Lyman, Inc. v. 132 W. 125 Co.
(Sup. Ct. N.Y. Cty. 11/1/01)
We represented: Defendant
Paula J. Omansky, J.S.C.
DECISION and ORDER Plaintiffs Lyman, Inc. ("Lyman"), and Health Service Partners ("HSP") move, pursuant to CPLR 6314, to modify this Court's order dated May 25, 2001 (the "May 2001 Order") which granted a "Yellowstone Injunction" conditioned upon plaintiffs' payment of ongoing rent to defendants as currently invoiced by defendants to require that
(a) plaintiff pay ongoing rent based upon the formula set forth in the lease between the parties, to wit, $164,000 base rent multiplied by the Consumer Price Index ("CPI") for the month of June of each calendar year divided by 100 which is the CPI for July 1983; and to require that
(b) defendants reduce plaintiffs' proportionate share of real estate taxes from the 23% that defendants have improperly been charging plaintiffs to the 16% share set forth in the lease between the parties.
In addition, plaintiffs move, pursuant to CPLR 3212 (e), for partial summary judgment on the second, third, fifth and sixth causes of action.
Defendants cross-move, pursuant to CPLR 3211(a)(5) to dismiss plaintiffs' first, second, third, fourth, fifth, sixth, seventh, and ninth causes of action on the ground that they are barred by the applicable Statute of Limitations. In addition, defendants cross-move, pursuant to CPLR 3211(a)(7) to dismiss plaintiffs' eighth cause of action for attorneys' fees for failure to state a cause of action. In addition, defendants cross-move for partial summary judgment on their second counterclaim in the sum of $186,334.74 together with pre-judgment interest thereon from December 1, 2000. Defendants also move for partial summary judgment on their third counterclaim which seeks award of possession of the subject premises to defendants and for an order directing the Sheriff of the City of New York to remove plaintiffs and any subtenants from the subject premises.
Defendants also cross move, pursuant to CPLR 3212(c) and (e), for partial summary judgment on the first and fourth counterclaim on the issue of liability and to sever and refer to a special referee the issue of computation of base rent and "additional rent" due for the balance of the term of the lease; and for total amount of attorneys' fees due to defendants.
FACTS
Plaintiff Lyman, Inc. ("Lyman") was the tenant of a portion of the premises located at 132-40 West 125th Street in Manhattan, pursuant to a written agreement of 20-year lease with the landlord, Orax Associates (a non-party) that was signed on March 4, 1983 and which was to commence on May 1, 1983. Lyman is the general partner of co-plaintiff Health Service Partners, L.P. which is the current lessee/tenant of the premises by assignment of the lease.
On September 4, 1985, Lyman and Orax executed an amendment to their lease agreement. Pursuant to paragraph 38 of the 1985 Lease Amendment, plaintiffs' base rent for the period ending June 30, 1988 would be $180,000 per annum multiplied by the Consumer Price Index ("CPI") for the last month in the immediately preceding lease year (June of the relevant year) divided by 100 (the CPI for the Month of July 1983 as established by the Bureau of Labor Statistics). According to paragraph 38 of the 1985 Lease Agreement:
[t]he base rent shall [sic] as follows: for the period ending June 30, 1988, at the rate of $180,000 per annum, and for each succeeding 12 month period during the term of this lease, commencing with the 12 month period that shall begin July 1, 1988, the base rental shall be the amount per annum which is the product of the multiplication of $180,000 by a fraction, the numerator of which is the "Price Index" (as hereinafter in this Article defined) for the last month in the immediately preceding lease year and the denominator of which is the "Price Index" for the month of July 1983. The term "Price Index" shall mean the Consumer Price Index for All Urban Consumers, New York and Northeast New Jersey published by the Bureau of Labor Statistics of the United States Department of labor (or any comparable Index then prepared and published by any agency of the Government of the United States is such Consumer Price Index is not at the time so prepared and published) appropriately adjusted for changes in the manner in which such index is prepared and the year in which such index is based.
Paragraph 38 of the 1985 Lease Amendment also required the landlord to notify the tenant in writing of the change in base rent and payment procedures:
[t]he said computations in respect of the base rental payable during each lease year commencing with the lease year that shall begin on July 1, 1988 shall be made at the earliest possible date after the Price Index for the month of June in the applicable year is published or otherwise made available. Landlord shall give Tenant written notice of an increase in the base rental payable by reason of a change in the Price Index. The installment of base rental payable on the 1st day of the month following the date on which Landlord shall give notice of such increase shall be in an amount equal to 1/12 of said annual rate specified in Landlord's notice plus the difference between rental installments previously paid in respect of such lease year and the increased amount payable by reason of application of the Price Index increase as set forth in Landlord's notice. Tenant shall pay rent commencing with the installment due July 1, 1988 at the annual rate of $180,000 (for the annual rate in effect during the preceding lease year, if greater than $180,000) unless and until Landlord shall advise Tenant, after ascertaining the Price Index for the month of June in the preceding lease year, that the rental rate for the lease year commencing July 1 shall be higher by reason of the comparison of the Price Index for June in the preceding lease year with the Price Index for July 1983 as above in this Article provided. Anything elsewhere in this Article 38 to the contrary notwithstanding, in no event shall the amount of the base rental payable under this Article 38 for any lease year by less than $180,000.
In addition, the tenant was required to pay a certain proportion of the property taxes for the premises as "additional rent" (1985 Lease Amendment, 39).
On September 11, 1985, Lyman and Orax again modified the lease by a letter agreement (the "September 1985 Letter Agreement") which provided:
the landlord and tenant agree that the landlord shall have the option to recapture 5,000 square feet of the basement space rented to [Lyman] . . . at any time up until December 31, 1986. In the event that the landlord exercises this option the base rent reserve for the demised premises shall be reduced by $15,000.
Plaintiffs allege that Orax sold the premises to defendant 132 W. 125 Co. on July 1, 1986. According to plaintiffs, defendant 132 W. 125 Co., L.L.C. succeeded to all of the rights and obligations of 132 W. 125 Co. "by operation of Law." The basis for this assertion is not stated.
On December 2, 1986, defendant 132 W. 125 Co. notified Lyman by letter that it intended to exercise its option as landlord to recapture 5,000 spare feet of basement space:
[o]n your surrender of the aforesaid Space, which shall occur not later than December 31, 1986, the base rent reserved in your lease, dated September 4, 1985, will be reduced, for the month immediately following your surrender of same, by $15,000 per annum, pro-rated on an annual basis.
In December 1986, Lyman surrendered 5,000 square feet of basement space to the landlord. This surrender should have reduced the base rent to $165, 000 ($180,000 – $15,000). Lyman assigned the lease to plaintiff HSP.
On March 17, 1987, HSP subleased the premise to North General Hospital ("NGH"), a non-party for the operation of a hospital servicing the Harlem community. On February 8, 1988 defendant 132 W. 125 Co., as successor-in-interest to Orax, and HSP, as successor-in-interest to Lyman, executed a letter agreement (the "February 1988 Letter Agreement") which amended the lease to provide that the tenant’s tax contribution "shall be reduced from 23% to 16% of the increase in the amount of taxes . . . and this reduction shall take effect as of the next tax year to commence July 1, 1988 and for every tax year thereafter during [sic] duration of lease."
The tenant surrendered an additional 300 square feet of basement space to the landlord. In turn, the tenant's rent was reduced by $84.34 a month or $1,000 a year. This reduction was to commence on the first day of the month following the execution of the agreement. Further amendments to the lease occurred on December 2, 1991 and March 7, 1995.
In March 2001, defendant commenced a commercial holdover proceeding to evict plaintiff based on their alleged default in the payment of rent under the lease. On April 10, 2001, Judge Faviola A. Soto of the New York Civil Court determined that plaintiffs were not in default and thus granted plaintiffs' motion to dismiss the proceeding. Judge Soto determined that the 1985 agreement was not a new lease but an amendment to the original 1983 lease and that all notice requirements from the 1983 lease continued.
Plaintiffs state that, as a result of the holdover proceeding in 2001, they learned that defendants did not make the necessary reduction in base and additional rent and have been overbilling plaintiffs for rent and taxes since 1986. In particular, plaintiffs allege that rental statements and bills did not reflect either the $15,000 annual base rent reduction required pursuant to the September 1985 Letter Agreement or the $1,000 annual additional rent reduction required pursuant to the February 1988 Letter Agreement. Moreover, plaintiffs allege that defendants' post-1988 bills, notice and statement did not reflect the reduction of taxes from 23% to 16%.
According to plaintiffs, defendants have overcharged plaintiffs in excess of $29,248 from July 1, 2000 through June 30, 2001. Plaintiffs maintain that defendants have overcharged them in excess of $352,000 over the past 14 years. Plaintiffs also allege that the defendants have failed to hold the security deposit in an interest-bearing account and to remit the earned interest to tenant on a quarterly basis.
Defendants do not specifically address plaintiffs' allegations of fraud but only maintain that the plaintiffs' claims are time barred because they failed to object to the landlord's statements. Defendants further allege that, from 1992 to the present, the landlord's and/or its predecessors-in-interest have sent annual statements to plaintiffs which expressly set forth the method used by the landlord for calculating the base rent due pursuant to the lease. For example, the 1993 statement set forth the calculation for the new base rent effective July 1, 1992 as follows:
[$180,000 x 144.6]/100 = $260,280
The $180,000 figure represents the base rent billed by the landlord, 144.6 represents the CPI as of June 30, 1992, and 100 is the base year CPI.
Defendants also state that from 1988 to the present, the landlord sent to the plaintiffs statements setting forth plaintiffs' proportionate share of the real estate taxes to be 23%. Plaintiffs never objected to the statement. However, defendants do not argue that the reductions noted in the 1985 and 1988 letter agreements were valid only for a limited time period.
Moreover, defendants maintain that plaintiffs have not been damaged because they have been charging rent from NGH in an amount substantially higher that the amount collected by the landlord. In particular, defendants note that NGH pays plaintiffs an annual rent of $564,000 ($47,000 monthly) and all additional rent charges. According to defendants, plaintiffs have failed to pay the base and/or additional rent due pursuant to the lease for the period from December 1, 2000 through May 31, 2001 and owe $186,433.73.
Plaintiffs commenced this action in 2001 raising claims of preliminary injunction (first cause of action), offset (second cause of action), breach of contract (third cause of action), fraud (fourth cause of action), breach of agreement to give interest on security deposit (fifth cause of action), commingling of security deposit in violation of section 7-103 of the General Obligations Law (sixth cause of action), deceptive business practice in violation of section 349 of the General Business Law (seventh cause of action), legal fees (eighth cause of action) and unjust enrichment (ninth cause of action).
In their answer, defendants raise counterclaims for back rent listed in the default notice and breach of lease. Defendants also seek an order of default against plaintiffs and a return of the premises and attorney fees.
In the May 2001 Order this court granted plaintiff's motion for preliminary injunction "conditioned upon plaintiffs, payment of ongoing rent to defendants as currently invoiced."
DISCUSSION
Attorneys' Fees
In New York, the rule remains that attorneys' fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or court rule.
Here, plaintiffs have failed to cite any statute, court rule, or lease provision which entitles them to attorneys' fees against the defendant landlords in the event that the tenants prevail in this action (Glen v. Hoteltron Sys., 74 NY2d 386, 393 [1989]). Therefore, that branch of defendants' cross motion to dismiss the eighth cause of action for failure to state a cause of action (CPLR 3211[a][71]) is granted.
Statute of Limitations
The tenants are entitled to recover or offset any overpayments which are not barred by the applicable Statute of Limitations (Arrathoon v. East New York Savings, 210 AD2d 366, 367 [1st Dept 1994], lv denied 85 NY2d 806 [1995]; see, NAS National Health Servs. Inc. v. Kaufman, 250 AD2d 528 [1st Dept 1998]). Since breach of contract and unjust enrichment claims are covered by the six-year Statute of Limitations (Natimir Restaurant Supply, Ltd. v. London 62 Co., 140 AD2d 261, 262 [1st Dept 1988], citing CPLR 213 [2] and [1]).(The four-year Statute of Limitations pursuant to CPLR 213-a for residential rent overcharges is not applicable to the present case which deals with commercial property.) Plaintiffs argue that they are entitled to recover or offset overpayments, if any, which occurred six years prior to the commencement of this action. Plaintiffs state they are not seeking overpayment claims which accrued more than six years prior to the commencement of this action are barred. Moreover, plaintiffs argue that annual rent statements are a continuing duty under their lease and a cause of action for breach accrues each year that defendants present an annual rent statement which does not take into account the reductions in rent permitted by the September 1985 and February 1988 Letter Agreements.
In turn, defendants argue that plaintiffs' claim accrued the first time that a rent statement listed a rent amount to which plaintiffs objected. Defendants also state that plaintiffs' claims are barred by the Statute of Limitations in accordance with the determination of the First Department in Goldman Copeland Assocs. v. Goodstein Bros. (268 AD2d 370, 371 [1st Dept 2001], lv dismissed 95 NY2d [2000], lv dismissed 96 NY2d 798, rearg denied 96 NY2d 897 [2001]) which held that the tenants' argument, that the yearly increase due under the porter wage escalation clause created a new cause of action, was unpersuasive in the context of a dispute involving a computational methodology that remained constant over the years for which the computation was being challenged (ibid.). In Goldman, the First Department held that
[I]t is undisputed that the landlord gave the tenant detailed yearly porter escalation statements for the years in question, which were paid by the tenant without protest. Since such statements consistently used the same – formula in determining the escalation, the tenant's overcharge claim accrued upon its receipt of the first statement almost 12 years before it commenced this action. At that time it had all of the information it needed to contest the manner in which the landlord computed the escalation (ibid.).
Hence, the determinative factor in Goldman was that the tenants, who were fully aware of the contract provision outlining the computational method from the inception of the tenancy, failed to challenge the landlord's interpretation of the original lease clause for over six years and then sought to have all alleged overpayments returned based on the tenant's belated interpretation of the lease provision.
The court rejects plaintiffs' argument and finds that the present breach of contract claim is subject to the findings in Goldman. The present breach of contract/unjust enrichment action accrued when the defendants first served an annual rent statement on the new tenants which was over six years prior to the date of commencement of this action.
HSP's assertion that it was unaware until the holdover proceeding in 2001 that defendants did not, or refused to, make the necessary reduction in base and additional rent as required pursuant to the September 1985 and February 1988 Letter Agreements does not save the breach of contract/unjust enrichment claims. In New York, "[e]xcept in cases of fraud where the statute expressly provides otherwise, the statutory period of limitations begins to run from the time when liability for wrong has arisen even though the injured party may be ignorant of the existence of the wrong or injury” (Ely-Cruikshank Co. v. Bank of Montreal, 81 NY2d 399, 403 [1993]). Knowledge of the occurrence of the wrong on the part of plaintiffs is not necessary to start the Statute of Limitations running in a contract action (ibid.). Therefore, the third and ninth causes of action for breach of contract and unjust enrichment must be dismissed as time-barred.
However, plaintiff has stated sufficient facts to sustain a separate claim for fraud in the fourth cause of action. Plaintiffs allege the landlord willfully withheld the necessary information concerning the reduction in rent which corresponded to a reduction in the size of the leasehold as a result of the September 1985 and February 1988 Letter Agreements.
Defendants do not present evidence that the HSP was aware of the September 1985 and February 1988 Letter Agreements prior to receipt of the initial bill nor do defendants dispute the fact that subsequent amendments to the original 1983 lease granted the tenants future annual reductions in both the "base" and "additional" rent computations in exchange for return of portions of the demised premises to the landlords. Furthermore, defendants have not presented any evidence that the annual reductions outlined in the September 1985 and February 1988 Letter Agreements are no longer applicable or valid to computations of subsequent base and additional rent. Therefore, the present record does not support an argument that plaintiffs waived the benefit of a lower future rent merely because they may have paid a higher sum for previous years.
This fourth cause of action is not time-barred because any claim based on fraudulent acts should be commenced within six years after the commission of the fraud, or two years from the time plaintiff discovered, or could with reasonable diligence have discovered, the fraud, whichever is later (Goldstein v. Winard, supra, 173 AD2d, at 202, citing Quadrozzi Concrete Corp. v. Mastroianni, 56 AD2d 353 [2d.Dept 1971], appeal dismissed 42 NY2d 824 [1977] [remaining citation omitted]). Since the court is unable to determine with any certainty when any deceptive practices or fraud, if any, began, and if plaintiff could have discovered, with reasonable diligence, the existence of any fraudulent charges, defendants' cross motion to dismiss the fourth cause of action for fraud is denied. Since the first and second causes of action are intertwined with plaintiffs' fraud claims, defendants' cross motion to dismiss the causes of action for preliminary injunction and offset is denied.
Plaintiffs' fifth cause of action claim for breach of the security deposit agreement to give interest payments is also subject to six-year Statute of Limitations. Since the duty of the landlord is continuing obligation under paragraph 66 of the original 1983 lease, plaintiffs are entitled to interest payments which should have accrued on the interest bearing account during the six-year period prior to the commencement of this action
Therefore, defendants' cross motion to dismiss the third and ninth causes of action is granted. The fifth cause of action is granted only to the extent of dismissing those interest payments which accrued prior to 1995. In turn, plaintiffs' motion and defendants' cross motion for summary judgment on the first, second and fourth causes of action for preliminary injunction, offset and fraud is denied based on the present record.
Defendants maintain that plaintiffs' sixth and seventh causes of action for violation of section 7-103 of the General Obligations Law and deceptive business practice in violation of section 349 of the General Business Law are subject to the three-year Statute of Limitations set forth in CPLR 214(2) for liability created or imposed by statute. However, CPLR 214(2) does not govern all actions arising from statutes. The Court of Appeals has limited the scope of CPLR 214 (2) finding that this section applies only to situations where a statute creates a new liability that did not exist at common law and would not exist but for the statute (Aetna Life and Cas. Co. v. Nelson, 67 NY2d 169, 173 [1986]).
A cause of action for commingling of funds under section 7-103(2) of the General Obligations Law does not create a new cause of action. Rather, this statute is interpreted as a claim for conversion of a trust fund (Matter of Ideal Reliable Sundries, Inc., 49 AD2d 852 [1st Dept 1975]). In New York, an action for conversion is governed by the three-year Statute of Limitations in CPLR 214 (3) whether the action arises out of a contractual relationship or due to tortious conduct on the part of a defendant (Two Clinton Square Corp. v. Friedler, 91 AD2d 1193, 1194 [4th Dept 1983]; Al- Roc Products Corp. v. Union Dime Sav. Bank, 74 AD2d 834 [2d Dept 1980]). The Statute of Limitations for conversion ordinarily runs from the date the conversion takes place (D'Amico v. First Union Nat. Bank, AD2d 728 NYS2d 146, 150 [1st Dept 2001], order issued 2001 WL 815480 [1st Dept 2001]; Al-Roc Products Corp. v. Union Dime Sav. Bank, supra) or from the time that a fund owner becomes aware that a fund holder becomes hostile to fund owner's interests (Goldstein v. Winard, 173 AD2d 201, 202 [1st Dept 1991] ). Since the exact date of the alleged commingling, if any, is not stated, this court is unable on the present record to determine whether the sixth cause of action is time-barred and further discovery is necessary. In turn, plaintiffs' motion for partial summary judgment on their sixth cause of action is also denied.
As to the seventh cause of action, New York recognizes a distinction between common-law fraud and statutory fraud since in the latter reliance is not necessary (Mitchell v. Handler, 2001 WL 914221 [Sup Ct, Nassau County 2001], citing Stutman v. Chemical Bank, 95 NY2d 24, 28 [2000]). Therefore, section 349 of the General Business Law creates a new claim unknown at common-law making the claim subject to the three-year Statute of Limitations set forth in CPLR 214(2). Again the exact date that plaintiff first learned of defendants, alleged deceptive practices is not clear from the present submission and the court is unable to determine whether the seventh cause of action is time- barred on the present facts.
Base Rent and Additional Rent
Since the plaintiffs have not presented any payments records or proof of the applicable CPI for the relevant years for which they believe that they are eligible for a refund or offset, this court is unable to compute the annual base and additional rent for 1995 onwards. Therefore, this court shall not modify the May 2001 Order.
The remainder of plaintiffs' motion and defendants' cross motion is denied.
Accordingly, it is
ORDERED that the branch of defendants' cross motion to dismiss the third, eighth, and ninth causes of action is granted; and these claims are severed and dismissed; and it is further
ORDERED that defendants' cross motion to dismiss the fifth cause of action is granted only to the extent of dismissing those claims which accrued prior to 1995; these portions of the fifth cause of action are severed and dismissed; and it is further
ORDERED that plaintiffs' motion and the remainder of defendants' cross motion is denied; and it is further
ORDERED that the remainder of the action shall continue. The parties shall appear for a conference, to be held on November 30, 2001, at 11 a.m. at 71 Thomas Street, Room 205, New York, N.Y.