Opinion
INDEX NO. 653729/2019
04-24-2020
1101-43 AVE ACQUISITION LLC, Plaintiff, v. ROCKSTAR HOTELS LlC, INC., ROCKSTAR HOSPITALITY GROUP, INC., ROCKSTAR RESTAURANT GROUP, INC., RSHG TALENT, INC., ROBERT SANTUCCl Defendants.
NYSCEF DOC. NO. 82 PRESENT: HON. ANDREA MASLEY Justice MOTION DATE __________ MOTION SEQ. NO. 001
DECISION + ORDER ON MOTION
MASLEY, J.:
The following e-filed documents, listed by NYSCEF document number (Motion 001) 3, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 68, 69, 70, 71, 72, 73, 74, 75, 76, 78 were read on this motion to/for PREL INJUNCTION/TEMP REST ORDR.
In motion sequence number 001, plaintiff 1101-43 Ave Acquisition LLC moves pursuant to CPLR 6301 for a preliminary injunction enjoining defendants Rockstar Hotels LlC, Inc. (Rockstar Hotels), Rockstar Hospitality Group, Inc. (Rockstar Hospitality), Rockstar Restaurant Group, Inc. (Rockstar Restaurant), RSHG Talent Inc., and Robert Santucci (collectively defendants) from (1) exercising any management or operational control over Z NYC Hotel (Hotel) located at 11-01 43rd Avenue, Long Island City, New York, 11101 (the Premises); (2) collecting any revenues on behalf or due to the Hotel; (3) incurring any expenses for the Hotel; (4) participating in the operations, management or finances of the Hotel; (5) interfering with any change of management of the Hotel and Premises including the failure to turn over keys, combinations, passwords and other information that is desirable or necessary for the management of the Hotel or Premises; and (6) appointing nonparty Real Hospitality Group, Inc. (Real Hospitality) as temporary receiver to manage the Hotel.
Background
On July 31, 2018, plaintiff purchased the Hotel and Premises from Susan Zilberman. (NYSCEF Doc. No. [NYSCEF] 2, Complaint, ¶ 7.) Defendants are a series of related entities, all principally owned and controlled by New York resident Robert Santucci. (Id. ¶ 6). Defendants managed and operated the Hotel on behalf of Zilberman immediately prior to plaintiff's acquisition of the Hotel. (Id., ¶ 7).
Upon the acquisition of the Premises, plaintiff entered into a lease with Rockstar Hotels LIC (Lease). (Id., ¶ 7; NYSCEF 5, Hotel Facilities Lease.) Under the Lease, Rockstar Hotels was required to pay plaintiff a base rent amount and an additional rent amount equal to 93% of the Hotel's gross operating profits plus the Premises' real estate taxes, property insurance and a reserve fund for furniture, fixtures, and equipment. (NYSCEF 2, Complaint, ¶ 8). Santucci guaranteed the payment of these obligations. (Id., ¶ 11.) The Lease subordinates all obligations to the interest of plaintiff's commercial mortgage lender, nonparty CIM Real Estate Credit, LLC (CIM). (Id., ¶ 11.)
On July 31, 2018, Rockstar Hotels also entered into a Hotel Management Agreement with Rockstar Hospitality. (Id., ¶ 13.) Pursuant to the Hotel Management Agreement, Rockstar Hospitality agreed to manage the Hotel for a monthly fee amounting to 5% of gross revenues (the Management Fees). (Id.) Rockstar Hotels further agreed to establish an operating bank account to deposit all gross revenues of the Hotel (the Hotel Operating Account). (Id., ¶ 15.) The Hotel Operating Account was established by a Control Account Agreement. (Id., ¶ 16.) The Control Account Agreement was executed on October 5, 2018 between Rockstar Hotel, CIM, and nonparty Signature Bank providing CIM with the right to seize the Hotel's Operating Account, control the deposits and withdrawal of the operating account, and restrict access to the account once a "Trigger Event" occurred. (NYSCEF 8, Control Account Agreement ¶ 3-5). Trigger Event is a defined term meaning when Plaintiff or CIM exercise their right to cause the termination of the Hotel Management Agreement or an acceleration of the debt in connection with Plaintiff's loan from CIM. (Id., ¶ 1 [c].)
On July 31, 2018, Rockstar Hotels additionally entered into a Management Agreement for food and beverage service with Rockstar Restaurant (the F&B Management Agreement). (Id., ¶ 17.) Under the F&B Management Agreement, Rockstar Restaurant promised to manage ail food and beverage operations and remit 100% of earned venue to Rockstar Hotels. (Id.)
Plaintiff, CIM, Rockstar Hotels and Rockstar Hospitality entered into a Hotel Recognition Agreement that subordinates the Management Fee and any rights of Rockstar Hotels and Rockstar Restaurant to CIM's rights under the terms of the mortgage loan documents. (Id., ¶ 18.) The Hotel Recognition Agreement also prohibits Rockstar Hotels from obtaining financing to secure payment of the Management Fee or any other obligation under the Hotel Management Agreement. (Id.) Rockstar Hotels executed an identical recognition agreement (the F&B Recognition Agreement) with respect to the food and beverage operations with the same subordination of interests and financing prohibitions. (Id., ¶ 19.)
In December 2018, Rockstar Hotels began defaulting on the payments owed to Plaintiff. (Id., ¶ 22.) Plaintiff allegedly attempted in vain to obtain explanations from Santucci and the other defendants to no avail. (Id., ¶ 23.) Plaintiff reviewed bank statements and found possible unauthorized expenses paid from the Hotel totaling hundreds of dollars. (Id., ¶ 28.) Defendants allegedly and improperly used the Hotel Operating Account for short term loans at exorbitant rates; transferred cash exceeding $250,000 to entities unaffiliated with the Hotel management; made unauthorized payments towards unknown credit card balances; and made fraudulent representations as to the solvency and income earned by the Hotel. (Id., ¶ 30.) Because of these acts, plaintiff allegedly defaulted on its mortgage on the Hotel and CIM scheduled a foreclosure sale. (Id., ¶ 31.) CIM removed Rockstar Hotels' access to the Hotel Operating Account pursuant to the Control Account Agreement (Id., ¶ 33) because a Trigger Event had occurred, and notified Rockstar Hotels of such termination by letter dated June 20, 2019. (NYSCEF 14, Seizure Notice).
Plaintiff also served a notice on Rockstar Hotels terminating Rockstar Hotels' management of the Hotel and Premises without cause. (NYSCEF 2, Complaint, ¶ 34.) Indeed, Plaintiff exercised its right for a "no-cause" termination of the Hotel Management Agreement and notified Santucci and Rockstar Hotels. (NYSCEF 15, Notice of Termination). Termination ceased all contractual relations between defendants and Hotel and required Rockstar Hotels to return possession of Hotel to plaintiff no later than September 19, 2019. (Id.)
On June 26, 2019, plaintiff commenced this action alleging causes of action for an accounting, appointment of a receiver, and a permanent injunction. (NYSCEF 2, Complaint, ¶¶ 42, 48, & 58). Plaintiff also moved by Order to Show Cause requesting the preliminary injunction that is the subject of the motion. (NYSCEF 3, Proposed OSC, ¶¶ 1-3; see also NYSCEF 50). Plaintiff asserts that it is entitled to a preliminary injunction against defendants' continued possession and management of the Premises. Plaintiff also argues that a temporary receiver would be necessary to preserve the status quo.
Discussion
"A preliminary injunction is an extraordinary provisional remedy which will only issue where the proponent demonstrates (1) a likelihood of success on the merits, (2) irreparable injury absent a preliminary injunction, and (3) a balance of equities tipping in its favor. The granting of such relief is committed to the sound discretion of the motion court." (Harris v. Patients Med., P.C., 169 AD3d 433, 434 [1st Dept 2019] [citations omitted].) "With respect to likelihood of success on the merits, the threshold inquiry is whether the proponent has tendered sufficient evidence demonstrating ultimate success in the underlying action." (1234 Broadway LLC v. West Side SRO Law Project, Goddard Riverside Community Ctr., 86 AD3d 18, 23 [1st Dept. 2011] [citation omitted].) The proponent "need not tender conclusive proof beyond any factual dispute establishing ultimate success in the underlying action" but "establish a clear right to that relief under the law and the undisputed facts upon the moving papers." (Id. [internal quotation marks and citations omitted].)
Here, the court finds that plaintiff fails to establish likelihood of success as to any of its causes of action. Accordingly, the court need not evaluate the other requirements. If it did, the court would find those lacking too, particularly in light of the change in circumstances.
The court and the parties expended significant time and effort to fashion a TRO to address the emergency issues arising from the transfer of control of the hotel. (NYSCEF 50, TRO issued 6/27/2019; Transcript of 6/27/19 proceeding). In addition, the court took testimony as to the whereabouts of reservations and funds. (See transcripts from 7/15/19 and 7/16/19 which the parties shall file in NYSCEF when it opens). As a result, the hotel was operating and the parties were allegedly settling. Unfortunately, the parties have not settled and the court cannot hold this motion any longer.
Accounting
Plaintiff cannot establish a likelihood of success with respect to its claim for an accounting. (NYSCEF 2, ¶ 52.) "The right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest." (Adam v. Cutner & Rathkopf, 238 AD2d 234, 242 [1st Dept 1997] [internal quotation marks and citation omitted].) A fiduciary relationship is created "[w]hen one party is under a duty to act for, or give advice for the benefit of, another on matters within the scope of their relationship." (Dembeck v. 220 Cent. Park S., LLC, 33 AD3d 491, 492 [1st Dept 2006] [citation omitted].)
"A fiduciary relationship is necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions. Generally, where parties have entered into a contract, courts look to that agreement to discover . . . the nexus of [the parties'] relationship and the particular contractual expression establishing the parties' interdependency. if the parties . . . do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them. However, it is fundamental that fiduciary liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation."(First Keystone Consultants, Inc. v. DDR Constr. Servs., 74 AD3d 1135, 1136 [1st Dept 2010] [internal quotation marks and citation omitted]).
Indeed, "[a] fiduciary relationship does not exist between parties engaged in an arm's length business transaction, which is normally the situation between landlord and tenant." (Dembeck, 33 AD3d at 492 [citation omitted].) Demonstrating an arm's length business transaction without special circumstances such as control by one party of the other for the good of the other or the creation of an agency relationship is insufficient. (L. Magarian & Co. v Timberland Co., 245 AD2d 69, 70 [1st Dept 1997]; V. Ponte & Sons v American Fibers Intl., 222 AD2d 271, 272 [1st Dept 1995].)
Plaintiff does not have a confidential or fiduciary relationship with defendants. The Lease outlines core responsibilities consistent with a relationship between a lessor and lessee and is bereft of any provisions that create a fiduciary duty. Additionally, the other relevant agreements also lack any provisions that create a fiduciary duty. Lastly, plaintiff has failed to demonstrate how the relationship of the parties created a fiduciary duty especially because defendants' obligation to collect revenues of the Hotel and pay them to certain accounts and creditors of plaintiff or the Hotel is precisely the arm-length business transaction that the relevant contracts memorialized. Therefore, plaintiff has failed to demonstrate the first prong necessary for a preliminary injunction to issue with respect to its accounting claim. Because plaintiff has not established the first prong, the court declines to discuss the other two requirements.
Appointment of Receiver
The complaint contains a cause of action for the appointment of a receiver. However, "the appointment of a receiver is not a form of ultimate relief that can be awarded in a plenary action, but rather, is limited as a provisional remedy." (Lemle v Lemle, 92 AD3d 494, 498 [1st Dept 2012] [citations omitted]; see also Greenhaus v Gersh, 64 Misc 3d 1222 [A]*4 [Sup Ct, Suffolk County 2019]["the appointment of a receiver is a provisional remedy and not a cause of action."].) The request for a preliminary injunction on this basis is therefore denied.
Permanent Injunction
The complaint also contains a cause of action for a permanent injunction. This claim "demands a judgment enjoining Santucci and the Rockstar [e]ntities from taking any action with respect to the Hotel in any managerial or administrative capacity, taking any action authorized by the [Lease] and from impeding any exercise of managerial responsibility by the [Plaintiff].) (NYSCEF 32, Complaint, ¶ 58.) "Although it is permissible to plead a cause of action for a permanent injunction ... permanent injunctive relief is, at its core, a remedy that is dependent on the merits of the substantive claims asserted." (Weinreb v 37 Apts Corp., 97 AD3d 54, 59 [1st Dept 2012].) Here, the only substantive claim asserted in the complaint is for an accounting and plaintiff has failed to demonstrate a likelihood of success with respect to it. Accordingly, the request for a preliminary injunction on this basis is denied.
Accordingly, it is
ORDERED that Plaintiff 1101-43 Ave Acquisition LLC's motion for a preliminary injunction is denied; and it is further
ORDERED that the TRO is vacated. 4/24/2020
DATE
/s/ _________
ANDREA MASLEY, J.S.C.