defendants' frustration-of-purpose defense. Defendants contend that non-essential businesses, such as theirs, were shut down by the governor's executive order in March 2020. Defendants claim that because of the pandemic, they did not use the premises from March 2020 until February 2021. But "the pandemic cannot serve to excuse a party's lease obligations on the grounds of frustration of purpose or impossibility." (Fives 160th, LLC v Zhao, 204 A.D.3d 439, 440 [1st Dept 2022].) Additionally, the Appellate Division, First Department, recently noted that "[b]eginning on June 8, 2020, retailers in New York State were permitted to offer curbside pickup and drop-off services, and as of June 22, 2020, they were permitted to resume in-store services, although at reduced capacity." (Experience NY Now Inc. v 126 W. 34th St. Assoc. L.L.C., 2024 NY Slip Op 00675, *1-2 [1st Dept Feb. 8, 2024].) Defendants do not explain why they could not resume operation of their business at the premises once the restrictions on defendants' business were lifted in June 2020. The defense of "frustration of purpose is not implicated by temporary governmental restrictions on in-person operations," (Valentino U.S.A., Inc. v 693 Fifth Owner LLC, 203 A.D.3d 480, 480 [1st Dept 2022].) Additionally, defendants have not shown that they "were... prevented from using the space." (Fives 160th, LLC, 204 A.D.3d at 440.) In sum, they have not shown that the purpose of the lease was "completely thwarted." (Id.)
Moreover, unlike cases like Experience NY Now in which the Appellate Division has found frustration of purpose to be a viable defense (see 2024 NY Slip Op 00675, at *1), the lease here does not contain a force-majeure clause that would relieve defendants of their obligation to pay rent based on the governor's COVID-related executive orders.
Defendants' impossibility defense fares no better. An assertion of "[i]mpossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible." (Id. [internal quotation marks omitted]; accord Gap, Inc. v 44-45 Broadway Leasing Co. LLC, 206 A.D.3d 503, 504 [1st Dept], lv dismissed 39 N.Y.3d 938 [2022].) Here, the premises were not destroyed; and paying rent owed under the lease, while made more difficult, was not impossible. (See Valentino U.S.A., 203 A.D.3d at 480.)
C. Whether Defendants' Other Affirmative Defenses Should Be Dismissed
Plaintiff also seeks dismissal of defendants' affirmative defenses, contending that their assertion in defendants' answer is conclusory and boilerplate. (See NYSCEF No. 21 at 5.) Defendants' defense of surrender of the premises should not be dismissed, for the reasons set forth above in Part II.A. This court agrees that the other defenses are subject to dismissal.
Defendants' frustration-of-purpose and impossibility defenses are dismissed for the reasons given above.
With respect to defendants' affirmative defense that the personal guarantee is not valid or enforceable for the full amount plaintiff seeks under the lease due to Administrative Code § 22-1005, the court already held in Section II.A, supra, that Guarantor is not responsible for rent or U&O that came due during the statutory protection period. This affirmative defense is therefore dismissed as academic.
With respect to the remaining defenses, defendants assert only that these defenses present fact-related issues and therefore should not be dismissed at this stage. But defendants do not explain how the defenses implicate factual issues that require trial to resolve, let alone provide supporting evidence. Summary judgment dismissing these affirmative defenses is granted.
D. Whether Summary Judgment is Premature
Defendants argue that summary judgment should be denied under CPLR 3212 (f) because discovery has not yet taken place. They contend that they need discovery for issues such as "filing of the Stipulation of Discontinuance, plaintiff's conduct with respect to the Premises during the supposed 'holdover' period, [and] plaintiff's agreement to accept a reduced rent amount during the pandemic." (NYSCEF No. 21 at 18-19.) But defendants have not articulated what information or documents they might obtain in discovery with respect to the February 2020 through February 2021 period. The asserted need for discovery thus does not foreclose the grant of summary judgment to plaintiff on its claims pertaining to that period.
Similarly, defendants seek leave to amend their answer to elaborate on their defenses or assert counterclaims. (NYSCEF No. 26 at 18.) But they do not articulate what additions or modifications they would make. This request is therefore denied.
Plaintiff has shown that it is entitled to collect from Tenant (i) rent and additional rent accruing from February 2020 through December 2020, totaling $133,372.93; plus (ii) holdover U&O, accruing under the lease at triple rent from December 22, 2020, through February 16, 2021, totaling $84,000. Plaintiff has shown that it is entitled to collect from Guarantor any rent and additional rent that accrued from February 1, 2020, through March 7, 2020, totaling $420.02. Defendants are therefore jointly and severally liable to plaintiff for $420.02; Tenant is additionally liable to plaintiff for the balance of the $217,372.93 in accrued rent and U&O, or $216,952.91. Plaintiff does not seek interest on these sums, so no interest is awarded.
Defendants argue that plaintiff's claim for triple-rent U&O is asserted in bad faith. But defendants do not challenge the enforceability of the lease term providing for that amount in U&O in the event of a holdover. (See NYSCEF No. 3 at ¶ 64 [A].)
It is undisputed that the base rent due on February 1, 2020, and March 1, 2020, was paid by Tenant, thus leaving only a small additional-rent balance outstanding as of March 7, 2020. (See NYSCEF No. 5 at 5 [account statement appended to notice of default].)
Plaintiff requests an award of attorney fees, as provided for under the lease and guarantee. Given the denial on this motion of the bulk of plaintiff's summary-judgment motion seeking unpaid rent/U&O, the accompanying fee request is denied without prejudice.
Accordingly, it is
ORDERED that the branch of plaintiff's motion seeking summary judgment on its claims against Tenant is granted only with respect to unpaid rent, additional rent, and U&O accruing from February 1, 2020, through February 16, 2021, and otherwise denied; and it is further
ORDERED that the branch of plaintiff's motion seeking summary judgment on its claims against Guarantor is granted only with respect to unpaid rent and additional rent accruing from February 1, 2020, through March 7, 2020, and otherwise denied; and it is further
ORDERED that the branch of plaintiff's motion seeking dismissal of defendants' affirmative defenses is granted in part and denied in part, as set forth above; and it is further
ORDERED that the branch of plaintiff's motion seeking an award of attorney fees is denied without prejudice;
ORDERED that plaintiff is awarded a judgment against defendants, jointly and severally, for $420.02, plus costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and plaintiff is additionally awarded a judgment against Tenant for $216,952.91; and it is further
ORDERED that the balance of plaintiff's claims against defendants are severed and shall continue; and it is further
ORDERED that plaintiff shall serve a copy of this order with notice of its entry on all parties, and on the office of the County Clerk (by the means set forth in the court's e-filing protocol, available on the e-filing page of the court's website, https://ww2.nycourts.gov/courts/1jd/supctmanh/E-Filing.shtml), which shall enter judgment accordingly.