622 Building Company, LLC v. Empire Blue Cross and Blue Shield
(Sup. Ct. NY Cty. 12/29/99)
We represented: Owner/Plaintiff
DeGrasse, J.:
DECISION and ORDER
In this action arising from a commercial lease dispute, the plaintiff landlord moves for summary judgment and to dismiss defendant's affirmative defenses and counterclaims. Defendant cross-moves for summary judgment on its fifth counterclaim and to compel discovery.
FACTS
Plaintiff 622 Building Company, LLC ("Landlord") is the owner of a commercial office building located at 622 Third Avenue in Manhattan. It purchased the building in December 1997 from defendant Empire Blue Cross and Blue Shield ("Empire"). Empire continued to occupy a substantial amount of space in the 39-story building pursuant to a lease dated December 8, 1997 which expired on February 28, 1999. This suit arises from disputes associated with Empire's vacation of the premises.
Landlord contends that it is entitled to additional rent for "after hours" charges as contemplated in Articles 16 and 17 of the lease. Paragraph 16.01 provides in substance that Landlord would provide heating, ventilating and air conditioning between the hours of 8 am to 6 pm on weekdays and that any additional hours requested by Empire would be made available for a fee specified on a schedule appended to the lease. This fee is described as "additional rent" in the lease. Article 17 of the lease describes a similar arrangement for elevator service and other services. Paragraph 17.01 states:
Landlord, at its expense, shall provide public elevator service, passenger and freight, by elevators serving the floor on which the Demised Premises are situated during Regular Hours of Business Days, and shall have at least one passenger elevator subject to call at all other times.
Though this paragraph does not specify precise hours of operation the term "Regular Hours" is defined in paragraph 16.01 as "generally customary daytime business hours, from 8:00 am to 6:00 pm, weekdays."
Paragraph 17.07 provides that
If Tenant shall request services to be performed by Landlord in addition to those set forth in Articles 16 and 17, or if Tenant shall request services other than during the customary hours set forth in this Lease, Landlord will perform the same and Tenant shall pay for the cost thereof at the hourly rates set forth in the Schedule of Additional Services annexed hereto as Exhibit F.
The Lease provides at Article 11.01 that:
Tenant and its employees and agents shall faithfully observe and comply with the Rules and Regulations annexed hereto as Exhibit D, and such reasonable changes therein (whether by modification, elimination, or addition) as Landlord at any time or times hereafter may make and communicate in writing to Tenant…
The Rules and Regulations contained in Exhibit D to the lease state in relevant part:
Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only in the freight elevators and through the service entrances and corridors, and only during hours and in a manner reasonably approved by the Landlord. Arrangements will be made by the Landlord with any tenant for moving large quantities of furniture and equipment into or out of the building.
Finally, plaintiff relies on the Building Manual, which contains a number of rules concerning use of the building by tenants, including the following:
10. FREIGHT SERVICE
Normal operating hours are 9:00 am to 11:30 am and 2:30 pm to 4:30 pm.
NOTE: Freight service for moves, large deliveries, heavy equipment deliveries, must be arranged for at other than normal operating hours.
Plaintiff contends that as defendant prepared to move out of the building it requested that plaintiff provide "after hours" services for elevator, air conditioning, HVAC, security, and other items. It notes that invoices for after hours costs associated with the move were signed by Empire personnel. Plaintiff asserts that defendant paid after hours charges for 14 out of the 15 months of its tenancy so that it was familiar with the procedure for requesting after hours services. Plaintiff duly billed defendant for after hours costs associated with the move. Defendant refused to pay this additional rent. Plaintiff then brought this suit seeking $259,448.59 in unpaid additional rent representing after hours services.
For its part, Empire claims that it was forced to incur after hours costs by plaintiff's unreasonable insistence that it use the freight elevator for its move only after hours, and by plaintiff's refusal to allow defendant to use means besides the freight elevator, such as hoisting tackle, to remove objects from the building. Because it had to effect the move after hours, Empire was forced to use an array of after hour services, including heating, air conditioning (allegedly for the computer room) and security.
In response to plaintiff's invocation of its written policies regarding use of the freight elevator, Empire's Assistant Vice-President Brian O'Leary submits an affidavit in which he asserts that the Building Manual was not attached to the lease, "and to the best of my knowledge no employee or representative of Empire ever signed this manual or agreed to its terms in any way." Notably Empire does not deny in its papers that it received the Building Manual. Empire claims that the employees who signed the invoices associated with the after costs attending Empire's move did so under duress in order to complete the move on time. Had they not signed the invoices, O'Leary implies, plaintiff would have withheld services necessary to effect Empire's move from the building.
DISCUSSION
A. Plaintiff's Motion for Summary Judgment on its First and Second Causes of Action
Plaintiff's motion for summary judgment on its own causes of action is granted to the extent set forth below.
It is undisputed that plaintiff had a right under the lease to charge additional rent for after hours expenses. The sole issue before the court on plaintiff's motion for summary judgment is whether plaintiff improperly denied defendant's request to move out of the building using the freight elevator during business hours. This denial is the source of all of the after hours expenses incurred by defendant.
The lease gives plaintiff the right to limit Empire's ability to move out of the building during regular business hours. The right is reserved in the Rules and Regulations appended to the lease. Limitations on the use of the freight elevator are explicitly set forth in writing in the Building Manual. Though defendant asserts that it did not "sign" or "agree to" the Building Manual, that assertion is irrelevant. The Landlord reserves the right in the lease to promulgate "reasonable" rules concerning the operation of the building and those rules are binding upon Tenants so long as they are communicated in writing. The Building Manual constitutes such a written communication.
Rules concerning the use of building services during the course of a tenant's move are common in commercial landlord-tenant relationships and the limitation imposed by the Building Manual on the use of a freight elevator is not unreasonable. Defendant does not deny that it received the Building Manual. Defendant's employees' signatures on nearly 80 invoices approving after hours costs associated with the move, and the unrebutted fact that defendant incurred, and paid for, after hours costs during the course of its tenancy prior to initiating its move, are further evidence that the after hours policy was well-known to defendant.
In its defense Empire argues that plaintiff's own alleged breaches of the lease excuses Empire's non-payment of additional rent. These alleged breaches are 1) denial of access to the freight elevator during business hours, 2) confiscation of unspecified property of Empire, and 3) failure to resolve a dispute regarding electrical charges pursuant to a procedure spelled out in the lease. As discussed above, the first of these alleged breaches does not qualify as a breach at all. There is an issue of fact concerning the second alleged breach. As discussed below, plaintiff all but admits that it committed the third breach.
While the proposition cited by Empire from a leading contracts hornbook that the "nonoccurrence of a condition … entitles the obligor to … treat its duty as discharged" (see Farnsworth on Contracts § 8.20) is generally true, Empire ignores the fact that this case involves a lease and the non-payment of rent. A Landlord's breach of a covenant in the lease is independent of a tenant's covenant to pay rent and does not exonerate tenant's refusal or failure to pay rent. Accordingly, the lessor's failure to pay rent is not a complete defense to an action for rent where the lessee enjoys the use of habitable space. (74 New York Jurisprudence2d, Landlord and Tenant, § 369; see518 East 80th Street Co., LLC v Smith, 251 AD2d 215.)
Plaintiff was within its rights to require Empire to effect its move after hours. Therefore, it was entitled to charge as additional rent after hours costs associated with providing services set forth in Articles 16 and 17 of the lease. Empire's assertion that its employees signed the invoices approving after hours costs under "duress" is supported only by O'Leary's affidavit, which fails to establish O'Leary's personal knowledge of this "fact." In all events, even if O'Leary can be said to have personal knowledge concerning this matter his statements do not establish duress. It is not duress to threaten to take action which is legally permissible. (See Stewart M. Muller Constr. Co. v New York Tel. Co., 40 NY2d 955.)
While plaintiff has demonstrated that it is entitled to prevail on liability, Empire has raised an issue of triable fact concerning the amount of additional rent owed plaintiff. Empire argues that a number of the after hours charges contained in plaintiff's itemization appear to be illegitimate. The O'Leary affidavit claims that a number of charges are for services provided during normal working hours. Accordingly, plaintiff's motion for summary judgment on its first and second causes of action is granted with respect to liability only. The amount of damages shall be determined at the time of trial.
B. Defendant's Affirmative Defenses and Counterclaims 1-4
Defendant's first affirmative defense, failure to state a claim for which relief can be granted, is without merit for the reasons stated above. Similarly, defendant's second and fifth affirmative defenses, which aver plaintiff has no right to enforce its contractual rights because it breached the lease, are also infirm. Empire has failed to offer facts tending to support its third affirmative defense, alleging "unclean hands" and estoppel. As discussed above, defendant has provided some evidence calling into question the amount of additional rent claimed by plaintiff and its fourth affirmative defense therefore remains viable.
With the exception of defendant's fifth counterclaim the counterclaims are all prohibited in this action pursuant to an explicit provision in the lease. Paragraph 25.02 provides:
In any action or proceeding brought by Landlord against Tenant, predicated on a default in the payment of fixed rent or additional rent, Tenant shall not have the right to and shall not interpose any set-off or counterclaim of any kind whatsoever, except for mandatory counterclaims and except for a counterclaim for Landlord's default in paying to Tenant the Excluded Electrical Cost and Landlord Electrical Cost provided in Article 15. If Tenant has any claim, Tenant shall be entitled only to bring an independent action therefor; and if such independent action is brought by Tenant, Tenant shall not be entitled to and shall not consolidate it with any pending action or proceeding brought by Landlord against Tenant for a default in the payment of minimum rent or additional rent.
Such "no counterclaim" provisions in leases are valid. (See Lincoln Plaza Tenants Corp. v MDS Properties Development Corp., 169 AD2d 509, 512; Amdar Co. v Hahalis, 145 Misc2d 987, 988.) Moreover, as all counterclaims are permissive under the CPLR (See Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3019:2 at 205) Empire's counterclaims are not mandatory in this forum. Empire argues that this conclusion would render meaningless the word "mandatory" in the above-quoted passage. This argument ignores that the Federal Rules of Civil Procedure do denominate certain counterclaims as compulsory. (See Fed R Civ P 13[a].) Therefore the reference to mandatory counterclaims would have meaning in an action between the parties in federal court. Accordingly, Empire's first through fourth counterclaims are dismissed. It does not appear that defendant's fourth affirmative defense seeks any offset. However, such a claim would also be barred by paragraph 25.02.
C. Defendant's Fifth Counterclaim
Plaintiff argues that defendant's fifth counterclaim is extinguished by paragraph j in the definitions section of the lease regarding "termination of the lease", which provides that upon the termination of the lease term neither party shall have any further obligation or liability to the other. This argument can be supported only by a myopic reading of the relevant paragraph, which explicitly provides that claims that arose prior to the termination, such as the claim set forth in the fifth counterclaim, survive the end of the lease term. 1
Pursuant to section 15.01 of the Lease, Empire was required to pay initially for the entire supply of electricity to both the demised premises ("the common electrical cost") and the remainder of the building ("the excluded electrical cost"). Pursuant to section 15.02 of the Lease, the Landlord was required to obtain an independent electrical consultant to determine the amount of the excluded electrical cost and the common electrical cost. Once these amounts were determined plaintiff was required to pay Empire the excluded electrical cost and 5.015% of the excluded electrical cost. If Empire disputed the determination it could at its own expense retain its own expert to do a survey. Paragraph 15.02 provides in relevant part:
Tenant's consultant and Landlord's consultant shall then seek to agree on a finding of such determination of the Excluded Electrical Cost and the Common Electrical Cost. If they cannot agree, they shall choose a third reputable, independent electrical consultant, whose cost shall be shared equally by Landlord and Tenant, to make a similar survey, and the determination of such third Consultant shall be controlling. If they cannot agree on such third consultant within I0 days, then either party may apply to the Supreme Court in the County of New York, for the appointment of such third consultant. However, pending such determination, Landlord Tenant [sic] shall pay to Tenant the amount as determined by Landlord's consultant. If the amount determined as aforesaid is different from that determined by Landlord's consultant, then Landlord and Tenant shall make such adjustment for any deficiency owed by Landlord or overage paid by Landlord.
Plaintiff's consultant acknowledged that Empire was owed approximately $197,000 through the end of the lease term. Empire hired its own independent counsel, who came up with a much larger estimate.
The parties' experts apparently never caucused to discuss disparate estimates or the need to appoint a neutral expert. When Empire demanded that plaintiff follow the procedure set forth in Article 15.02, plaintiff asserted the same meritless argument discussed above, that the claim for electrical costs was "extinguished" by the termination of the lease. According to Empire plaintiff ultimately paid even less for electrical costs than its own consultant found was owing.
Accordingly, Empire's motion for summary judgment is granted to the following extent. Within ten days of service of this decision and order with notice of entry, the parties' respective consultants shall attempt to agree upon a qualified neutral consultant to determine the amount, if any, owed Empire. If the parties' consultants are unable to agree upon a qualified neutral consultant, the lease calls for this court to do so upon the application of one of the parties. As this court has no list of persons so qualified, the parties shall each submit a list of three consultants qualified to serve. The court shall make a random choice from the six names submitted. In all other respects, the motion is denied.
CONCLUSION
Plaintiff's motion for summary Judgment is granted to the following extent. Plaintiff is entitled to summary judgment on the issue of liability only on its first and second causes of action. Plaintiff's motion to dismiss the first, second third, and fifth affirmative defenses is granted. Plaintiff's motion to dismiss the first through fourth counterclaims is granted. In all other respects, plaintiff's motion for summary judgment is denied.
Defendant's motion for summary judgment on its fifth counterclaim is granted to extent set forth above in Section "C" of this decision and order. In all other respects the motion is denied. Defendant's motion to compel discovery is granted to the extent that plaintiff shall respond to defendant's outstanding discovery requests within 20 days of service of this decision with notice of entry.
This constitutes the decision and order, of the court.
Dated: December 29, 1999
1 Plaintiff does not explain why its own claims should survive if all claims were extinguished upon the termination of the lease term. The invalidity of this argument is further illustrated by plaintiff's tentative use of it. While plaintiff asserts that all the "other counterclaims," not just the fifth counterclaim, are barred under this argument, it repeatedly places this assertion in subordinate clauses or parentheses where it is unadorned by any supporting argument.