Opinion
EF2020-68127
12-16-2020
HEALTHY CHOICE CONCEPTS INC., Plaintiff, v. GLENS FALLS HOSPITAL, Defendant.
Fitzgerald Morris Baker Firth, P.C., Glens Falls (Michael Crowe of counsel), for plaintiff. McPhillips, Fitzgerald & Cullum, LLP, Glens Falls (Eric C. Schwenker of counsel), for defendant.
Fitzgerald Morris Baker Firth, P.C., Glens Falls (Michael Crowe of counsel), for plaintiff.
McPhillips, Fitzgerald & Cullum, LLP, Glens Falls (Eric C. Schwenker of counsel), for defendant.
Robert J. Muller, J. On April 27, 2012, plaintiff Healthy Choice Concepts Inc. — operating as Au Bon Pain Restaurant — entered into a Commercial Lease Agreement with defendant Glens Falls Hospital. As set forth in § 1.2 of the Agreement, plaintiff leased "2,700 square feet of ground space in the Glens Falls Hospital ..., consisting of [a] café area and a separate food preparation area[, as well as] nonexclusive, seasonal use of [an] outdoor adjacent patio area" for a 10-year term. § 1.4 of the Agreement requires plaintiff to pay rent in the amount of $4,000.00 per month and § 24 then provides that, at a minimum, plaintiff shall operate under the following schedule:
"Monday to Friday 6 a.m. to 10 p.m.
Saturday 6 a.m. to 9 p.m.
Sunday and major holidays 6 a.m. to 6 p.m.
Monday to Sunday 1 a.m. to 3:30 a.m."
On July 28, 2020, defendant served plaintiff with a "Notice of Lease Default" asserting that it had "committed multiple breaches of the Lease Agreement." Specifically, the Notice asserted that "effective at 5:00 p.m. on Monday, July 27, 2020, [plaintiff] began operating only during daytime hours in violation of [§ 24 of] the Lease Agreement, thereby leaving [hospital staff] without food service in the evening and overnight hours." The Notice also asserted a violation of § 1.4 of the Agreement, alleging that plaintiff failed to pay rent for the months of January, April, May, June and July 2020, with a total of $20,000.00 due and owing. The Notice further stated, in pertinent part:
"As you may know, ‘[t]ime is of the essence of the performance of each provision of [the] Lease’ as set forth in [§] 30.5 of the Lease Agreement. Moreover, [§ 16.1 (d) of the Agreement provides
that] ‘in the event of a bona fide emergency, the period for cure of a breach by [plaintiff] shall be reduced to the shortest reasonable period of time that is practical under the circumstances.’ The complete lack of food service during the hours at issue constitutes an immediate, material and emergency situation for [defendant]. Regarding the payment deficiencies, [§ 16.1 (a) (i) of] the Lease Agreement provides for a 10-day cure period.
Therefore, please be advised that [defendant] intends to cancel and terminate the Lease Agreement, effective immediately, if by 5:00 P.M. MONDAY, AUGUST 10, 2020 [plaintiff] has not cured all breaches by bringing itself into full compliance with the terms of the Lease Agreement and paying all past due payment deficiencies."
Plaintiff commenced this action by the filing of a summons and complaint on August 7, 2020, seeking a declaratory judgment that it is not in violation of the Lease Agreement. In this regard, plaintiff alleges that "during the period in question, due to the COVID-19 global health pandemic, the Governor of the State of New York declared a State of Emergency and issued numerous Executive Orders which both prohibited and substantially limited [its] operations" and, as a result, the defaults must be excused under § 28 of the Agreement. This section provides as follows:
"In the event that either party shall be delayed or hindered in or prevented from the performance of any covenant, agreement, work, service, or other act required under this Lease to be performed by such party and such delay or hindrance is due to strikes, lockouts, failure of power or other utilities, injunction or other court or administrative order, governmental law or regulations which prevent or substantially interfere with the required performance, condemnations, riots, insurrections, martial law, civil commotion, war, fire, flood, earthquake, or other casualty, acts of God, or other causes not within the control of such party, the performance of any covenant, agreement, work, service, or other act shall be excused for the period of delay and the period for the performance of the same shall be extended by the period."
Simultaneous with commencement of the action plaintiff filed a motion by Order to Show Cause for a Yellowstone injunction. Plaintiff also sought a Temporary Restraining Order (hereinafter TRO) pending determination of the motion, which TRO was granted upon consent and prohibits defendant from taking any further action to terminate the Lease Agreement, as well as from interfering with plaintiff's right to occupy the leased premises and maintain its operations. The TRO also tolls the cure period outlined in the Notice of Lease Default.
At the outset, the Court notes that Executive Order 202.28 — issued on May 7, 2020 — prohibited the initiation or enforcement of an eviction against a commercial tenant for nonpayment of rent until August 20, 2020. Executive Order 202.55 — issued on August 5, 2020 — then extended this prohibition to September 4, 2020; Executive Order 202.64 — issued on September 18, 2020 — extended it to October 20, 2020; Executive Order 202.70 — issued on October 20, 2020 — extended in to January 1, 2021; and finally, Executive Order 202.81 — issued on December 11, 2020 — extended it to January 31, 2021. Defendant is thus prohibited from commencing an eviction proceeding against plaintiff until January 31, 2021 — notwithstanding the outcome of this motion — with that date subject to further extension by future Executive Orders. The issues raised in the motion have not been rendered moot, however, as the moratorium cannot be extended indefinitely.
That being said, a Yellowstone injunction has been described by the Court of Appeals "as a ‘creative remedy’ crafted by the lower courts to extend the notice and cure period for commercial tenants faced with lease termination" ( 159 MP Corp. v. Redbridge Bedford, LLC , 33 N.Y.3d 353, 365-366, 104 N.Y.S.3d 1, 128 N.E.3d 128 [2019], quoting Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assoc. , 93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 715 N.E.2d 117 [1999] ). More specifically, "[a] Yellowstone injunction maintains the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture" ( Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assoc. , 93 N.Y.2d at 514, 693 N.Y.S.2d 91, 715 N.E.2d 117 ). "The party requesting a Yellowstone injunction must demonstrate that:
The Yellowstone injunction was crafted in response to First Natl. Stores v. Yellowstone Shopping Ctr. , 21 N.Y.2d 630, 290 N.Y.S.2d 721, 237 N.E.2d 868 (1968), which involved a controversy between a landlord and commercial tenant over who was responsible for the cost of a sprinkler system required by the New York City Fire Department. The landlord argued that the tenant was responsible and, when the tenant failed to install the system, the landlord then gave the tenant a written notice to cure under the terms of the lease. On the last day of the cure period the tenant commenced an action for a declaratory judgment, but did not obtain a TRO. As a result, the lease terminated before the dispute was resolved and the Court found that it was "powerless" to revive it (id. at 725, 237 N.E.2d 868 ).
‘(1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and (4) it is prepared and maintains the ability to cure the alleged default by any means short of vacating the premises’ " ( id. , quoting 225 E. 36th St. Garage Corp. v. 221 E. 36th Owners Corp. , 211 A.D.2d 420, 421, 621 N.Y.S.2d 302 [1995] ).
Here, plaintiff has clearly satisfied the first three elements necessary to obtain a Yellowstone injunction. Indeed, defendant concedes this point. Insofar as the fourth element is concerned, plaintiff contends that "there is a material dispute regarding the existence of a default" with respect to both rental arrears and hours of operation. More specifically, plaintiff contends that it has been "hindered in or prevented from" making rental payments and maintaining required hours of operation by a "cause[ ] not within [its] control" — namely, the ongoing COVID-19 pandemic — and as such, the defaults must be excused under § 28 of the Lease Agreement.
According to plaintiff, only the $4,000.00 rental payment due in January 2020 — prior to the onset of the pandemic in this region — was due and owing at the time of service of the Notice of Lease Default. In this regard, plaintiff has submitted the affidavit Shahid Bob Rasul, M.D., its CEO, who states as follows:
"Plaintiff has invested over $850,000[.00] in materials, inventory and equipment into its operations at the leased premises and has no desire or intent to vacate prior to the end of the term....
"Conservatively, [p]laintiff has assets valued [at] over $450,000[.00].
"I can state unequivocally that [p]laintiff has liquid assets to cure the alleged $4,000[.00] default."
Rasul further states that "[f]ollowing the easing of restrictions imposed by Executive Orders in relation to the New York State on PAUSE response to the worldwide health pandemic, [p]laintiff has taken steps to increase employee availability and hours of operation[, and] has the financial ability to increase payroll."
In opposition, defendant contends that plaintiff's defaults under the Lease Agreement cannot be blamed on the COVID-19 pandemic and, as such, should not be excused under § 28 of the Agreement. In this regard, defendant has submitted the affidavit of Paul Scimeca — its Chief Operating Officer — who describes ongoing problems with the overall quality of plaintiff's food offerings since 2017. According to Scimeca, plaintiff was served a prior Notice of Lease Default on April 27, 2018 based upon a violation of § 7.6 of the Lease Agreement, which requires "compl[iance] with all health and safety rules and regulations of [the] New York Department of Health." While this violation was remedied, Scimeca states that the café has nonetheless continued to decrease in popularity. Defendant thus intimates that plaintiff would be experiencing financial problems notwithstanding the ongoing pandemic.
Defendant further contends that — because § 28 of the Lease Agreement does not apply — $20,000.00 in rental payments were due and owing at the time of service of the Notice of Lease Default, and since that time plaintiff has failed to pay rent for August, September and October. Defendant thus questions plaintiff's alleged ability to cure its default with respect to rental arrears. Defendant likewise questions plaintiff's ability to increase its hours of operation, with Scimeca stating that he "regularly walk[s] by the [c]afé" and has "not observed any positive change in plaintiff's operations since July 27, 2020 that would reflect undertaking steps to increase employee availability and ... hours of operation." According to Scimeca, "providing meals for [the hospital's] overnight shift workers, and any visitors, has, since July 27, 2020, remained the burden of [defendant] which was a burden [defendant] sought to eliminate when it originally awarded the lease to [p]laintiff."
It is unclear whether rent has been paid for November and December.
It has "long [been] recognized that the law ... disfavors forfeiture" of a lease ( WPA/Partners LLC v. Port Imperial Ferry Corp. , 307 A.D.2d 234, 237, 763 N.Y.S.2d 266 [2003] ), and the standard for granting a Yellowstone injunction is "far less than the showing normally expected for the grant of preliminary injunctive relief" ( Golub Corp. v. Northeastern Indus. Park , 188 A.D.2d 729, 730, 590 N.Y.S.2d 579 [1992] ; see Post v. 120 E. End Ave. Corp. , 62 N.Y.2d 19, 25-26, 475 N.Y.S.2d 821, 464 N.E.2d 125 [1984] ). Indeed, in WPA/Partners LLC v. Port Imperial Ferry Corp. (supra ), the Appellate Division, First Department described this standard as follows:
"[T]he tenant need not at this juncture prove its ability to cure; rather, ‘[t]he proper inquiry is whether a basis exists for believing that the tenant ... has the ability [to cure] through any means short of vacating the premises’ " ( id. at 237, 763 N.Y.S.2d 266, quoting Herzfeld & Stern v. Ironwood Realty Corp. , 102 A.D.2d 737, 738, 477 N.Y.S.2d 7 [1984] ).
Here, the Court finds that plaintiff has satisfied the fourth element necessary to obtain a Yellowstone injunction. Without making any determination as to whether § 28 of the Lease Agreement is applicable, plaintiff's contentions in this regard are at least reasonable. Indeed, many businesses are struggling to survive amidst the ongoing pandemic — this is the very rationale underlying Executive Order 202.28 and its progeny. Plaintiff has also demonstrated its ability to make the January 2020 payment, and expressed its willingness to increase its hours of operation once the pandemic begins to subside.
Under the circumstances, plaintiff's motion is granted in its entirety:
• Plaintiff is entitled to a Yellowstone injunction enjoining, forbidding and restraining defendant, its successors, assigns, agents, tenants, employees, contractors, servants, and any other person or entities claiming right under them, during the pendency of this action, absent written authorization from this Court, from terminating the Lease Agreement;
• the cure period in the Notice of Lease Default is stayed and tolled pending the conclusion of this action; and
• defendant is prevented from interfering with plaintiff's right to occupy the leased premises and maintain its operations pursuant to the Lease Agreement pending the conclusion of this action.
Plaintiff shall post an undertaking in the amount of $4,000.00 within thirty (30) days of the date of this Decision and Order (see CPLR 6312 [b] ; Cohn v. White Oak Coop. Hous. Corp. , 243 A.D.2d 440, 441, 663 N.Y.S.2d 62 [1997] ). Counsel for the parties are hereby directed to appear for a preliminary conference on January 12, 2021 at 10:00 A.M. , with the conference to be conducted virtually using Microsoft Teams. Further instruction in this regard will be sent under separate cover. Alternative Dispute Resolution will also be discussed at the conference, as this may prove useful to the parties given the nature of the dispute.
Therefore, having considered NYSCEF documents 5, 6, 7, 8, 26, 27, 28, 29, 30, 31, 36 and 37, and oral argument having been heard on September 25, 2020 with Michael Crowe, Esq. appearing on behalf of plaintiff and Eric C. Schwenker, Esq. appearing on behalf of defendant, it is hereby
ORDERED that plaintiff's motion for a Yellowstone injunction is granted in its entirety and as set forth hereinabove; and it is further
ORDERED that plaintiff shall file an undertaking in the amount of $4,000.00 within thirty (30) days of the date of this Decision and Order; and it is further
ORDERED that counsel for the parties shall appear for a preliminary conference on January 12, 2021 at 10:00 A.M. , with the conference to be conducted virtually using Microsoft Teams.
The above constitutes the Decision and Order of the Court.
The original of this Decision and Order has been e-filed by the Court. Counsel for plaintiff is hereby directed to promptly obtain a copy of the e-filed Decision and Order for service with notice of entry upon defendant in accordance with CPLR 5513.