Opinion
Index No. 651683/2022
09-07-2022
549 LLC, Plaintiff, v. Ruben Luna, Defendant.
Seyfarth Shaw LLP, New York, NY (Jeremy A. Cohen and Jeremy A. Schachter of counsel), for plaintiff. Kidonakis & Corona, PLLC, New York NY (Gregory Capone of counsel), for defendant.
Unpublished Opinion
Seyfarth Shaw LLP, New York, NY (Jeremy A. Cohen and Jeremy A. Schachter of counsel), for plaintiff.
Kidonakis & Corona, PLLC, New York NY (Gregory Capone of counsel), for defendant.
Gerald Lebovits, J.
This is a CPLR 3213 motion for summary judgment in lieu of complaint seeking to enforce a commercial-lease guarantee. Plaintiff 549 LLC (landlord) leased commercial premises located at 549 West 180th Street in Manhattan to nonparty tenant 549 West Food Corp., which intended to operate a Key Foods supermarket. The lease was guaranteed by defendant Ruben Luna (guarantor), a principal of tenant.
Landlord now brings this motion-action against the guarantor to collect what it contends to be the back rent (and additional charges) owed under the lease-just over half a million dollars. Landlord's request for summary judgment in lieu of complaint is denied. This motion-action is converted into a plenary action, and the parties' motion papers are deemed pleadings in the action.
BACKGROUND
This motion-action arises from a 20-year custom commercial lease, executed in August 2019 between landlord and tenant, under which tenant would use the premises for a supermarket.
The parties understood that the premises would require substantial building-out to be made usable for this purpose-including, potentially, modifying building's certificate of occupancy. (See NYSCEF No. 4 at § 2 [discussing modification of certification of occupancy].) Given the need to complete a buildout, the lease provided for a 10-month abatement of fixed rent, running from the lease commencement date of August 8, 2019. (Id. at § 3 [c].)
The lease allows for the possibility that landlord's efforts to obtain any required change to the certificate of occupancy would be hindered by building-code violations for which landlord was not responsible. The lease requires tenant to make a payment to landlord for failure to timely cure building-code violations caused by tenant on demand by landlord. (See id. at § 39.) Conversely, if a building-code violation caused by landlord "directly impact[s] Tenant's ability to pull a permit to perform Tenant's alterations for the Premises," and as a result "actually delays Tenant's opening for business in the Premises" (as documented by tenant), tenant "shall be entitled to an additional day-for-day abatement of Fixed Rent for such period of delay." (Id.)
In addition to the lease, tenant's principal, defendant Luna, executed a good-guy guarantee. (See NYSCEF No. 5.) Under this agreement, guarantor is responsible for "the payment in full" of "all amounts due under the Lease, including, without limitation, Fixed Rent, Additional Charges and amounts due thereunder" up to a surrender by tenant made on proper notice to landlord. (Id. at § 1 [i].) These obligations are "absolute and unconditional, irrespective of the genuineness, validity, regularity or enforceability of the Lease or any provision therein." (Id. at § 3.) Nor shall guarantor's liability be affected by "the release or discharge of the Tenant" or the "impairment, limitation or modification of the liability of the Tenant or the estate of the Tenant" in bankruptcy; "any disability or other defense of the Tenant"; or the "cessation from any cause whatsoever of the liability of the Tenant." (Id. at § 5.)
Although they dispute the reasons why, it is common ground between the parties that the buildout of the premises under the lease did not go as planned. For example, as landlord acknowledges (NYSCEF No. 21 at 5 n 3), landlord did not obtain approval from the Department of Buildings even to begin the work needed to change the building's certificate of occupancy until January 2021-months after the end of the original 10-month buildout-related rent abatement. Ultimately, tenant opted to abandon the project and vacate the premises (having provided the requisite written notice) at the end of July 2021. (NYSCEF No. 3 at §§ 5-6.)
In April 2022, landlord brought this motion-action against guarantor, seeking payment of assertedly owed amounts in fixed rent, additional charges, late fees, and default interest-in total, approximately $520,000.
DISCUSSION
This is a CPLR 3213 motion-action seeking summary judgment in lieu of complaint on landlord's claims against guarantor. To obtain summary judgment by this means, the movant must demonstrate that (i) the basis for movant's claims is an instrument for the payment of money only; and (ii) movant is entitled as a matter of law to payment on that instrument. As landlord contends, an unconditional guarantee limited to payment (i.e., not also guaranteeing performance) qualifies as an instrument for the payment of money only. (See iPayment, Inc. v Silverman, 192 A.D.3d 586, 587 [1st Dept 2021].) Landlord also contends that it has shown its entitlement as a matter of law to the sum claimed. On that point, this court disagrees.
Landlord's Request for Summary Judgment in Lieu of Complaint
In opposing summary judgment, guarantor points to arguments-about the applicability of the lease's day-for-day abatement provision in § 39 of the lease, and about an asserted additional rent abatement granted by landlord during the buildout process-that plainly raise disputes of fact. (See NYSCEF No. 16 at 11-13 [mem. of law].) If guarantor can raise these arguments, they warrant denial of landlord's motion and conversion of this proceeding into a plenary action. Whether guarantor may do so, however, is a difficult question, given the absolute and unconditional nature of his guarantee. Landlord, calling guarantor's arguments on this point a "last ditch effort to avoid liability" (NYSCEF No. 21 at 4), says no. This court says yes.
Landlord emphasizes that an unconditional guarantor may not raise defenses belonging only to the tenant. (NYSCEF No. 21 at 5-6, 7.) Landlord is correct; but that does not take landlord as far as it wishes to go.
A "guarantee agreement is separate and distinct from the contract between lender and borrower." (Marcus Dairy, Inc. v Jacene Realty Corp., 225 A.D.2d 528, 528 [2d Dept 1996].) When, as here, the agreement at issue is "an unconditional guarantee of payment," a guarantor "may not assert setoffs or defenses which arise independently from the guarantee" (id. at 528-529), and thus are personal to the principal borrower. (I Bldg, Inc. v Cheung, 137 A.D.3d 478, 478 [1st Dept 2016].) A guarantor in this situation is unconditionally responsible for all the tenant's obligations under the lease. The guarantor may not contend that it should be responsible only for the amount the tenant required to pay once due consideration is given to legal defenses and principles external to the lease-fraud in the inducement, applicability of offsets, breach of the warranty of habitability, commingling of the security deposit, and so on.
As a result, a commercial tenant might have more defenses to payment available to it than does that tenant's guarantor, leading to the guarantor's "liability... be[ing] greater than that of the obligor tenant." (Royal Equities Operating, LLC v Rubin, 153 A.D.3d 516, 517 [1st Dept 2017].)
By the same token, though, if an argument goes only to what obligations the lease imposes on the tenant, that argument does not "arise independently from the guarantee" (Marcus Dairy, 225 A.D.2d at 528-529)-it goes precisely to the extent of the guarantor's responsibility under the guarantee's language. In this case, the guarantee requires guarantor to ensure payment in full of "all amounts due under the Lease." (NYSCEF No. 5 at § 1 [i] [guarantee].) And the bulk of guarantor's arguments in opposition to the current motion-action pertain to what amount of rent is required to be paid under the lease, given its abatement provisions.
Guarantor does also briefly contend that landlord's asserted failure to address building-code violations and obtain a new certificate of occupancy constituted a "continuing breach of the covenant of quiet enjoyment" that abated tenant's rent obligations. (NYSCEF No. 16 at 13-14.) That breach, if proven, might separately entitle tenant to an abatement of rent; but it would not oust the guarantor's unconditional obligation to pay the rent required under the terms of the lease.
That is, guarantor is contending that landlord's (putative) failure to cure its own building-code violations prevented tenant from opening its supermarket. Guarantor argues that as a result, upon expiration of the initial 10-month rent abatement, § 39 of the lease entitled tenant to a further day-for-day abatement of fixed rent that lasted all the way up to tenant's surrender date. If guarantor is correct that § 39 of the lease entitled tenant under the circumstances to a complete abatement of fixed rent, then the amount of fixed rent owed by tenant according to the terms of the lease would be $0. In that scenario, guarantor's obligation to pay in full all fixed rent "due under the Lease" would be zeroed out as well. (NYSCEF No. 5 at § 1 [i] [guarantee].)
For the same reason, landlord misplaces its reliance on the guarantee's statement that its obligations are "absolute and unconditional, irrespective of the genuineness, validity, regularity or enforceability of the Lease or any provision therein." (NYSCEF No. 21 at 5 [reply mem. of law], quoting NYSCEF No. 5 at § 3.) Guarantor's argument for applying a lease provision that conditionally grants a rent abatement does not challenge the validity or enforceability of the lease, but instead depends on the lease's terms being valid and enforceable.
Notably, landlord is not seeking to collect unpaid rent from the guarantor for the first 10 months of the tenancy, presumably because that period is covered the initial abatement provided for by § 3 (c) of the lease. The only difference between § 3 (c) and the abatement provision in § 39 on which guarantor relies, though, is that, as discussed above in the Background section, the former is self-executing and the latter is conditional. That difference may be significant as a matter of the ultimate merits of guarantor's abatement defense-an issue on which this court takes no position at this time. But it has nothing to do with whether a defense to payment grounded in one of the lease's abatement provisions is (or is not) personal to tenant and unavailable to guarantor here.
Landlord also points to language from § 5 of the guarantee (see NYSCEF No. 21 at 6-7), providing that guarantor's liability "shall in no way be affected by... "any disability or other defense of the Tenant." (NYSCEF No. 5 at § 5 [e].) Landlord claims, in essence, that this language categorically bars guarantor from asserting any defense held by tenant. The provision's context shows this claim to be ill-founded.
Section 5 of the guarantee addresses circumstances that might bring about "the cessation... of the liability of the Tenant"-imposition of a receivership, commencement of bankruptcy proceedings, discharge in similar proceedings of tenant's lease obligations, assignment of the lease from tenant to another party, or "disability or other defense of the tenant." (Id. at § 5 [emphasis added].) In these scenarios, § 5 preserves guarantor's liability for tenant's obligations even if the tenant's own liability has ended due to a change in the tenant's legal status. Here, however, guarantor's abatement argument is not based on tenant's liability's ceasing because its circumstances changed. Rather, guarantor contends that given the lease's abatement provisions, tenant never became liable for rent-and therefore that guarantor never became liable for that rent, either. Section 5 does not foreclose that contention.
All that said, the rent-abatement provisions of the lease on which guarantor relies provide only for an abatement of fixed rent-not all rent-related charges. (See NYSCEF No. 4 at ¶¶ 3 [c], 39.) Setting those provisions aside for the moment, then, guarantor clearly owes landlord at least some money in the form of additional charges (water and electric bills, taxes, and so on), late fees, and default interest. (See id. at 3 [b] [defining "additional charges"].) But the affidavit of landlord's agent does not break out amounts assertedly owed by guarantor in fixed versus additional charges. (See NYSCEF No. 3 at ¶ 17.) Nor is the ledger submitted by landlord so clear on its face as to permit this court to determine now, without assistance from the parties, how much guarantor owes in additional charges and in late fees/interest on those charges. (See NYSCEF No. 7.) This court leaves for another day the question of exactly how much guarantor is liable for under the guarantee for charges other than fixed rent.
That affidavit does specify the amount assertedly owed by guarantor in late fees and default interest. (See NYSCEF No. 3 at ¶¶ 17-18.) But the lease provides that those amounts are calculated as percentages of the overdue fixed rent/additional charges. (See NYSCEF No. 4 at ¶ 34.) Without a clear answer on how much was overdue in additional charges-and when-this court cannot (yet) calculate the additional amounts owed in late fees/interest.
Converting Landlord's Request for Summary Judgment in Lieu of Complaint into a Plenary Action
Guarantor has established that material disputes of fact exist with respect to defenses that the guarantor may assert to landlord's claims against him. Summary disposition of this motion-action is therefore inappropriate. The action must instead be converted into a plenary action. Plaintiff's moving papers "shall be deemed the complaint," with supporting exhibits (CPLR 3213); and defendant's proposed answer with counterclaims, as filed as NYSCEF No. 18, shall be deemed an answer and counterclaims, to which plaintiff will have to reply." (CPLR 3213.)
Guarantor has requested that this court refrain from converting this motion-action into a CPLR 3212 summary-judgment motion, should the court decline to grant summary judgment in lieu of complaint under CPLR 3213. (See NYSCEF No. 16 at 9-11.) Given this court's view that full plenary consideration of plaintiff's claims is warranted, guarantor's request is unnecessary. But landlord's characterization of guarantor's expression of concern on this point as "arrant nonsense" (NYSCEF No. 21 at 1) is something of an overstatement.
This court declines, on the current record, to address guarantor's assertion that landlord orally agreed to an extension of the initial rent abatement, independent of the conditional-abatement provision of lease § 39. (See NYSCEF No. 15 at ¶¶ 20-24; NYSCEF No. 16 at ¶ 33.) For similar reasons, the court declines to reach the merits of the counterclaims asserted in guarantor's proposed answer.
Landlord contends that the counterclaims are "ripe for dismissal because 'counterclaims may not be interposed by nonparties.'" (NYSCEF No. 21 at 7 n 4, quoting Cherney v Pilevsky, 178 A.D.2d 263, 264 [1st Dept 1991].) But whether (i) guarantor is properly understood as a third-party beneficiary of the lease, such that he can bring claims for damages and attorney fees stemming from the lease's breach (as in the first, second, and fourth counterclaims); and (ii) guarantor personally covered the cost of the initial $135,000 security deposit and the later $130,000 payment, such that he can bring claims for fraud and unjust enrichment relating to those payments (as in the third and fifth counterclaims), are questions best resolved on a full, post-discovery record. And absent briefing from the parties, this court lacks a sufficient basis to determine whether statutory or contractual support exists for guarantor's sixth counterclaim for attorney fees.
Landlord also attacks these counterclaims, and guarantor's rent-abatement argument more broadly, as based on a "morass" of "easily revealed misrepresentations." (NYSCEF No. 21 at 2 n 2.) Landlord does not, however, specify which statements by guarantor are misrepresentations of fact. Regardless, it would be premature to address now issues relating to the factual support for guarantor's defenses and counterclaims.
Accordingly, it is
ORDERED that landlord's CPLR 3213 motion for summary judgment in lieu of complaint is denied; and it is further
ORDERED that upon service of a copy of this order with notice of its entry, this motion-action will be converted into a plenary action, with landlord's moving papers deemed a complaint with supporting exhibits; and guarantor's answer-with-counterclaims appearing at NYSCEF No. 18 being deemed served and filed; and it is further
ORDERED that any reply by landlord to guarantor's counterclaims shall be filed within 30 days of service of notice of entry; and it is further
ORDERED that guarantor serve notice of entry on landlord within 7 days of entry of this order.