Opinion
652078/2019
08-13-2020
MTOWN MANAGEMENT GROUP, INC., Plaintiff, v. TELEPRO REALTY, LLC, Defendant, and Joon Park and Midtownsuit NY Inc., Additional Counterclaim Defendants.
Archer & Greiner, P.C., New York, NY (Michael S. Horn of counsel), for plaintiff and counterclaim defendants. Rosenberg & Estis, P.C., New York, NY (Norman Flitt of counsel), for defendant.
Archer & Greiner, P.C., New York, NY (Michael S. Horn of counsel), for plaintiff and counterclaim defendants.
Rosenberg & Estis, P.C., New York, NY (Norman Flitt of counsel), for defendant.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104 were read on this motion for PARTIAL SUMMARY JUDGMENT.
This is a landlord-tenant action among plaintiff MTown Management Group, Inc. (Tenant), defendant Telepro Realty, LLC (Landlord), and counterclaim defendants Joon S. Park and Midtownsuit NY Inc. (Guarantors).
Landlord moves under CPLR 3211 (b) and 3212 (e) to (i) strike affirmative defenses raised by the Tenant and the Guarantors against Landlord's counterclaims; and (ii) grant Landlord judgment on three counterclaims (two against Tenant and one against the Guarantors) for rent allegedly due and owing for the leased premises at issue.
Landlord's motion is denied in its entirety.
BACKGROUND
In February 2018, Landlord and Tenant entered into leases for Units 2A, 2B, and 3 in Landlord's building. (See NYSCEF Nos. 85, 86, and 87.) The leases were each guaranteed by Park, both in his individual capacity and as president of Midtownsuit.
Tenant alleges that prior to the execution of the leases and guarantees, Landlord agreed to renovate the leased spaces for residential purposes. (See NYSCEF No. 1 at 6-8). Indeed, § 3 (A) of the leases specifies that the leased spaces were to be used and occupied solely for short and long-term residential housing purposes. Section 3 (A) also includes the caveat that "Landlord makes no representations or warranties that the use as provided for herein is in compliance with the applicable laws or the certificate of occupancy, the risk and verification of same to be borne by the Tenant." (E.g. NYSCEF No. 86 at 12-13 [capitalization omitted].)
Tenant also alleges that in 2019, after the leased spaces were occupied by Tenant and its subtenants, the New York City Department of Buildings and the Fire Department issued a number of summonses declaring the leased spaces to be a danger due to illegal construction and use for residential purposes. (See NYSCEF No. 1 at 15-18). Tenant avers that it was not aware the leased spaces were illegally constructed and never legalized for residential purposes by Landlord. (See id. at 13-14.)
Landlord's version of the facts differs drastically from that asserted by Tenant. Landlord admits that Units 2A and 3 were leased to the Tenant for residential purposes as indicated in the building's Certificate of Occupancy (C of O). (See NYSCEF No. 42). And Landlord admits that it spent over $400,000 to perform renovations and alterations to accommodate the leased spaces to Tenant's specifications. (See NYSCEF No. 35 at 33.)
Landlord asserts, though, that Unit 2B was leased to Tenant for use as a commercial space. (See NYSCEF No. 24 at 55-56.) Landlord avers that upon receiving the summonses from the City agencies, it became aware that Tenant had permitted Units 2A and 3 to be used for prohibited residential stays of less than 30 days; and that Tenant was impermissibly using the commercial Unit 2B for residential purposes. (See id. at54-78; see also NYSCEF No. 35 at 29, 31, 39.) And Landlord avers that Tenant had installed bunk beds to accommodate numerous occupants—beyond the maximum occupancy of the units—without the Landlord's consent. (See id. at 40-41).
In March 2019, Landlord served Tenant with a notice to cure the violations issued by the City agencies and to pay rent for the subject units, including Unit 2B. (See NYSCEF No. 43.) Tenant did not pay the rent as demanded in the notice to cure. As a result, Landlord served Tenant with a notice of termination of the lease. (See NYSCEF No. 12.) Tenant alleges that in April 2019, Landlord exercised self-help to evict Tenant from Unit 2B. (See NYSCEF No. 1 at 26.)
Tenant brought this action against Landlord. Tenant asserted a range of claims, alleging among other things that Landlord knew in advance about the use that Tenant intended to make of the leased units, that Landlord breached various provisions of the lease and the warranty of habitability, and that Landlord had wrongfully harassed and evicted Tenant.
Landlord then brought a motion for a preliminary injunction to require Tenant to abide by orders issued by the Fire Department directing Tenant to vacate rooms within the leased premises, to restrain Tenant from subleasing the premises, and to pay for its use and occupancy of the leased premises during the litigation. (See NYSCEF No. 2.) Landlord and Tenant ultimately resolved this motion by a so-ordered stipulation.
The stipulation provides, among other things, that:
"2. [The Tenant] agrees to give up possession of Unit 2A, 2B and 3 [at the Premises] on April 30, 2019 and deliver same premises to [the Landlord] vacant and free of any and all occupants without prejudice to the claims, rights and defenses (monetary or otherwise) of either party....
....
"4. [The Tenant] shall, commencing immediately, enter into no new subleases, occupancy agreements or other license agreement with any persons not already part of a pre-existing agreement for any of the units and all existing occupants shall be removed on or before April 30, 2019.....
....
"6. As to dates and the obligation to vacate time is of the essence."
(See NYSCEF No. 22.)
Landlord recovered possession of the lease spaces as of April 30, 2019, pursuant to this stipulation. (See NYSCEF No. 35 at 7). Landlord maintains that under article 19 (B) (i) of the Leases, it is entitled also to recover damages against Tenant and the Guarantors for rent and additional rent from May 1, 2019 through July 31, 2023 (the expiration date of the leases), plus attorney fees. (See id. at 78-79, 92-94).
In early June 2019, Landlord answered Tenant's complaint and counterclaimed against Tenant and the Guarantors, seeking among other things rent, additional rent, and use and occupancy for the three leased units.
Later in June 2019, a hearing was held before a hearing officer of the City Office of Administrative Trial and Hearings (OATH) on the violations issued against Landlord by the City agencies. The OATH hearing officer concluded that "[t]he way this portion of the lease was drafted creates an inference that the [Landlord] knew that there would be multiple tenants in and out of the units. The issuing officer testified that units were essentially large open spaces with bedrooms and were marked on the doors as 2A and 2B." The OATH decision goes on to state that "[t]here is no question that within the year of the leasehold, by simple investigation and inspection the [Landlord] would have easily known that the premises were being occupied by an illegal number of persons." (NYSCEF No. 97)
Landlord now moves under CPLR 3212 (e), seeking partial summary judgment limited to its counterclaims for rent and additional rent for Unit 2B; and Landlord moves under CPLR 3211 (b) to dismiss all affirmative defenses raised by Tenant and the Guarantors against each of Landlord's counterclaims.
Landlord's motions under CPLR 3211 and CPLR 3212 are denied.
DISCUSSION
"On a motion for summary judgment, the moving party must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." ( Xiang Fu He v. Troon Mgt., Inc. , 34 NY3d 167, 175 [2019] [internal quotation marks omitted].) The burden then shifts to the opponent of the motion to "to establish the existence of material issues of fact which require a trial of the action." (Id. [internal quotation marks omitted].) The evidence presented in a summary judgment motion must be examined "in the light most favorable to the non-moving party." ( Ortiz v. Varsity Holdings, LLC , 18 NY3d 335, 339 [2011].)
Here, Tenant undisputedly stopped paying rent on Unit 2B. But Landlord's entitlement to that rent is heavily contested by the parties. A landlord is not entitled to collect rent when it is involved in, and acquiesces to, the illegal conversion of a commercial space into a residential one, contrary to the building's C of O. (See Lutine Realty Corp. v. Perry Films, Inc. , 33 AD3d 486, 486-487 [1st Dept 2006] ). In this case, a factual dispute exists about whether Landlord knowingly facilitated the conversion of the commercial Unit 2B into an illegal, residential premises.
Among other things, Landlord admitted to performing $400,000 worth of construction on the leased spaces in accordance with Tenant's specifications. Landlord has not provided the court with proof as a matter of law that Landlord nonetheless remained ignorant of Tenant's planned impermissible use for those spaces. Indeed, the OATH hearing officer specifically concluded that Landlord must have known what Tenant was going to do with the leased spaces.
Landlord's motion for partial summary judgment is premature in any event under CPLR 3212 (f). To defeat or delay a summary judgment motion on this ground, the nonmoving party must demonstrate that discovery remains outstanding, that the nonmoving party has sought to "discover facts at variance with the moving party's proof," but that material evidence nonetheless remains within the exclusive possession of the moving party. ( Voluto Ventures, LLC v. Jenkens & Gilchrist Parker Chapin LLP , 44 AD3d 557, 557 [1st Dept 2007] [internal citations omitted] ).
Tenant and the Guarantors have met this burden by submitting unsatisfied discovery demands for material evidence and testimony—including the depositions of individuals such as the real estate brokers who facilitated the leases at issue, who might provide testimony supporting Tenant's claim that Landlord consented to the use of Unit 2B for residential purposes. Indeed, Landlord admits that discovery in this case is incomplete and that depositions have not yet been held. (See NYSCEF No. 35 at 8.) The record here is "not ripe for reaching a summary determination." ( Grotto & Assoc. v. Lax , 174 AD2d 394, 395-396 [1st Dept 1991] ).
Additionally, since factual disputes remain about whether Tenant defaulted on an obligation to pay rent to Landlord for Unit 2B, Landlord also is not entitled to summary judgment on its claims against the Guarantors for that rent. (See Madison Ave. Leasehold, LLC v. Madison Bentley Assoc. LLC , 30 AD3d 1 [1st Dept 2006], affd 8 NY3d 59 [2006] [holding that a guarantor's liability accrues only after a default on the part of the principal obligor].) Traders Co. v. AST Sportswear, Inc . (31 AD3d 276 [1st Dept 2006] ), cited by Landlord in support of its position, is distinguishable because the landlord in that case had established the tenant's default as a matter of law. That is not true here.
Landlord also moves under CPLR 3211 (b) to strike Tenant's and the Guarantors' affirmative defenses to Landlord's counterclaims. The motion is denied.
A party moving to dismiss affirmative defenses "bears the burden of demonstrating that the defenses are without merit as a matter of law"; and "in deciding a motion to dismiss a defense," the nonmovant "is entitled to the benefit of every reasonable intendment of the pleading, which is to be liberally construed." ( 534 E. 11th St. Hous. Dev. Fund Corp. v. Hendrick , 90 AD3d 541, 541-542 [1st Dept 2011] [internal citations omitted].) In this case, Landlord has not eliminated material factual disputes presented by the nonmovants' affirmative defenses—for example, whether Landlord may collect rent and additional rent on the leased commercial space, Unit 2B, that was illegally converted into a residential unit.
Accordingly, it is
ORDERED that the branch of Landlord's motion under CPLR 3212 (e) seeking partial summary judgment in its favor on the counterclaims against Tenant and the Guarantors that relate to Unit 2B is denied; and it is further
ORDERED that the branch of Landlord's motion under CPLR 3211 (b) seeking to strike all of the affirmative defenses raised by Tenant and the Guarantors against Landlord's counterclaims is denied.
Dated: August 13, 2020