Opinion
82541/09.
Decided January 5, 2010.
Petitioner, Murray Hill Mews Owners Corp., moves for an order: 1) amending the petition, 2) pursuant to CPLR 3211(b) dismissing respondent's two affirmative defenses, 3) pursuant to CPLR 3212 granting it summary judgment and awarding it a final judgment of possession and a judgment in the amount of $112,958.79, and 4) awarding it attorneys' fees.
Respondent, Rio Restaurant Associates L.P., cross-moves, for an order, pursuant to CPLR 3212, granting it summary judgment dismissing the petition.
Menachem J. Kastner, Esq., Cozen O'Connor, New York, NY, Petitioner's attorney.
Richard G. Leland, Esq. and Janice MacAvoy, Esq., Fried, Frank, Harris, Shriver Jacobson LLP., New York, NY, Respondent's attorney.
Background
Petitioner is the cooperative owner of a Manhattan building located at 160 East 38th Street (the "building"). By lease agreement, dated February 14, 1995, respondent leased from petitioner the commercial premises in the building (the "premises") to be used as a restaurant (Moving Papers, Ex. A). The initial lease term was from July 1, 1994 to January 31, 2014 (Moving Papers, Ex. A).
On February 20, 2008, petitioner received a letter from respondent's executive vice president, secretary, and treasurer, Robert Towers, requesting an extension of respondent's lease to January 31, 2019 ("extension letter") (Moving Papers, Ex. C). By letter dated June 23, 2008, petitioner advised respondent that under section 42 of the lease, the annual Fixed Rental for July 1, 2008 through June 30, 2009 would be increased from $388,112.65 to $455,780.13 based on the Consumer Price Index ("CPI") formula ("June 23, 2008 increase notice") (Moving Papers, Ex. B). Petitioner asserts that in response to respondent's extension letter, and after respondent's receipt of the June 23, 2008 increase notice, the parties agreed to extend the term of the lease from January 31, 2014 to January 31, 2019 by a lease extension agreement dated September 30, 2008 (Moving Papers, Ex. D).
Pursuant to the lease, commencing July 1, 1999, the Fixed Rental would be increased in July of each year by a formula employing the CPI. Section 42(b), which deals with the rent escalation provides:
(b)Effective as of each July 1 (the "Change Date") throughout the term of this lease, commencing July 1, 1999, the Fixed Rental shall be increased in an amount equal to the greater of (1) Three Percent (3%) of the Fixed Rental for the previous lease year as adjusted, and (2) one-half (½) the cost of living adjustment set forth herein. Each cost-of-living adjustment shall be based on one-half (½) of the percentage increase between the Price Index for the applicable preceding month of May and the Base Price Index.
(i)In the event the Price Index for May in any calendar year during the term of this lease reflects an increase over the Base Price Index, then the annual Fixed Rental herein provided to be paid as of the July 1 following such month of May shall be multiplied by the percentage increase between the Price Index for May of such applicable calendar year and the Base Price Index, and one-half (½) of the resulting sum shall be added to the Fixed Rental, effective as of July 1, provided, however, that if the Price Index does not reflect an increase over the Base Price Index, or if one-half (½) of the cost-of-living adjustment is less than Three Percent (3%), then the Fixed Rental shall be increased as of July 1 in an amount equal to Three Percent (3%) of the Fixed Rental for the previous lease year, as adjusted. Said adjusted annual Fixed Rental shall thereafter be payable hereunder, in equal monthly installments, until it is readjusted pursuant to the terms of this lease.
(ii)The following illustrates the intentions of the parties hereto as to the computation of the aforementioned cost of living adjustment or increase in the annual Fixed Rental payable hereunder.
Assuming that said annual Fixed Rental is $10,000, that the Base Price Index was 102.0 and that the Price Index for the month of May 1999 was 107.0. The percentage increase would be 4.90% (5.0/102 multiplied by 100). One-half (½) of the percentage increase thus reflected would be 2.45%. However, because one-half (½) of the percentage increase is less than Three Percent (3%), the annual Fixed Rental would be increased by $3000.00 (3% of $10,000) effective as of July 1, 1999 (paid in equal monthly installments).
(Moving Papers, Ex. A).
Petitioner claims the following:
[O]nce the cost-of-living increase was calculated in May, the annual Fixed Rental,' commencing in July thereafter would be increased to an amount certain which would include the calculated cost-of-living increase.
As such . . . [p]etitioner calculated each year's Fixed Rental (from July through June) by determining which was greater: either (1) 3% of the previous year's Fixed Rental (3% x previous year Fixed Rental), or (2) one-half of the percentage difference between the current Consumer Price Index ("CPI") and the Base Price Index ("BPI"), of the previous year's Fixed Rental (½ [CPI% — BPI%]) x previous annual Fixed Rental).
The greater figure was then added to the previous year's Fixed Rental (which included the cost-of-living increase for the prior year) to determine the increased annual Fixed Rental for the coming year.
(Kastner Affirm., 10/20/09, ¶¶ 11-13).
Respondent asserts that petitioner is misreading the rent escalation clause of the parties' lease (Moving Papers, Ex. 3). According to the first affirmative defense, the "Fixed Rental" is defined in section 41(D) of the lease as "$205,000 per year for the lease years commencing July 1, 1998 and continuing thereafter to and including January 31, 2014" (Moving Papers, Ex. 3, ¶ 14). Respondent argues that in applying section 42(b), petitioner has incorrectly substituted the previous year's adjusted fixed rental amount for the "Fixed Rental" ( Id.).
Petitioner argues that respondent is taking issue with the fact that "Fixed Rental," as utilized in petitioner's calculations, means the increased Fixed Rental for each year. Under respondent's reading, "Fixed Rental," for the purposes of calculating rent increases under the cost-of-living increase option, means that Fixed Rental in effect in 1998 throughout the entire term of the lease, or $205,000 (Kastner Affirm., 10/20/09, ¶ 49). Petitioner maintains that it is the current year's Fixed Rental, including the escalations of prior years, that is the operative figure for the calculations of the next year's rent increase (Kastner Affirm., 10/20/09, ¶ 49).
Petitioner further claims that based on its calculations it sent respondent a letter every year, beginning in 2001 through 2009, establishing the year's Fixed Rental and explaining how the increased figure was reached ("rent increase letters") (Levy Aff., 10/14/09, ¶ 10; Moving Papers, Ex. B). And, pursuant to the rent increase letters, respondent paid its monthly installments of the increased Fixed Rental as it became due without ever contesting the amount due or the formula used from 2001 through June 2009 (Levy Aff., 10/14/09, ¶ 16). As such, petitioner contends that even if section 42(b) is deemed ambiguous respondent's conduct shows that petitioner's interpretation of the provision is the correct one.
Discussion
Based on respondent's argument that petitioner has incorrectly interpreted the lease, respondent asserts the following in its first affirmative defense:
Petitioner's incorrect interpretation of the Lease has resulted in a gross overcharge of the annual rent. The actual annual rental for the rental year 2009-2010 should be $240,635.16, but Petitioner is overcharging tenant by almost $200,00.
Respondent is entitled to net the annual rent overcharges that Respondent has paid against rent due. Respondent has overpaid $161,278.74 in rent since October 1, 2008, and therefore, no rent is currently due. Nonetheless, Respondent has paid Petitioner rent for July, August, and September 2009 based on the correct calculation.
No amounts are therefore currently due for rent.
(Moving Papers, Ex. 3, ¶¶ 15-17).
Petitioner argues that respondent's first affirmative defense asserting an overcharge due to calculations which first occurred over six years ago is barred based on the applicable statute of limitations. Petitioner maintains that it consistently used the same method of calculating the Fixed Rental increases since 2001, and that each year respondent received a detailed invoice specifying how the escalations were computed.
Respondent argues that pursuant to the doctrine of equitable recoupment, as codified in CPLR 203(d), its first affirmative defense is not time barred. Further, respondent argues that the cases petitioner relies on are cases that involve the assertion of the statute of limitations against a party who initiated the litigation, rather than seeking to dismiss a defense ( see Goldman Copeland Associates, P.C. v Goodstein Bros. Co., Inc., 268 AD2d 370 [1st Dept 2000]; 100 William Co. v Aetna Insurance Co., 163 AD2d 170 [1st Dept 1990]; Kramer Levin Naftalis Frankel, LLP v Metropolitan 919 3rd Avenue, LLC , 6 Misc 3d 796 [Sup Ct, New York County 2004]).
CPLR 203(d) permits a defendant to revive as an affirmative defense or counterclaim that which would ordinarily be time barred ( 182 Franklin Street Holding Corp. v Franklin Pierrepont Associates, 217 AD2d 508 [1st Dept 1995]). In order for the doctrine to apply, defendant's defense must arise out of the same transaction or series of transactions that form the basis of, and must be sufficiently related to, the causes of action alleged in the complaint ( Id.). Further, the recoupment doctrine "is really a defense, as it denies the validity of plaintiff's claim in the amount claimed, and does not entitle defendants to any affirmative relief or any amounts in excess of the amount demanded by plaintiff" ( Enrico Sons Contracting, Inc. v Bridgemarket Associates, 252 AD2d 429 [1st Dept 1998]). Stated differently, the doctrine does not permit any recovery on a counterclaim.
Here, given that the affirmative defense challenges each party's interpretation of the rent escalation provision set forth in the parties' lease, and petitioner's right to performance under the terms of that provision, this affirmative defense arises out same transaction or series of transactions that form the basis of, and is sufficiently related to, the causes of action alleged in the petition ( Enrico Sons Contracting, Inc. v Bridgemarket Associates, 252 AD2d 429, supra). As such it is not time barred. Notwithstanding this determination, for the following reasons, respondent will not prevail.
Although respondent is not time barred from asserting the first affirmative defense, its theory under that defense, namely, that petitioner misinterpreted the rent escalation provision and that it owes no monies, is unavailing when considered with the voluntary payment doctrine. That doctrine bars recovery of payments voluntarily made with full knowledge of the facts, in the absence of fraud or mistake of material fact or law ( Barnan Associates LLC v 196 Owners Corp. , 56 AD3d 309 [1st Dept 2008]). Indeed, the record shows that respondent paid the newly calculated Fixed Rental each year without protest or inquiry, and was not laboring under any material mistake of fact in doing so ( Eighty Eight Bleecker Co., LLC v 88 Bleecker Street Owners, Inc. , 34 AD3d 244 [1st Dept 2006]). Further, respondent's "marked lack of diligence in determining what its contractual rights were' demonstrates that the payments were voluntary and not made under mistake of law" ( Eighty Eight Bleecker Co., LLC, 34 AD3d 244, supra, quoting, Gimbel Brothers, Inc. v Brook Shopping Centers, Inc., 118 AD2d 532 [2nd Dept 1986]). Nor is there any indication in the record to show petitioner defrauded respondent.
Respondent's attempt to claim that it was unaware of the method of calculation of the rent until July 2009 because the annual rent increase letters were delivered to the restaurant instead of the address required by the lease and lease extension is unavailing (Towers Aff., ¶¶ 15-16). Simply because respondent's vice president, Robert Towers, allowed the restaurant manager to handle the line-by-line expenses for the restaurant does not save respondent from the bar imposed by the voluntary payment doctrine. Indeed, it only exemplifies respondent's "marked lack of diligence in determining what its contractual rights were" ( Gimbel Brothers, Inc. v Brook Shopping Centers, Inc., 118 AD2d 532, supra). Further, given that respondent is a sophisticated business entity that negotiated the lease, the lease extension, and provided an amended letter of credit, it is unpersuasive that it was unaware of the method of calculating the annual adjusted Fixed Rental.
As for the second affirmative defense, Respondent alleges:
To the extent that the court determines that Respondent-Tenant has not correctly interpreted the Lease's escalation clause, it would be inequitable for Petitioner-Landlord to be allowed to charge rent based on an erroneous drafting of the Lease that does not comport with the parties' intentions.
(Moving Papers, Ex. 5).
When construing the terms of a contract, the judicial function is to give effect to the parties' intentions ( Federal Insurance Company v Americas Insurance Co., 258 AD2d 39 [1st Dept 1999]). What is clear by the lease provisions providing for the annual Fixed Rental increase is that the Fixed Rental will be increased to an amount equal to the greater of (1) Three Percent (3%) of the Fixed Rental for the previous lease year as adjusted or (2) one-half (½) the cost of living adjustment. If respondent's interpretation of calculating the annual Fixed Rental were accepted then there would be no need to include an alternative one-half cost of living adjustment because, according to respondent's table of yearly increases, the three percent increase would always be more than the alternative cost of living adjustment (Towers Aff., ¶ 12). This reading could not have been the parties' intention because it would render the cost of living formula meaningless.
Nevertheless, even if this Court were to conclude that the lease provision was ambiguous, the parties' course of performance under the lease is considered to be the most persuasive evidence of their agreed upon intentions ( Citibank, N.A. v 666 Fifth Avenue Limited Partnership , 2 AD3d 331 [1st Dept 2003]; Federal Insurance Company v Americas Insurance Co., 258 AD2d 39, supra). Here, the parties course of conduct since 2001 clearly shows that petitioner's method of calculating the annual Fixed Rental increase reflects the parties' intention. Further, reforming the parties' agreement is not within Civil Court's jurisdiction for amounts, such as here, exceeding $25,000 (CCA § 213).
Accordingly, the branch of petitioner's motion to amend the petition is granted, and the petition is hereby amended to reflect the rent and additional rent due and owing for September and October 2009, less a credit for payments made by respondent for a total of $112,958.79. That branch of petitioner's motion to dismiss respondent's two affirmative defenses is granted, and they are dismissed. Given that these were the sole affirmative defenses to this nonpayment proceeding, and that they have been dismissed, that branch of petitioner's motion for summary judgment awarding it a final judgment of possession and a money judgment in the amount of $112,958.79 is granted. That branch of petitioner's motion for attorney's fees is granted to the extent of setting this matter down for a hearing on attorney's fees in Part 52, Room 353, on February 1, 2010 at 9:30 a.m.
Respondent's cross-motion is denied.
This memorandum opinion constitutes the decision and order of the Court.