Opinion
Index No. 651988/2023 Motion Seq. No. 001
04-25-2024
1411 IC-SIC PROPERTY, LLC, Plaintiff, v. GC COFFEE LLC D/B/A GREGORYS COFFEE and GREGORY ZAMFOTIS, Defendants.
Tarter Krinsky & Drogin LLP, New York, NY (Debra Bodian Bernstein and Melissa DeCandia of counsel), for plaintiff. White and Williams LLP, New York, NY (Agatha Mingos of counsel), for defendants. Gerald
Unpublished Opinion
MOTION DATE 02/29/2024
Tarter Krinsky & Drogin LLP, New York, NY (Debra Bodian Bernstein and Melissa DeCandia of counsel), for plaintiff.
White and Williams LLP, New York, NY (Agatha Mingos of counsel), for defendants. Gerald
PRESENT: HON. GERALD LEBOVITS Justice
AMENDED DECISION + ORDER ON MOTION
HON. GERALD LEBOVITS J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 16, 17, 18, 19, 20, 21,22, 23, 24, 25, 26, 27, 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 were read on this motion for SUMMARY JUDGMENT.
This is a commercial landlord-tenant action. Plaintiff-landlord 1411 IC-SIC Property, LLC, owns the leased premises, located at 1411 Broadway in Manhattan. Defendant GC Coffee LLC d/b/a Gregorys Coffee, the tenant, operated a Gregory's coffee shop on the premises. Defendant Gregory Zamfotis, the guarantor, is a member of tenant LLC.
Plaintiff has sued for alleged unpaid rent (both already accrued and owed through the balance of the lease term). Defendants counterclaim for (i) fraud in the inducement and (ii) breach of the covenant of good faith. Defendants allege that in October 2016, landlord leased space to Starbucks, permitted Starbucks direct lobby access into the building, and permitted scaffolding that impaired visibility and access to the premises. (NYSCEF No. 20 at 8-19 [verified answer with counterclaims].)
Plaintiff now moves for partial summary judgment for the relief requested in the first, second, fourth, fifth, and sixth causes of action in its complaint and to dismiss defendants' counterclaims. Defendants oppose the motion. Guarantor cross-moves for summary-judgment dismissing plaintiffs claims against himself.
DISCUSSION
I. Plaintiffs Motion for Summary Judgment on the First, Second, Fourth, Fifth, and Sixth Causes of Action; and Guarantor's Cross-Motion for Summary Judgment on the Fifth and Sixth Causes of Action
A. Breach of Contract and Accrued Rent (First Cause of Action)
Plaintiff contends that tenant is liable to plaintiff for $264,326.10, representing base rent, additional rent, and deferred rent due under the lease for November 2020 through the termination in February 2023, plus interest at 13%. (NYSCEF No. 2 at ¶¶ 37-42 [verified complaint].)
Plaintiff has established proper service and defendants' default, as CPLR 3215 (f) requires. With respect to the facts constituting landlord's claims, landlord submits an affidavit from Michael W. McMahon, plaintiffs managing director of the sub-managing agent and asset manager. (See NYSCEF No. 22.)
Defendants dispute the amount plaintiff claims. Defendants note that the complaint alleges that $93,895.02 remains due, as opposed to the $264,326.10 sought by plaintiff on summary judgment. Defendants argue that plaintiffs affidavit contains procedural errors and is insufficient to authenticate the "Aging Detail" rent ledger. (See NYSCEF No. 27.) Defendants contend that plaintiffs motion and McMahon affidavit do not provide information necessary to authenticate the ledger as a reliable business record under CPLR 4518.
Defendants also argue that the record establishes a history and pattern of plaintiff miscalculating the amount tenant owes. (NYSCEF Nos. 33 at ¶ 84, 53 at 7.) And defendants suggest that the entire lease or respective provisions may be declared void due to landlord's asserted fraud in the inducement. (This argument is one of the counterclaims addressed separately below.)
But ample proof of tenant's failure to pay establishes a breach of the lease. Moreover, this court is unpersuaded by defendants' objections to the authenticity and admissibility of plaintiffs rent ledger. And defendants do not identify any particular error or factual dispute with respect to this set of calculations. Thus, plaintiffs motion for summary judgment on the first cause of action is granted.
B. Breach of Contract and Liquidated Damages (Second Cause of Action)
Plaintiff further argues that tenant is liable now to plaintiff for an additional amount in liquidated damages for the balance of the lease term.
The basis for this claim is section 21.3.1 (a) of the lease. This provides two formulas, at landlord's election. The one landlord selected provides that upon the early termination of the lease, tenant is required to pay a deficiency to plaintiff calculated as the excess of (i) the aggregate of the installments of base rent and the additional rent (if any) that would have been payable under the lease, had the lease not been terminated, over (ii) the aggregate rental value of the premises for the same period, after both first being discounted to present value at an annual rate of six percent. (NYSCEF No. 2 at ¶¶ 44-47 [verified complaint].)
Defendants argue that the liquidated-damages provision plaintiff seeks to assert here is grossly disproportionate to the probable loss and does not account for the termination agreement between the parties and the damages defendants sustained as a result of landlord's conduct. (NYSCEF No. 53 at 10.) Defendants rely on guarantor's affidavit to argue that the parties agreed to a termination and were negotiating the terms of a full termination beginning in 2022 and into 2023. Defendants rely on the exhibits, particularly one containing email correspondence. (See NYSCEF No. 47.)
Further, defendants argue that discovery must be conducted into the circumstances surrounding the nature of the lease and amendments, landlord's conduct, performance, and misrepresentations that will substantiate defendants' claims for fraudulent inducement and breach of the covenant of good faith and fair dealing.
But parties are free to agree to a liquidated-damages clause '"provided that the clause is neither unconscionable nor contrary to public policy.'" (172 Van Duzer Realty Corp, v Globe Alumni Student Assistance Ass'n, Inc., 24 N.Y.3d 528, 536 [2014], quoting Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 N.Y.2d 420, 424 [1977].) And a contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. Defendants have not shown that the clause is unconscionable or contrary to public policy.
Defendants have also not shown how the alleged agreement to enter into a termination agreement, or damages defendants allegedly sustained, would impact whether the liquidated-damages clause of the lease is an unenforceable penalty. Plaintiffs summary-judgment motion on the second cause of action is granted on liability. Plaintiff, as it proposes, may move on notice to determine the amount of its liquidated damages against tenant.
C. Unjust Enrichment (Fourth Cause of Action)
Plaintiff contends that tenant has been enriched by its possession of the premises from November 2020 through January 2023 without paying landlord, at plaintiffs expense. (NYSCEF No. 2 at ¶¶ 51-56.)
Given the valid, enforceable lease and guarantee covering this action's subject matter, plaintiffs unjust-enrichment claim is subject to dismissal as duplicative. Plaintiffs summaryjudgment motion on this cause of action is denied, and summary judgment dismissing the claim is granted to defendants as the nonmoving party.
D. Breach of Guaranty (Fifth Cause of Action)
Plaintiff alleges that guarantor should be held jointly and severally liable with tenant for unpaid base rent, additional rent, and the deficiency (plus interest).
"On a motion for summary judgment to enforce a written guaranty," a creditor must demonstrate "an absolute and unconditional guaranty, an underlying debt, and the guarantor's failure to perform under the guaranty." (Gansevoort 69 Realty LLC v Laba, 130 A.D.3d 521, 521 [1st Dept 2015].)
Section 1 of the guaranty provides that the guaranty "is an absolute, unconditional, and irrevocable guaranty of payment and performance of the obligations guaranteed" thereunder. (NYSCEF No. 24.) Section 2 provides that guarantor's obligations under the guaranty apply with respect to the full and faithful payment of all amounts due under an extension of the lease. (Id.)
Defendants raise several challenges to guarantor's liability under the guarantee. They argue that a guarantor will not be bound by the terms of a guaranty if a showing of fraud, duress, or other wrongful act in its inducement can be established. They contend that discovery is warranted concerning the alleged fraud in the inducement. This contention is without merit, however, due to the merger clause in the lease, which provides that all representations made by the parties are within the lease, as will be discussed in section II.B. There is also no merit to defendants' assertion that summary judgment cannot be granted on the basis that the guarantee is not an instrument for the payment of money only. That rule applies only to motions for summary judgment in lieu of complaint under CPLR 3213, not conventional summary judgment motions under CPLR 3212.
Defendants also contend that disputed issues of facts surround tenant's surrender, and therefore that the motion must be denied. In particular, defendants argue that tenant informed landlord of its surrender and that tenant would be vacating, and landlord accepted the surrender. (NYSCEF Nos. 33 at¶¶ 82-98, 53 at 15.) Given landlord's alleged verbal and written acceptance of the surrender, and negotiations concerning the parties' termination agreement, defendants argue that the conditions of section 9 of the guaranty were met, and "the Guarantor shall be released from all liability with respect to any obligations of Tenant under the Lease arising or accruing after the Surrender Date." (NYSCEF No. 24 at 5 [guaranty].) Plaintiff counters that the provision in section 9 of the guaranty is inapplicable unless, among other things, landlord has been paid all rent and additional rent is owed under the lease during the period of occupancy. (NYSCEF No. 55 at 12-13.) This court agrees with plaintiff.
With respect to the amount of guarantor's liability for accrued rent, the Guarantee Law- NYC Administrative Code § 22-1005-bars liability for unpaid rent that came due from March 7, 2020, through June 30, 2021. Guarantor is therefore liable only for $175,373.31 in accrued unpaid rent (plus interest), not the $264,326.10 owed by tenant.
With respect to guarantor's liability for liquidated damages representing unpaid rent through the balance of the lease term, plaintiff shall move on notice to determine the amount of those liquidated damages.
Plaintiffs summary-judgment motion on its fifth cause of action is granted in part and denied in part. Guarantor's cross-motion for summary judgment dismissing this cause of action is granted in part and denied in part. This determination is without prejudice to renewal, should the Guarantee Law later be found unconstitutional.
E. Attorney Fees and Expenses (Sixth Cause of Action)
Plaintiff alleges that defendants are liable to plaintiff, jointly and severally, in an amount to be determined by the court, for plaintiffs attorney fees and expenses incurred in enforcing plaintiffs rights against defendants under the lease and guaranty, plus interest. (NYSCEF No. 2 at ¶¶ 61-64.)
Plaintiff relies on sections 21.2.1 and 21.3.1 of the lease and the guaranty, under which defendants agreed to pay landlord for landlord's expenses, including reasonable attorney fees, incurred in connection with an action against tenant for its default in payment and/or breach of the lease.
Plaintiffs motion for summary judgment on its sixth cause of action for attorney fees is granted as to liability. And guarantor's cross-motion for summary judgment dismissing this claim is denied. Plaintiff shall move on notice to determine the amount of its reasonable attorney fees.
II. Plaintiffs Motion for Summary Judgment to Dismiss Defendants' Counterclaims
A. Whether the Guarantor May Assert Counterclaims
Plaintiff argues that the guarantor is barred from asserting counterclaims (or defenses), under the language of the guaranty. (NYSCEF No. 55 at 10.) Section 4 of the guaranty provides that the guaranty is absolute and unconditional, and that there can be no defenses or counterclaims other than payment or performance of guarantor's obligations.
Defendant counters that the guaranty is not an instrument for the payment of money only. Defendant contends that under the guaranty, guarantor guaranteed the fulfillment of monetary and non-monetary obligations under the lease. The guaranty is, therefore, not absolute and unconditional. (NYSCEF No. 53 at 16.) Plaintiff contends that defendants' argument and the authority upon which defendants rely are misplaced and belong within the context of a CPLR 3213 motion for summary judgment in lieu of complaint and not here. (NYSCEF No. 55 at 12.)
Further, defendants argue that given plaintiffs alleged fraudulent inducement, guarantor is not bound by terms of the guaranty and can assert a counterclaim for fraudulent inducement. (NYSCEF No. 53 at 16.) As plaintiff contends, however, the counterclaim for fraud in the inducement involves purported representations made to the tenant concerning the lease. In 549 LLC v Luna, this court found that "an unconditional guarantor may not raise defenses belonging only to the tenant." (549 LLC v Luna, 2022 NY Slip Op 50852[U], *2 [Sup Ct, NY County 2022], affd 219 A.D.3d 1209 [1st Dept 2023].)
Therefore, plaintiffs motion to dismiss the counterclaims raised by guarantor is granted.
B. Fraud in the Inducement (First Counterclaim)
Both guarantor and tenant assert this counterclaim in their answer. (NYSCEF No. 14.) Because guarantor is precluded from raising counterclaims, the section below applies to tenant only.
Defendants argue that plaintiff made misrepresentations fraudulently to induce them into the lease, guaranty, and amendments. (Id. at 15-17 [verified answer with counterclaims].) In his affidavit, guarantor claims that plaintiff represented it would not lease any space to a direct competitor. (NYSCEF No. 33 at ¶¶ 12-37.) Guarantor further claims that plaintiff made misrepresentations concerning the issues with the direct competitor and scaffolding to induce defendants to enter into the second and third amendments to the lease. (Id. at ¶¶ 39-44, 53-59, 65-76, 80-81, 82-85.)
Plaintiff argues that these allegations do not state a claim and that defendants have not met the CPLR 3016 (b) heightened pleading requirement, which requires that allegations of fraud be stated with particularity. (NYSCEF No. 28 at 9-10.) Alternatively, plaintiff relies on the affidavit of McMahon, plaintiffs asset manager, in which he asserts that no representations were made. (NYSCEF No. 22 at ¶ 26.)
Plaintiff relies on Zasu, Inc. v Manor (148 A.D.2d 400, 400-401 [1st Dept 1989]) to argue that a provision in a lease that landlord has made no representations or promises except those contained in the lease or in a writing signed by landlord is sufficient to deny a tenant's fraudulent-inducement claim. Plaintiff claims that, here, no misrepresentations would survive section 27.2 of the lease, which provides that "[a]ll of the representations and obligations of the parties are contained in this Lease," and that modifications to the lease are binding only if they are in writing and signed by the party against whom enforcement is sought. Moreover, plaintiff argues that section 5.1 of the lease provides that "Tenant acknowledges that, except as may otherwise be expressly provided in this Lease, neither Landlord, nor any employee, agent or contractor of Landlord has made any representation or warranty concerning the Land, Building, Common Areas or Premises, or the suitability of either for the conduct of Tenant's business."
Although a factual dispute exists over whether misrepresentations were made, the dispute is immaterial. The representations at issue would not survive the merger clause of the lease. Thus, plaintiffs motion to dismiss this counterclaim is granted.
C. Breach of the Covenant of Good Faith (Second Counterclaim)
Both guarantor and tenant assert this counterclaim. As discussed above, guarantor is precluded from raising counterclaims. The section below thus applies to tenant only.
Defendants allege that plaintiff acted in bad faith and breached the covenant of good faith and fair dealing during the course of its performance under the agreements. Defendants claim that the factual circumstances-that plaintiff leased space to tenant's direct competitor and permitted for obstructive scaffolding, in addition to the lease, guaranty, lease amendments, and the parties' termination agreement and surrender-show that plaintiff breached the covenant of good faith and fair dealing. (NYSCEF No. 53 at 19.)
In response, plaintiff argues that '"no obligation may be implied that would be inconsistent with other terms of the contractual relationship.'" (NYSCEF No. 28 at 10, quoting 1357 Tarrytown Road Auto, LLC v Granite Properties, LLC, 142 A.D.3d 976, 977 [2d Dept 2016].) The lease contains a merger clause (section 27.2) and a provision that landlord has made no representation or warranty concerning the "Land, Building, Common Areas or Premises" or the suitability of same for the conduct of Tenant's business (section 5.1).
The claims based on the direct competitor and scaffolding are dismissed. Those obligations are inconsistent with the terms of the lease. Defendants have not met their burden of showing a prima facie case of bad faith concerning the termination and surrender of the lease. Plaintiffs motion to for summary judgment to dismiss this counterclaim is granted.
Accordingly, it is
ORDERED that plaintiffs summary-judgment motion is granted with respect to liability and damages on its first cause of action; granted with respect to liability on its second and sixth causes of action; granted in part and denied in part with respect to liability and damages on its fifth cause of action; and denied with respect to its fourth cause of action; and it is further
ORDERED that plaintiffs summary-judgment motion seeking dismissal of defendants' counterclaims is granted; and it is further
ORDERED that defendants' cross-motion seeking dismissal of the fifth cause of action is granted in part and denied in part; and the cross-motion is denied as to the sixth cause of action. Summary judgment dismissing the fourth cause of action is granted to defendants as the nonmoving parties; and it is further
ORDERED that plaintiff is awarded a judgment against defendant GC Coffee LLC for accrued unpaid rent in the amount of $264,326.10, with interest on that sum at 13% running from the reasonable intermediate date of November 1, 2021; and it is further
ORDERED that plaintiff is awarded a judgment against defendant Zamfotis for accrued unpaid rent in the amount of $175,373.31, with interest on that sum at 13% running from the reasonable intermediate date of April 1, 2022; and it is further
ORDERED that plaintiff may enter a supplemental judgment against defendants for liquidated damages on the second and fifth causes of action, and for attorney fees on the sixth cause of action, with the amount of those damages and fees to be determined by motion made on notice; and it is further
ORDERED that plaintiff's claims against GC Coffee LLC and Zamfotis for the cost of repairs (third cause of action) are severed and shall continue; and it is further
ORDERED that plaintiff 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/ljd/supctmanh/E-Filing.shtml), which shall enter judgment accordingly.