Opinion
Index No. 159692/2021 Motion Seq. No. 001
03-08-2024
JUDSON REALTY LLC, AGENT FOR THE OWNER IVY REALTY ASSOCIATES L.P. & PRIVET ASSOCIATES L.P Plaintiffs, v. HAYWARD LUXURY, INC., JOHN GOLDSTONE, MARIN HOPPER Defendants.
Unpublished Opinion
MOTION DATE 03/01/2024
PRESENT: HON. ARLENE P. BLUTH, Justice
DECISION + ORDER ON MOTION
ARLENE P. BLUTH, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41,42, 43, 44, 45, 46, 47, 48, 49, 50, 51,52, 53, 54, 55, 56, 57, 58 were read on this motion to/for JUDGMENT - SUMMARY.
Plaintiff s motion for summary judgment is granted as described below.
Background
Plaintiff contends it is the agent for the owners (Ivy Realty Associates L.P. &Privet Associates L.P.) of a building located on East 70th Street in Manhattan. It contends that Hayward Luxury Inc. ("Hayward") entered into a lease that was supposed to run from July 1, 2014 through June 30, 2024. Plaintiff alleges that Hayward failed to pay rent starting in July 2020 and that Hayward subsequently vacated the premises on November 6, 2020 without first obtaining plaintiff s written consent. It contends the space was eventually re-let starting in January 2022. Plaintiff contends that Hayward owes $580,811.39 after crediting the security deposit from Hayward.
Plaintiff insists that it is entitled to summary judgment on both the terms of the lease with Hayward and the guaranty signed by defendants Goldstone and Hopper. It also contends that each of defendants' ten affirmative defenses should be dismissed as they are without merit.
In opposition, defendants argue that plaintiff's moving papers are only accompanied by a self-serving affidavit from plaintiffs managing member. They observe that Hayward stopped paying rent due to the COVID-19 pandemic and that defendants actively communicated with plaintiff about a reduced rent and a potential surrender of the premises. Defendants insist that plaintiff demanded that Hayward vacate by the end of October 2020.
With respect to the guaranty, defendants argue that they satisfied the conditions of this limited guaranty. They insist that they gave the landlord 120 days advance notice, delivered the keys and paid rent to end of the month of surrender. Defendants maintain that there is no requirement in the lease that they obtain written consent from plaintiff in order to properly surrender the premises. Defendants insist that plaintiff agreed to rent abatements which are not reflected in the ledger and that plaintiff issued an ultimatum to Hayward to vacate the premises.
Defendants also take issue with the liquidated damages plaintiff seeks to recover. They argue that under the terms of the lease, plaintiff was entitled to retain the security deposit as liquidated damages only if the guarantors are released from liability.
In reply, plaintiff insists that defendants failed to show that they gave 120 days' notice and they failed to show that, at the time of the purported surrender, Hayward had fully paid the five months of unpaid rent plus additional rent for real estate taxes. Plaintiff explains that the offer by plaintiff for a rent abatement was never accepted by Hayward because Hayward never paid any portion of the reduced rent. It maintains that Hayward resumed making rental payments in August 2020 and that Hayward refused to commit to any firm plans regarding vacatur and so there was no effective surrender.
Discussion
To be entitled to the remedy of summary judgment, the moving party "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact from the case" (Winegrad v New York Univ. Med. Ctr., 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316 [1985]). The failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of any opposing papers (id\ When deciding a summary judgment motion, the court views the alleged facts in the light most favorable to the non-moving party (Sosa v 46th St. Dev. LLC, 101 A.D.3d 490, 492 [1st Dept 2012]).
Once a movant meets its initial burden, the burden shifts to the opponent, who must then produce sufficient evidence to establish the existence of a triable issue of fact (Zuckerman v City of New York, 49 N.Y.2d 557, 560, 427 N.Y.S.2d 595 [1980]). The court's task in deciding a summary judgment motion is to determine whether there are bonafide issues of fact and not to delve into or resolve issues of credibility (Vega v Restani Constr. Corp., 18 N.Y.3d 499, 505, 942 N.Y.S.2d 13 [2012]). If the court is unsure whether a triable issue of fact exists, or can reasonably conclude that fact is arguable, the motion must be denied (Tronlone v Lac d'Amiante Du Quebec, Ltee, 297 A.D.2d 528, 528-29, 747 N.Y.S.2d 79 [1st Dept 2002], affd 99 N.Y.2d 647, 760 N.Y.S.2d 96 [2003]).
The Court's analysis begins with the relevant terms of the subject lease and the guaranty.
"Tenant or the legal representatives of Tenant shall also pay Owner, as liquidated damages, for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or
covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner, to re-let the demised premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Owner may incur in connection with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the demised premises in good order, or for preparing the same for re-letting" (NYSCEF Doc. No. 34, ¶ 18[c]).
The limited guaranty required the guarantors (defendants Goldstone and Hopper) to ensure the full payment by Hayward (NYSCEF Doc. No. 35). It also provided that:
"Notwithstanding the provisions of this guaranty, and only upon strict compliance with the obligations of the Tenant to surrender possession to Landlord upon giving Landlord one hundred twenty (120) days advance notice of such surrendering ("Surrender Notice"), to then deliver the keys and pay rent to the end of the month of surrender as stated in this sentence Guarantor shall be relieved of all liability in respect of obligations under the lease accruing after the end of the month in which Tenant surrenders possession to Landlord with the furniture, fixtures and equipment of the restaurant intact, and returns the keys to the premises, it being understood that Landlord shall be entitled to simultaneously retain Tenant's security deposit as partial liquidating damages and simultaneously be paid the full rent up to the end of the month following the date Tenant surrenders possession of the premises without any offset of the security deposit and shall be entitled to reasonable legal fees for any action brought under this guaranty" (id).
There is no dispute that Hayward stopped paying the rent in April 2020 (NYSCEF Doc. No. 36 [the rent ledger). The Court also finds that plaintiff satisfied its burden to show that Hayward was in default through the affidavit of plaintiff's managing member and the submission of the aforementioned rent ledger. Defendants' assertions that plaintiffs member lacks sufficient personal knowledge is without merit; in fact, this person (Mr. Judson) is on many of the emails between the parties.
The Court, therefore, must next consider whether or not Hayward properly surrendered the premises in accordance with the terms of the limited guaranty. The guaranty included two requirements for such a surrender - that notice be given at least 120 days prior to the vacatur and that the rent be paid to the end of the month in which the surrender takes place.
The Court finds that defendants did not satisfy either of those requirements. Nothing in the two email chains uploaded as NYSCEF Doc. Nos. 45 and 46 demonstrate that defendants gave plaintiff 120 days advance notice of their intended surrender date or that they paid rent through the end of November 2020 (the month in which they vacated). Rather, the emails suggest that the parties were actively negotiating in light of the ongoing pandemic but no actual agreement was ever reached regarding the surrender of the premises.
In fact, the email correspondence suggests that defendants intended to remain in the premises as they began paying rent again. In an email dated October 13, 2020 defendant Goldstone insists that Hayward paid the rent for October 2020 and that he wanted to "come to some kind of understanding" (NYSCEF Doc. No. 45 at 30). That email, sent three weeks before Hayward left the premises, does not evince a clear intention to surrender. In any event, if they intended to surrender by the end of November, then under the terms of the lease, defendants would have had to send their notice by early July 2020 to satisfy the 120-day surrender notice period.
Plaintiff even highlighted the requirements for a surrender in an email dated April 30, 2020 to which defendant Goldstone responded that he wanted "to explore what closing the store would mean" (id. at 6-7). Moreover, plaintiff offered to accept defendants' surrender of the premises as long as defendants agreed to pay $80,000 (NYSCEF Doc. No. 46 at 14). There is no indication that Hayward agreed to that offer or ever gave a specific notice of their intention to surrender.
Defendants claim that they properly surrendered the premises, in part, on the ground that there was a rent abatement. To be sure, plaintiff s managing member, recognizing the financial impact of COVID on everybody, offered a rent abatement of 50% for the months of April and May 2020 (NYSCEF Doc. No. 45 at 3). But, as plaintiff points out, defendants never actually made any payments for these months (see e.g, id. at 9 of 52 and NYSCEF Doc. No. 36 [rent ledger]). The Court fails to see how defendants can rely on a rent abatement offer that they never accepted (as they never made any payments).
Certainly, the point of a rent abatement (as evidenced in the email correspondence) was to ensure that Hayward paid something at the height of the pandemic (or that the landlord would at least get something). There is no basis to find that plaintiff is somehow barred from seeking the full amount due under the lease under these circumstances. Plaintiff offered Hayward a break - to pay half but Hayward never accepted the agreement and never paid half. Besides, an agreement, if there was one, requires consideration, and here the landlord did not receive any. This Court declines to force the landlord to abide by an (claimed) agreement in which it received no consideration.
Other Issues
The Court also severs and dismisses the ten affirmative defenses. In their opposition, defendants only addressed a few of the ten affirmative defenses: the fifth affirmative defense for wavier, estoppel and release, the seventh affirmative defense based on Administrative Code § 22-1005 and the tenth affirmative defense of accord and satisfaction.
For the reasons discussed above, the Court finds that there is no basis to find that plaintiff waived its right to recover the amounts it seeks or that they should be estopped from doing so. Plaintiff, as was its right, negotiated with Hayward. But at no point did plaintiff agree to a surrender. That plaintiffs counsel may have emailed Hayward noting that rent was paid in October 2020 and seeking to confirm a vacate date of October 31, 2020 (NYSCEF Doc. No. 45 at 26-27) is not a basis for the application of either of these equitable principles. Vacatur is not the same as the acceptance of a surrender and the email is accompanied by a specific statement that this was "without prejudice to any claims that the landlord has under the law and the lease and any defendants that [defendants] may have thereto" (zcZ).
And while this email from plaintiffs attorney suggests that rent was paid "through October 2020", that was obviously an error and not the intent of the email. Hayward paid the rent for that month (October 2020) but everyone in this email chain understood that there were significant arrears at that time. An email from the same day contains plaintiffs offer to release defendants if they paid $80,000 and plaintiff could hold onto the security deposit (NYSCEF Doc. No. 45 at 28). The Court is unable to find that this email constitutes plaintiffs waiver of defendants' outstanding rent. There is no specific language in which plaintiff affirmatively agreed to waive rent or that there was some accord and satisfaction regarding the unpaid arrears.
Another issue discussed is Administrative Code § 22-1005. This provision "provides immunity from the enforcement of certain commercial lease guaranties where personal liability arose (1) as a result of the pandemic-related executive orders affecting the tenant's business and (2) fell within the statutory period of March 7, 2020 to June 30, 2021" (3rd and 60th Assoc. Sub LLC v Third Ave. M&I, LLC, 199 A.D.3d 601, 601157 N.Y.S.3d 434 [1st Dept 2021]).
Defendants established that the subject commercial enterprise, called Hayward House, was as retail space and therefore subject to the protections of section 22-1005 as they sold items to customers and were forced to close that portion of the business during 2020. However, as defendants acknowledge, a federal court ruled that these protections were unconstitutional (see Melendez v City of New York, 20-CV-5301 (RA), 668 F.Supp.3d 184, 2023 WL 2746183 [SD NY 2023]). Defendants claim that this decision is not binding on this Court; they also claim that because this area of law is unsettled, it would be premature to dismiss this affirmative defense.
This Court disagrees. Other than to argue that Melendez is not binding, defendants did not substantively address or discuss why this Court should not follow the reasoning of Melendez. In that decision, a federal court noted that this code section violated the Contracts Clause of the United States Constitution (id. at 207). Among the reasons for the Court's conclusion were that the law did not consider need (such as a hardship requirement for guarantors) and that the City did not "justify its decision to exclusively allocate the burden on landlords" (id. at 204). The Court also noted that this law did not temporarily impair these contracts (the guarantees) but instead permanently extinguished a guarantor's obligation (id. at 200).
Simply put, this Court sees no reason to depart from the extremely well-reasoned and logical determination made in Melendez. That this issue may be considered by various trial and appellate courts in the future if of no moment. Plaintiff should not have to wait around indefinitely based on the premise that some other case may break in defendants' favor.
As defendants did not specifically address the other remaining affirmative defenses, they are severed and dismissed. In any event, they are without merit.
The Court also rejects defendants' claims concerning its right to retain the security deposit. As plaintiff explains, the security deposit was not kept as liquidated damages. Rather, it was utilized as security deposits are intended: to be used as a credit on defendants' outstanding arrears.
Moreover, plaintiff established its right to nearly all of the amounts it seeks including recovery for the difference between the amount defendants were supposed to pay and the amount the new tenant is currently paying. It met its burden through the ledger and Mr. Judson's submissions to show the unpaid rent and additional rent accrued. The Court also awards plaintiff reasonable legal fees and directs plaintiff to make a separate motion for such fees on or before March 28, 2024.
However, the Court denies plaintiffs request to recover the $10,000 demanded for repairs. Plaintiffs papers only offer a conclusory assertion that it expended this money for "the cost of repairs which were necessary to restore the Premises following Hayward's untimely vacatur" (NYSCEF Doc. No. 30, ¶ 35). Defendants pointed out in opposition that there were no details provided about the exact nature of these repairs and plaintiff failed to substantively address this in reply. That is, plaintiff did not include any invoices or other evidence to substantiate how it arrived at this $10,000 figure. Therefore, plaintiff may not recover this amount.
Summary
The voluminous email correspondence between the parties makes clear that they tried to reach some sort of agreement about how to deal with Hayward's inability to pay the rent. Clearly, the pandemic devastated Hayward's business and contributed to their default. But nowhere in these discussions did the parties actually reach a firm agreement about rent abatements, a definite surrender date, or anything else having to do with the obligations incurred under both the lease and the guarantee.
Plaintiff made sure to reserve its rights under both of these agreements and while Hayward apparently made a few payments in the latter half of 2020, that does not change the fact that Hayward had substantial arrears when they vacated the premises. That means that the guarantors are liable under the terms of their guarantee as they did not properly surrender the premises.
Accordingly, it is hereby
ORDERED that plaintiffs motion for summary judgment is granted in all respects except for the demand to recover the $10,000 in repairs, and defendants' affirmative defenses are severed and dismissed, and it is further
ORDERED that the Clerk is directed to enter judgment in favor of plaintiff and against defendants jointly and severally in the amount of $570,811.39 plus statutory interest from May 15, 2022 (a reasonable midpoint between the date of default and the end of the lease) along with costs and disbursements upon presentation of proper papers therefor; and it is further
ORDERED that plaintiff shall make a separate motion for reasonable legal fees on or before March 28, 2024.