KWANG HEE LEE v. ADJMI 936 REALTY ASSOC.

Full title: KWANG HEE LEE, Plaintiff, v. ADJMI 936 REALTY ASSOCIATES, ET AL.…

Court: Supreme Court of the State of New York, Kings County

Date published: Oct 27, 2008

2008 N.Y. Slip Op. 52119 (N.Y. Sup. Ct. 2008)

Opinion

44511/03.

Decided October 27, 2008.

Richard H. Bakalor, Esq. (for plaintiff), Quirk Bakalor, PC, NY.

Loretta Redmond, Esq. Quirk Bakalor, PC, NY.

Edward G. McCabe, Esq. (for defense), Certilman, Balin, Adler Hyman, NY.

ABRAHAM G. GERGES, J.

After conducting a bench trial on this action for an accounting, which commenced on May 5, 2008 and concluded on May 9, 2008, the court is now called upon to marshal the evidence and determine the factual issues generated by the testimony of the parties and their sworn expert witnesses, and the documentary evidence submitted herein, and render a verdict with regard to two issues: (a) the rental value of a certain parcel of property located at 1250-1264 Fulton Street, Brooklyn, from October 1993 until November of 2004; and (b) the expenses attributable to said property, including improvements that were made solely for the benefit of the property. The following constitutes the court's findings of fact and conclusions of law.

BACKGROUND

On August 9, 1984, plaintiff Kwang Hee Lee (Lee) and non-party Byoung Heung Oh (Oh) purchased 1250-1264 Fulton Street (the premises, or the property), a commercial building of approximately 12,500 square feet. The property was deeded to Oh and Lee as tenants in common. Simultaneous with the purchase, they executed a mortgage in the amount of $600,000, that was held by the Korean Commercial Bank (the Korean Bank mortgage). Subsequently, on or about November 1, 1984, through Oh, they entered into a written agreement of lease (the 1984 Lease) with defendant Ray Department Store Fulton, Inc. (Ray Department Store, or Ray Fulton), an entity owned by the Saad defendants.¹ This lease, which was for a period commencing on November 1, 1984 and ending on October 31, 1994, covered that portion of the premises from 1258-1264 Fulton Street. By written amendments, the parties agreed to extend the term of the 1984 Lease to October 31, 1999.

1 As used herein, "defendants", or "Saad defendants" refers to Clem Saad, Eli Saad and Eli Saad, and the two business entities owned by them, Ray Realty Fulton, Inc. and Ray Department Store Fulton, Inc. Adjmi 936 Realty Associates is no longer an active defendant.

At the time of the purchase, Lee was a college student, and his share of the income from the property was to be used to subsidize the expenses of his education. Oh was authorized by plaintiff and his father to manage the property, enter into leases and remit one-half the profits to Lee. From 1984 to 1990, Oh, on a regular basis, accounted to Lee and sent Lee what appeared to be one-half of the net rental income from the premises. However, said payments ceased in or around May of 1990.

In addition to withholding monies due to Lee, Oh began forging Lee's signature in order to reap personal benefits for himself and not the parties herein. The first such forgery with respect to the property was committed when Oh, on August 16, 1988, gave a second mortgage on the property to Banco Popular de Puerto Rico (Banco Popular), and through consolidation, refinanced the Korean Bank mortgage from the then mortgage balance of $548,730.35, to a consolidated mortgage balance of $950,000.00. Oh neither informed Lee about the consolidated mortgage, nor accounted to him for the proceeds in the amount of $401,209.61. As represented, the accounts actually provided to Lee after August of 1988 indicated payment only for the $600,000.00 Korea Commercial Bank of New York mortgage, agreed to and signed by Lee, and not the additional indebtedness.

The Elidex Contract

On August 30, 1989, Oh and Lee purportedly entered into a written agreement (the Elidex Contract) for the sale of the property to Elidex Realty Corp., an entity related to the Saad defendants. In accordance with the terms of the Elidex Contract, a $300,000 deposit was paid to Oh and Lee by Elidex. Paragraph 3 of the Second Rider to the Elidex Contract contained a "prepaid rent provision", stating that:

In the event Seller properly cancels this Contract, he shall be entitled to retain the deposit, however, Seller agrees to extend the existing Lease of Ray Department Store for an additional five (5) years to existing Lease term until 2004 at no rent but all other terms to survive. In the event Purchaser properly cancels this Contract, Seller shall return the deposit within fifteen (15) days, failure of which the renewal term for five (5) years at no rent shall be in full force and effect.

The Elidex Contract was canceled by the Purchaser and Seller did not return the deposit. Accordingly, in 1999, Elidex and Ray Fulton commenced an action in the Supreme Court, Kings County, against Oh and Lee, seeking to enforce Ray Fulton's rights pursuant to the lease provision of the Elidex Contract and to enforce the prepaid rent term from November 1, 1999 until October 31, 2004. A Notice of Pendency was recorded in the Office of the Register of Kings County on June 1, 1999.However, in light of the discovery that Lee's name was forged at the behest of Oh and that Lee was never aware of the transaction, Justice Schmidt, by order dated March 3, 2006, denied the Ray defendants' summary judgment motion for a judgment declaring that the prepaid rent provision, as recited above, was enforceable, and went on to grant Lee's cross motion for summary judgment declaring that because of the forgery, the contract containing the prepaid rent provision was void ab initio. The Appellate Division affirmed ( see Kwang Hee Lee v Adjmi 936 Realty Associates , 46 AD3d 629 ).

The Adjmi Conveyance to Ray Realty and Lee's claim

In 1991, Ray Department Store commenced an action against Adjmi to grant an extension on its 1984 Lease and to enjoin Adjmi from terminating the lease pursuant to a certain Notice to Cure with Notice to Terminate the Lease dated January 28, 1991, for failure to construct, at its own cost and expense, a second floor to the premises, as required under the provisions of an Additional Rider to the 1984 Lease.² Said Additional Rider further provided that Ray Fulton would be entitled to the exclusive use of the second story without paying additional rent until the expiration of the original lease on October 31, 1994. A rent schedule for the subsequent five year period was provided therein. Also in 1991, Ray Fulton commenced a second action against Adjmi and in its first cause of action once again sought to enforce its lease rights in the Elidex Contract for the prepaid rent from the period commencing November 1, 1999 and ending on October 31, 2004.³

2 The Saads claimed that problems with the building's construction prevented them from erecting a second story.

3 The two actions commenced by Ray Department Store were consolidated under a joint caption by order dated September 10, 1992.

On August 24, 1990, Oh and Lee purported to convey their entire fee interest in the Property to defendant Adjmi 936 Realty Associates (Adjmi), an entity unrelated to the Ray defendants. In fact, Oh once again had Lee's name forged, and he pocketed the proceeds of the sale. Oh's cessation of payments and monthly reports aroused the suspicions of Lee's father, Sang Dae Lee (Sang) with regard to the management of the Property. Upon searching the public record relating thereto, Sang discovered the Adjmi deed, which contained what was later proven to be Lee's forged signature, as well as the forged mortgage which encumbered it. As was subsequently discovered, Oh's wife impersonated Lee and forged his signature in order to consummate the transactions.⁴

4 On or about December 23, 1992, a criminal complaint was filed by the United States Government against Oh, who eventually was sentenced to federal prison based on charges unrelated to this matter.

Consequently, in or about January 1993, Lee, making no mention of, or taking any action with respect to, the Elidex Contract, commenced an action against Adjmi in the Supreme Court, Kings County seeking: (1) a declaration that the deed of August 24, 1990 was a forgery as it related to Lee's interest as a tenant in common; (2) an accounting of rents and profits; and (3) the imposition of a constructive trust. Following a non-jury trial ( Kwang Hee Lee v Adjmi 936 Realty Associates and Ray Fulton Realty Inc., Index No. 3293/93), Justice Lewis L. Douglass, by decision dated January 14, 1999, and judgment dated October 26, 2001: (1) found that Lee's signature was, in fact, forged; (2) dismissed plaintiff's claim for the imposition of a constructive trust; and (3) in effect, declared that Lee is the owner of an undivided one-half interest in the property and that the deed purporting to transfer the property to Adjmi was null and void. Following Lee's appeal and Adjmi's cross-appeal, the Appellate Division, Second Department, by Order dated May 27, 2003, affirmed the judgment.

In the interim, on or about April of 1993, defendant Ray Realty Fulton Inc. (Ray Realty), aware of Lee's potential claim, contracted to purchase the Property from Adjmi, subject to Ray Department Store's leasehold.⁵ The purchase price of $2 million was a contingent purchase price, which would be reduced to $1.7 million if Lee's claim succeeded and Lee was determined to be 50% owner of the property. Adjmi deeded the property to Ray Realty on or about October 4, 1993. From October 1993 until November of 2004, Ray Realty was in sole possession of the property.

5 The Contract of Sale from Adjmi to Ray Realty provided that the latter would obtain a title insurance policy in the amount of $1.6 million to protect against the risk of loss in the event that Lee's claim succeeded.

By Orders dated May 20, 2005, Justice David Schmidt, determining that Lee's signature on the 1988 Banco Popular mortgage was a forgery, ordered a trial (1) on Lee's claim for ½ the rental value of the property less expenses, and (2) regarding the rents and expenses of the property and the value of the repairs and reconstruction of the Property after the fire in 1992 and all leases "as to who is responsible for such expenses". He further determined that because Ray Fulton did not occupy the second floor, on May 20, 2005, it was entitled to an equitable reduction in rent for the 5-year period commencing November 1, 1994 and concluding on October 31, 1999, the amount to be determined by the trier of fact, and that Ray Realty was entitled to a management fee of 5%. However the court denied Lee's cross motion for summary judgment on the issue of his liability for the additional mortgage placed on the property. On appeal, the Appellate Division found that: (1) contrary to Lee's contention, the Supreme Court properly determined that there was a triable issue of fact concerning Ray Realty's unjust enrichment cause of action related to the amount of expenses, the cost of improvements which Lee was responsible for concerning the property he co-owned with Ray Realty, and the extinguishment of Lee's bonded indebtedness; but (2) the Supreme Court erred in denying that branch of Lee's cross motion which was for summary judgment on the issue of his liability for the additional mortgage placed on the property, stating that "since Oh encumbered the property without Lee's consent through the use of a forged signature, Lee cannot be personally liable for the additional indebtedness secured by a mortgage placed on the property" ( Kwang Hee Lee v Adjmi 936 Realty Associates , 34 AD3d 646 , 647)⁶.

6 In August of 1999, Ray Realty and Banco Popular commenced an action under Index No. 30527/99 against Lee seeking recovery relating to mortgages taken against the property by Oh. Lee brought counterclaims in his amended answer for an accounting and a judgment in his favor for fair market rent since 1993. Banco Popular was dismissed as a named plaintiff at trial because its mortgage was paid off in 2006.

In November of 2006, Lee commenced the instant action against Adjmi (who is no longer a party due to a Statute of Limitations defense), Ray Realty, Clem Saad, Eli Saad, Leon Saad and Ray Department Store Fulton. The Saads are the sole shareholders in both Ray entities.

Other relevant history

At the time Adjmi purchased the property, the balance on the mortgage was approximately $895,000. During the pendency of its ownership, Adjmi, without Lee's knowledge or consent, increased the indebtedness by an additional $271,000.

In 1992, the premises were substantially destroyed by a fire. Adjmi evicted all tenants with the exception of Ray Fulton, whose portion of the premises remained viable for commercial use. The premises were subsequently reconstructed, and following a period beginning in October 1993 through 2001 when Ray Fulton was the sole tenant, subleases were entered into.⁷

7 In October of 1999, purportedly to attract subtenants to the property, the Saads caused Ray Realty to give Ray Department Store a modified and extended lease until 2024 (the "1999 Lease Extension). By Order dated November 4, 2004, Justice Schmidt directed that "[a]s of November 1, 2004, the subleases for the premises. . .shall be attorned to the owners Ray Realty. . .and. . .Lee and. . .the subleases are deemed to be prime leases. Ray Realty and Lee shall be the lessors. . .and shall have all the obligations and benefits as lessors in the subleases. . . ."

On December 27, 1996, the Saads, purportedly to obtain bank financing, caused Ray Realty to give a modified lease to Ray Department Store (the "1996 Lease Modification) which did not alter or extend the existing term, but instead increased the annual rent from $216,000.00 to $540,000 from January 1, 1997 through October 31, 1999.

In 1998, Ray Department Store filed for bankruptcy protection.

Other Court Orders

On November 21, 2002, Justice Schmidt issued an order directing Ray Realty to provide banking records and accounting records relating to rental payments received and paid mortgage payments and improvements.

On September 15, 2005, Justice Schmidt issued an Order precluding the Ray defendants from offering evidence at trial of any claimed offset to income of the property for which they failed to produce back-up documentation within 45 days thereof. The Order further stated that the Ray defendants would not be precluded from offering the testimony of any expert at trial regarding expenses of the property.

THE TRIAL

PLAINTIFF'S DIRECT CASE Theoharis

The first witness to be called by plaintiff was Chris Theoharis, an accountant who prepared tax returns for both Ray Realty and Ray Fulton. He testified with regard to Ray Realty's tax returns for the years 1993 to 2000, and stated that whatever was entered as gross income for Ray Fulton was deducted as an expense upon Ray Fulton, a Subchapter S corporation. He further testified that in 1996, the only improvement to the property was valued at $128,290 and was paid through Ray Realty.

On cross examination, Theoharis testified concerning the Saad family and their various businesses, which included Elidex Realty, and a department store in the Bronx known as Ray Department Store Incorporated (Ray Bronx), which was a different corporation than Ray Fulton. Upon questioning, he testified that improvements made to real estate might often be financed by personal funds, or a different corporation, and would be reflected in Schedule L of a tax return. Theoharis stated that he relied on bank statements of clients for obtaining such information.

Theoharis was unable to remember knowing whether Ray Bronx was making payments for improvements to the Brooklyn property. However, when shown certain checks written by the Saads which exceeded $100,000, he agreed that he would have used said checks in preparing his Schedule A, and he further testified that he was aware that the Saads had taken out loans from Great Eastern Bank.

Under further cross examination, Theoharis testified that Ray Fulton filed a petition for bankruptcy in 1999, but was in "fairly good financial health" in 1993, 1994 and 1995, and was in better financial shape than its landlord, Ray Realty.

On redirect, Theoharis testified that in 1996, the Saads stated that the only cost for construction to be placed on their tax return was $129,290.

Clem Saad

Stating that he has been one of the owners of Ray Fulton since its formation in 1984, as well as one Ray Realty's owners since its 1993 purchase of the property, Clem Saad testified that when Ray Fulton was formed, he entered into a lease and a number of riders, as well as an extension/modification of the lease dated December 27, 1996.⁸ Further testifying as to the fact that the lease extension and modification raised the base rent to $45,000 per month and required the tenant to pay 100% of the tax, water, sewer, and premiums for liability, fire and hazard insurance, Saad indicated that the purpose of the extension was to comply with the bank's requirements in return for Ray Realty's obtaining construction financing. He further stated that when Ray Realty purchased the property in 1993, it was aware of Lee's claim of 50% ownership.⁹

8 All documents pertinent to Ray Fulton's lease were entered into evidence.

9 Saad testified that in the event that Lee's claim prevailed, there would be no adjustment to the mortgage or sales price, but the part of the proceeds for paying the mortgage would come from insurance proceeds.

Saad further testified that from 1999 until November of 2004, no money was given to Lee, but that during that same period, he attempted to resolve that matter by discussing, with Lee, the various improvements defendants were making to the property. He further stated that in or about 2000 or 2001, Ray Fulton left the premises and entered into certain subleases. He testified that as part of the negotiations which led to the 1987 rider, they agreed to construct a second floor to the premises.

With regard to the Elidex contract, Saad testified that Oh never returned the $300,000 deposit. Following purchase of the premises by Adjmi and the 1992 fire, leases held by the other tenants were terminated.¹⁰ Although an attempt was made to terminate Ray Fulton's lease, the legal proceedings were settled in part by the parties' agreeing to the purchase of the premises by Ray Realty for the purpose of continuing operation of the department store. Upon learning about Lee's claim, Saad minimized the substance thereof, and at the time of the closing believed that the title company would take care of that issue. The attorney who initially represented the Saads was provided by the title company.¹¹

10 Saad testified that most of the structures that occupied 1250 to 1256 Fulton Street were completely gutted by the fire, but the portion of the premises which Ray's Department Store occupied sustained minor damage from the fire, and water damage as a result of the Fire Department's intervention.

11 Saad testified that while the Saad defendants were prepared to accept Lee as a fellow tenant in common, the title company was not willing to do so, and indicated its desire to continue the litigation.

According to Saad's testimony, Ray Fulton filed for bankruptcy in 1998.

Saad agreed that the 1999 Lease Extension and Modification (1999 Lease Modification) given to Ray Fulton was, in effect, a lease given by the Saads to themselves, and the rent was lower than in the 1996 modification. He also explained the delay in obtaining subtenants as due in part to the difficulty in obtaining full electrical service to the premises as well as because of the pending litigation, thus causing the Saads to give themselves an extension until 2024. Finally, he testified that at no time between 1993 and 2000 did any representative of the Lee family discuss reconstruction of the property with him.

On redirect examination, Saad testified that the 1999 Lease Modification was not objected to during Ray Fulton's bankruptcy proceedings, and that the reason for negotiating a lease of such lengthy duration was to enable them to obtain subtenants. He further agreed that Adjmi, in attempting to terminate Ray Fulton's tenancy, alleged the latter's failure to construct a second story as one of its reasons, but that Adjmi's 1991 complaint alleging said grounds predated the 1992 Notice of Termination which was served after the fire. Finally, he testified that the best of his knowledge, he did not receive a notice of termination based upon the failure to construct.

Kwang Hee Lee

Kwang Hee Lee testified as to his involvement, primarily through his father, with Oh as a co-investor, as well as of his unawareness of and lack of benefit resulting from any refinancing of the property by Oh, Adjmi, or Ray Realty. He further testified, on cross-examination, that he could recall nothing about improvements being made to the property with the exception of the repair to the collapsed roof, and that deductions were made from his rental income for an extended time period to cover the costs of repair. He further testified, when shown records from 1984, that $900 was deducted for that purpose, but was unable to recall when the roof was repaired. He indicated that he was outside the United States when the fire occurred, and with the exception of a recent visit, had not seen the property since sometime in the 1980's.

Block

Jerome Block testified as an expert qualified in the field of real estate appraisals. Testifying with respect to the report he prepared, Block stated that based upon comparable properties, he determined the following fair market rental values of the total 12,500 square feet for each of the following given years:

Block further testified that in 2003, he estimated the value of the property (1250 to 1264 Fulton Street) at $3.8 million, and based the value, in part, on the fact that the property was rented to third-party tenants pursuant to market leases, which he considered. He indicated that the time between the fire in 1992 and reconstruction in 2000 was not taken into account in his appraisal, that he did not estimate the age of the structure between 1250 and 1256, and that he did not estimate the age of the heating and air conditioning system. Finally, he explained his condition evaluation of "good" as being based upon the lack of observable physical, functional items that would "deter" from a market rent at that time, and he was unable to state, based upon his own expertise, what it would have cost to construct a 5000 foot masonry structure, such as the subject premises.

Sange Tae Lee

Sange Tae Lee, father of Kwang Hee Lee, testified that he had his son's name placed on the deed for the subject premises, as co-owner with Oh, to provide him with income while attending college in the United States, at a time when the witness had to return to Korea. He testified that in 1985, Oh repaired part of the roof that suffered damage, using rental proceeds, as authorized by the witness, to fund the repairs. During that time period, the witness received regular payments from Oh, which, according to his testimony, continued until approximately May of 1990. Several months after he stopped receiving payments, Lee testified that he contacted Oh, who told him that the tenants were experiencing business problems, and suggested selling the building. Although Lee agreed to this course of action, he was never informed as to, or involved with, any sale, either to Elidex, Adjmi or Ray Realty. He further stated that he knew nothing about the $950,000 mortgage, and only learned about Oh's transfer of the property in November of 1990.

Lee described the property at the time of his purchase as consisting of a one-story building that was vacant, and a three-story building with apartments. He indicated that in 1984, there had been a fire in the vacant area. On cross examination, he indicated that the apartments were at some point renovated and rented out at a combined rental of approximately $1000 per month in 1989. Upon further questioning, based upon his examination of the records for the property in 1989, Lee at one point testified that expenses at that time were approximately $9000 per month, and at another point testified that they were $17,300. He further testified that Ray Department Store at that time was paying a monthly rent of $8,800, and Key Food was paying approximately $16,000.

Upon further questioning, Lee testified that he did not learn of the 1992 fire until some time in 2000, and further learned that apart from Ray Department Store, all tenants had vacated. He further stated that between October of 1993 and November of 2004 when he started receiving an accounting and payments, he did not pay any expenses relating to the property. He agreed that since 2004 there were no major repairs made to the property other than the installation of a bathroom.

Lee stated that he never received any part of the insurance proceeds received by Adjmi, and his lawsuit to recover same was dismissed.

Kessler

Michael Kessler, President and CEO of Kessler International, a computer forensics accounting firm, was called by Lee as an expert witness in the field of accounting.¹² Pursuant to plaintiff's request, he reviewed some management statements which had been issued between November, 2004 through February, 2006. He further reviewed copies of cancelled checks, leases, subleases, tax returns, correspondence, an appraisal report, subpoenaed bank deposit statements, and Ray Realty's tax returns. He indicated that the returns for 1977 were missing.

12 By Notice of Motion dated January 22, 2008, defendants moved, in limine, for an order precluding Kessler from testifying, alleging plaintiff's willful violation of CPLR 3101(d). Defendants' claim of entitlement to said relief was based upon the lack of specificity of the 3101(d) notice, which, while characterized by them as "simply [stating] that. . .Kessler will testify about the accounting", in fact stated that Kessler would base his opinions "on the documents produced in discovery by the Ray parties, the expert reports provided by the Ray Parties, the Statements of Receipts and Disbursements produced by the Ray Parties, bank statements, invoices, governmental record as well as other testimony and evidence to be given at trial . . . and will also base his opinions on his experience and knowledge as a forensic accountant." The court denies defendants' motion on a finding that defendants have failed to demonstrate that plaintiff willfully or contumaciously failed to disclose the substance of Kessler's testimony ( see Gayz v Kirby , 41 AD3d 782 [2007]). Moreover, since the foundational facts of Kessler's testimony were revealed to be based upon the contents of defendant's own records, defendants fail to show prejudice as they are required to do ( see Saldivar v I.J. White Corporation , 46 AD3d 660 [2007]).

Using the tax returns, Kessler prepared a demonstrative exhibit which set forth the following gross rents received by Ray Realty:

1993: $42,832 1994: $290,270 1995: $296,794 1996: $356,910 1997: $392,972 1998: 408,053 1999: $434,409 $251,239

Kessler further testified that he prepared a chart of the base rents for the subleases, and in reviewing said leases, noted that they contained requirements that taxes be paid. Thus, one particular lease required a tax payment of $500 per month, and other leases required payment of 20% of the total tax bill per month. He obtained information regarding the tax bill from the website maintained by the New York City Department of Real Estate.

Regarding the sublease for J M Stores, Kessler calculated the base rents, plus real estate taxes during the period of 2001 through the end of April, 2008, at $1,223,850. The sublease for 1258 Fulton Street (Foot Locker) totaled $719,814.82, and those for 1260 Fulton Street (Mony) and 1264 (Jimmy Jazz) each totaled $678,648.25.

On cross examination, Kessler, when shown the Third Rider to the Ray Department Store lease, agreed that the expenses that were recorded on the tax returns for 1997-2000 were far greater than that $18,000 per month that Ray Department Store was to pay thereunder.

Kessler testified that he attempted to reconcile the tax returns with bank statements and checks, but because of the disarrayed condition of the records was unable to do so. He therefore relied on the tax returns because he lacked any other records to rely upon. He further stated that in reviewing the Ray Realty account, whose sole source of income was rentals and which was not to be commingled, it was found "in most situations" that the amounts deposited exceeded that which was reported on the tax returns.

Finally, testifying with regard to Saad, Kessler stated that in a situation where both the landlord and tenant corporations were owned by the same individual, a tax deduction as to one and an increase as to the other would result in a wash, and that it would not be inconsistent for Saad to take money from one pocket and transfer it to the other for the purpose of meeting his expense obligations. However, he agreed that Ray Realty was organized as an "1120 Corporation", and Ray Department Store was a "Subchapter S" corporation, and that in 1997, Ray Department Store was listed as paying $419,567, while in that same year, Ray Realty listed the gross rent at $392,972.

Following the conclusion of Kessler's testimony, plaintiff rested on the income aspect of the case, and indicated his intention to defend on the expense aspect.

DEFENDANTS' CASE

Clem Saad

Testifying that he was extremely familiar with the subject premises, Saad, as defendants' first witness, described the damage which resulted from the 1992 fire as having taken the single story building down, and gutted the inside of the three-story building, leaving Ray Department Store as the only tenant. He further testified that in 1993 and 1994, he filed preliminary construction plans with the New York City Department of Buildings, began looking for financing, and hired contractors. In this regard, he stated that CDJ, whose principal was Lou Alba (Alba), and GDM were the general contractors. In addition, defendants hired N C Iron Work and a plumbing contractor whose name Saad was unable to remember.

According to Saad, Alba supervised the demolition of the three-story building. He then supervised reconstruction of that building in 1996/1997, but not the final phase. Saad stated that he paid the contractors using checks from both Ray Realty and Ray Department Store, Inc. (Ray Bronx), the latter being a corporation owned by Saad, his father and his brother. In addition, certain funds were wired to Alba, at his request, while Saad was on vacation, and a cash payment was made to CDJ.

Saad further testified that although he maintained files documenting the reconstruction, he has since been unable to find them. He stated that monies were borrowed from Elidex Realty and through Ray Bronx. Said monies were transferred to an account at the Great Eastern Bank. Although he attempted to obtain those records from Great Eastern Bank, he testified that the microfilms were blank, and the records were thus unavailable.

In addition to erecting the buildings, Saad testified that installation of air conditioning, fireproofing, water and sewer, roofing, utilities and finishing were all required. Alba completed his part of the construction in 1997. However, according to Saad, problems persisted in furnishing electricity to the entire property, due to the death of the original electrical contractor, and the difficulty in obtaining a new contractor to complete the work, as well as in providing gas service through the use of separate meters for each tenant. The bankruptcy of Ray Fulton required the owners to subsidize the construction. Construction was completed in or around 2001, and subleasing commenced prior thereto.

Saad testified that the cost of reconstruction exceeded "the million-three that the accountant came up with."

During the course of Saad's testimony, evidence of certain brokerage commissions was admitted, including checks issued to Robert K. Futterman Associates, Store Finders, Inc, and Retail Strategies. Checks issued two separate law firms, namely, Lawrence Berger and Goldberg Weprin, who conducted tax certiorari proceedings, were admitted into evidence, as were checks, subject to striking, issued to Nathan Ferst, Esq.

Finally, checks that were issued to pay for insurance policies were introduced. Exhibit "AF" was issued to cover the cost of a general liability policy, where Lee was named as an additional insured. Exhibit "AG" was issued to cover the cost of an umbrella policy for Ray Realty Fulton Warehouse Depot, Elidex Trading Co., Inc., Elidex Realty, Inc. and Ray

Department Store, Inc., and admitted only insofar as it covered the property in which Lee was determined to hold an interest.

Theoharis

Subject to connection, the court permitted Theoharis to testify as to two items he located after reviewing the Elidex Realty file, namely, a certain mortgage document (introduced as defendant's exhibit AI for identification) relating to the payoff of a loan concerning Ray Bronx, with notations indicating that some of the proceeds that were received at the refinancing went to Ray Realty. Said items included one in the approximate amount of $238,000, and the other was in the stated amount of $1000.¹³

13 When questioned on voir dire, Theoharis stated that there was nothing in the document showing any money transferred from that mortgage to Ray Realty, and that the money went to Ray Bronx.

Another pair of entries, one in the amount of $100,924, and the other for $233,658, was noted by Theoharis to reflect a loan from Ray Realty to Elidex, based upon his review of Elidex's tax returns from 1997. Tax records from 1996 were either illegible or destroyed in a fire that occurred on Theoharis's premises. Nevertheless, he testified that the loan, in the total amount of $334,583, was, by error, omitted from Ray Realty's tax return.

At trial, upon plaintiff's objection, the court reserved decision on admitting said document into evidence. As subsequently testified to by Saad, said document is a consolidation of a mortgage through Atlantic Bank of New York, to enable the Saads to put up the building on Fulton Street. He indicated that because the Fulton Street property was encumbered in litigation, it was impossible to obtain a second mortgage thereon, thus necessitating a consolidation involving the mortgage on the Bronx property. In view of Saad's testimony, the objection is at this time overruled, and the exhibit is admitted into evidence.

On cross examination, Theoharis admitted that he was mistaken in having stated, several years ago, that the improvements to the property cost approximately $128,000. He further testified that he carried the mistake through the tax returns from 1996 to 2008, and did not remember ever having been told that the claimed cost of the improvements was $1.3 million. He further testified that some of the proceeds from the loan went to Ray Bronx, and that none of the monies went to Ray Realty; rather, he testified that "it looks like it went to Ray [Fulton]." He further clarified his earlier testimony, to the effect that the Ray Bronx, at the request of the Elidex people, received the check in the amount of $233,358 "and change", and when questioned about the Elidex tax return, testified that there was no indication that there was a loan to Ray Realty.

Saad (recall)

In further testifying regarding the use of the consolidated Atlantic Bank mortgage to finance the reconstruction of the Fulton Street property, Saad stated that part of the proceeds therefrom went to the benefit of Ray Realty, as could be shown by checks from Ray

Department Store, Inc. directly from the account where this money was transferred from Great Eastern, and one such check amounted to $233,558 "and change." However, the records from Great Eastern, although subpoenaed, were unavailable.

Saad testified that he was unable to locate a copy of the contract he had with Louis Alba.¹⁴ In connection with the provisions of a Preclusion Order of Judge David Schmidt dated September 15, 2005, he further testified that he assumed his accountant would maintain any records germane to the instant litigation.¹⁵

14 In response to a question regarding the prudence of keeping records concerning a property that he knew was subject to a claim of co-ownership, Saad stated that he felt protected by his title company's assurances, subsequently reneged upon, that his policy limits would be increased upon completion of the new structure.

15 The terms of the Preclusion Order required Ray Fulton and Ray Realty to produce: bank statements regarding two Chase bank accounts; backup documentary evidence of expenses which they claim against the income of the Property; cancelled checks evidencing payment for expenses or improvements claimed as an expense of the Property; statements of mortgage loans outstanding and any mortgage payments or other "bank fees" chargeable or claimed as an expense; invoices stating the services rendered and proof of payment for any brokerage fees claimed as an expense; and invoices stating services rendered and proof of payment of any legal fees claimed as an expense of the property. Specifically exempted from preclusion was the testimony, at trial, of any expert concerning the expenses of the Property.

Saad denied ever renting out any portion of the premises for use as a flea market, explaining that they were unable to control streetvendors' use of the shed which was erected in front of the building.

When shown a bill in the amount of $6000 from S C Management, Saad testified that said company in which he was a part owner; that the bill related to reopening a gas line that had been previously shut off, and waived the $6000 as an expense for which defendants sought reimbursement.

When shown an insurance bill in the amount of $14,240 made out to Ray Department Store, Inc. (Ray Bronx) and Elidex Realty, Saad testified that defendants maintained a single policy to cover both properties. He agreed that defendants only seek the amount of $2007.50, reflecting the actual expense attributable to Ray Fulton.

Saad further testified regarding Kay Waterproofing, the contractor which was supposed to install the roof on the new building on Fulton Street, but never started the job. He stated that defendants paid approximately $3500 on a job that was billed at $35,000, and is only requesting the lesser amount in the instant proceeding.

A bill in the amount of $324 was attributable to reading the water meter, and allocatable to the tenants. He further testified, with respect to approximately $225,000 agreed upon as the amount due on the mortgage, that defendants paid the mortgage as an expense before income, and that one-half of it was charged to Lee; i.e., "[t]he full amount paid was deducted from the total income. The balance was split between the Saads and Mr. Lee."¹⁶

16 As explained by defendants' counsel, "Obviously, we started to share the rents in November of 2004. . . .The income was not split. After the mortgage there was a balance that existed of $225,000, roughly. After that time, the proceeds of the building started to be used because we were splitting it, it would come out of the income, and the rest of [the] money was split after the partners. . .paid Keyspan. The accounting is up to that point in time. We recognize that as of November 1st, 2004, there was a $225,000 mortgage half which Mr. Lee assumed responsibility of at that time, and the payment of it, and I think that's what Mr. Saad is trying to say."

Saad testified as to the sheet from December of 2004, confirming that bank charges and taxes of $17,000 were deducted from the income before the income was disbursed 50/50. Thus, Banco Popular was paid before the balance was divided between Saad and Lee. As to said mortgage, Saad testified that although Banco Popular's documents set forth the 1993 consolidated mortgage in the amount of $1.3 million, the mortgage initially taken out by the Saads was in the amount of $1.1 million. When shown Ray Realty's 1993 tax return that stated gross rents in the amount of $42,832, and the 1993 tax return for Ray Department Store Fulton, Inc. which showed rents of $137,000, Saad explained the discrepancy by testifying that Ray Realty was only in existence for three or four months, that Ray Department Store had been there all year, and Ray Fulton paid rent to Adjmi.

When questioned regarding the 1994 returns, which showed a deduction of $258,000 for rent paid by Ray Department Store to Ray Realty, and $290,000 on Ray Realty's 1994 tax return, Saad testified that "we might have paid from Ray Department Store for other improvements and charged it to Ray Realty Fulton."

Louis Alba

Louis Alba testified that he is the owner and president of CDJ Builders Corp., a general contractor which performs interior, exterior and build-out work. Prior thereto, he was the owner of CDJ Corp., which did primarily subcontracting work, specializing in heavy construction, concrete masonry, and building extensions. Alba further testified that in 1996-1997, his firm demolished the existing buildings at 1250 Fulton Street and built up the shell of the new building. Discussing the demolition process, he testified that the multi-story structures had to be dismantled very carefully, "brick by brick".

Alba testified that because he had moved his office several times, as well as because of the amount of time which had elapsed since construction of the new building, he no longer possessed any of the records incident thereto. He did, however, testify that in 1996-1997, his company did the following: demolition; excavation of new footings and foundations; rebuilding of the foundation walls; concrete sidewalk; basement floor; concrete floor; passed and replaced the first floor; refurbished and waterproofed the sidewalk vault; performed the underpinning to the adjacent building; constructed the roof; and thoroughsealed the walls. Moreover, while the electrical, plumbing, HVAC were done by other companies, Alba testified that his firm also dealt with, and instructed, the subcontractors. He testified that he was paid approximately $500,000 to $600,000 for the work performed, and, upon questioning, stated that his portion of the work, which was essentially new construction on a pre-existing foundation, could not have been done for $300,000.¹⁷ He stated that the cost of construction work at that time was approximately 60% to 70% of what the same work would cost today.

17 Alba testified that the list of repairs (exhibit C) reflected the underpinning that his firm performed on the foundation.

On cross-examination, Alba testified that although he performed the work pursuant to a written contract, he was unable to located a copy, nor did he have in his possession any weekly or daily reports from his regular payroll, a list of his employees, a record of what he paid them, or how many hours they worked. In addition, Alba testified that although the Saads had the construction done "for a good price", he did not have any writing showing the actual final price which was agreed upon after negotiation.¹⁸ He was unable to recall whether he received checks from Ray Realty or Clem Saad.

18 When questioned by the court regarding a certain document (exhibit 57) prepared for a filed with the Department of Buildings which showed an estimated cost of $60,000, Alba testified that such "estimate" is not a true reflection of actual costs.

The "Ferst" Stipulation

Nathan Ferst, Esq. (Ferst), is the former attorney of record for the Saad defendants. By Notice of Motion dated February 4, 2008, Ferst sought a protective order quashing plaintiff's subpoena duces tecum served on January 23, 2008.

On May 9, 2008, counsel placed a stipulation on the record concerning eleven legal bills submitted by Ferst, and contained in Exhibit "AE". With the exception of one such item, dated June 30, 2004 in the amount of $6,586, which was removed as an expense, it was stipulated that if Ferst came into court and testified to the remaining ten bills, he would state that he was paid the full amount.¹⁹ Sam Rosenfarb

19 The aggregate amount of the 10 bills submitted totals $43,977.50.

Sam Rosenfarb, a CPA/forensic accountant and managing partner of Rosenfarb Winters, a forensic accounting firm, was qualified as an expert in the field of forensic accounting following plaintiff's stipulation.

Rosenfarb testified that he was asked to account for the net cash flow that would be due to or from Lee during the period of Ray Realty's ownership of the property from October 1993 until October of 2004, referred to in his report as the "interruption period". In order to make this determination and prepare his report, Rosenfarb reviewed tax returns, leases, agreements, and appraisal reports, as well as information on Web sites. He looked at information necessary to determine what the property would have generated in rental income and what the property would have incurred in rental expenses. After arguments and discussions held both on and off the record, tables from both Rosenfarb's Expert Report dated January 9, 2008, and his Expert Supplemental Report dated January 9, 2008, were admitted into evidence for demonstrative purposes only (Exhibits "AN" and "AO").²⁰ The equitable rent reduction

20 Rosenfarb indicated that in the initial report, he took into account the balance of the existing mortgage, assumed by Ray, on the date that Ray acquired the property from Adjmi. Noting that Adjmi increased the mortgage balance after acquiring the property from Oh and Lee, Rosenberg explained that the supplemental report did not take that increased mortgage into account. As stated by defendants' counsel, because of the court's findings that Lee's signature was forged by Oh, Lee can only be subject to said mortgage for whatever sums of money were used for improvements on the property.

Rosenfarb was called upon to determine the amount of rent which would have been collected had Ray Realty been aware of Lee's ownership interest. In order to do this, he testified that he needed to factor in the court order providing for an equitable rent reduction (defined by him as a fair reduction for space that could not be occupied that was rented pursuant to a lease) because the lease provided for rent for the first story, and the second story which would not be occupied because it was never constructed. Based upon his understanding that the second story would have been "an equitable size" to the first story, and that due to the diminished value of retail space that is not located on street level, he allocated a 25% credit to the second story, concluding on June 30, 2001, the date on which Ray Fulton vacated the property.

Rosenfarb further testified that he based his conclusion that from October 4, 1993 through the calendar year 2000, no rents other than those from Ray Department Store were collected, and it was his understanding that after the 1992 fire, all other tenants vacated until the property was rebuilt and re-rented. He based rents chargeable to the four tenants of the property (J M Stores, Jimmy Jazz, Foot Locker and Money Fashions) from 2001 to 2004 directly from the leases, accounting for periods during which, under the applicable provisions contained in the leases, rents would be forgiven. However, Rosenfarb expressly declined to consider the 1996 Lease Modification, since it was his understanding that this was a self-serving document created by Ray in order to obtain additional financing, financing which he did not consider in his calculation.²¹ Similarly, he did not take the 1999 Lease Modification, which reduced rents between Ray entities, into account.

21 Rosenfarb's stated reason for not considering the Lease Modification was "[b]ecause it was a lease that was entered into by Ray Realty among its own entities for purposes other than sharing rent, and in the same way I wouldn't have taken it into account if it caused reductions in rent from that provided under the lease that Messrs. Oh and Lee entered into. It would have been unreasonable."

The hypothetical mortgage

Rosenfarb used the term "hypothetical mortgage" as distinguished from the actual mortgage that existed on the property. He testified that he did not take the actual mortgage amount into account because Adjmi and Ray Realty increased the amount of the mortgage, which would create an unfair result to Lee. Similarly, he did not take into account the fact that Oh increased the amount of the mortgage without Lee's knowledge. Rather, he saw, as his purpose, to determine if the managers of the property were aware that Lee was a 50% owner, "how much fair rent, how much equitable rent, how much net cash flow would Mr. Lee actually have received as opposed to what actually happened at the property."

Rosenfarb testified from his "Hypothetical Mortgage Analysis as of October 4, 1993" (Defendants' Exhibit "AO [7A]"). Regarding the $600,000 mortgage dated February 27, 1986, Rosenfarb testified that $300,000 was applicable to Oh, and $300,000 was applicable to Lee. By August 18, 1988, when Oh forged Lee's name and increased that mortgage, he determined that the $600,000 mortgage had declined to $548,000, resulting in $274,000 applicable to each. In 1990, when Adjmi purchased the property and assumed the mortgage, the balance was then $907,000, of which $262,219 was applicable to Lee.

Under the assumption that from August of 1990 until October 4, 1993, no payments were made toward Lee's share of his initial $300,000 mortgage and the mortgage then increased at a rate of 10% (the rate of interest that the Ray defendants incurred on their mortgage), Rosenfarb determined that the mortgage would have increased to $361,000 because no monies were paid to satisfy it.²²

22 Rosenfarb explained that he reached this conclusion because the Ray defendants were not responsible for Adjmi's actions, and that up until the time they purchased the property, they had no interest in the mortgage payments or the rent. Therefore, a hypothetical mortgage of $361,000 was applied to Lee as if it were the balance when Ray Realty acquired the property.

With regard to testimony that at the time of the interruption period, a mortgage balance of approximately $225,000 remained on the actual mortgage, Rosenfarb testified that he took that balance into account, crediting one-half of said balance because that continued to be paid by the property.²³

23 The mortgage balance of $225,725 appears as the fourth item on the summary of what is due or from Lee on Rosenfarb's Supplemental Report.

Based upon the total amount of principal and interest that would have been paid on a $722,000 mortgage, the hypothetical amount of the mortgage that would have existed at the time Ray Realty acquired the property, Rosenfarb determined the total amount of the hypothetical mortgage to be $1,114,208.²⁴ Taxes

24 Rosenfarb testified that, as per the principal/interest allocation tables (Exhibit 7-B), the mortgage would have reached $0 sometime in 2003. He further indicated that the utilized interest rate of Prime plus 2 was the rate Ray Realty was paying during the relevant period.

Rosenfarb's determination of $565,758 for real estate taxes for the interruption period, was undisputed by plaintiff.

Insurance

Rosenfarb noted that he reviewed two different appraisal reports. One expert suggested that insurance premiums should be $10,000; the other opined that the amount should be $5000. Rosenfarb used $6,000 annually, or $66,500 total, as an estimate.

Professional fees

Rosenfarb testified that in his report, he separated legal fees from other professional fees, which term he assumed to refer to accounting fees. He testified that he used $2000 per year, reduced by the inflation rate and increased by the inflation rate from the year 2000, the year the appraisers used, to reach that figure.

Repairs and Maintenance

Rosenfarb testified that the court-appointed appraiser estimated the cost of repairs and maintenance at $6000 annually during 2003, and his firm reduced that figure for the rate of inflation at 3% annually.

Management fee

Rosenfarb testified that he used two methods to determine the management fee assessed to the property. He spoke to a number of management companies in the area of the building, and learned that the rate ranged from about six to eight percent of the rent. However, he ended up using the rate of 5%, as per Judge Schmidt's order, and computed a net cash flow during the interruption period of $722,000.

Construction costs

Rosenfarb testified that after obtaining information from CDC Corp. concerning how much the estimated cost of reconstruction would have been for the given year, he discounted back to 1996 dollars, since CDC's documents identified the costs to construct in 2006 dollars, which is significantly greater than the 1996, 1997, and 2001, the years in which construction took place. Thus, using figures found in the US Bureau of Labor Web site, Rosenfarb reduced the $1.8 million in construction costs to approximately $1.370 at the time such costs actually were incurred. Following his determinations, Rosenfarb made a 50% reduction in the cash flow and construction costs to reflect Lee's interest. Rental commissions

Testifying that he had already accounted for rental commissions that were paid to third parties in calculating the $722,000 net cash flow, Rosenfarb, based on his understanding that Ray Realty obtained the lease with J M Stores on its own, determined that 3.5%, or $67,962 was applicable to Ray Realty's performance in procuring that tenant²⁵. Thus, the amount owed by Lee as rental commissions was determined to be $33,981.

25 Referring to Exhibit 10, Rosenfarb testified that the rate of 3.5% was derived by determining the rate that was paid to third party brokers. Those that originated Jimmy Jazz and Mony received a 3.46% commission. The broker who originated Foot Locker received a 3.72% commission.

Interest

Rosenfarb applied the statutory interest rate of 9%, thus giving Lee 9% on the net cash flow, and charging him 9% on the rental commissions.

Analysis of Exhibit 56

Rosenfarb disputed some of the information relied upon by Kessler concerning the four subleases, as revealed by Exhibit 56. He stated that with regard to Mony and Jimmy Jazz, the 2002 rents are different there than the rents which he calculated for that year, to the extent that he arrived at a figure of $93,124, while Exhibit 56 indicates the total rent for said period as $100,624. He describes that document, in his professional opinion, as a description of the rental amounts pursuant to the leases, as opposed to an accounting, since it does not take into account the rents that were actually collected, the expenses, which would include real estate taxes, insurance, professional fees, and management fees.

Rosenfarb's conclusion

As a result of Lee's having not shared in the rental income, ²⁶ not having paid for the reconstruction and assuming the mortgage balance on October 31, 2004, Rosenfarb determined that Lee benefited by the amount of $862,232.

26 For the purposes of his reports, Rosenfarb assumed that 100% of the rents were collectible and collected. He further used the fair market rent as per the court-appointed appraiser in determining Ray Realty's occupancy of the premises after October 31, 1999 (the expiration of the third rider to the lease) and the period of time wen the subtenant took possession of the property pursuant to the subleases in 2001, and there was no lease.

On cross examination, when asked if he took into consideration, in determining construction costs, the 1996 balance sheet concerning Ray Realty, or the tax return reflecting payment of approximately $128,000, Rosenfarb stated that he took into account that figure, as well as (1) the fact that Adjmi received a significant contribution from his insurance company as payment for fire destruction, and (2) that, as a result of the improvements, J M Stores leased the property at a rate of $200,000 annually, thus leading him to determine that the fair amount of construction costs necessary to generate that amount of income had to have exceeded $150,000. However, he agreed that neither bills nor checks as evidence of payment, which he claimed to have seen, were part of his report. He further testified that the checks amounted to a few hundred thousand dollars, and that while he was unable to recall which bills he saw, the bills that he saw did not support the actual reconstruction of the property based upon the pre-and post-construction photographs he saw. In addition, he testified that he did not know whether the construction figures were accurate, and that he relied on his interview with Alba to prepare his report. He also agreed that his report relied on an older report, similar in form, prepared by Chris Dem Interiors to provide the cost of construction, and that the construction costs in the present report exceeded those in the Chris Dem report by $335,000.²⁷

27 The Chris Dem Report was introduced into evidence as Plaintiff's 60.

When questioned regarding the existence of evidence of billing for accounting fees of $600 in 2005, and $650 in 2006, and whether such evidence would have allowed them be considered for previous years, Rosenfarb testified that he based his reasonable estimate on his experience as an accountant and on the appraiser who determined that $2000 was a reasonable amount. He stated that speaking with the accountant would have been irrelevant to his calculation, and further testified that upon looking at the tax return, he determined that the amounts charged for accounting services were not indicative of a fair rate.²⁸

28 In his testimony, Rosenfarb suggested that Saad may have allocated the fees among various companies in varying amounts.

Rosenfarb reiterated, upon being questioned, that although a broker was not used in connection with J M Stores' lease, he calculated the amount of the fee as if it were to have been paid.²⁹

29 Plaintiff's motion to strike the testimony of Rosenberg, based upon the fact that no brokerage fee was paid and that the person claiming the commission is not a [licenced] real estate broker, upon which decision was reserved, is at this time denied.

Rosenfarb, on cross-examination, admitted that he although there was evidence that in August of 1991, Adjmi refinanced the mortgage from $878,984.69 to $1.150 million, he did not figure that into his calculations of Lee's share, nor did he do so when the mortgage reached $2.150 million.

As to management fees, Rosenfarb agreed that during the period of time when Ray Fulton was the only tenant, the payment and receipt of management fees was between two Saad entities. He reiterated that he based his calculations on an accounting of the rent that was applicable, not received. With respect to the Venator sublease, Rosenfarb testified that he was aware of the latter's payment of $50,000 for "key money," but did not include it as part of the rental income. He further stated that he did not take into consideration the amounts of $7500 that represented the forgiveness of one month's rent for each of two tenants for whom the was a delay in gas service, thus totaling $15,000.

Upon further questioning, Rosenfarb testified that he did not factor two lease modifications into his calculations. He further testified that the actual payments and the hypothetical mortgage differ in that the actual payments were much greater, and he took into account only the lesser amount. Thus, he explained the amount of $524,437, as it appears in his Hypothetical Mortgage Analysis as of October 4, 1993 (exhibit "AO[7A, fn C]") is the calculation of what Oh and Lee's share would have been on the hypothetical mortgage, with Lee's share being one-half of said amount ($262,219). He further testified that he did not account for any period of time prior to 1993.

Egbert Baptiste

Egbert Baptise, owner of Rem and Sons Licensed Electrical Contractor's Corp., testified that he has been a licenced electrician in New York City for approximately 15 years. Beginning in 1999 into 2000, he was hired by Saad to bring electrical service from the street into 1250-1264 Fulton Street. He testified that there was a problem in doing so, caused by the fact that one end of the property already had service, in the form of a single property line.

Ayash Sabbag

Ayash Sabbag testified that in 1992, he was a tenant at 1250 Fulton Street as Jazzy Discount and Beauty Supply, but that his tenancy was terminated immediately after the fire destroyed the premises. He was never served with a termination notice.

DETERMINATION OF ISSUES RAISED

Pursuant to Lee's representation that he has no opposition to dismissal of any and all causes of action against the Saads, as individuals, the court grants said motion, and all findings herein shall relate solely to Lee and the corporate defendants.

The general rule is that on an accounting, the burden of proof in justifying the charges and showing that one has derived no unfair advantage is on the accounting party ( Vlinis Constr. Co. v Roreck, 30 AD2d 668). In view thereof, and taking into consideration the foregoing testimony and prior rulings, as well as the credibility of the witnesses who testified at trial, the court renders the following determinations of the respective claims of each party:³⁰

30 In view of the testimony at trial, the court (1) denies, as moot, defendants' motion for a Protective Order vacating and quashing a subpoena duces tecum dated January 23, 2008 that was served upon the Chicago Title Insurance Company; and Nathan Ferst, Esq.; (2) denies, as moot, plaintiff's cross motion to compel Chicago Title Insurance Company to produce certain documents, or in the alternative, preclude testimony relating thereto; and (3) denies, as moot, plaintiff's amended cross motion in limine for a protective order from those portions of a trial subpoena duces tecum requiring production of certain bank records, tax returns and witness statements.

RENTAL VALUE OF THE PROPERTY

Since it is undisputed that the Saads have paid to Lee, in each and every month since November 1, 2004, half the rent less half the expenses, the relevant time period, co-extensive with the "interruption period", commenced on October 3, 1993 (when Ray Realty acquired its interest) and concluded on October 31, 2004.

From October 4, 1993 through the end of 2000, Ray Realty operated the property by itself as its sole business. Ray Realty presented testimony, and takes the position, that Lee, as co-owner, should be limited to the Ray Department Store Lease Amounts and not the reported gross income listed on each year's tax returns filed by Ray Realty and introduced, as demonstrative evidence, through Kessler.

The lease, which by its own provisions terminated on October 31, 1999, required Ray Department Store to pay the following amounts as rent:

October 3, 1993: 1994: $33,000.00 1995: $132,000.00 1996: $144,000.00 1997: $144,000.00 1998: $162,000.00 1999: $162,000.00 $135,000.00 (pro rated as ending on October 31, 1999).

However, it is undisputed that Ray Department Store did not occupy the entire property, and, although the Ray defendants argue that (1) it is inequitable for the court to impute a fair market rent for the entire property in accordance with the Wilrock Appraisal or charge assessed rents as reflected in Ray Realty's tax returns, and (2) the 1996 and 1999 Lease Modifications must be set aside, the court must reject defendants' position that the lease amounts should govern the amount of rentals plaintiff is entitled to receive. Although the record reveals there is a significant difference between the rents purportedly paid by Ray Department Store and those claimed by Ray Realty, defendants' claim that Lee is not entitled to a share of Ray Realty's reported gross rents is undermined by Saad's inability to identify, without speculation, the source of the additional rents stated on the returns. Indeed, while New York courts have historically demonstrated a reluctance to consider the contents of tax returns as an admission ( see In re Casey's Estate, 14 AD2d 135 ["[a]lthough the statement in the tax return may possibly have some value as an admission against interest, depending on the weight which the trier of fact might attach to it, we are of opinion that standing alone it would not be sufficient to entitle claimant to a decree in the light of the issues raised, if this were the only proof in the case"]), their value and admissibility as probative evidence on contested issues has been recognized ( see Heffron v Chu, 144 AD2d 729, 730 ["(a)lthough it was not a binding admission on petitioner's part (since he did not sign or authorize the making of the return), it was probative hearsay evidence of facts relevant to the ultimate issue in dispute"]; see also Acme American Repairs, Inc. v Uretsky , 39 AD3d 675, 677). However, in the instant matter, even if the lease amounts proposed by defendant must be rejected, the court is not convinced that relying on the amounts stated on Ray Realty's tax returns would achieve an equitable result.

To be sure, in taking into account the legal effect of the two lease modifications that were executed by Ray Realty and Ray Department store, the court cannot disregard Rosenfarb s testimony that he declined to consider the 1996 Lease Modification, which modified the rent to a higher amount, since he testified that it was his understanding that this was a self-serving document created by Ray Realty in order to obtain additional financing.³¹ Moreover, the court, in reaching its determination on the fair rental, must disregard the 1999 Lease Modification, which both parties agree is invalid. Notwithstanding the existence of any such agreement, voiding the non-market terms of said Lease Modification is warranted because it was entered into (1) at a time when both parties had knowledge that Ray Department Store Fulton had filed a bankruptcy petition that was still pending, rendering its lease subject to termination by the landlord and entitling the landlord to liquidated damages pursuant to paragraph 16 (b) of the lease, and (2) subsequent to Justice Douglas's January 14, 1999 decision where he determined that Lee is, and has been, an owner of the premises since August 9, 1984.

31 As represented by plaintiff in his Post Trial Reply Brief, the parties agree that the 1999 Lease Modification is invalid.

Defendants do not dispute plaintiff's assertion that they never notified him of the bankruptcy or of the 1999 lease modification. Moreover, although defendants maintain that the expenses claimed during the post-fire years undermine any claim that Ray Realty continued to optimize the rental value of the property and compel the court to look beyond the numbers as stated on the tax returns, they rely on the expenses claimed in the returns filed by Ray Realty to support this assertion, and, as pointed out by Kessler, "if we're not going to rely on the gross rent reported on the tax returns, should we be relying [on] the expenses report on the tax returns?" Finally, the court finds persuasive Kessler's amply supported testimony that he was unable to conduct an audit because "the records were in such a state of disrepair."

In light of the foregoing testimony, the court will apply the results reached by Wilrock, the court-appointed appraiser, as provided in its Appraisal Report, and Block's testimony, which was not controverted by any other expert. Thus, based upon the following, the court determines $2,820,830 as the total fair market rental value of the property for the relevant years:

1993: $28/sq. foot $58,330³² 1994: $30/sq. foot $375,000 1995: $30/sq. foot $375,000 1996: $31/sq. foot $387,500 1997: $32/sq. foot $400,000 1998: $32/sq. foot $400,000 1999: $33/sq. foot $412,500 2000: $33/sq. foot $412,500 $2,820,830

32 October 4, 1993 to end of calendar year.

Rental Values for 2001-2004 For the years 2001 up to and until 2004 (10 months for the year 2004), the experts for both Lee and Ray Realty, and the parties themselves, essentially agree that the best evidence for rental value is the agreed rental amounts in the 2001 leases. The areas of dispute, and the court's resolution thereof, are as follows:

Venator (Footlocker "key money")

Paragraph 38(A) of the sublease executed between Clem Saad and Venator in August of 2001 provides, apart from the specified base rents, for the payment of $50,000 in "key money". Defendants' unsupported explanation that "the Venator Group (Footlocker) Lease contained sums paid for inventory and items unrelated to the Lease. . . .This accounting was disclosed more than two years ago . . . yet Lee never challenged this fact" is insufficient to defeat plaintiff's contention that Rosenfarb did not include this number and that Lee is still owed his share as indicated in the sublease.

Jimmy Jazz and Mony Fashions prepaid rent

Plaintiff identifies $15,000 prepaid rent for 2001, and $7500, as the rent for March 2002 payable at the signing of the agreements in 2001 for two subtentants Jimmy Jazz (1260 Fulton) and Mony Fashions (1264 Fulton), as not included by Rosefarb in his 2001 number. Instead, as claimed by plaintiff, Rosenfarb included the $15,000 prepaid rent for both tenants in 2002, and claimed, solely on Clem Saad's testimony, that the two tenants were forgiven an additional month's rent of $7500 each. In his proposed revisions to Rosenfarb's tables, plaintiff (1) simply strikes the $15,000 from the Base Rent column for 2002, and amends that for 2001 by including said amount therein, and (2) separately adds the amount of $7500³³ (base rent for March 2002 that was due at the signing of the agreement). Defendants' explanation that the $7500 which remains at issue regarding each of the leases was an accommodation made to each of the subtenants in consideration for a lack of services, that this information was previously disclosed to plaintiff, and never challenged, is unavailing. Clearly, Lee has, at trial, contested this unsupported assertion, and the court thus finds that Lee has demonstrated entitlement to the total of $15,000, as claimed.

33 Plaintiff's inked-in revision to the Jimmy Jazz tables shows said base rent due upon signing in the amount of $7000. Clearly, based upon the documentary support and the arguments set forth, this number is erroneous, and the court will disregard it in its analysis.

J M Stores prepaid rent

In response to Lee's contention that Rosenfarb failed to include the $29,000 prepaid rent from J M Stores (1250-1254 Fulton Street), defendants' conclusory statement that "[t]he $29,000 prepaid rent under the J M Stores Lease which is to be credited in the last two (2) months of the Lease" [sic], fails to rebut plaintiff's assertion that Rosenfarb's tables for 2001 fail to credit plaintiff fully with that to which he is entitled.

Thus, the court finds that plaintiff has met his burden regarding the rental values for the property for the years 2001 through November of 2004, and sets said rental values as follows:

2001: $369,234 2002: $438,535 2003: $504,161 2004: $431,167

Rental value, November 2004-2008

Plaintiff agrees that from November 2004 through 2008, the actual monthly rent payments are further evidence of the rental value and are shown by the monthly statements provided by Ray Realty to Lee, and does not dispute the rental amounts credited to Lee during this period.

Thus, prior to considering any equitable reduction, the court determines that the trial evidence warrants a finding that the rental value of the premises is as follows for the stated time periods, exclusive of simple interest of 9% to January 31, 2008:

Year Gross Rents from Block appraisal report 50% Lee Share 1993 (October 1 to end of calendar year) $58,330.00 $29,165.00 1994 $375,000.00 $187,500.00 1995 $375,000.00 $187,500.00 1996 $387,500.00 $193,750.00 1997 $400,000.00 $200,000.00 1998 $400,000.00 $200,000.00 1999 $412,500.00 $206,250.00 2000 $412,500.00 $206,250.00 Gross Rents from Leases including Tax Payments 2001 $369,234.00³⁴ $184,617.00 2002 $438,535.00 $219,267.50 2003 $504,161.00 $252,080.50 2004 $431,166.00 (up to November, 2004) $215,583.00 Totals $4,563,926.00 $2,281,963.00

34 $245,484 (sublease amounts) plus $123,750 (holdover rent for tenant Ray Department Store Fulton, Inc.) from January 1, 2001 to June 30, 2001 at the appraised value of $33/sq. ft.)

The equitable reduction

The Third Rider to the 1984 Lease between Oh and Ray Department Store, covering 1258-1264 Fulton Street, states that:

1. Tenant shall, at its own cost and expense, construct (build) a second story to the premises. . . .

5. Tenant shall be entitled to exclusive use of the second story without paying additional rent until the expiration of the current lease on 10/31/94. 6. Tenant is hereby given the option to renew the lease for the entire premises (including 2nd story) for an additional five years, at the annual rent of $192,000.00 per year for the first two (2) years of the new lease and a subsequent annual rent of $216,000.00 per year for the last three (3) years of the new lease.

As previously stated, on May 20, 2005, Justice Schmidt, in recognition of the defendants' inability to construct a second floor, issued an order stating that "Ray Department Store is entitled to an equitable reduction in rent from November 1, 1994 to October 31, 1999 because it did not occupy the second floor in accordance with the Rider to the original Lease. Lee's implied assertion that this court is empowered to revisit the issue is rejected. "The doctrine of the law of the case seeks to prevent relitigation of issues of law that have already been determined at an earlier stage of the proceeding. The doctrine applies only to legal determinations that were necessarily resolved on the merits in a prior decision. The doctrine may be ignored in extraordinary circumstances such as a change in law or a showing of new evidence" ( Brownrigg v New York City Housing Authority, 29 AD3d 721, 722 [citations omitted]). Here, plaintiff, while arguing that the Saad defendants knew in 1987, when executing the Third Rider, that construction of second story was unfeasible and have failed to provide evidence to substantiate their claim of entitlement to a rent reduction, has identified no such special circumstances. Consequently, the court will not revisit the underlying circumstances which led Justice Schmidt to order, on May 20, 2005, an equitable reduction in the rent owed to Ray Department Store Fulton.

The only testimony at trial on the amount of the equitable rent reduction was that of Rosenfarb, who, after assigning a 25% reduction in value for the second story space, and utilizing, as base amounts, both the rentals specified in original lease and holdover rent estimated in accordance with the Wilrock appraisal, computed, at a 75% rate and as set forth in Exhibit "AO[3]", the following rental values of the leased premises for the relevant fiscal years:

(A) Fiscal year ending October 31 (B) Annual Rental as per Rider (C) Amount of equitable reduction (25% of [B]) (D) Total Reduced rental ended October 31 1995 $192,000 $48,000 $144,000 1996 $192,000 $48,000 $144,000 1997 $216,000 $54,000 $162,000 1998 $216,000 $54,000 $162,000 1999 $176,250³⁵ $14,250 $162,000 2000 $247,500³⁶ — 2001 $247,500 —

35 10 months @ $162,000 per year, 2 months holdover rent @ $247,500 per year.

36 Holdover rent estimated at $247,500 (7500 sq. ft. x $33 per sq. ft.) as per Wilrock appraisal.

Ray Department Store Fulton thus argues that it is entitled to a total credit from Lee in the amount of $218,250.00.

However, as persuasively pointed out by Lee, although owner Ray Realty admittedly received gross rental income from Ray Fulton, the latter is only requesting an equitable reduction from Lee, and not from Ray Realty, who was the landlord at the time of the relevant dates and assumed all of the obligations imposed by the prior lease ( see Bank of New York, Albany v Hirschfeld, 37 NY2d 501). Such a result would not be inconsistent with the language of Justice Schmidt's order. Moreover, imposing the entire burden of a rent reduction solely on Lee, a 50% owner with Ray Realty, would create an inequitable result. Accordingly, the court finds that Lee is liable for 50% of said reduction, or $109,125.Plaintiff is thus entitled to receive the total amount of $2,172,838.00 for rentals.

EXPENSES

As previously noted, the Appellate Division affirmed Justice Schmidt's determination that (1) Lee failed to establish that an ouster had occurred; and (2) there was a triable issue of fact concerning Ray Realty's unjust enrichment cause of action related to the amount of expenses, the cost of improvements which Lee was responsible for concerning the property he co-owned with Ray Realty, and the extinguishment of Lee's bonded indebtedness ( Lee v Adjmi 936 Realty Associates , 34 AD3d 646 , 647). Ray Realty, which has had exclusive possession of the property from October 1993 to the present, seeks reimbursement for expenses of the property from 1993 until November of 2004, the time when Lee agrees that he began receiving his share of net rental income.

As stated by the Appellate Division in Worthing v Cossar ( 93 AD2d 515. 518 [1983]),

"[g]enerally, a tenant in common may be allowed reimbursement for money expended in repairing and improving the property if the repairs and improvements were made in good faith and were necessary to protect or preserve the property ( see Satterlee v Kobbe, 173 NY 91

; Cosgriff v Foss, 152 NY 104; Ford v Knapp, 102 NY 135; Vlcek v Vlcek, 42 AD2d 308). However, [t]he mere fact that the defendant . . . has made improvements or repairs upon the property does not in itself necessarily give a right to an equitable allowance' ( Bailey v Mormino, 6 AD2d 993). There must be proof of the circumstances and need for the restoration work ( see Johnson v Depew, 33 AD2d 645)."

Here, the burden is on defendants to establish that the challenged expenses were necessary to protect and preserve the premises ( see Degliuomini v Degliuomini , 45 AD3d 626 , 628).

On September 15, 2005, Justice Schmidt issued a "45-day" order precluding the Ray defendants from offering evidence at trial any offset to income of the property for which they failed, during the discovery process, to produce back-up documentation . . By the same order, the Ray defendants were not precluded from offering expert testimony regarding the expenses of the property. Aside from the undisputed fact that the preclusion provisions of said order have been triggered by defendants' failure to produce any such documentation, the record is replete with admissions that the pertinent records could not be located, or, in the case of Great Eastern Bank, that the microfilm was blank. However, certain documents which did not fall within the ambit of Justice Schmidt's preclusion order were admitted into evidence, and defendants' witnesses testified as to their knowledge of the costs of the various disputed items. Nevertheless, there remains a gap between that which defendants claim is owed to them, and that which is supported by the documentary evidence.

In this regard, it is well-settled law in New York that "[p]roof of damages may be based solely on oral testimony as long as the witness has knowledge of the actual costs" ( Electronic Servs. Intl v Silvers, 284 AD2d 367, 368; see also W.M.S. Builders, Inc. v Newburgh Steel Products, Inc., 289 AD2d 567). However, the law is equally clear that the trier of fact is not bound to accept such testimony on its face( see D'Angelo v State, 39 NY2d 781, 782-783 [ "(i)t may well be imprudent and hazardous for the claimant not to maintain detailed business records. He runs the substantial risk that his oral testimony may be disbelieved to a lesser or greater extent and that accordingly his claim may be disallowed in whole or in part for insufficiency of proof. Most claimants would seek to avoid such risks. But to the extent that oral testimony is credited by the trier of the facts in the absence of business records, and the claim is thus allowed, we know of no predicate on which the State can base a claim of insufficiency as a matter of law"]; see also Aniero Concrete Co., Inc. v New York City Const. Authority, 308 FSupp2d 164, 188[SDNY 2003] [ Aniero II]; Aniero Concrete Co., Inc. v New York City Const. Authority, 2003 WL 21018842 [SDNY 2003] (" Aniero I]) ; Danka Office Imaging Company v General Business Supply, 303 AD2d 883, 885; but see Blaise v Blaise, 241 AD2d 680, 682 ["a court need not accept a party's account of his or her finances when that account is not believable"]).

Construction

The parties are sharply divided in their contentions surrounding the construction expenses for the rebuilding of the property from 1996, 1997 and 2001. Defendants claim that a total of $1,370,000 was spent for construction. Without furnishing specifics, Saad testified that money to fund the construction was borrowed from Elidex Realty and through Ray Department Store Inc. (Ray Bronx), and that Ray Fulton's bankruptcy in 1998 created additional hardship and the need for additional subsidies from the Saads. Theoharis, Ray Realty's accountant, testified that "if all the accounting is done properly, it should ultimately be reflected on the tax return that the improvements are made for", and that the amount for improvements indicated on Ray Realty's 1996 tax returns was the "mistaken" figure of $128,290.00, ³⁷ which was carried forward each year. Defendants, through the introduction of evidence in the form of checks totaling $205,000³⁸, the wire transfer instruction ($15,000), and a memorandum of cash payment ($20,000), have credibly demonstrated construction-related payments made in the total amount $240,000.00. Saad himself testified that these payments were made for the purpose of construction, and indeed, Theoharis's testimony that he would have relied on the checks written by Ray Realty in forming his schedule A calculation, lends support to this showing.

37 Theoharis included a 1996 payment of $8,290.00 to Bricolage Designs, as reflected on the 1996 balance sheet.

38 The following numbered checks, all issued in 1996, were admitted into evidence: 1116 (payable to CDJ [$30,000]); 1117 (payable to CDJ [$70,000]; 1007 (payable to CDJ [$30,000]); 1005 (payable to N C Iron Works [$20,000]; 1006 [payable to CDJ [$25,000]; and 1213 [$30,000]).

Of critical importance to the defendants' claim is the testimony of Louis Alba, who, professing to have lost the pertinent records, testified from both his recollection, as well as from a document, admitted into evidence, containing estimated cost breakdowns for the various components of the construction project (defendants' Exhibit "P").

Although the governing law in New York does not include a per se rule requiring documentary proof to support a claim for reimbursement of expenses, a core question for the court is whether this sort of testimony, given by this witness, is (a) credible and (b) if credible, of sufficient probative weight to sustain defendant's burden of proof with respect to the actual job costs for which it seeks to hold plaintiff responsible ( see Aniero I, 2003 WL 21018842; see also Ardex Cosmetics of America v Logotech, Inc., 2002 WL 169393 [US Dist Ct, ND NY], citing Najjar Industries, Inc. v City of New York, 87 AD2d 329, 332, aff'd 68 NY2d 943); Wakeman v The Wheeler Wilson Manufacturing Co, 101 NY 205, 209 ["(t) be recoverable, damages must be not merely speculative or possible and imaginary, but they must be reasonably certain"]). The applicable criteria includes the witness's interest in the outcome; whether the witness's stated powers of recollection appear to be candid or suspiciously selective; whether his testimony is corroborated or contradicted by independent evidence in the record, testimonial or documentary; and whether what the witness says is inherently plausible or implausible ( Aniero I, 2003 WL 21018842). By this standard, although Alba's testimony that the construction work was done in his presence lends support to defendants' contention that his testimony is competent to establish costs ( see Austin v Barber, 227 AD2d 826, 828; Reed Paving, Inc. v Glen Avenue Builders. Inc., 148 AD2d 934, 935), the vagueness of his recollection on the key issue of what he received as payment ["I think the value of my work, I think we got paid about probably five, six hundred thousand dollars for our work"], coupled with his admissions that at the time, he kept no employee, payroll or hours-worked records ( see W.M.S. Builders, Inc., 289 AD2d at 567), fails to support defendants' contention that Alba's testimony establishes that the Saads spent in excess of $1.3 million dollars on construction costs.

Moreover, defendants' reliance on Alba's written estimate to establish construction expenses is unavailing. At trial, Alba testified regarding Exhibit "P", which showed a total estimated expenditure of $1,802,576. However, he further testified, when questioned by plaintiff's counsel on voir dire, that said document (1) was prepared within the past year for the present litigation, (2) contained cost estimates as of today's market value, (3) was not based on any payment that he actually received, and (4) was not based on bills that he actually paid. In addition, Alba, who was unable to produce a written contract, testified that while his firm did all the heavy construction work, including site demolition, roofing, masonry and structural work, the rest of the work was done by subcontractors with whom Saad dealt directly testimony which directly contradicts defendants' assertions that he supervised their work and he was unable to testify as to costs related to said work . . Indeed, this testimony is consistent with Saad's as previously noted, Saad testified that Alba supervised the demolition of the three-story building by a subcontractor, and supervised the rebuilding of the structure during the periods of 1996 and 1997. However, according to Saad, Alba did not supervise the final phases. Thus, while the court permitted the introduction of this document into evidence, the record establishes that it is no more reliable than Alba's speculative testimony, and is thus devoid of probative value ( see Najjar Industries, Inc., 87 AD2d at 332 ["(i)t is well established that . . . estimates made by the contractor to compute a bid price are not a valid basis for computing recovery [because] such . . . estimates are computations of a subjective nature by the bidder. . . .'"] [citations omitted]).

Finally, the court must reject defendants' argument that the 1997 Elidex tax return supports a finding that loans were made to Ray Realty. Said document does not indicate any loan under the Asset section made to Ray Realty, Ray Fulton, or Ray Bronx, and is silent on any loan made to Ray Realty for construction. Moreover, the 1997 tax return does not contain any opening balance of $334,583. As pointed out by plaintiff, that figure is the total of two line items that appear in the Atlantic Bank Mortgage Closing Statement for the Bronx property dated December 13, 1996 (exhibit "AI") that bear Theoharis' hand-written notations "Ray Realty". Theoharis, who testified about interest from a loan from Ray Realty to Elidex being represented on the 1997 tax return, also admitted that exhibit "AI" contains no indication that any money was transferred from that mortgage to Ray Fulton.

Moreover, the amount of interest that is shown as paid on loans on line 9 of Elidex's 1997 tax return is $304,435. However, as demonstrated by exhibit "AI", Elidex had other loans outstanding from which they must have paid interest. Thus, the 1997 tax return, which contains no indication of a loan in the amount of $334,538.00, fails to substantiate any testimony that Elidex made any loan to Ray Realty in the amount of $334,538.00.³⁹

39 Plaintiff's continuing motion to preclude exhibits "AI" and "AJ", as well as Saad's testimony regarding same, are denied. While plaintiff argues that he was provided with said documents for the first time at trial, they were produced as part of the expert testimony which was specifically exempted from preclusion by the terms of the order. Plaintiff fails to articulate any non-conclusory basis for precluding Saad's testimony.

Accordingly, the court finds that defendants have shown construction-related expenses have been paid in the amount of $240,000, thus requiring plaintiff to make reimbursement in the amount of $120,000, plus interest at the rate of 9% from 1996.

PAYMENTS ON THE MORTGAGE

In accordance with the Appellate Division's order dated November 21, 2006, the court determines Lee's obligation on the mortgage:

According to defendants, the mortgages encumbering the property had a balance of $907,000.00 at the time Adjmi purchased the property on August 24, 1990. Ray Realty claims that it seeks only to hold Lee responsible for his portion of the debt ($262,000) from the 1986 Korean Commercial Bank mortgage, which Lee signed, and argue that "it would be illogical for Adjmi to have paid Lee's share of that mortgage debt." Thus, relying on Rosenfarb's "Hypothetical Mortgage Analysis as of October 4, 1993" contained in his Supplemental Report (Exhibit "AO[7A]"), it is further argued that when Ray Realty purchased its interest and the interruption period began on October 4, 1993, Lee's share of the mortgage debt would have been 50% of a total of $722,252.00, or $361,126.00. Based upon Lee's acknowledgment that he executed and received the benefit of the 1986 mortgage, defendants, noting that a mortgage balance of $235,725 existed on October 31, 2004, submit that Lee has already received a credit applicable thereto in the amount of $112,500 because his share of the rent was used to pay his half of the mortgage. Citing the order of the Appellate Division directing that Lee is responsible for half the payments relating to the $600,000 bonded indebtedness, defendants adopt, as proper, Rosefarb's calculations for Interest on Net Cash Flow (Projected) (Exhibit "AO [2]") and Net Cash Flow-October 4, 1993 to October 31, 2004 (Exhibit "AO [2A]").

However, to prevail on a claim for unjust enrichment, a party must prove that it conferred a benefit upon another, and that such benefit will be obtained without payment of adequate compensation ( see Nakamura v Fujii, 253 AD2d 387; see also Tarrytown House Condominiums v Hainje, 161 AD2d 310, 313 [a cause of action for unjust enrichment is stated where "plaintiffs have properly asserted that a benefit was bestowed . . . by plaintiffs and that defendants will obtain such benefit without adequately compensating plaintiffs therefor"]). Moreover, for a party to recover for unjust enrichment, that party must have been the one who bestowed the unjust enrichment on the party allegedly unjustly enriched ( see Aymes v Gateway Demolition Inc. , 30 AD3d 196 , 197). By this standard, Ray Realty has failed to meet its burden of showing that plaintiff was unjustly enriched solely at its expense in the amount claimed, and plaintiff correctly asserts that Ray Realty, in relying on Rosenfarb's calculations, overcharged him $199,075 for paying off the hypothetical mortgage, as well as the additional amount of $167,709 interest thereon.

Ray Realty, through Rosenfarb, properly accorded Lee a credit of $112,863 for principal and interest Lee actually paid on the mortgage, since Lee was already being charged principal and interest to pay off the hypothetical mortgage. However, Lee was never credited with any interest on those funds actually paid, although he was charged interest on the amount he owed Ray Realty on the hypothetical mortgage and, as shown in Exhibit 6 of plaintiff's post-trial brief (mortgage receivable [November 2004 through March 2006]), Lee should have been credited with $7,201.12 interest for that period, as well as interest in the amount of $19,810.58 for the period commencing the end of March, 2006 through January 31, 2008. Thus, as contended, Lee's total mortgage credit should have been $139,874.70.

Moreover, Ray Realty does not have legal grounds to claim that Lee received an unjust benefit during the period commencing August 24, 1990 (when Adjmi purchased Oh's share of the property) to October 4, 1993 (when Adjmi sold its share of the property to Ray Realty). During that period of time, though Adjmi refinanced the mortgage, Adjmi also paid off $98,223.30 plus interest on said mortgage. Ray Realty, rather than giving Lee credit for any portion of these payments, takes the position that to do so would unjustly enrich Lee, and further asserts that during that time period, his obligation on the mortgage increased by $98,908.00 due to Rosenfarb's imposition of theoretical interest that would have been incurred by Lee's share of the mortgage if, in fact, Adjmi had not been paying off the mortgage. If Lee was unjustly enriched by Adjmi's payments, such cause of action could only be asserted by Adjmi ( see Aymes, 30 AD3d at 196).

Moreover, an owner, or tenant in common, only owes contribution to the other owner or tenant in common of their proportionate share of the mortgage ( see Campo v Isaacson, 12 Misc 2d 1014; see also Vlacancich v Kenny, 271 NY 164). Lee persuasively

disputes Ray Realty's contention that on October 4, 1993, he was chargeable with 50% of the mortgage. Indeed, he convincingly demonstrates that on that date, his was responsible for a share of 21.6883% by showing that:

(1) on February 27, 1986, Lee and Oh took out a $600,000 mortgage, allocatable at $300,000 (50%) each;

(2) on August 18, 1988, there was a balance on said mortgage of $548,790.39, allocatable to Lee and Oh respectively at $274,395 (50%);

(3) on August 18, 1988, Oh refinanced by adding $401,210 to the balance of the mortgage, increasing the mortgage to $950,000, but leaving Lee's share at $274,395 (28.8837%);

(4) on August 24, 1990 the date that Adjmi purchased the property and assumed the mortgage — said mortgage had been reduced from $950,000 to $907,843 a total reduction of $42,157 between August 18, 1988 and August 24, 1990. Since Lee only owed 28.8837% of the $950,000 mortgage, Lee's share of the mortgage should have reduced by that percentage of the $42,157 reduction, equaling $12,176, thus reducing his outstanding balance to $262,219, and Adjmi's assumption of Oh's obligation of 71.1163% was $645,624;

(5) between August 24, 1990 and August 20, 1991, the mortgage was reduced from $907,843 to $878,984.69 ($28,858.31). Lee, whose share of the mortgage was 28.8837% for that period, was therefore entitled to a credit in that percentage, or $8,335.00 for Adjmi's paydown, thus leaving him with a balance, after subtracting that amount from his previous mortgage share of $262,219, of $253,884;

(6) on August 20, 1991, Adjmi refinanced the mortgage from $878,984.69 to $1,150,000 by increasing the mortgage in the amount of $271,015.31. Lee's percentage share of the refinanced mortgage would thus have been reduced to 22.0769% ($253,884 divided by 1,150,000), and Adjmi's share of the mortgage would have been 77.9231%;

(7) between August 20, 1991 and October 4, 1993, the date that Ray Realty purchased Adjmi's share of the property, the mortgage had been reduced from $1,150,000 to $1,080,634.99, or by $69,365, and Lee, with a 22.0769% share of the mortgage on that date, was entitled to a credit of $15,313 (22.0769% of the $69,365 reduction), thus leaving him with a mortgage balance of $238,571;

(8) on October 4, 1993, Ray Realty increased the mortgage from $1,080,634.99 to $1,100,000 by adding $19,365.01 thereto. As discussed above, at that point, Lee's share of the mortgage should have been reduced to $238,571, and his percentage share of the then $1,100,000 mortgage would have been reduced to 21.6883% ($238,571 divided by 1,100,000), and Ray Realty's share thereof would have been 78.311%;

(9) it being undisputed that Lee was charged one-half the principal payment and one-half the interest payment on the mortgage from November 4, 2004 until the final payoff date at the end of March, 2006, Lee, although properly given credit for $112,863 (one-half the payment of $225,725), was entitled to a credit for interest in the amount of $7,201.12 from November of 2004 through March of 2006, and additional 9% interest of $19,810.58 from the end of March, 2006 through January 31, 2008.

Thus, to recapitulate, Lee shall be charged $358,029 for the reduction of principal to zero for Lee's proportionate share of the interest payments from October of 1993 to October of 2003, and $302,272 for interest on that total amount up to January 31, 2008, for a total charge to Lee of $660,401. However, Lee is entitled to a credit of the agreed amount of payments by him on the mortgage from November 4, 2004 until March of 2006 in the amount of $112,863 plus interest on the payments through March of 2006 in the amount of $7,201.12 and interest on the total through January 31, 2008 in the amount of $19,810.58, for a total credit of $139,874.70. Thus, Lee's total obligation to Ray Realty on the mortgages is $520,526.30, plus interest.

REAL ESTATE TAXES

Although defendants claim that the real estate taxes paid during the Interruption Period have been stipulated to be $565,758,00, as demonstrated by Rosenfarb (see defendants' "AO [2A]")., their calculation exceeds that submitted by Lee by the amount of $10,798. Lee asserts that his calculation of a total of $554,960 for years 1994 to 2004 fails to include the payment of $10,798 for the period of October 4 through December 31, 2003 because said payment was for water and sewer made pursuant to the contract of sale at the time of closing, and is not his responsibility. However, Lee fails to support this claim with evidentiary proof, and accordingly, the court determines that Lee is responsible for 50% of Rosenfarb's calculated total, specifically, $282,759, plus 9% interest up to January 31, 2008.

Insurance and Professional Fees

As accurately averred by Lee, Ray Realty does not submit any bills or invoices for insurance costs or professional fees for the Interruption Period. Instead, admitting that it did not save checks and premiums, it relies on estimates set forth in the Wilrock appraisal and in conclusory language, unconvincingly attempts to shift its burden to Lee by arguing that Lee failed to diligently commence the instant proceeding. In addition, Ray Realty fails to dispute Lee's assertion that it is attempting to recover, as professional fees, those charged by Theoharis, its own accountant whose work product only benefited Ray Realty. The court rejects Ray Realty's illogical assertion, finding that its failure to offer any evidence of proof of payment or testimony of one with actual knowledge of payments made ( see Electronic Services International, 284 AD2d at 368) mandates denial of its claim for reimbursement for any insurance premiums during this period.

Exhibit "AF" is a liability policy, naming Ray Realty Fulton, Inc. and Lee as insured, affording insurance coverage for the property at 1250-1264 Fulton Street for the period commencing September 28, 2004 to September 28, 2005. Exhibit "AG" is an "umbrella" insurance policy for the period between 9/13/04 and 9/13/05 which, as amended, names Lee and a number of Ray and Elidex entities as insured. With regard to both policies, accounting statements in evidence (Exhibit "J") for January 2005 and September 2005 support Lee's representation that he has been charged and paid his proportionate share for the premiums thereon.

Legal Fees

Computation of the amount of legal fees owed is based upon those set forth in the Rosenfarb Supplementary Report (Exhibit "AO"). The claim for reimbursement of Nathan Ferst's legal fee in the sum of $6,586.00 has been withdrawn by stipulation. Thus, as per Lee's corrected chart, the total owed by him to Ray Realty, including interest at the rate of 9%, is $26,529.45.

Brokerage commissions

§ 442-d of New York's Real Property law ("Actions for commissions; license prerequisite") provides that "[n]o person, copartnership, limited liability company or corporation shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered . . . in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the alleged cause of action arose." Here, the Ray parties seek payment of a brokerage commission in the amount of $67,962.00 plus interest in the amount of $34,151.00 to Ray Department Store Fulton in connection with the lease of 1250-1254 Fulton Street to J M Stores. However, since defendants have failed to demonstrate that Ray Department Store Fulton was licensed to engage in real estate transactions, it is not entitled to recover any brokerage commissions ( see Gerstein v 532 Broad Hollow Road Co., 75 AD2d 292; Enfield v Hemmerdinger Estate Corp., 34 AD2d 980, 981). Accordingly, the court denies said claim for payment.

As reflected in Rosenfarb's breakdown of Brokers' Commissions (exhibit "AN [9]"), the court finds that with regard to commissions earned by and paid to duly-licenced brokers, Lee is obligated to reimburse the Ray defendants the total amount of $55,220.00, exclusive of interest, as detailed annually:

Date Commission 50% 2001 $ 1,500.00 $750.00 2002 $ 48,850.00 $ 24,425.00 2003 $ 51,720.00 $ 25,860.00 2004 $ 8,370.00 $ 4,185.00 Total $110,440.00 $ 55,220.00 Management Fees

By order dated November 4, 2004, Justice Schmidt directed that: (a) Ray Realty should manage the property for November, December and January; (b) the parties attempt to resolve their contentious management issues; and (c) in the event that the parties failed to agree, they were to return to court and submit proposals. On May 20, 2005, he further ordered that Ray Realty was to continue to manage the property, and to collect a fee in the amount of 5%, until further order of the court. However, by order dated November 21, 2006, the Appellate Division found that Supreme Court improvidently exercised its discretion in denying Lee's request for the appointment of a receiver to manage the property ( Kwang Hee Lee v Adjmi 936 Realty Associates , 34 AD3d 646 , 648)

Lee's present contention that he should be refunded his payments of management fees to Ray Realty is devoid of merit. Although the order of the Appellate Division accorded plaintiff the right to the appointment of a receiver, he does not dispute defendants' assertion that he failed to renew his request for said relief ( see Riegel v Franzel, 202 App Div 778), even as it continued to manage the property. As a consequence, he cannot now claim any right to reimbursement for compensation properly earned by Ray Realty, and the court will not disturb Justice Schmidt's finding that a fee in the amount of 5% was proper.

Other expenses post 11/1/04

Claiming that Ray Realty fails to provide any back-up of expenses for repairs and maintenance, but instead resorts to an estimate from the appraisal, plaintiff objects to said use of an estimate to base the cost of repairs and maintenance and requests that its request for a credit be denied, or limited to $2000 per year. Plaintiff provides a chart itemizing the costs of various repairs, including the construction of a handicap-accessible bathroom, since November of 2004. Ray Realty, in reply, addresses plaintiff's allegations and contends that all expenses were for the property, none were unreasonable, and all were accounted for:

Date Amount Source

Comments (Lee) Contention (Ray) 39755 $985.00 Harris Plumbing 1264 Invoice to Ray's Department Store, Bronx NY Expense item is full accounted for. Invoice states that project is for 1260 Fulton St. and describes materials and labor necessary to open floor in basement and expose 6" waste line, replace pipe and repair 4" pipe leaking on the outlet side of the water meter. TOTAL 2004 $ 985.00 39482 $1,000.00 Denis Casales Architectural Work no back-up Self-evident 39482 $ 230.00 Department of Buildings and Valley Management No back-up Self-evident 39511 $ 700.00 Building Department No back-up Self-evident 39511 $50.00 Denis Casales No back-up [unaddressed by defendants] 39572 $ 651.75 Harris Plumbing Invoice provided for necessary labor and equipment to provide gas tests on two lines in the basement at 1260 Fulton Street. 39603 $1,592.30 Building Dept. Bathroom Self-evident 217 $2,000.00 Denis Casales No back-up Self-evident 39664 $ 200.00 Building Dept. No back-up [unaddressed by defendants] 39725 $4,000.00 Denis Casales Bathroom Self-evident TOTAL 2005 $10,424.05 39696 $ 2000.00 Rem Sons No Back-up Explained as repair by electrician, and is under $15,000.00 TOTAL 2006 $2000.00 39605 $ 320.00 Premier Roofing Roof Cleaning Roof cleaning, not above $15,000.00 39635 $ 812.00 Premier Roofing Roof Roof cleaning, not above $15,000.00 39666 $ 298.00 Harris Plumbing As per invoice, plate removed from back water valve and bound brass clapper reset; toilet snaked. 39758 $ 320.00 Premier Roofing Roof Cleaning [unaddressed by defendants] 39758 $ 300.00 All-Tech Roofing Construction Roof Inspection and Cleaning [unaddressed by defendants] 39788 $4,000.00 Brick Repair Check written as cash [unaddressed by defendants] TOTAL 2007 $6,050.03 By order dated July 14, 2005, Justice Schmidt issued an order directing that:

"[t]he Managing Agent will consult with plaintiff . . . for any improvements above $15,000. Any dispute will be decided by the Judge on a conference call. The Managing Agent is given permission to install a bathroom to comply with the requirements for a C of O. If the bathroom turns out to be unnecessary for that purpose or it is not the proper price for a bathroom, the cost of the bathroom will be borne by Ray Realty."

As contended by Ray Realty, all expenses which have been set forth by plaintiff fall under the $15,000 threshold. It has further sustained its burden of showing that the improvements were generated by: (1) construction of the bathroom; (2) payments to the New York City Department of Buildings; and (3) routine repairs and maintenance. Thus, plaintiff is not entitled to a refund of any of said expenditures.

Plaintiff further submits an inventory of what are contended to be improper unsubstantiated fees charged to him by the Saad defendants since November 1, 2004. Said fees, the reasons for plaintiff's objection, and the amount claimed to be owed, are identified as follows:⁴⁰ Date Payee Reason for Objection Amount 50% Lee Charge 9% Interest up to January 1, 2008 36

40 The amounts claimed to be owed as interest are the corrected calculations as set forth in plaintiff's Post-Trial Reply Brief.

S C Manage-ment (Clem Saad Com-pany Clem Saad admits he would re-imburse $6,000.00 $3,000.00 $787.50

39695 Chris Theoharis, Accountant Prepared taxes for Saad-owned companies not for the benefit of property or Lee $ 600.00 $ 300.00 $ 63.00 39786 Nathan Ferst, Esq. Attorney for Ray in litigation unexplained legal fees with no back-up $2,750.00 $1,368,00 $256.00 39696 Chris Theoharis, Accountant Prepared taxes for Saad-owned companies not for the benefit of property or Lee $650.00 $325.00 $39.00 39231 Hecht Hecht Legal Fee for Corporate Filing for Ray Dept. Store, not for benefit of both owners $780.00 $390.00 $23.40 39335 Ana Rodriguez No approval pursuant to Court Order no back-up $3175.00 $1,587.50 $47.62 39697 Chris Theoharis, Accountant Prepared Saad-owned Companies' taxes $2100.00 $1,050.00 $31.50 39727 Certilman Balin Attorney for Ray defendants in present litigation

unexplained legal fees with no backup $1,686.20 $843.10 $18.92 Total $17,727.00 $8,863.60 $1,267.00

Ray Realty fails to address any of these expenditures in its papers. Accordingly, the court determines that plaintiff is fully entitled to a refund, including interest, in the stated amount of $10130.60.

CONCLUSION

In conclusion, the court has determined the following amounts owed by and between the parties to this accounting. Since, apart from those amounts included herein that are uncontested or have been stipulated to, the court's de novo determinations differ from those submitted by the parties, any calculations for interest up to January 31, 2008 are no longer valid, and require new computations. In addition, interest for the period subsequent thereto and up to the date of judgment must be included in a final judgment:

Identification of account Party entitled to receive payment Amount of payment Judgment amount requires recalculation of interest to 1/31/08?

Rentals Plaintiff $2,172,838.00 Yes Construction Expenses Defendants $120,000.00 Yes Mortgage Defendants $520,526.30 Yes Taxes Defendants $282,759.00 Yes Legal Fees Defendants $26,529.45 No Brokers' Commissions Defendants $55,220.00 Yes Unsubstantiated Fees Plaintiff $10,130.60 No