Opinion
10004.
Decided February 11, 2004.
Todd E. Soloway Esq., Pryor Cashman Sherman Flynn LLP, New York, NY, for Petitioner-Defendant.
Kevin J. Nash Esq., Finkel Goldstein Berzow Rosenbloom Nash, LLP, New York, NY, for Respondent-Plaintiff.
I. BACKGROUND
This case presents the unfortunate story of a needy community's lost opportunity for a viable medical facility. In a decision April 26, 2002, the court granted petitioner landlord Bialystoker Center Bikur Cholim, Inc., summary judgment on petitioner's claim for rent under a lease with respondent tenant Lower East Side Holding Corp. (LESHCO) at 232 East Broadway, New York County, subject to set-offs alleged in respondent's fifth affirmative defense and three counterclaims. C.P.L.R. § 3212(b). These claims by respondent also are reflected in its action against petitioner, commenced in New York County Supreme Court and consolidated with petitioner's proceeding in this court. This court granted respondent partial summary judgment on respondent's claim that petitioner defaulted until June 2001 on its lease obligation to procure an amended permanent certificate of occupancy (CO) for the leased premises. C.P.L.R. § 3212(e).
The parties do not dispute that a temporary CO for the premises was issued in April 1997. It lapsed, but a second temporary CO was issued in September 1997, which lapsed December 31, 1997. A permanent amended CO, permitting the first and second floors to be used for respondent's intended purposes as medical offices, was not issued until June 2001.
At trial on respondent's claims for damages that resulted from petitioner's breach of the lease and that respondent may offset against the rent owed, respondent contends that the failure to procure the amended permanent CO, permitting the premises to be used for medical offices, impeded respondent's use of and profit from the premises. Because the temporary COs lapsed, and petitioner did not procure an amended permanent CO until June 2001, respondent was unable to use the premises for the intended medical offices and collect rent from subtenants. Respondent's three counterclaims allege specifically that this breach caused respondent to lose (1) its investment in the premises through alterations, repairs, maintenance, and operating expenses preparing the premises for occupancy as medical offices; (2) assignees or subtenants under the lease; and (3) subtenants' rental payments. As part of the set-off, respondent further contends, in its fifth affirmative defense to the nonpayment proceeding as well as in the consolidated complaint, that petitioner also breached its lease obligations to provide repairs, maintenance, cleaning, and other services at the premises, necessitating respondent's expenditures for these services. Towers Org. v. Glockhurst Corp., 160 A.D.2d 597, 599 (1st Dep't 1990); S.E. Nichols, Inc. v. American Shopping Centers, 130 A.D.2d 855, 856 (3rd Dep't 1987); Bomze v. Jaybee Photo Suppliers, 117 Misc. 2d 957, 958 (App. Term 1st Dep't 1983).
Unlike cases where the landlord made no promise that it would obtain a CO or that the premises were suitable for the uses delineated in the CO or intended by the tenant, here
Owner shall, at Owner's expense, cause the certificate of occupancy for the Building to be amended to permit the First Floor Space and the Second Floor Space to be used for medical office purposes.
Ex. A, ¶ 40.2. See Phillips Huyler Assocs. v. Flynn, 225 A.D.2d 475 (1st Dep't 1996); Kosher Konvenience v. Ferguson Realty Corp., 171 A.D.2d 650, 651 (2nd Dep't 1991); Silver v. Moe's Pizza, 121 A.D.2d 376, 377-78 (2nd Dep't 1986). Although the lease does not impose any time limit by which petitioner had to fulfill its obligation to procure the amended permanent CO, nor suspend respondent's lease obligations until the CO is procured, petitioner nonetheless is liable for the foreseeable consequences of its default, however long it lasted.
II. FINDINGS OF FACT
The parties entered their lease aware that respondent, a group of physicians, intended to develop and use the leased premises for a medical facility. The lease evolved from the proposal to petitioner's board of directors by Dr. Charles Knoll, the President and a principal shareholder of respondent, to develop a medical facility specializing in outpatient ambulatory surgical procedures at the site.
The leased premises are located in a neighborhood densely populated by residents eligible for Medicaid or Medicare coverage, a profitable location for medical facilities certified under N.Y. Pub. Health Law art. 28, particularly given the absence of Article 28 facilities in that neighborhood. If the premises were not qualified to operate under Article 28, however, it would be difficult to attract medical services providers to the site and operate a financially viable facility. Article 28 certification enhances the reimbursement for Medicaid patients' physician visits by approximately four times.
A. Preparation of the Premises for Use as a Medical Facility
When the parties entered their lease, the premises had remained unoccupied for many years in total disrepair, with rusty pipes, crumbling ceilings and walls full of asbestos contamination, and little heat. A member of petitioner's board at the time, Leon Trachtenberg, whose corporation performed the needed interior construction work for respondent, described the building as a "neglected piece of junk." Transcript of Proceedings at 123 (May 1, 2002).
Respondent paid Trachtenberg's corporation, Trask, Ltd., $ 162,500.00 for the interior construction necessary to develop the building into a medical facility that would qualify to operate under Article 28. The work, performed and paid for during 1996, included the clean-up of old appliances and materials deposited on the premises over the past seven years; installation of a heat and air conditioning system, plumbing fixtures, electrical wiring and appliances, lighting, signage, carpeting, sheetrock, doors and frames, partitions, and counters; and plastering, priming, and painting. Later in 1996, respondent paid $ 15,000.00 for additional necessary repairs to the building.
In conjunction with the construction, respondent retained architectural and engineering services to design and operate a medical facility that would qualify under Article 28. Respondent paid $ 9,000.00 to an architect in 1996 and $ 20,500.00 in engineering fees, $2,000.00 in 1996 and $18,500.00 in 1998. Respondent paid $ 4,831.25 in 1996 for legal services and expenses to establish the medical facility.
Respondent hired James Aridas to administer and coordinate the construction: meeting with vendors of materials, equipment, and fixtures to be used or installed; assessing the vendors' bids; developing a construction schedule; and planning the traffic flow of patients and personnel. An affiliate of respondent, Elm Urology Associates, P.C., paid Aridas's salary. Elm Urology also paid over $50,000.00 for legal services and expenses on respondent's behalf. These amounts formed part of the $274,718.00 respondent accumulated in debt to Elm Urology by the end of 1998, which respondent has not repaid. Other components of this debt included additional salary, architect fees, and engineer fees; a deposit for telephone service; and payments for leased equipment and furnishings and for supplies.
Respondent entered leases beginning in June 1996 for its medical office equipment and furnishings. The leases covered air conditioning equipment and supplies; telephone equipment, wiring, and service; a burglar alarm and videomonitoring system; signage; flooring; wall trim; built-in cabinetry; desks, chairs, and other furniture; filing cabinets; computer equipment; refrigerators; examination tables; X-ray viewing boxes and radiological supplies; surgical equipment and supplies; and other medical supplies. Respondent paid a total of $46,066.12 in 1996 for leased equipment and furnishings. In 1997 respondent paid $106,275.35 and in 1998 $ 109,802.31 for leased equipment and furnishings. Respondent's expenses amounted to $ 2,382.50 for liability insurance and $ 1,750.00 for accounting services in 1996. The evidence does not show the amounts of these expenses in subsequent years.
Respondent transformed the premises into a "beautiful," fully appointed, and welcoming facility, wheelchair accessible, with the capacity to operate full time for respondent's intended purposes. Tr. at 48 (July 9, 2002). In the fall of 1996 respondent held an open house at the premises to introduce the community to the renovated facility. Respondent paid $ 1,579.00 for the event and other promotional and advertising expenses in 1996.
Like most assets, respondent's improvements to the premises will depreciate over time. During 1998, respondent's investment in the building and related assets depreciated $8,126.00 in value, but the evidence does not show the depreciation over subsequent years.
An affiliate of respondent, East Broadway Medical Management Corp., was to provide the necessary administrative services for the anticipated medical services providers at the premises, such as marketing and advertising to patients and the surrounding community, purchasing and maintaining equipment and supplies, and hiring nonphysician staff. On December 24, 1996, East Broadway Medical Management and another affiliate, East Broadway Medical Associates, P.C., borrowed $600,000.00 at an interest rate of 10.25% per year from Banco Popular de Puerto Rico, which respondent and Dr. Knoll each guaranteed. As of October 6, 2001, the debt was reduced to $519,920.62, but the evidence does not disclose which obligor made payments, how much interest was paid, or the dates the principal was paid, to calculate interest. Respondent's post-trial memorandum and closing argument indicate, without evidentiary support, that after East Broadway Medical Management and East Broadway Medical Associates defaulted on the loan, Dr. Knoll and respondent's other shareholders personally repaid the $519,920.62 balance between May 2002 and October 2003, but again nothing indicates how much interest was paid. Respondent also borrowed $1,400,000.00 from its shareholder Edith Gross, which respondent has not repaid.
B. Petitioner's Failure to Obtain a Permanent CO
Neither in rebuttal to respondent's motion for partial summary judgment, nor at trial, did petitioner show that respondent failed to object to the absence of an amended permanent CO or convey an intent not to enforce lease ¶ 40.2, inducing petitioner to forego procurement of the permanent CO. Neither did petitioner show that it in fact refrained from procuring the CO in reliance on respondent's silence. Health-Loom Corp. v. Soho Plaza Corp., 272 A.D.2d 179, 181-82 (1st Dep't 2000). To the contrary, after the lease's execution, Dr. Knoll repeatedly requested petitioner to fulfill its lease obligation to obtain a permanent CO or authorize respondent to obtain the CO for the premises' use as a medical facility with professional offices and waiting areas on both the first and second floors. N.Y.C. Admin. Code § 27-220.
Petitioner, at least through Irwin Lamm, Chief Executive Officer of its nursing home adjacent to 232 Broadway, was continually aware of respondent's need for a permanent CO from 1997 to 2001. Petitioner was similarly aware of respondent's claim of lost income due to the permanent CO's absence and discontent and disappointment on respondent's part that petitioner was not meeting the parties' expectation regarding the permanent CO. During 1997-2001 Dr. Knoll continually asked Lamm what actions petitioner was taking to procure a permanent CO and insisted to Lamm that it was petitioner's responsibility. Petitioner's board of directors discussed the permanent CO's absence as early as May 1998. Petitioner was aware that respondent was not paying rent as leverage to prod petitioner to fulfill its responsibility. Petitioner acknowledged this responsibility and eventually was motivated by Dr. Knoll's persistence and the nonpayment of rent to take steps to procure a permanent CO. Petitioner's procurement of two temporary COs during 1997 was a stopgap measure that gave petitioner breathing room and a reasonable length of time to procure the permanent CO.
As petitioner's witnesses Thomas Jung and Virginia Maar testified, a facility needs to show a permanent CO at the pre-opening survey by the certifying agency, the New York State Department of Health (NYSDOH), after construction is completed, and before the facility may be certified, or open, operate, or treat patients, or be reimbursed for its services under Article 28. Jung has been the NYSDOH official overseeing the Article 28 certification process since 1997. Maar has been a health care consultant since 1994 and administered facilities certified under Article 28. But for petitioner's failure to procure a permanent CO for the premises to operate as medical offices, respondent would have been able to sublet the premises to Article 28 facilities between when the second and last temporary CO lapsed December 31, 1997, and petitioner ultimately obtained the permanent CO June 13, 2001.
C. Subletting Opportunities
Respondent sought a hospital or other medical facility certified under Article 28 that would use 232 Broadway as a satellite site. Downtown Beekman Hospital, for example, expressed interest during 1995-1996 in associating with another Lower East Side facility such as respondent's, but the premises did not have a permanent CO in time for respondent to meet Beekman's 1995-1996 timetable.
In 1996 and 1999 respondent engaged in negotiations with Gouveneur Hospital. In 1996 Gouveneur sought to operate a satellite outpatient clinic that would use specialty services offered by physicians at respondent's premises. The only identified reason for not subletting part of respondent's premises was that, without a permanent CO, they did not meet Article 28 requirements. In late 1999 Gouveneur also discussed subletting respondent's premises for $265,000.00 per year, with increases after the first year. Lamm acknowledged Gouveneur's interest in subletting part of 232 Broadway. Again Gouveneur did not consummate a sublease because the hospital remained concerned about the continued absence of a CO. Respondent's extensive negotiations with Gouveneur as well as Downtown Beekman Hospital demonstrate respondent's ability to attract such institutions and their interest in using respondent's facility, if the premises had a permanent CO.
Respondent did sublet a limited portion of the premises for a limited period during petitioner's breach. Respondent entered a sublease of the first floor and a storage area at $ 33,000.00 per month with East Broadway Medical Management. It in turn sublet part of the space to Staten Island University Hospital (SIU) for it to operate a part-time clinic 15 hours per week at the site. SIU moved into the space in 1998, but departed in 1999 because of SIU's inability to generate income without the enhanced reimbursement rates available under Article 28. In 1998, SIU paid a total of $ 28,164.00 in rent to East Broadway Medical Management, which it in turn paid to respondent as rent. This rent payment constituted respondent's sole income generated at the premises. East Broadway Medical Management could not pay any further rent to respondent because of the inability to sublet to other medical services providers and their inability to pay rent due to the unavailability of reimbursement under Article 28 for services provided at the site.
Respondent never sublet the premises' second floor, which housed the facility's operating rooms. The premises had the capacity to house 11 physicians full time. Between 1997 and 1999, five to ten different physicians located at the premises, but on a very intermittent basis, rotating in and out. Lamm visited 232 Broadway once per week during 1997 to 2001 and occasionally found one physician and one to three patients at the site, but never more. By 2000, the premises were at less than 10% capacity, as no physician could obtain reimbursement under Article 28.
After petitioner obtained a permanent CO in June 2001, the market, particularly in lower Manhattan, turned dramatically downward. Petitioner's commencement of this proceeding and respondent's commencement of a bankruptcy proceeding engendered uncertainty about respondent's future and doing business with respondent. It had lost an opportunity to obligate subtenants to leases. It is of course conceivable, assuming petitioner had not breached its lease with respondent, that the economic downturn might have caused subtenants to default on their subleases or that respondent, despite operating at a profit up to that point, might otherwise have suffered economically. Such possible scenarios are irrelevant, however, since respondent seeks damages only up to that point.
III. THE MEASURE OF DAMAGES
Respondent is entitled to be placed in the same economic position respondent would have been in had petitioner timely procured a permanent CO. Respondent thus is entitled to recover its economic losses that were caused by petitioner's breach and that petitioner had reason to foresee as a likely result of the breach. Inchaustegui v. 666 5th Ave. Ltd. Partnership, 96 N.Y.2d 111, 116 (2001); Ashland Mgt. v. Janien, 82 N.Y.2d 395, 403 (1993); Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319 (1989). These losses include lost profits: the benefits that would have inured to respondent had petitioner performed its contractual obligation. Goodstein Constr. Corp. v. City of New York, 80 N.Y.2d 366, 374 (1992).
A. Lost Income
Given petitioner's awareness that respondent was leasing the premises for use as a medical facility, the lost ability to sublet the premises to medical services providers is a loss that would "ordinarily and naturally flow from the non-performance." Fruition, Inc. v. Rhoda Lee, Inc., 1 A.D.3d 124, 125 (1st Dep't 2003). See Kenford Co. v. County of Erie, 73 N.Y.2d at 319; Brooklyn Union Gas Co. v. MacGregor's Custom Coach, 133 Misc. 2d 582, 583 (App. Term 2nd Dep't 1986). Even if petitioner could not have foreseen that respondent's economic losses would be specifically through diminished ability to sublet, they are recoverable. Ashland Mgt. v. Janien, 82 N.Y.2d at 403. While liability for such damages could be extensive, respondent assumed a concomitant risk by entering a long term lease, becoming obligated to pay rent, and making the necessary improvements and other investments for a medical facility. See Goodstein Constr. Corp. v. City of New York, 80 N.Y.2d at 375.
Such damages are proximate, directly traceable to petitioner's nonperformance, and capable of reasonably certain assessment, based on respondent's known experience of limited subletting during the same period for which the damages are sought. They are more than possible and not merely speculative or imaginary. Ashland Mgt. v. Janien, 82 N.Y.2d at 403, 406; Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261 (1986); Fruition, Inc. v. Rhoda Lee, Inc., 1 A.D.3d at 125; Zink v. Mark Goodson Prods., 261 A.D.2d 105, 106 (1st Dep't 1999).
They need not be ascertainable "with mathematical precision," but may be "an approximation." Ashland Mgt. v. Janien, 82 N.Y.2d at 403. See Haven Assoc. v. Donro Realty Corp., 121 A.D.2d 504, 509 (2nd Dep't 1986).
The contractual obligation here is not a simple payment, where the obligor-payor would not be liable for the obligee-payee's economic difficulties flowing from a nonpayment. Scavenger, Inc. v. GT Interactive Software Corp., 289 A.D.2d 58, 59 (1st Dep't 2001). Here, the only apparent reason for the obligation to procure a permanent CO was to enable respondent to use the premises fully for their intended purposes.
Moreover, respondent was embarking on a business familiar to both parties as well as many experts in the field. All who testified confirmed that respondent had "a ready reservoir of customers" in the densely populated Lower East Side neighborhood of residents eligible for Medicaid or Medicare coverage, which would produce a predictably profitable business for any medical facility certified under N.Y. Pub. Health Law art. 28 that was to affiliate with respondent. Ashland Mgt. v. Janien, 82 N.Y.2d at 406. See Zink v. Mark Goodson Prods., 261 A.D.2d at 106.
Yet respondent does not seek these profits. It seeks only the lost income from subletting to facilities certified under Article 28 that could have located at the premises if they had the CO required for Article 28 facilities to operate. See N.Y. Pub. Health Law §§ 2802(3)(e), 2805(2)(b); 10 N.Y.C.R.R. § 600.1(b)(4); Lager Assoc. v. City of New York, 304 A.D.2d 718, 722 (2nd Dep't 2003). No one disputed that the enhanced reimbursement rate available under Article 28 for serving Medicaid and Medicare patients would have attracted such facilities to the premises' location in a neighborhood of residents eligible for Medicaid or Medicare. The income at minimum to be derived simply from subletting to such facilities is predictable. Zink v. Mark Goodson Prods., 261 A.D.2d at 106; Brooklyn Union Gas Co. v. MacGregor's Custom Coach, 133 Misc. 2d at 583. Here, at $33,000.00 in rental income per month, per floor, for subletting two floors, respondent's lost gross income was $ 66,000.00 per month.
Although petitioner's procurement of a permanent CO was contingent on the New York City Department of Buildings (DOB) approving petitioner's application and issuing the CO, petitioner does not claim that DOB's action or inaction caused the breach and respondent's resultant damages. See Goodstein Constr. Corp. v. City of New York, 80 N.Y.2d at 372-74. Nor does the evidence disclose any such cause. The evidence shows only petitioner's inexplicable inaction in applying for the permanent CO, which, when petitioner finally applied, DOB approved. Thus the damages respondent seeks are not based on a prospective DOB approval that never occurred, but on petitioner's breach of a concrete, present obligation to seek that approval. See id. at 373-74.
Nor are the damages attributable to any other intervening cause. Kenford Co. v. County of Erie, 67 N.Y.2d at 261. Respondent's burden is not to prove that respondent's damages resulted solely from petitioner's breach, to the exclusion of any other factor, but to show that the breach "contributed in substantial measure to the damages, whereupon the burden shifted" to petitioner to prove that an intervening cause was the contributing factor. Haven Assoc. v. Donro Realty Corp., 121 A.D.2d at 508. While petitioner labelled respondent as merely a failed business, petitioner did not point to any reason why the business was a losing proposition during January 1998 to June 2001, other than the absence of an amended permanent CO.
B. The Period of the Losses
Respondent does not claim, nor is it entitled to lost profits over the entire term of the lease, but only during the period when petitioner failed to maintain the amended CO. Respondent's recovery therefore is limited to losses from January 1998 to June 2001. D.B.C.G., Inc. v. Town of Ramapo, 125 A.D.2d 439, 440 (2nd Dep't 1986). See Charles Adams Importers v. Dana, 121 A.D.2d 279, 280 (1st Dep't 1986). Thus respondent's lost gross income at $66,000.00 per month for those 42 months is $ 2,772,000.00.
C. Necessary Expenses
Respondent's lost income from subletting also must be reduced by the expenses essential to producing that income. Lee Kin Chiu v. City of New York, 174 Misc. 2d 422, 426 (App. Term 2nd Dep't 1997). Respondent is not entitled to lost gross receipts, but only to lost net profits, measured by the total earnings respondent would have produced through its operations at the premises but for petitioner's breach, reduced by any expenses necessary to the production of that income, during the period of the breach. The evidence also established these expenses. They include respondent's rent under its lease with petitioner and expenses for leasing equipment and furnishings for the period for which lost profits are to be awarded. Van Wagner Adv. Corp. S M Enters., 67 N.Y.2d 186, 196 (1986).
The rent is accounted for pursuant to the court's decision of April 26, 2002. The lease payments for equipment and furnishings in 1998 were $109,802.31, a slight increase over the preceding year. The evidence did not reveal any reason why these payments would decrease before July 2001. The earliest lease ran from June 12, 1996; the latest ran from June 11, 1997; and all the leases, Ex. D, ran for 60 months.
As discussed, the standard for lost profits, is not "mathematical precision," but a reasonable assessment of future amounts. Ashland Mgt. v. Janien, 82 N.Y.2d at 403. Had petitioner obtained the amended permanent CO and respondent operated at its capacity, these expenses would have continued at approximately $110,000.00 per year or $275,000.00 for the two and one half years from January 1999 to June 2001. Added to the $109,802.31, these expenses total $ 384,802.31.
Although the evidence does not show ongoing amounts spent for liability insurance and accounting services after 1996, respondent's lease with petitioner obligates respondent to maintain the insurance, and the testimony and financial records by respondent's accountant show substantial accounting services for the ensuing years. Therefore the court considers these expenses to be ongoing. Assessing them similarly, at $4,132.50 ($2,382.50 + $1,750.00) per year for three and one half years, these expenses total $ 14,463.75.
Given the descriptions of the administrator's and attorney's services, Aridas's salary, paid by Elm Urology Associates on respondent's behalf, and the attorney's fees, paid in part by respondent and in part by Elm Urology, were one-time start-up costs, capital expenses and not ongoing ones. Since the evidence does not disclose that respondent ever reimbursed Elm Urology for its payment of the attorney's fees, Aridas's salary, or any other salaries for start-up personnel, only respondent's payment of $4,831.25 for the legal services and expenses is deducted. Although additional personnel may have been necessary to administer subtenancies on an ongoing basis, petitioner did not flesh out the evidence to pinpoint such additional deductions; such amounts remain pure speculation.
Expenses encompass respondent's necessary capital improvements in the premises to convert them into a suitable medical facility. The capital improvements include $177,500.00 for construction and repairs, $29,500.00 for architectural and engineering services, and $1,579.00 for advertising and promotion: a total of $208,579.00.
The capital expenses have value over the 240 month lease term. Respondent did not lose this investment for the remainder of the lease term after petitioner cured its breach. Therefore these expenses are prorated over the 42 month period for which lost profits are awarded. Lager Assoc. v. City of New York, 304 A.D.2d at 723. See Charles Adams Importers v. Dana, 121 A.D.2d at 280. Multiplied by 42/240 or 17.5%, the $213,410.25 in capital expenses ($208,579.00 + $4,831.25) attributable to January 1998 through June 2001 are $ 37,346.79.
The improvements, in contrast to the legal services, may depreciate over the 240 month lease term. Although respondent's 1998 income tax return, Ex. Z, lists a figure for depreciation in that one year, respondent did not show that this amount applies to the improvements respondent made and paid for as specified above. Absent ascertainable evidence of these improvements' depreciation, the court deducts $37,346.79, 42/240 or 17.5% of the capital expenses, from the lost gross revenue.
D. Loan Debt
The court does not consider the principal amounts of any funds respondent borrowed to finance its operations. Either respondent spent the loan proceeds on expenses necessary to produce income, including capital investments, and these expenses are considered in the evaluation of lost profits, or respondent retains these proceeds and can repay them. Rich-Haven Motor Sales v. National Bank of N.Y. City, 163 A.D.2d 288, 289 (2nd Dep't 1990). To the extent respondent proved that it incurred loan debts due to petitioner's breach of the lease and respondent's resultant inability to generate a profit, the court could consider the interest paid on these funds. Lager Assoc. v. City of New York, 304 A.D.2d at 723.
The only loan on which any interest was proved, however, was the 10.25% per year interest on the $600,000.00 from Banco Popular that respondent guaranteed and that respondent, outside the factual record, claims Dr. Knoll and respondent's other shareholders ultimately, at least in large part, repaid personally. Only that 10.25% interest rate, however, and neither the amounts of interest nor of principal paid, other than the $519,920.62 total, nor dates the principal was paid, from which to calculate the interest, are ascertainable.
Even if the amount of interest paid were ascertainable, and the court were to consider the loan's repayment by respondent's co-guarantor, Dr. Knoll, and his co-shareholders, respondent is not the primary party indebted to them; East Broadway Medical Management and East Broadway Medical Associates, the primary obligors, are. Were Dr. Knoll or his co-shareholders to claim reimbursement from respondent, it would be entitled to claim against the primary obligors. Chemical Bank v. Meltzer, 93 N.Y.2d 296, 302-304 (1999); National Union Fire Ins. Co. of Pittsburgh, Pa. v. Worley, 257 A.D.2d 228, 232, 234 (1st Dep't 1999); National Union Fire Ins. Co. of Pittsburgh, Pa. v. Christopher Assocs., 257 A.D.2d 1, 12 (1st Dep't 1999). More definitively, the evidence does not disclose, nor does respondent claim, that Dr. Knoll paid more than his proportionate share of the co-guarantors' common liability, to maintain a claim against respondent. C.P.L.R. § 1401; Guedi v. Dana, 302 A.D.2d 268 (1st Dep't 2003); Panish v. Rudolph, 282 A.D.2d 233 (1st Dep't 2001); Leo v. Levi, 304 A.D.2d 621, 623 (2nd Dep't 2003). Nor do any facts, in the record or otherwise asserted, suggest an agreement by respondent or even the primary obligors to repay the other shareholders for their payment on the obligors' behalf. See, e.g., Midland Steel Warehouse Corp. v. Godinger Silver Art, 276 A.D.2d 341, 344 (1st Dep't 2000); National Union Fire Ins. Co. of Pittsburgh, Pa. v. Worley, 257 A.D.2d at 234; National Union Fire Ins. Co. of Pittsburgh, Pa. v. Christopher Assocs., 257 A.D.2d at 12.
E. Mitigation of Damages
Petitioner emphasizes respondent's ability to sublet a limited portion of the premises for a limited period as evidence that the amended CO's absence did not impede respondent's use of the premises for their intended purpose. Respondent's successful efforts to sublet to medical services providers despite the CO's absence constitute common sense, good faith steps to mitigate respondent's damages from an unwelcome breach not of respondent's making, which relieved petitioner of liability to the extent of the income produced. Respondent should not be prejudiced because it prudently took steps to lighten its injury and thus mitigate the damages. Wilmot v. State of New York, 32 N.Y.2d 164, 168-69 (1973).
The evidence does not indicate further efforts respondent could have made to prevent its losses. Id. See Wordie v. Chase Manhattan Bank, 140 A.D.2d 435, 436 (2nd Dep't 1988). The principal subtenant medical services provider left the premises because of its inability to generate income through the enhanced reimbursement rates available under N.Y. Pub. Health Law art. 28, had the premises had the CO required for Article 28 facilities to operate. Subtenant East Broadway Medical Management could not pay rent to respondent because of the inability to sublet to other such facilities. Although petitioner cites respondent's failure to attempt to collect this rent more aggressively, nothing indicates that further attempts would have been other than a fruitless waste of resources.
If the court is to excuse respondent's failure to collect rent from its affiliate East Broadway Medical Management, however, and attribute that loss to respondent, the court also must attribute the $28,164.00 in income East Broadway Medical Management generated from its sublease with SIU to respondent. In fact respondent concedes as much, given the close relationship between respondent and East Broadway Medical Management.
F. Interest
Since damages awarded in an action for breach of contract or for interfering with enjoyment of a property interest are intended to return the injured party to the point when the breach or interference occurred, damages, including the interest that would have accrued, ordinarily are ascertained as the date of the breach. C.P.L.R. § 5001(a) and (b); Siegel v. Laric Entertainment Corp., 307 A.D.2d 861, 862-63 (1st Dep't 2003); Lager Assoc. v. City of New York, 304 A.D.2d at 723; Brooklyn Union Gas Co. v. MacGregor's Custom Coach, 133 Misc. 2d at 583. Here the breach of the lease and interference with respondent's enjoyment of the leasehold occurred, and the damages were incurred, over a 42 month period from January 1998 to June 2001.
While C.P.L.R. § 5001(b) authorizes interest to "be computed upon each item from the date it was incurred" where "damages were incurred at various times," the statute also authorizes the computation in these circumstances to be "upon all of the damages from a single reasonable intermediate date." See Rose Assocs. v. Lenox Hill Hosp., 262 A.D.2d 68, 69 (1st Dep't 1999); Lager Assoc. v. City of New York, 304 A.D.2d at 723; Robert Half Intl. v. Jack Valentine, Inc., 157 Misc. 2d 318, 321 (Civ.Ct. N.Y. Co. 1993). Therefore the court computes the interest on damages for the period when they are reduced by limited subletting income, 1998, from the midpoint of that period, July 1, 1998, and the interest on damages for the remainder of the 42 month breach from the midpoint, April 1, 2000, of that remaining period, January 1999 to June 2001. Lager Assoc. v. City of New York, 304 A.D.2d at 724.
IV. THE FINAL AWARD
Based on the evidence and the applicable law delineated above, respondent's total damages are calculated as follows.
Total lost gross income for 42 months, January 1998-June 2001, without reduction for subletting income actually generated: $2,772,000.00
Expenses necessary to produce the income during January 1998-June 2001:
Lease payments for equipment and furnishings: $384,802.31
Insurance and accounting services: $14,463.75
Capital expenses: $ 37,346.79
Total expenses: $436,612.85
Total lost profits for January 1998-June 2001, without reduction for subletting income generated: $2,772,000.00-$436,612.85 = $2,335,387.15
Lost profits for the 12 months of 1998, without reduction for subletting income generated: 12/42 × $2,335,387.15 = $667,253.25
Reduction for subletting income in 1998: $667,253.25-$28,164.00 = $639,089.25
Lost profits for the remaining 30 months, January 1999-June 2001: $2,335,387.15-$667,253.25 = $1,668,133.90
The court thus awards respondent a judgment on its counterclaim of (1) $639,089.25 with interest from July 1, 1998, and (2) $1,668,133.90 with interest from April 1, 2000. Respondent's judgment is offset by the judgment awarded to petitioner April 26, 2002: (1) $8,333.32 per month in rent for 18 months, January 1998 through June 1999, reduced by an $8,700.00 payment, for a total of $141,299.76, with interest from the midpoint, October 1, 1998, of the dates rent was due on the first of each month, and (2) $10,000.00 per month in rent for 20 months, July 1999 through February 2001, or $200,000.00, with interest from the midpoint, May 1, 2000. This decision constitutes the court's order and judgment.