Opinion
No. 503441/2012.
02-27-2015
METROPOLITAN LOFTS OF NY, LLC, Plaintiff, v. METROEB REALTY 1, LLC and Redsky Capital, LLC, Defendants.
Donald J. Kravet, Esq., Kaplan, Kravet & Vogel P.C., New York, attorney for plaintiff. Kenneth J. Rubinstein, Esq., Haynes & Boone, New York, attorney for Defendant Metroeb. Jonathan D. Lupkin, Esq., Rakower & Lupkin, PLLC, New York, attorney for Defendant Redsky.
Donald J. Kravet, Esq., Kaplan, Kravet & Vogel P.C., New York, attorney for plaintiff.
Kenneth J. Rubinstein, Esq., Haynes & Boone, New York, attorney for Defendant Metroeb.
Jonathan D. Lupkin, Esq., Rakower & Lupkin, PLLC, New York, attorney for Defendant Redsky.
Opinion
CAROLYN E. DEMAREST, J.
In this action by plaintiff Metropolitan Lofts of NY, LLC (Metropolitan) for specific performance of a contract to purchase real property against defendant Metroeb Realty I, LLC (Metroeb), Metroeb moves, under motion sequence number 14, for an order, pursuant to CPLR 6312(b) and 6315, directing entry of a judgment in its favor as against Metropolitan in the amount of $3,000,000, with recovery of such amount to be obtained through the proceeds of Injunction Bond No. 1212M109LI10–01 by Linda Garrahan (Garrahan), as individual surety (the bond), which was issued on December 10, 2012 on behalf of Metropolitan, and amended on February 21, 2014. RedSky Capital, LLC (RedSky) (who intervened in this action as a defendant) moves, under motion sequence number 17, for an order: (1) ascertaining and determining the damages sustained by it by reason of a preliminary injunction issued by an Interim Decision and Order dated November 14, 2012 and entered on December 4, 2012 and a temporary restraining order issued at a hearing on October 22, 2012, by such means and manner as the court shall direct, and (2) directing the entry of a judgment in its favor and against Metropolitan in the amount of those damages ascertained to have been sustained by it, with recovery of such amount to be obtained through the proceeds of the bond. RedSky moves, by order to show cause, under motion sequence number 15, for an order directing Metropolitan to replace the bond by Garrahan with: (1) a cash undertaking of $3 million, or (2) a $3 million undertaking tendered by a surety that is certified pursuant to Insurance Law § 1111(b), (c), and (d). RedSky cross-moves, under motion sequence number 20, for an order, pursuant to 22 NYCRR 130–1.1 et seq., imposing sanctions on Metropolitan in the amount of $10,000, and requiring Metropolitan to pay the costs, including attorneys' fees, incurred by it by reason of the frivolous conduct that forms the basis for this cross motion. Metroeb separately cross-moves, under motion sequence number 21, for an order, pursuant to 22 NYCRR 130–1.1, issuing sanctions against Metropolitan.
BACKGROUND
On July 20, 2012, following negotiations, the principals of RedSky and Metroeb executed a contract for the sale of the subject property, which is located at 143–157 Roebling Street and 10–19 Hope Street, in Brooklyn, New York (the property), from Metroeb, as the seller, to RedSky, as the purchaser, for the sum of $32,250,000. This contract of sale scheduled the closing date for November 1, 2012, and RedSky wired a $3 million deposit to Metroeb's designated escrow agent on July 24, 2012, in accordance with the requirements of this contract.
On October 22, 2012, one week prior to the November 1, 2012 scheduled closing date, Metropolitan filed this action against Metroeb, alleging a cause of action for breach of contract and specific performance to compel it to sell the property to it, pursuant to the terms of a purported contract which, it claimed, Metroeb had entered into with it for the sale of the property. Metroeb, in its answer, interposed a counterclaim for a declaration that the contract that Metropolitan sought to enforce was not valid and binding and that it was free to sell the property. Upon filing this action, Metropolitan simultaneously moved, by order to show cause, for injunctive relief to enjoin Metroeb from conveying the property to any other purchaser. By order dated October 22, 2012, Justice Karen B. Rothenberg, issued an ex parte temporary restraining order, enjoining Metroeb from selling the property pending the hearing and determination of the motion. By Interim Decision and Order dated November 14, 2012, Justice Ann T. Pfau granted Metropolitan a preliminary injunction preventing the sale of the property to RedSky or any other purchaser until a final determination was rendered on Metropolitan's underlying contract claim, conditioned upon it posting a bond.
By order dated November 28, 2012, the amount of the bond, pursuant to CPLR 6312(b), was set at $3 million. On December 10, 2012, Metropolitan posted a bond, issued by Garrahan, as individual surety, in the penal sum of $3 million, promising that Metropolitan would pay Metroeb damages sustained by reason of the temporary restraining order or preliminary injunction if the court finally decided that Metropolitan was not entitled thereto. On May 14, 2013, RedSky moved to intervene in this action based upon its interest in the property as a contract vendee. That motion, which was unopposed by Metropolitan or Metroeb, was granted by order dated June 13, 2013. Upon intervention, RedSky served an answer with a counterclaim for a declaration that the contract Metropolitan sought to enforce was not a valid or binding agreement, a first cross claim for a declaration that the contract between it and Metroeb was valid and binding, a second cross claim for specific performance, and a third cross claim seeking damages for breach of contract.
On November 8, 2013, RedSky moved to amend the bond to include itself as a beneficiary entitled to seek reimbursement for all damages sustained as a result of the wrongfully-entered temporary restraining order and preliminary injunction. By decision and order dated January 9, 2014, the court granted RedSky's motion. On February 21, 2014, Metropolitan posted an amended bond for $3 million, which named both RedSky and Metroeb as its beneficiaries.
It has been noted, citing this case (Metropolitan Lofts of N.Y. LLC v. Metroeb Realty 1 LLC, 2014 WL 189527 [Sup Ct, Kings County 2014] ), that where, as here, a defendant has successfully intervened in a case where a bond already has been posted, “the better course and one that might avoid future litigation, would have been to discharge the existing bond subject to the plaintiff posting two new bonds-one for each defendant in a fixed amount” (N.Y. Prac. Comm. Lit. in N.Y. State Courts § 17:12, Undertaking [2014] ).
A non-jury trial was held before Justice Pfau from February 24, 2014 to February 27, 2014. Following the trial, Justice Pfau rendered a decision and order dated May 6, 2014 dismissing Metropolitan's complaint and granting Metroeb and RedSky's counterclaims for a declaratory judgment declaring that the contract Metropolitan sought to enforce in this action was not valid and binding. The injunction was immediately vacated. The order further granted RedSky's first cross claim against Metroeb for a declaratory judgment that the contract RedSky sought to enforce for the purchase and sale of the property was valid and binding. It also granted judgment to RedSky on its second cross claim for specific performance and ordered Metroeb to convey the property to RedSky in accordance with the terms of the contract between them within 90 days of service of a copy of that decision and order with notice of entry.
As to RedSky's third cross claim for breach of contract against Metroeb, Justice Pfau, in her May 6, 2014 decision and order, found that the damages claimed to have been sustained by RedSky against Metroeb arose only from Metroeb's compliance with the injunction and dismissed that cross claim as against Metroeb. However, Judge Pfau found that such damages might be recovered by RedSky from the bond, pursuant to CPLR 6312(b), but that the determination of the amount of these costs was beyond the scope of the trial and that a further motion would be required with respect to the bond and its discharge, to be made within 30 days of service of a copy of the decision and order with notice of entry.
On May 12, 2014, Metropolitan filed a notice of entry of the May 6, 2014 decision and order and a notice of appeal of that decision and order. On May 13, 2014, Metropolitan moved for leave to appeal the May 6, 2014 decision and order to the Appellate Division, Second Department, and to stay enforcement of that decision and order so as to prevent Metroeb from conveying the property to RedSky, pending a hearing and determination of the appeal. The Appellate Division, Second Department, upon the parties' appearance on May 13, 2014, entered a temporary order that the decretal paragraph of the May 6, 2014 decision and order, which directed that Metroeb convey the property to RedSky, was stayed on condition that the $3 million bond remain in place, preventing RedSky and Metroeb from closing on the sale of the property. By a decision and order dated June 9, 2014, the Appellate Division, Second Department, denied Metropolitan's motion seeking leave to appeal the May 6, 2014 decision and order, dismissed, on its own motion, Metropolitan's appeal purportedly taken as of right, and otherwise denied Metropolitan's May 13, 2014 motion as academic, thereby denying it a stay of the enforcement of that decision and order.
On June 3, 2014, Metroeb filed its motion in Supreme Court for an order directing judgment in its favor against Metropolitan for the damages sustained due to the preliminary injunction, recovery to be obtained from the proceeds of the bond. A judgment on the May 6, 2014 decision and order, dated June 6, 2014, was signed by Justice Lawrence Knipel following Judge Pfau's retirement, and was filed on June 10, 2014. On June 11, 2014, RedSky filed its motion for an order directing judgment against Metropolitan for the damages sustained due to the preliminary injunction, also with recovery to be obtained from the proceeds of the bond.
On June 13, 2014, Metropolitan filed a notice of appeal of the June 6, 2014 judgment. Also on June 13, 2014, Metropolitan filed another order to show cause with the Appellate Division, Second Department, seeking a stay of enforcement of the June 6, 2014 judgment pursuant to CPLR 5518 and /or 5519, pending the determination of its appeal, and, if necessary, granting leave to appeal to the Appellate Division, Second Department. The parties appeared before the Appellate Division, Second Department, on June 13, 2014, at which time the Appellate Court denied Metropolitan's order to show cause, expressly deleting the provision that would have stayed the transfer of title of the property to RedSky. By letter dated June 16, 2014 to the Clerk of the Court of the Appellate Division, Second Department, Metropolitan withdrew in its entirety its motion seeking a stay of the execution of the judgment, but not its notice of appeal.
Also on June 16, 2014, Metropolitan moved, in this court, by order to show cause, for an order, pursuant to CPLR 5519(c), staying enforcement of the judgment pending appeal. By order dated June 17, 2014, this court, following oral argument, declined to sign Metropolitan's proposed order to show cause since the only relief requested was a stay of the enforcement of the judgment pending appeal, which had already been requested twice from the Appellate Division and had previously been denied. This court, in its June 17, 2014 order, noted that Metropolitan's only recourse at that point was an application to the Appellate Division. On June 19, 2014, however, Metropolitan, again, moved in this Court, by order to show cause, for an order setting aside the May 6, 2014 decision and order and the June 6, 2014 judgment, pursuant to CPLR 4404(b), and granting a stay of the decision and order and judgment, pursuant to CPLR 2201, pending determination of that motion. On June 20, 2014, Justice Knipel declined to sign that order to show cause in light of the prior denials of stay applications by both the Appellate Division and this court.
On June 20, 2014, Metropolitan cross-moved for an order adjourning any determination on Metroeb's motion until its motion, pursuant to CPLR 4404(b), was determined. On June 23, 2014, Metropolitan, again, moved for an order, pursuant to CPLR 4404(b), setting aside the May 6, 2014 decision and the June 6, 2014 judgment based thereon. On June 24, 2014, Metropolitan cross-moved for an order adjourning any determination on RedSky's motion until its motion, pursuant to CPLR 4404(b), was determined. By order dated September 10, 2014, the court denied Metropolitan's June 23, 2014 motion, and also denied its June 20, 2014 and June 24, 2014 cross motions as moot.On June 30, 2014, after attempts by RedSky to locate and serve the individual surety, Garrahan, were unsuccessful, RedSky filed its order to show cause for an order directing Metropolitan to replace the bond. On September 3, 2014, RedSky filed its cross motion for sanctions against Metropolitan, and Metroeb filed its separate cross motion for sanctions against Metropolitan, which are both based upon Metropolitan's numerous repetitive motions for a stay. On July 31, 2014, RedSky and Metroeb finally closed on the property, and title was transferred to RedSky.
DISCUSSION
Motion Sequence Number 14
Damages Sustained by Metroeb
In addressing Metroeb's motion, which seeks a recovery from the proceeds of the bond for the damages it sustained by reason of the preliminary injunction, the court notes that the bond was issued pursuant to CPLR 6312(b), which provides, in pertinent part, that “prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in an amount to be fixed by the court [and] the plaintiff, if it is finally determined that he or she was not entitled to an injunction, will pay to the defendant all damages and costs which may be sustained by reason of the injunction” (CPLR 6312[b] ; see also 2339 Empire Mgt., LLC v. 2329 Nostrand Realty, LLC, 71 AD3d 998, 999 [2d Dept 2010] ). “[T]he purpose and function of an undertaking given by a plaintiff pursuant to the provisions of CPLR 6312[b], prior to the granting of a preliminary injunction, is to reimburse the defendant for damages sustained [where] it is later finally determined that the preliminary injunction was erroneously granted” (Margolies v. Encounter, Inc., 42 N.Y.2d 475, 477 [1977] ).
The undertaking posted under CPLR 6312(b) provides a “ready source from which the defendant may recover for damages which [it] may have sustained” where “it is later finally determined that the preliminary injunction was improperly granted” (Id. at 479 ). The extent of any liability of the plaintiff for damages for obtaining the preliminary injunction is limited to the amount of the bond (see Apfelberg v. East 56th Plaza, 112 Misc.2d 680, 683 [Sup Ct, N.Y. County 1982] ). CPLR 6315 provides an expeditious procedure for ascertaining the amount of damages sustained by reason of a preliminary injunction or temporary restraining order upon motion on such notice to all interested persons as the court shall direct in the same action in which the injunction was granted (see Alexander, Practice Commentaries, McKinney's Civil Practice Law and Rules, Book 7B, CPLR 6315 ; see also Margolies, 42 N.Y.2d at 477 ; Lelekakis v. Kamamis, 103 AD3d 693, 696 [2d Dept 2013] ; Apfelberg, 112 Misc.2d at 683 ).
The measure of damages awarded from the proceeds of the bond should equal the amount that is necessary to compensate the injured party for losses sustained as the proximate result of the improperly granted preliminary injunction or temporary restraining order (see CPLR 6312[b] ; Lelekakis, 103 AD3d at 696 ; Marietta Corp. v. Pacific Direct, Inc., 9 AD3d 815, 817 [3d Dept 2004] ). To be entitled to recovery for these losses, the moving party is required to prove its claimed measure of damages (see Sunrise Plaza Assoc. v. International Summit Equities Corp., 212 A.D.2d 690, 691 [2d Dept 1995] ). Here, in Justice Pfau's May 6, 2014 decision and order, there was a final determination that Metropolitan was not entitled to the preliminary injunction because its contract was “not valid and binding” (see Margolies, 42 N.Y.2d at 477 ; Forest Labs. v. Lowey, 118 A.D.2d 828, 828–829 [2d Dept 1986] ; Cross Props. v. Brook Realty Co., 76 A.D.2d 445, 457–458 [2d Dept 1980] ).
Lost Interest
In support of its claim for damages under the bond, Metroeb contends that the preliminary injunction prevented it from consummating the sale of the property to RedSky on November 1, 2012. Metroeb initially asserted that, had the property closed timely pursuant to the contract, the net proceeds would have been $24,417,257.13, however, in a Supplemental Affirmation, it asserts that the actual net proceeds received by it from the sale of the property to Redsky on July 31, 2014 was $25,605,427.53. It calculated this figure by deducting from the sale price of the property to RedSky ($32,250,000) the closing costs and the mortgage payoff associated with the sale ($6,731,004.16), plus credits to it for, among other things, real estate taxes and lost rents ($1,071,000) . It states that through July 31, 2014, interest on this amount at the rate of 9% per annum, running from November 1, 2012, equals $4,028,119.59. It further states that the net profit that it derived from owning the property from November 1, 2012 through July 2014 (calculated by subtracting expenses related to maintenance of the property from the rental income derived from the property) equals $570,353.93. It asserts that it has, therefore, suffered damages as a result of being deprived of the use of the sale proceeds in the amount of $3,457,765.66 (not including attorneys' fees and costs incurred, as discussed below) by reason of the preliminary injunction which prevented the sale of the property to RedSky on November 1, 2012.
This calculation is taken from the Supplemental Affirmation in Support of Metroeb Realty 1 LLC's Motion for Damages by Kenneth J. Rubinstein, which appears to contain a mathematical error ($32,250,000 minus $6,731,004.16 plus $1,071,000 results in $26,589,995.84). However, as Metroeb's representation is less advantageous, the Court will accept its calculation. Moreover, it is impossible to determine upon the papers submitted the portion of the adjustments that are attributable to Metroeb's damages as a result of the preliminary injunction.
Initially, Metroeb stated that the net proceeds to it from the sale of the property to RedSky on November 1, 2012 would have been $24,417,257.73, and that through May 31, 2014, interest on this amount, at the rate of 9% per annum, running from November 1, 2012, amounted to $3,473,940.19. It further asserted that the net profit that it derived from owning the property from November 1, 2012 through May 14, 2014 equaled $434,475.57, and that it, therefore, had suffered damages of $3,039,464.60 due to its inability to sell the property because of the issuance of the preliminary injunction. Metroeb, in a supplemental affirmation, updated its calculation of its damages since May 31, 2014 because since that time, the sale of the property to RedSky closed and it, therefore, was able to provide an exact calculation of its damages, and it also incurred additional legal fees and expenses.
Interest on the damages sustained by reason of a wrongful injunction may be allowed where the amount of the damages is either certain or capable of being made certain, and such an award of interest, as damages, is recoverable where the owner of property or one entitled to the use of such property has been deprived of monies as the direct and proximate result of the injunction (see Lelekakis, 103 AD3d at 697 ; Shu Yiu Louie v. David & Chiu Place Rest., 261 A.D.2d 150, 152 [1st Dept 1999] ; Republic of Croatia v. Trustee of Marquess of Northampton 1987 Settlement, 232 A.D.2d 216, 216 [1st Dept 996] ; Matter of Sweets v. Behrens, 118 Misc.2d 1062, 1064 [Sup Ct, Schenectady County 1983] ). Such interest may be recovered for the entire period in which a preliminary injunction was in effect if the defendant has sustained damages from that time or from the time that the defendant sustained damages while the preliminary injunction was in effect (see Lelekakis, 103 AD3d at 697–698 ). CPLR 5001(a) provides that “[i]nterest shall be recovered upon a sum awarded ... because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property, except that in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court's discretion.” Thus, Metroeb is not entitled to interest at the 9% statutory rate as of right, but, rather, interest is computed in the court's discretion.
Here, Metroeb has demonstrated that it lost interest on the net proceeds of the sale during the time that the preliminary injunction prevented the closing on the RedSky contract to the date the injunction was vacated upon the finding that it was not warranted. However, the court must subtract from the sum of $25,605,427.53, the $3 million down payment that Metroeb held in escrow in an interest bearing account pursuant to its escrow agreement with RedSky (as discussed below). Thus, Metroeb is only entitled to interest on the sum of $22,605,427.53. In addition, the preliminary injunction was only in effect until June 9, 2014 when the Appellate Division, Second Department, lifted the temporary order staying the May 6, 2014 decision and order. Therefore, Metroeb is only entitled to interest from the date that the closing was scheduled to take place, i.e. November 1, 2012, until June 9, 2014 (a 19–month period), and not to the date of the delayed closing on July 31, 2014. Additionally, the court finds that the 9% rate of interest sought by Metroeb is excessive based upon the existing market conditions at the time for which interest is sought. In the court's discretion, pursuant to CPLR 5001(a), the court finds that the applicable rate of interest should be 7% per annum computed from the date that the closing was scheduled to take place, November 1, 2012, to the lifting of the injunction on June 9, 2014. This results in interest of $2,536,143.17 ($4,4335.29 daily interest multiplied by 585 days). Subtracting the net profit of $570,353.93, which Metroeb derived from the property, from this amount of interest, results in damages of $1,965,789.24.
Legal Fees and Expenses
Metroeb also asserts that it has incurred legal fees and expenses in this action through July 31, 2014, which are all related to the issuance of the injunction, totaling $774,085.16. This is comprised of legal fees to Haynes and Boone, LLP of $661,678 and expenses incurred totaling $40,577.16, plus legal fees to Kunstlinger & Wohlgemuth, PLLC of $71,830.
Metroeb initially asserted that it had incurred legal fees and expenses through May 31, 2014, all of which relate to the issuance of the injunction, totaling $692,022.62. It stated that these legal fees were comprised of: legal fees to Haynes and Boone, LLP in the amount of $584,954, expenses totaling $35,238.62, and legal fees to Kunstlinger & Wohlgemuth, PLLC in the amount of $71,830. Metroeb, in its supplemental affirmation, updated the amount of these fees to reflect legal fees and expenses incurred through July 31, 2014.
Metroeb contends that all of its legal fees and related expenses in litigating this action from the outset through this motion were incurred as a result of the injunction since the entire action was inseparable from the issues pertaining to the injunction. It notes that this lawsuit has encompassed, among other things, motion practice on the preliminary injunction, extensive discovery, a motion for summary judgment filed by Metropolitan, pre-trial motions, a trial, posttrial briefing, an appeal of the summary judgment decision filed by Metropolitan, and motions filed by Metropolitan to the Appellate Division relating to the court's May 6, 2014 decision and order.
Metropolitan, in opposition, argues that legal fees are recoverable from a bond only when they relate to opposing the preliminary injunction and not the underlying issues that are the subject of the trial. This argument, however, is unavailing under the facts of this case.
It is well established that the injured party may recover its costs and expenses, including the attorneys' fees expended by it, as damages for wrongfully procuring a preliminary injunction, but, in order to be recoverable, such fees must have been incurred solely or principally in consequence of the injunction (see Cross Props. v. Brook Realty Co., 76 A.D.2d 445, 458–459 [2d Dept 1980] ). Thus, generally, counsel fees incurred merely in the preparation of the case for trial, but not as a consequence of the preliminary injunction granted in that action, are not recoverable (see Id. at 459 ). Therefore, if the injunctive relief is not the sole or principal purpose of the action and is merely incidental thereto, only the attorneys' fees that are incurred by reason of the preliminary injunction itself are recoverable (see Id. at 460 ). Similarly, attorneys' fees incurred in opposing the original motion for the preliminary injunction are not recoverable as damages resulting from the wrongful procurement of the injunction since they could not have been incurred by reason of the injunction (Bausch & Lomb, Inc. v. Hydron Pacific, Ltd., 82 Misc.2d 576, 577 [Sup Ct, Monroe Co.1975] ; Young v. McDonald, 56 App.Div. 14, 16 [1st Dept 1900]aff'd 166 N.Y. 639 [1901] ).
However, since “attorneys' fees incurred in a successful effort to vacate a restraining order may be recoverable damages under CPLR 6315 ” (Shu Yiu Louie, 261 A.D.2d at 152 ; see also Hanley v. Fox, 90 A.D.2d 662, 663 [3d Dept 1982] ), attorneys' fees on the trial of the main action are recoverable when the trial was necessary in order to terminate the preliminary injunction and where, as here, the principal issue upon the trial involves the right to injunctive relief, such as specific performance (see Republic of Croatia, 232 A.D.2d at 216 ; Matter of Sweets, 118 Misc.2d at 1066 ). Thus, counsel fees for the entire proceeding may be recoverable where the plaintiff's right to injunctive relief is the primary object of and inseparable from the merits of the action (see Board of Mgrs. of Pomona Park Condominiums v. Gennis, 61 AD3d 905, 906–907 [2d Dept 2009] ; Republic of Croatia, 232 A.D.2d at 216 ; Gross v. Shields, 130 Misc.2d 641, 646 [Sup Ct, N.Y. County 1985] ; Matter of Sweets, 118 Misc.2d at 1066 ; Bausch & Lomb Inc., 82 Misc.2d at 578–579 ; Eisen v. Post, 15 Misc.2d 59, 63 [Sup Ct, N.Y. County 1958] ). Attorneys' fees incurred by the defendant on an appeal from an order dissolving a preliminary injunction are also recoverable from an injunction bond (see Matter of Sweets, 118 Misc.2d at 1066 ). The defendant must show that the counsel fees have actually been incurred since they may be awarded only by way of reimbursement (see Republic of Croatia, 232 A.D.2d at 216 ; Matter of Sweets, 118 Misc.2d at 1066 ).
Here, Metroeb has demonstrated its entitlement to counsel fees incurred by it, not only in relation to the injunction itself, but also in litigating the issues at trial since they were inseparable from the issues pertaining to the injunction (see Republic of Croatia, 232 A.D.2d at 216 ). Indeed, the trial was the only means by which Metroeb was able to terminate the injunction (see Board of Mgrs. of Pomona Park Condominiums, 61 AD3d at 906–907 ; Republic of Croatia, 232 A.D.2d at 216 ; Granulator Soap Co. v. Haddow, 159 App.Div. 563, 564–565 [2d Dept 1913] ; Matter of Sweets, 118 Misc.2d at 1066 ).
Metroeb has submitted invoices, which reflect the billing of the legal fees claimed to have been incurred, and affirmations from Marc Wohlgemuth, a member of Kunstlinger & Wohlgemuth, PLLC and Kenneth J. Rubinstein, a member of Haynes & Boone, LLP. Mr. Wohlgemuth, in his affirmation of June 2, 2014, merely states that Kunstlinger & Wohlgemuth, PLLC acted as counsel to Metroeb in connection with its negotiations to sell the property to RedSky and “in certain dealings with [Metropolitan] in this action.” Without further specification of the services provided, he states that Kunstlinger & Wohlgemuth, PLLC has remained in contact with Haynes and Boone, LLP and has “provided assistance with the defense of this action.” He attaches a bill, which simply provides that Kunstlinger & Wohlgemuth, PLLC billed Metroeb for 20.7 hours in 2012, 69.8 hours in 2013 and 40.1 hours in 2014 at the hourly rate of $550 for a total of $71,830. Mr. Wohlgemuth states that the rate billed to Metroeb of $550 per hour is “comparable” to rates charged by partners with “equivalent experience”. Under cover of a letter dated July 23, 2014, from Kenneth Rubinstein, Esq. of Haynes & Boone, LLP, copies of an unredacted time log for Kunstlinger & Wohlgemuth, PLLC of services rendered to Metroeb from August 21, 2012 through May 22, 2014, which appears to have been compiled for the purpose of the instant motion, was supplied to the Court for in camera review. The log indicates that Mr. Wohlgemuth, as “General Counsel”, consulted with Metroeb and monitored litigation of the case by Haynes & Boone. This summary, which does not reflect any direct participation in litigation, is insufficient to establish an entitlement to attorneys' fees in this sum. Moreover, any legal services rendered in negotiating the sale to RedSky, or which were provided before the injunction was entered, are not compensable out of the plaintiff's bond. Thus, this fee is disallowed (see Matter of Gamache v. Steinhaus, 7 AD3d 525, 527 [2d Dept 2004] ).
In his Affirmation of June 3, 2014, Mr. Rubinstein states that Haynes and Boone, LLP provided services through May 31, 2014, which he describes by attaching a document list of the papers that have been filed in this case, beginning with the filing of the summons and complaint on October 22, 2012, accompanied by the order to show cause seeking the temporary restraining order, granted on the same date. Mr. Rubinstein describes the qualifications of counsel who worked on this matter in support of his contention that the rates billed are reasonable and conform to the prevailing rate for attorneys of comparable experience in New York City. He attaches a summary of the hours billed by him, his associates, counsel, and a paralegal. This summary reflects that: (1) he, as a partner, billed for a total of 343.5 hours at the rate of $675 per hour in 2012, $700 per hour in 2013, and $725 per hour in 2014, for a total of $242,145; (2) his associate, Sarah Jacobson, billed for a total of 402.9 hours at a rate of $400 per hour in 2012, $445 per hour in 2013, $490 per hour in 2014, for a total of $181,154; (3) his associate, Joseph Lawlor, billed for a total of 177.5 hours at a rate of $295 per hour in 2012, $325 per hour in 2013, and $370 per hour in 2014, for a total of $62,669; (4) counsel, Jonathan Hook, billed for one hour at a rate of $625 in 2013, for a total of $625, and (5) his paralegal, Rob Ramphul, billed for 131.1 hours at the rate of $260 per hour for 2012, $270 per hour for 2013, $280 per hour for 2014, for a total of $34,877. This added up to a total of $521,470 (see Exhibit K to Aff. of Kenneth J. Rubinstein in Support of Metroeb's Motion Pursuant to CPLR §§ 6312 and 6315 ). Mr. Rubinstein also annexes a list of expenses, which total $35,238.62, including printing costs, court reporters/transcript costs, research fees (Lexis/Westlaw), and courier, transportation, and process servers. In Mr. Rubinstein's supplemental submission, he adds 148 hours billed from June 2, 2014 to July 31, 2014 for a total of $75,155.50. He also seeks an additional $5,922.05 in expenses. Together, the counsel fees and expenses billed by Haynes & Boone, LLP total $637,786.17.
While Exhibit K to the Rubinstein Affirmation indicates that a total of $521,470 was billed to Metroeb through May 31, 2014, the Rubinstein Affirmation itself states a total billed of $584,954. The Court will accept the sum of $521,470 for purposes of this motion.
It is well settled that attorneys' fees are subject to review and must be reasonable (see Matter of Freeman, 34 N.Y.2d 1, 9–10 [1974] ). The amount recoverable for counsel fees is the reasonable value of the services required (see Breidbart v. Wiesenthal, 117 AD3d 766, 767 [2d Dept 2014] ). In deciding an application for counsel fees the Court must consider “the following factors: time and labor required, the difficulty of the questions involved, and the skill required to handle the problems presented; the lawyer's experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved” (Matter of Freeman, 34 N.Y.2d at 9 ; see also Breidbart, 117 AD3d at 767 ). Under the lodestar method customarily employed to calculate reasonable attorneys' fees in class actions, applying these factors, reasonable fees are calculated by multiplying the reasonable hours expended on the action by a reasonable hourly rate (see Matakov v. Kel–Tech Constr. Inc., 84 AD3d 677, 678 [1st Dept 2011] ). In the event that the court finds that an attorney spent excessive, or an unreasonable number of hours, it may exclude the amounts billed for those hours from the calculation (see Nager v. Teachers' Retirement Sys. of City of New York, 57 AD3d 389, 390 [1st Dept 2008], lv denied 13 NY3d 702 [2009] ). Unfortunately, the judge who presided over this case and rendered a decision following trial before her has retired. This Court, having inherited the matter only subsequent to the determination of the merits, does not have the advantage of having observed the progress of the litigation and the need for legal services rendered. This Court's decision is therefore constrained by a literal application of the lodestar methodology.
Haynes and Boone, LLP billed a total of 1,170.5 hours through June 30, 2014, with 366.8 of these hours billed at rates ranging from $675 to $725. Metropolitan has cited authority in support of an hourly rate of $200 to $375 as reasonable for services rendered in the Eastern District of New York where this Court is located (see Melnick v. Press, 2009 WL 2824586 at *9 [EDNY 2009] ). In the Court's experience, however, such rates are not the prevailing rates for services necessary to competently and effectively litigate the issues at bar, but that the rates billed are generally consistent with those charged in matters of the complexity and monetary value at issue (see In re Vitamin C Antitrust Litigation, 2013 WL 6858853 [EDNY 2013] ). It is noted that all of the defense firms, as well as plaintiff's trial counsel, are based in New York County where, with the exception of the charges for paralegal services, the rates charged herein are the prevailing rate charged by experienced commercial litigators (see Three60 LLC v. Local Ocean Holdings, LLC, 2014 Misc. LEXIS 5819 [Sup Ct N.Y. County, 2014] ). Moreover, having presided over the Commercial Division of Kings County Supreme Court for the past twelve years, I find the rates charged here to be comparable to those generally billed in commercial litigation in this Court. It is noted that plaintiff's counsel has not offered proof of the rates it has billed as evidence of the standard. The charges for 131.1 hours of paralegal services at between $260 and $280 per hour are, however, grossly unreasonable such that only $9600 (120 hours at $80 per hour) will be allowed (see Penberg v. Healthbridge Mgmt., 2011 WL 1100103 [EDNY 2011] ; Gesualdi v. Giacomelli Tile, Inc., 2010 WL 1049262 [EDNY 2010] ).
The Court has further determined, however, that a 10% discount is necessitated by the duplication apparent in some of the billing. Although the hourly billing rates are reasonable, the number of hours is found to be excessive (see NYCTL 1996–1 Trust v. Stavrinos Realty Corp., 113 AD3d 602, 604–605 [2d Dept 2014] ; Kaygreen Realty Co., LLC v. IG Second Generation Partners, L.P., 78 AD3d 1008, 1010 [2d Dept 2010] ; Friedman v. Miale, 69 AD3d 789, 791 [2d Dept 2010] ). While the results obtained were favorable to Metroeb, resulting in the vacatur of the preliminary injunction, the Court does not find the amount of $521,470 in legal fees billed through May 31, 2014 to be reasonable (see Lehman Bros. Finance S.A. v. Shenkman, 2002 WL 417204. *1 [SD N.Y.2002] [where the court, applying New York law, reduced attorneys' fees by more than fifty percent]; Perez v. Heckler, 1984 WL 62847, *3–4 [SD N.Y.1984] [finding it reasonable to reduce the requested attorneys' fee award by fifty percent]; Ousmane v. City of New York, 22 Misc.3d 1136[A], 2009 N.Y. Slip Op 50468[U], *10 [Sup Ct, N.Y. County 2009] [reducing attorney's fees by fifteen percent]; Matter of Spingarn, 164 Misc.2d at 898 [reducing attorneys' fees due to duplicative and unnecessary legal billing]; Matter of Lepkowski, 164 Misc.2d 146, 150–151 [Sup Ct, Suffolk County 1995] [reducing attorneys' fees] ). Accordingly, the Court finds that a 10% reduction in the amount billed reflects a reasonable estimation of proper attorneys' fees. A reduction of $25,277 for paralegal services ($34,877 minus $9600), plus a 10% reduction of $496,196 ($521,470 minus $25,277) results in a reduced fee award of $446,573.70 through May 31, 2014, which this court finds to constitute reasonable attorneys' fees incurred as a result of the preliminary injunction.
As to the legal services and expenses which Metroeb claims to have incurred from June 2, 2014 to July 31, 2014 in the amount of $75,155.50, it is noted that at the time these legal services were rendered, the preliminary injunction had already been vacated, and, thus, they could not have been incurred as a result of the preliminary injunction except to the extent that these fees were incurred in making the motion to ascertain damages sustained by reason of the wrongfully procured preliminary injunction since that constitutes part of the damages resulting from the injunction, and are recoverable as such (see Bausch & Lomb Inc., 82 Misc.2d at 579 ). As noted, by letter dated July 23, 2014, Mr. Rubinstein transmitted unredacted copies of the billing logs of Haynes & Boone from October 22, 2012, through June 30, 2014. The invoice dated July 9, 2014, which describes the hourly charges for the period June 2, 2014 through June 30, 2014, indicates that, of the 101.10 billable hours recited, approximately 40 hours are estimated to be attributable to the motion for costs resulting from the injunction. Of the $52,970.69 billed in that invoice for attorneys fees and expenses, Metroeb is allowed forty percent, $21,188, less 10% as previously discussed, for services rendered in making application for recovery of costs associated with the injunction. As to any charges subsequent to June 30, 2014 that might be related to the motion to recover against the bond, Metroeb has not provided invoices or logs from which it can be determined what fees were incurred in connection with its instant motion, as distinct from opposing Metropolitan's various motions in this case, and the Court, therefore, makes no award for that period.
Accordingly, in addition to $446,573.70, Metroeb is also entitled to $19,069.20 ($21,188 reduced by 10%) in legal fees for the period of June 2, 2014 through June 30, 2014, sustained by reason of the injunction (see CPLR 6312[b] ). In addition, Metroeb is entitled to recovery of its expenses of $35,238.62 incurred prior to the vacatur of the preliminary injunction, plus $2,684.19 in expenses incurred between June 2, 2014 and June 30, 2014, totaling $37,922.81 in expenses. This results in a total award of fees and expenses to Metroeb of $503,565.71. The claim of $71,830 in additional fees paid to the firm of Kunstlinger & Wohlgemuth, PLLC is disallowed as there is no explanation of services rendered connecting these fees to the injunction that are not duplicated or covered by the services of Haynes & Boone.
Metroeb is awarded the total sum of $2,469,354.95, inclusive of interest at 7% on $22,605,427.53 and attorneys' fees and expenses of $503,565.71. As the primary defendant in Metropolitan's action, Metroeb will recover first from the $3 million injunction bond and RedSky may only recover from the remainder of the bond.
Motion Sequence Number 17
Damages Sustained by RedSky
Lost Interest
RedSky asserts that it is entitled to interest on its restrained $3 million down payment for the purchase of the property which was unavailable for other productive uses for almost two years. It asserts that when it made this down payment on July 24, 2012, it anticipated that these funds would remain in escrow for no more than a few months, i.e., until the November 1, 2012 closing date set forth in the contract of sale between it and Metroeb. At trial, Benjamin Bernstein (Bernstein), a principal of RedSky, testified that RedSky's actual cost for capital, i.e., its internal rate of return, was 10% of the $3 million deposit. RedSky, therefore, seeks to collect interest in the total amount of $481,643.84, calculated at its internal rate of return of 10% per annum over the 19 1/3 month period of restraint from the originally scheduled closing date of November 1, 2012 to the June 9, 2014 decision and order of the Appellate Division which denied Metropolitan's stay of enforcement of the May 6, 2014 decision and order. It alternatively seeks to collect interest in the total amount of $433,479.45 based upon the interest rate of 9% per annum as provided by CPLR 5004 for this time period.
Metropolitan, in opposition, argues that RedSky could have withdrawn its $3 million down payment from escrow pursuant to paragraph 17 of its contract of sale which allowed RedSky to cancel the contract and receive a refund of its deposit if Metroeb defaulted under the contract. It asserts that RedSky voluntarily chose not to cancel the contract and demand the return of its down payment from Metroeb, and that the down payment funds were not restrained by the injunction. While the court recognizes that RedSky elected to keep its deposit in order to maintain its interest in the property, paragraph 2 of the July 2012 escrow agreement between Metroeb and RedSky and First American Title Insurance Company, as escrow agent, expressly provided that the $3 million in escrow was to be placed in an interest bearing FDIC insured money market account at JP Morgan Chase Bank. In conjunction therewith, a Form W–9 was executed by Metroeb with respect to the payment of taxes on such interest. As a result of the escrow agreement with respect to interest, the down payment accrued interest, and, pursuant to the terms of the escrow agreement, that interest was to be paid either to Metroeb, if the transaction closed, or to RedSky, in the event of a breach of the contract of sale. Furthermore, as observed by Metropolitan, if there had been no preliminary injunction and the closing of the sale had occurred as provided in the contract, the down payment would have belonged to Metroeb and RedSky would not have received any interest. Moreover, throughout the period of the injunction, during which RedSky's contractual interest was protected, RedSky retained the balance of the purchase price to be applied to its own purposes.
Thus, while it is true that lost interest on funds that are restrained is a proper element of damages covered by an undertaking in connection with a preliminary injunction (see Shu Yiu Louie, 261 A.D.2d at 152 ; Matter of Sweets, 118 Misc.2d at 1064 ), here, the $3 million deposit was not restrained by the preliminary injunction, but was held pursuant to the terms of the escrow agreement between Metroeb and RedSky, which provided that Metroeb would retain the interest on the deposit upon closing. RedSky cannot, therefore, claim that its loss of interest on this sum was damages caused by the preliminary injunction, and such interest cannot be recovered from the bond.
Title Report and Examination
RedSky further asserts that in 2012, prior to the issuance of the temporary restraining order and the preliminary injunction, it ordered a title report and title examination from First American Title Insurance Company, but that, as a result of the approximately 20–month delay resulting from the temporary restraining order and the preliminary injunction, this title report and title examination became too stale to be used at the closing and, therefore, had to be cancelled and repeated. Bernstein testified, at the trial, that the cancellation fee charged by First American Title Insurance Company for cancelling this title report and examination has cost RedSky $1,000. RedSky contends that, had the closing not been delayed as a result of the restraining order and preliminary injunction, it would not have had to incur the cost of cancelling its title report and examination because it would have used the original title report and examination on November 1, 2012. Since this loss was sustained by reason of the preliminary injunction, the court finds that RedSky is entitled to recovery of this $1,000 sum from the bond (see CPLR 6312[b] ; Marietta Corp., 9 AD3d at 817 ).
Loss of Rents
Additionally, RedSky seeks damages based upon its retained right, under its contract of sale with Metroeb, to direct Metroeb to keep residential units and retail spaces at the property vacant in the period between contract execution and closing, in exchange for credit to Metroeb at the closing for the loss of rents occasioned thereby. RedSky, in Bernstein's affidavit, asserts that since it had plans to reposition and redevelop the property upon taking title, it repeatedly exercised this right to require Metroeb to keep certain units and retail spaces, which Metroeb otherwise could have leased, vacant in order to maintain the flexibility to be able to launch its redevelopment project as soon as the court vacated the preliminary injunction. As evidenced by a Settlement Statement from First American Title Insurance Company, at the closing of the sale of the property, RedSky provided Metroeb with closing credits in the amount of $450,000 for the loss of rents incurred due to vacancy maintained during the pendency of this action while the preliminary injunction was in effect. RedSky maintains that it would not have had to pay this closing credit to Metroeb if it had closed on the property on November 1, 2012.
Paragraph 22 of the July 20, 2012 contract of sale between RedSky and Metroeb, entitled “Seller's Obligation As to Leases,” provides that if any vacancy should arise at the property between the date of the contract and closing, Metroeb was required to notify RedSky as to the terms and conditions of the proposed rental, but would have the right to fill such vacancy unless RedSky, within 10 days after receipt of such notice, elected in writing that the space be left vacant until closing. This paragraph further provides that, in the event that RedSky's election not to accept a proposed tenant was unreasonable, RedSky was required to credit Metroeb at closing with the loss of rental for such vacant space, the adjustment period being from the date of such vacancy until closing, based upon the rental loss involved.
The court finds that RedSky's claimed damages of closing credits were not sustained as a result of the preliminary injunction (see CPLR 6312[b] ). RedSky's loss was caused by its own election to keep the spaces vacant during this time period for its own business purposes while the preliminary injunction was in effect, and its obligation to pay this sum arose from the contract of sale, rather than from the preliminary injunction. Thus, these claimed damages cannot be recovered from the bond.
Legal Fees and Expenses
RedSky also asserts that it incurred attorneys' fees in connection with its involvement in this litigation. It claims that its participation in the litigation was necessitated entirely by Metropolitan's temporary restraining order and preliminary injunction since it was thereby prevented it from closing on its purchase of the property in accordance with its contract of sale with Metroeb. It seeks to recover all of the legal fees incurred by it in connection with this action, as well as in connection with making this motion to ascertain damages, by reason of the temporary restraining order and preliminary injunction. It asserts that the total amount of its legal fees was $612,478.14. RedSky notes that Metroeb also incurred legal fees for similar services and alternatively argues that, in the event that the bond is insufficient to cover both its own and Metroeb's damages, that the court should allocate the proceeds of the bond equitably between it and Metroeb.
As discussed above, in determining reasonable attorneys' fees, “the court should consider evidence of the time and skill required in the case, the complexity of the matter, the attorney's experience, ability and reputation, the client's benefit derived from the services, and the fee usually charged by attorneys for similar services” (Breidbart, 117 AD3d at 767 ; see also NYCTL 1996–1 Trust v. Stavrinos Realty Corp., 113 AD3d at 604–605 ; Angotta v. Zelezny, 112 AD3d 570, 571 [2d Dept 2013] ; Man Choi Chiu v. Chiu, 67 AD3d 975, 976 [2d Dept 2009], lv denied 14 NY3d 703 [2010] ; DeGregorio v. Bender, 52 AD3d 645, 646 [2d Dept 2008] ; Juste v. New York City Tr. Auth., 5 AD3d 736, 736 [2d Dept 2004] ).
Mitchell R. Schrage, a member of Kasowitz, Benson, Torres & Friedman LLP (KBTF), as counsel for RedSky, has submitted invoices that he states total $418,582.41 as of April 30, 2014, and asserts that there is due an additional $23,424.50 in legal fees and $917.74 in expenses incurred in May 2014, for a total of $442,924.65 in fees and expenses as of May 31, 2014. Mr. Schrage states that Adina G. Storch was a member of KBTF from April 2009 until April 2014, during which, she billed RedSky at rates of $645 per hour in 2013 and $675 per hour in 2014. Attached to the Schrage affirmation are invoices and redacted time logs for attorneys who worked on RedSky matters. KBTF has also submitted unredacted time logs covering the period from May 15, 2013 through June 12, 2014. Only the unredacted time logs will be accepted by the Court and any time logs submitted in a redacted form only will be disallowed. A review of the unredacted time logs shows that for the time period May 15, 2013 through June 12, 2014, KBTF logged 662.2 attorney hours for a total of $320,114.50, 32 paralegal hours for a total of $7,363, 27.3 of clerk hours for a total of $5,489.50, and the sum of $13,284.20 for expenses. The total amount billed based on the unredacted logs totals $346,251.20.
Mr. Schrage does not separately itemize the amount consisting of legal fees from the amount of disbursements.
Ms. Storch has submitted a separate affirmation, in which she attaches invoices reflecting that her fees billed to RedSky, while a member of the Law Offices of Adina G. Storch, PLLC (Storch), for May and June 2014 were a total of $39,845 for 61.3 hours, and that the hourly rate billed by her to RedSky was $650 per hour. Thus, Storch's fees of $39,845, together with KBTF's fees and costs of $442,924.65 total $482,769.65. However, the unredacted invoices submitted to Chambers indicate that less than 40% of the hours billed by Storch for May and June 2014 are clearly referable to the claim against the bond and even then, there appears to be much duplication. Thus, 40% of the Storch bill, $15,938, is allowed.
In addition, Brian K. Gallagher, Esq., of the Gallagher, Harnett & Lagalante, LLP firm, in his affirmation, asserts that his firm was retained as initial litigation counsel to represent RedSky and that he wrote letters to, and engaged in various communications and meetings with, among others, RedSky's representatives and Metroeb's counsel. He asserts that the legal fees and expenses that were incurred and paid by RedSky in connection with his firm's representation total $19,708.49, and he attaches a summary of the time he spent on this matter. He states that he billed RedSky at his standard hourly rate of $525 per hour for 2012 and $550 per hour in 2013, and that Brian J. Burns, as primary counsel at his firm who assisted him in RedSky's representation, billed RedSky at $395 per hour in 2013 and $415 per hour in 2014. However, Mr. Gallagher did not appear as counsel of record. Moreover, it has not been demonstrated that Mr. Gallagher performed legal services in connection with the preliminary injunction. Thus, the fees billed by him must be disallowed.
Furthermore, Jonathan Bernstein, an attorney and chief executive officer of Jonathan Bernstein Consulting Corp. (JB Consulting), which provides consulting services, as well as legal counsel to real estate owners, and acted as counsel to RedSky in connection with its negotiations to purchase the property from Metroeb and who coordinated litigation and business strategy with Metroeb's counsel, asserts that RedSky incurred professional fees and expenses in connection with litigation services in the amount of $110,000, as reflected in a June 4, 2014 invoice. However, no actual description, other than “Litigation Services” is provided, nor is it explained why such services were required when RedSky was represented by KBTF. Thus, the recovery of these fees as against the bond must be disallowed.
Metropolitan argues that RedSky should not be entitled to recover any of its legal fees because RedSky affirmatively chose to intervene in this action and was not involved in the preliminary injunction motion or any other aspect of this case until after the note of issue was filed. It asserts that RedSky joined this action primarily to preserve its claims against Metroeb, as shown by RedSky's cross claims against Metroeb. It contends that RedSky's case mimicked the case presented by Metroeb and that Metroeb was fully capable of defending this action without RedSky's involvement.
Noting that this Court is bound by the determination of Judge Pfau that Redsky could recover its damages from the bond, the Court finds that RedSky intervened in this action to protect its interests, and it expended counsel fees in doing so, which were necessitated by the preliminary injunction preventing the transfer of title pursuant to RedSky's contract. It further finds, though, that in view of the fact that RedSky first intervened in this action after the note of issue had already been filed, and was represented by several attorneys who appear to have duplicated legal work also performed by Metroeb's counsel, the amount claimed for legal fees is excessive.
Hours billed that are excessive and unnecessary should be disallowed, and hours which reflect inefficiency or duplication of services should be discounted (see Matter of Spingarn, 164 Misc.2d at 894 ). While it was within Redsky's prerogative to retain multiple attorneys to advise it, its decision to do so resulted in excessive hours spent by the separate firms in co-ordinating their representation and in duplication of the reasonably required legal services. Consistent with the earlier analysis of hourly rates, the Court accepts the billing rate charged by KBTF and Storch for attorney's fees, with the exception of the 11 hours billed by the partner Christopher P. Johnson at $895 per hour in 2013 and $925 per hour in 2014, and the 4.8 hours billed by the partner Mitchell R. Schrage at $850 per hour. These 15.8 hours will only be allowed at a rate of $725 per hour, resulting in an allowance of $11,455 for these hours and a $2,692 reduction to the total amount billed. Further, all hours billed for clerks will also be disallowed, as these costs would appear to be either subsumed in office overhead or duplicated in the paralegal rates, resulting in a reduction of the total amount billed by $5,489.50. The amount billed for paralegal work will also be reduced, allowing a rate of $80 per hour as determined to be the reasonable rate prevailing in this jurisdiction, resulting in a total of $2,560 allowed for paralegal work. In summary, following these adjustments, the total amount chargeable against the bond for KBTF's legal fees would be a total of $319,982.50, plus $13,284.20 for expenses.
After considering the time and labor required, the difficulty of the questions involved, the skill required to handle the problems presented, the responsibility involved, the fees charged, and the results obtained, the Court finds, however, that many of the numerous attorney hours billed were excessive, unnecessary, and duplicative, and has determined that a 40% reduction of the adjusted total $319,982.50 billed by KBTF for attorney time is warranted (see Lehman Bros. Finance S.A., 2002 WL 417204, *1 ). This results in an award to RedSky for legal fees in the amount of $191,989.50, plus $13,284.20 for expenses, plus $15,938 for Storch's fees, amounting to a total of $221,211.70.
Additional Damages
RedSky, in addition, asserts that it has also suffered substantial additional damages stemming from its inability to take title to the property on the originally scheduled closing date due to changed conditions in the Brooklyn real estate market in the period that the preliminary injunction was in effect. Specifically, it states that the current rising rent environment has led to a situation of tenant entrenchment, making it cost-prohibitive to displace tenants in order to effectuate the repositioning of the property as originally planned. It also states that the net effect of requiring Metroeb to keep units and retail space vacant that came up for renewal during the period that the preliminary injunction was in effect caused the property to show poor occupancy rates over a prolonged period of time, impairing its ability to obtain financing on the same terms that it would have received had it closed as scheduled in November 2012. Although it is unable to quantify any of these damages with precision, RedSky urges the court to take them into consideration. The court finds that these speculative and unquantifiable damages, which have not been demonstrated as having been suffered, cannot be recovered under the bond.
Malice Claim
RedSky also argues that new facts have come to light since the trial to support a showing of malice sufficient to award damages in excess of the bond amount. These “new facts” involve the participation of Metropolitan's principal, Harry Miller, in the investment group that recently won the bid for development rights of Long Island College Hospital, as reported in the New York Times. RedSky admits that testimony it offered at trial intended to establish a pattern and practice of collusive behavior between Metropolitan's principal and broker, whereby they would seek to insinuate themselves into real estate deals without ever having an interest in closing merely in order to extort “shake-down” value from the real parties in interest, was not allowed into evidence. RedSky contends, however, that these new facts show that Metropolitan (as controlled by Mr. Miller) was acting out of malice, as opposed to a genuine economic interest in purchasing the property, so as to enable it to recover an amount in excess of the bond.
Apart from lacking support in the record before Judge Pfau, RedSky's contentions regarding Mr. Miller are entirely irrelevant to this action since this is not an action for malicious prosecution, but, rather, a motion to recover under the bond (see Gross, 130 Misc.2d at 645 ). Furthermore, the amounts awarded by the court do not, in any event, exceed the bond, rendering this issue academic.
Upon its claim for damages resulting from the preliminary injunction, Redsky is awarded $221,211.70 for legal fees and costs, plus $1,000 for cancellation and replacement of the original title examination and report, for a total of $222,211.70.
Motion Sequence Number 15
Replacement of the Bond
RedSky asserts that the current bond is facially defective. It asserts that neither the surety, Garrahan, nor her employer, First Fidelity Lending Corporation, nor the issuer of the letter of credit securing the undertaking, First Fidelity Trust, can be located. It states that its attempts at service of its motion for damages under the bond were all unsuccessful. It further asserts that Garrahan and her associated businesses have been embroiled over the years in numerous court battles alleging the issuance of bogus surety bonds. In addition, it asserts that the pledged assets securing the undertaking are described only as “cash, cash equivalents and/or readily marketable assets,” and are purportedly in a trust account of a lawyer, William H. Batallas, who was subject to “disciplinary revocation,” recognized by the Florida disciplinary authorities as “tantamount to disbarment,” in November 2013, and has been previously sued for, among other things, improperly releasing a large sum of escrowed funds.Metroeb has submitted an affirmation in support of RedSky's motion. It simply seeks, by way of RedSky's motion, confirmation that the $3 million bond that Metropolitan was required to secure in connection with the issuance of the preliminary injunction was actually secured and that funds are, and/or will be, available for collection following the court's determination of the amount of damages to which it is entitled as a result of the preliminary injunction. Metroeb states that, as detailed in RedSky's motion, it has only recently come to attention that there may be issues with the bond, including questions of whether: (i) it was ever properly secured, (ii) there is actual collateral securing the bond, and (iii) the terms of the bond provide an available basis upon which to draw down on the purported collateral.
Metropolitan and the attorney for Garrahan, Israel Goldberg, Esq., oppose RedSky's motion, asserting that there is no basis to require that a bond be replaced after the preliminary injunction has been dissolved, and that if RedSky is unable to collect on the bond, it is not entitled to the remedy of having a new bond posted.
Metropolitan, in arguing that RedSky's motion is untimely, notes that CPLR 2506(a), in pertinent part, provides that “[i]f a certificate of qualification issued pursuant to [Insurance Law § 1111(b), (c) and (d) ] is not filed with the undertaking, a party may except to the sufficiency of a surety by a written notice of exception served upon the adverse party within ten days after receipt of a copy of the undertaking,” and CPLR 2506(b) provides that “where no such “exception to sureties is taken within ten days or where exceptions taken are set aside the undertaking is allowed.”
RedSky, in reply, points out that it has moved pursuant to to CPLR 2508, not CPLR 2506, under which, as an alternative to excepting to a surety under CPLR 2506, a party may move directly for a new or additional undertaking. CPLR 2508 permits a party, at any time, to move upon notice to the parties and surety, for “a new or additional undertaking, a justification or rejustification of sureties, or new or additional sureties.” It provides that “[u]nless otherwise provided by order of court, a surety, on the original undertaking shall remain liable until such order is complied with, but the original undertaking shall be otherwise without effect.” It has been held that “[n]othing in the legislative history [of CPLR 2508 ] supports the conclusion that the motion procedure may not be used at any time without proof of unusual circumstances” (City of New York v. Britestarr Homes, 150 Misc.2d 820, 823 [Sup Ct, Bronx County 1991] ).
As pointed out by Metropolitan, though, Metroeb did not raise any objection to the validity of the bond at the time that it was issued on December 12, 2012, and RedSky did not raise any objection as to its validity at the time that it moved to intervene in this action on May 14, 2013, or at the time that it was added as a beneficiary to the bond in the amended bond posted on February 21, 2014. Pursuant to CPLR 6312(b), the posting of an undertaking is a condition for the granting of a preliminary injunction, and, therefore, “it would be inconsistent to order the posting of an undertaking subsequent to the vacatur of the injunction” (Quandt's Wholesale Distribs. v. Giardino, 89 A.D.2d 669, 669 [3d Dept 1982] ). At this stage of the action, where the trial has already been concluded and a judgment rendered, and where the preliminary injunction has already been vacated, any issue regarding the bond, which was required during the pendency of the action and while the preliminary injunction was in place, is now moot (see id . ).
RedSky, however, argues that Garrahan was not qualified to act as a surety because she resides without the State of New York. Garrahan, in her Affidavit of Individual Surety, attached as Attachment A to the amended bond, states that her home address is 303 W. Main Street, 4th Floor, Freehold, New Jersey 07728. She also lists her employer as First Fidelity Lending Corporation, with an address at 1375 Gateway Blvd, Boynton Beach, Florida 33426.
It is noted that CPLR 2502(a)(2) requires that if the surety is a natural person, he or she must be “domiciled within the state.” However, the purpose of this requirement that individual sureties be domiciled in this State was “to insure that they could be served if an action against them became necessary” (Ellenville Natl. Bank v.. Kagan Meat & Poultry, 84 Misc.2d 815, 816 [Sup Ct, Ulster County 1976] ; see also Banco Ambrosiano, S.P.A. v. Banco De La Nacion, 1984 WL 155, *1 [SD N.Y. Apr. 16, 1984, No. 83–CIV–5042 (MJL) ] ). Thus, an objection to a surety on this basis has been held to be without merit where the defendant consents to the imposition of a condition that the surety designate an agent for service under CPLR 318 (see Ellenville Natl. Bank, 84 Misc.2d at 817 ). Here, Israel Goldberg, Esq., as a member of Goldberg & Rimberg PLLC, has appeared in this matter on behalf of the individual surety, Garrahan, and has accepted service. The court finds that Garrahan is subject to long-arm jurisdiction by virtue of her being a surety on the bond (see CPLR 302[a][1] ). Moreover, since Garrahan's attorney has appeared on her behalf, she has submitted to this court's jurisdiction, and any service upon her attorney in further proceedings related to recovery on the bond shall be deemed to be service upon Garrahan.
Pursuant to CPLR 2505, an undertaking is effective when served on the adverse party and filed with the clerk of the court. Thus, the bond became effective upon its service and filing. While RedSky and Metroeb have expressed concerns as to whether there is actual collateral securing the bond, the bond is nonetheless a valid and binding agreement, and enforceable according to its terms, and the surety remains liable thereunder (see CPLR 2507[b] ; City of New York, 150 Misc.2d at 826 ). Consequently, denial of RedSky's motion to replace the bond is warranted.
Motion Sequence Numbers 20 and 21
Sanctions
RedSky and Metroeb have each cross-moved for an order, pursuant to 22 NYCRR 130–1.1, imposing sanctions against Metropolitan for frivolous conduct. Metroeb points to the fact that Metropolitan has filed four motions, two before the Appellate Division and two before this court, seeking to stay enforcement of the May 6, 2014 decision and order and/or judgment, which have all been based on the same legal and factual arguments. RedSky similarly argues that Metropolitan's serial and repetitive motion practice qualifies as sanctionable conduct under 22 NYCRR 130–1.1. They argue that sanctions are warranted based upon this frivolous conduct by Metropolitan in the form of attorneys' fees and expenses which they have incurred in responding to these duplicative posttrial motions.
Pursuant to 22 NYCRR 130–1.1, the court, in its discretion, may award a party to an action “costs in the form of reimbursement for actual expenses reasonably incurred and reasonable attorney's fees, resulting from frivolous conduct as defined in this Part,” and, in addition to awarding such costs, may impose financial sanctions upon a party. Conduct constitutes “frivolous conduct” under this section where it “is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law,” or where “it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another.” 22 NYCRR 130–1.1(c) provides that “[i]In determining whether the conduct undertaken was frivolous, the court shall consider, among other issues the circumstances under which the conduct took place, including the time available for investigating the legal or factual basis of the conduct, and whether or not the conduct was continued when its lack of legal or factual basis was apparent, should have been apparent, or was brought to the attention of counsel or the party.”
Metropolitan, in opposing these cross motions, argues that it has not engaged in frivolous conduct because the various actual circumstances and procedural posture of the case differed when each motion was brought. Specifically, it states that it first sought relief of a stay from the Appellate Division prior to any judgment being entered in this case and that it later sought the same relief from the Appellate Division after the judgment was entered in this case. It further states that it then sought the same relief of a stay from this court at a time when no determination was made as to the substance of its post trial arguments, and then later sought the same relief of a stay from this court, which differed because it sought a stay of the pending motions by RedSky and Metroeb pending determination of its motion filed under CPLR 4404(b).
This purported attempt by Metropolitan to distinguish each of its motions for a stay is entirely devoid of merit. These motions by Metropolitan, before both the Appellate Division and this court, were duplicative and repetitive, and all based upon the identical legal and factual arguments. Furthermore, Metropolitan persisted in continuing to seek this same relief when the lack of merit for its position was already adjudicated and rejected. Thus, at the times that these duplicative motions were brought, the lack of any legal or factual basis for a stay should have been apparent by the prior rejection of a stay by the Appellate Division (see 22 NYCRR 130–1.1 [c] ). Indeed, Metropolitan sought a stay from this court after the Appellate Division had ruled that it was not entitled to one.
Moreover, Metropolitan's persistent course of filing these repetitious motions appears to have constituted a strategy undertaken primarily to continue to prolong its dispute with Metroeb by continuing to litigate already resolved claims and to harass it in bad faith (see 22 NYCRR 130–1.1 [c][2] ). Litigation is frivolous if its primary purpose is to delay or prolong a dispute or to harass or maliciously injure other parties (Kaygreen Realty Co., LLC v. IG Second Generation Partners, LP, 78 AD3d 1008, 1009 [2d Dept 2010] ). “This abuse of the judicial process [by creating unnecessary litigation] supports the imposition of sanctions” (Maroulis v. 64th St.-Third Ave. Assoc., 77 N.Y.2d 831, 833 [1991] ).
In this regard, RedSky points out that Metropolitan attempted to block the sale of the property by Metroeb to it on July 31, 2014 by having its attorneys send its lender a voice mail message and call its title company, First American Title Insurance Company, threatening to cloud title by filing a lis pendens on the property based upon the same claims that it had just litigated and lost and by threatening a bankruptcy filing. In addition, Jonathan Pasternak, Esq., as co-counsel to Metropolitan, in a letter to First American Title Insurance Company, stated that it was putting it on legal notice that if the property were transferred to a third party other than Metropolitan, its bankruptcy estate intended to hold all persons and entities liable in connection with such transfer. Metropolitan does not deny that this occurred, but states that it did not file the lis pendens, nor did it file for bankruptcy, and that since the letter had no effect because the closing took place, RedSky was not prejudiced by this conduct. While this conduct did not take place in proceedings before the court, it evidences Metropolitan's bad faith in seeking to delay and prolong the resolution of this litigation, and to harass or maliciously injure RedSky and Metroeb (see 22 NYCRR 130–1.1 [c][2] ).
Thus, the court finds that sanctions are warranted under 22 NYCRR 130–1.1. While the court has awarded counsel fees to be recovered as against the bond, these fees do not encompass the fees incurred in responding to these repetitive posttrial motions by Metropolitan, but only relate to the preliminary injunction. Consequently, since Metropolitan's repetitive applications for the same relief constitute frivolous conduct, an award of reasonable attorneys' fees to Metroeb and RedSky is warranted (see 22 NYCRR 130–1.1 [a]; Asim v. City of New York, 117 AD3d 655, 656 [1st Dept 2014] ; Weissman v. Weissman, 116 AD3d 848, 850 [2d Dept 2014], lv denied 24 NY3d 902 [2014] ; Trajkovic v. Trajkovic, 98 AD3d 55, 57 [2d Dept 2012] ; Matter of Herskowitz v. Tompkins, 184 A.D.2d 402, 404 [1st Dept 1992], appeal dismissed 80 N.Y.2d 1023 [1992] ). The court finds that sanctions in the amount of $25,000 each should be awarded to Metroeb and RedSky to reimburse them for the reasonable counsel fees incurred by them in opposing Metropolitan's frivolous motions.
CONCLUSION
Accordingly, Metroeb's motion, under motion sequence number 14, is granted to the extent that the court awards Metroeb a judgment in its favor as against Metropolitan in the amount of $1,965,789.24 for lost interest, plus $503,565.71 for incurred legal fees and expenses, with recovery of such amount, $2,469,354.95, to be obtained through the proceeds of the bond. As the primary defendant, Metroeb is entitled to recover its entire award from the bond and the remainder will be applied to Redsky's recovery.
RedSky's motion, under motion sequence number 17, is granted to the extent that the court awards it a judgment in RedSky's favor as against Metropolitan in the amount of $1,000 for the cost of the title report and examination, plus $221,211.70 for incurred legal fees and expenses, with recovery of such amount, $222,211.70, to be obtained through the proceeds of the bond.
RedSky's motion, under motion sequence number 15, to replace the bond is denied.RedSky's cross motion, under motion sequence number 20, and Metroeb's cross motion, under motion sequence number 21, for an order imposing sanctions against Metropolitan, pursuant to 22 NYCRR 130–1.1, is granted to the extent that RedSky and Metroeb are each awarded $25,000 in counsel fees as sanctions against Metropolitan for its frivolous conduct. Such sums are to be paid to counsel for the respective defendants on or before March 6, 2015. Upon failure to make such payments, defendants may enter judgment with interest from March 6, 2015.
This constitutes the decision and order of the court.