Opinion
601135/05.
Decided July 13, 2005.
Pursuant to section 30 of the lease in question, issues arising out of the lease must be submitted to arbitration. Accordingly, plaintiffs' motion (Seq. 2) to stay arbitration is denied and defendants' cross-motion to compel arbitration is granted. Contrary to plaintiffs' argument, the American Arbitration Association has the expertise to handle this type of arbitration.
1. This decision was edited for publication.
Next, the Court must decide whether to issue a preliminary injunction pending the arbitration. CPLR 7502(c). A preliminary injunction will be granted where the movant shows a probability of success, danger of irreparable injury in the absence of an injunction, and a balance of the equities in its favor. Aetna Insurance Co., v. Capasso, 75 NY2d 860 (1990). Here, plaintiffs have operated a Staples Superstore from the subject location (which includes a parking lot) in Brooklyn for many years, have always paid the rent, and stand to lose business given the time and difficulty in obtaining similar space in the neighborhood. Accordingly, plaintiffs have clearly established a danger of irreparable injury and that, on balance, the equities are in their favor. The more difficult question is whether they have shown a likelihood of success on the merits.
2. Plaintiffs are not entitled to Yellowstone injunctive relief inasmuch as this case does not deal with the tolling of a cure period. Graubard Mollen Horowitz Pomeranz Shapiro v. 600 Third Avenue Associates, 93 NY2d 508 (1999). Rather, defendants are seeking to terminate the lease based on paragraph 5(a) of the lease, which allegedly permits them to do so based on the predecessor tenant (Grand Union)'s filing for bankruptcy protection. There is no default at issue that can be cured.
On March 31, 1992, Grand Union assigned the lease it had executed with defendants for the subject premises to plaintiffs (Staples). See Exhibit E attached to Plaintiff's Motion. Pursuant to the assignment agreement, "nothing in this [assignment] agreement, shall relieve [Grand Union] from liability for performance under the Lease, and [Grand Union] agrees to remain bound to the Landlord under the terms of the Lease." Exhibit E. Staples assumed the lease with defendants knowledge and renewed it several times, the last on February 5, 2005.
In the meantime, Grand Union filed for bankruptcy on three separate occasions: in 1995, 1998 and in 2000. There appear to be questions of fact as to whether Grand Union gave defendants notice as required pursuant to paragraph 5(a) of the lease, which states in relevant part:
if at any time during the term hereby demised, there shall be filed by or against Tenant in any court pursuant any statute either of the United States or New York State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, and within 90 days thereof Tenant fails to secure a discharge thereof, or if Tenant makes an assignment for the benefit of creditors or petitions for or enters into an agreement, this lease, at the option of the landlord, exercised within a reasonable time after notice of the happening of any one or more of such events, may be cancelled and terminated and in which event neither Tenant not any person claiming through or under Tenant by virtue of any statute or of any order of any court, shall be entitled to possession or to remain in possession of the premisses demised but shall forthwith quit and surrender the premises[.]
Shortly after Staples elected to renew the lease on February 2, 2005, defendants assert that they learned for the first time that Grand Union had filed for bankruptcy and exercised their rights under paragraph 5(a) to terminate the lease.
Plaintiffs argue that the termination was improper for three reasons. Namely, that Grand Union filed for bankruptcy after it had assigned the lease to Staples and Staples remains financially solvent. Second, that Section 365(e) of the Bankruptcy Code renders paragraph 5(a) invalid. And, third, that defendants waived their rights under paragraph 5(a) because they knew or had reason to know that Grand Union had filed for bankruptcy protection in the 1990's and failed to exercise their option of terminating within a reasonable time as required by the lease.
In the Court's opinion, plaintiffs have shown a likelihood of success with respect to their first argument. In remarkably similar circumstances, the Appellate Term of the First Department ruled in favor of the assignee in 85 Nassau Co. v. TS Holding Corp., N.Y.L.J., 9/11/74, p. 2, col. 1 (App. Term 1st Dept. 1974). Specifically, the Court held that:
Read reasonably, the lease and modification agreement make manifest the intention of the parties to substitute the assignee as Tenant under the bankruptcy clause of the lease, subject only to the contractual obligation of the original tenant to make good any default under the lease by the substitute tenant . . . To read the lease otherwise would be to construe it unrealistically . . . and give landlord an unreasonable advantage over the tenant in occupancy . . . Had the parties intended that the bankruptcy of the named tenant, although out of possession could terminate the lease, they could have easily have so stated in the lease or modification agreement.
(citations omitted). To the extent that Inip Co. v. Bailey, Green Elger, Inc., 78 Misc 2d 235 (Dist.Ct., Nassau Co. 1974), holds otherwise, this Court chooses not to follow it given the clear state policy against lease forfeiture and its drastic remedy. Vanguard Diversified, Inc., v. Review Co., 35 AD2d 102 (2nd Dept. 1970).
Accordingly, based on the foregoing, it is
ORDERED that Plaintiffs are granted a preliminary injunction (Seq. 1) preventing defendants from terminating Staples' lease with defendants covering the premises at 9319 Fifth Avenue, Brooklyn, NY, including taking steps to evict Staples from the premises based upon the Notice of Termination dated March 11, 2005, and interfering in any way with Staples' lawful use of the leased premises based upon the Notice of Termination dated March 11, 2005, pending the resolution of the arbitration, and it is further
ORDERED that plaintiffs' motion (Seq. 2) for an order staying arbitration is DENIED; and it is further
ORDERED that defendants' cross-motion for an order compelling arbitration is GRANTED.
This constitutes the Decision and Order of the Court.