This is a commercial-landlord-tenant action for unpaid rent brought by plaintiff sublessor, Rothfos Corp., against defendant sublessee, Honcker Inc.
Plaintiff alleges that defendant entered into a sublease agreement dated July 17, 2019, for space on the 22nd floor of One Penn Plaza in Manhattan. Defendant was obligated to make monthly rent payments of $26,000 to plaintiff. (See NYSCEF No. 26 at 1.) Because COVID-19 lockdowns prevented defendant from making full use of the premises, plaintiff consented to defendants paying reduced rent for April and May 2020. (See NYSCEF No. 37 at 2-3.) Defendant failed to pay rent to plaintiff from June 2020 through April 29, 2021, at which point defendant vacated the premises. (See NYSCEF No. 1 at 3; NYCEF No. 3 at 2-3.)
Plaintiff brought this action against defendant, asserting claims for breach of contract, quantum meruit, and account stated. (See generally NYSCEF No. 1.) Defendant counterclaimed for an offset to plaintiffs damages in the amount of defendants security deposit, and for an award of attorney fees. (See NYSCEF No. 3 at 7.)
Plaintiff now moves to dismiss defendants counterclaims and defenses and requests summary judgment on its claims for breach of contract and account stated. (See NYSCEF No. 22 at 16.) Defendant cross-moves for summary judgment on its counterclaim, seeking the return of its security deposit of $104,000 and leave to amend its answer. (See NYSCEF No. 65 at 5 and 8.) Defendant also moves to dismiss plaintiffs quantum meruit claim. (See NYSCEF No. 65 at 7.) Plaintiffs motion for summary judgment and plaintiffs request for attorney fees are granted. Defendants cross-motion for summary judgment on its counterclaim is granted. Defendants request for leave to amend its answer is denied.
DISCUSSION
I. Plaintiffs Motion and Defendants Cross-Motion for Summary Judgment
A party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case. (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985].) If the movant meets this burden, the non-moving party must then establish the existence of material issues of fact. (See Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986].)
A. Plaintiffs Motion for Summary Judgment in its Favor
To make out a prima facie claim for breach of contract, a plaintiff must show that (1) a contract exists between the parties, (2) plaintiff performed its duties under the contract, (3) defendant breached, and (4) plaintiff suffered damages. (34-06 73, LLC v Seneca Ins. Co., 39 NY3d 44, 51 [2022].) Plaintiff has made that showing. The parties had a binding contract, the sublease. (See NYSCEF No. 26.) Plaintiff performed its duties under the sublease by allowing defendant to use the space for the entire lease term. Defendant failed to fulfill its contractual obligation to pay rent. That caused plaintiff to suffer damages.
Defendant opposes plaintiffs summary-judgment motion on the principal ground that plaintiff assertedly accepted, in complete satisfaction, reduced rent payments for April and May 2020. Defendant points to an email exchange (NYSCEF No. 37) between Nathan Hecht, CEO of defendant, and Olga Chookazian, assistant to Thomas Minogue, plaintiffs CFO. This email chain and the email thread found in NYSCEF No. 51 show that Chookazian, on Rothfoss behalf, accepted reduced rent for April, May, and June of 2020. In relevant part, her emails state:
We would be willing to reduce the rent by 25% while you work on securing any assistance available for your business. We will accept $19,500 for the month of April if paid direct and does not reduce the security deposit, and can reevaluate where you are at in obtaining funding on May 1 and so on. (April 20, 2020) (NYSCEF No. 37)
In the spirit of cooperation, we can lower the rent for May to $18,200, which represents a 30% reduction from the monthly obligation. We hope this helps. (May 4, 2020) (NYSCEF No. 37)
Each and every time you requested a monthly reduction, we have obliged you with no questions asked. We have been more than accommodating, and continued to be accommodating by agreeing to accept $15k for the month of June. (July 7, 2020) (NYSCEF No. 51)
The sublease provides that modifications or amendments must be made in a signed writing. Email exchanges may qualify as signed, written agreements when the emails set forth all material terms of the agreement. (See Kasowitz, Benson, Torres & Friedman, LLP v Reade, 98 AD3d 403, 404 [1st Dept 2012], affd 20 NY3d 1082 [2013]; Philadelphia Ins. Indem. Co. v Kendall, 197 AD3d 75, 79 [1st Dept 2021].) Because plaintiff accepted defendants partial payments as fully satisfying its modified rent obligations for the months of April and May 2020, this court concludes that defendant owes no damages to plaintiff for those two months. Further, the court concludes that defendant owes damages in the amount of $15,000 for its failure to pay rent for the month of June 2020. Plaintiffs request for summary judgment in its favor is thus denied in part with respect to rent for April through June 2020; the request is otherwise granted.
B. Plaintiffs Motion for Summary Judgment Dismissing Defendants Counterclaims, and Defendants Cross-Motion for Partial Summary Judgment on its First Counterclaim
Plaintiff moves for summary judgment dismissing defendants counterclaims. Defendant cross-moves for summary judgment on its first counterclaim. Plaintiffs motion is granted with respect to defendants second counterclaim, for attorney fees. Defendant cannot recover attorney fees when, as here, plaintiff is the prevailing party.
With respect to defendants first counterclaim (for a security-deposit setoff), plaintiffs summary-judgment motion is denied; defendants cross-motion for summary judgment is granted.
Defendant contends that plaintiff withheld its security deposit, and that the deposit should either be returned to defendant or counted as an offset against any damages awarded to plaintiff in this case. (See NYSCEF No. 65 at 7.)
A security deposit remains the property of the tenant unless and until he has defaulted in his obligations under the lease. (Rivertower Assoc. v Chalfen, 153 AD2d 196, 199 [1st Dept 1990].) Further, [u]pon such default . . . the deposit may be used to offset actual damages or, if the lease contains an enforceable liquidated damages clause, as liquidated damages. (Id.) Here, defendant breached the sublease by failing to pay rent for almost a year. Using the security deposit to offset damages is appropriate. The court declines to allow plaintiff to keep the security deposit in addition to damages for all rent owed, because the sublease does not contain a liquidated-damages clause. Nor does it contain any other provision addressing what happens to the security deposit in the event of default. (See generally NYSCEF No. 26.)
Defendant is therefore entitled to partial summary judgment that reduces plaintiffs damages by the amount of the security deposit.
II. Defendants Motion to Amend
Defendant seeks leave to amend its answer. Defendants stated reason for the amendment is to include a defense that the June 2, 2020, emails (NYSCEF No. 44-46) between representatives of the parties, Olga Chookazian of Rothfos and Nathan Hecht of Rodo, constitute a binding settlement. Leave to amend should be freely given. (See CPLR 3025 [b].) Leave should be denied when the proposed defense lacks merit. (See Thomas Crimmins Contr. Co., Inc. v City of New York, 74 NY2d 166, 170 [1989].) Here, the proposed defense lacks merit. The emails to which defendant as evidence of a binding settlement show only that the parties were negotiating. The last two emails in the chain read as follows:
Olga Chookazian: I think we can work with the first option. Let me just outline the agreement before I finalize it internally and have an addendum drafted up. [outlines terms] Please confirm and I will proceed accordingly. (NYSCEF No. 46)
Nathan Hecht: Confirmed. (NYSCEF No. 46)
One element of a valid contract is a mutual intent to be bound. The email exchange shows that any agreement was subject to Rothfoss internal approval and that the proposed addendum Chookazian referred to—not the parties email exchange—was meant to be the agreement. Chookazian later informed Hecht that the proposed terms would not work based on information she received from Rothfoss counsel, and the parties continued discussing options. (See NYSCEF Doc. 47.)
Further, the proposed answer does substantially more than add this affirmative defense. (Compare the number of defenses in NYSCEF No. 3 and 64.) Defendants proposed answer adds the defense that there was no contract between the parties and alleges that plaintiff locked defendant out of the subject premises for three months during the COVID-19 pandemic. Defendant also rewords and renumbers many of its affirmative defenses in the proposed answer. Such a drastic change in this litigation at this point, post-discovery, would prejudice plaintiff. Defendants request for leave to amend its answer is denied.
III. Defendants Cross-Motion to Dismiss Plaintiffs Quantum Meruit Claim
Defendant cross-moves to dismiss plaintiffs quantum-meruit claim (the second cause of action). (NYSCEF No. 65 at 7.) Recovery in quantum meruit is unavailable when a written agreement exists between the parties that covers the subject-matter of the claim. (Cox v NAP Const. Co., Inc., 10 NY3d 592, 607 [2008].) Given the written lease between the parties governing the events in this case, the motion to dismiss plaintiffs second cause of action is granted.
IV. Plaintiffs Motion to Dismiss Defendants Affirmative Defenses
Plaintiff moves to dismiss defendants affirmative defenses. The motion is granted in part and denied in part.
Defendants first and second defenses—that plaintiff lacks standing—fail. Defendant contends that triable issues of fact exist about whether the 2019 agreement between the parties was a sublease or an assignment pro tanto, asserting that the premises did not revert to plaintiff after defendants occupancy. This contention, if accepted, would call into question plaintiffs standing to bring this action. But defendants argument is without merit.
The premises principal lease (also called the head lease) between One Penn and Rothfos is dated April 28, 2010, and was to last 10 years after the rent-commencement date. The rent-commencement date was modified by amendment to April 13, 2011. (See NYSCEF No. 22 at 8.) The terms of the head lease provide that the lease is to end on the last day of the calendar month during which occurs the day immediately preceding the date that is ten (10) years after the Rent Commencement Date. (NYSCEF No. 22 at 7.) Thus, the last day of the head lease was April 30, 2021. And the sublease ended on April 29, 2021. (NYSCEF Doc. 26 at 1.) This leaves a one-day reversionary period after defendants sublease ended and before the head lease ended. A one-day reversion is sufficient to sustain a valid sublease. (See Bostonian Shoe Co. of New York v Wulwick Assoc., 119 AD2d 717, 719 [2d Dept 1986].) Therefore, plaintiff has standing to bring this action.
With respect to defendants third defense, that plaintiff owes defendant its security deposit, plaintiffs motion is denied for the reasons given above with respect to defendants cross-motion for summary judgment.
In its fourth and fifth affirmative defenses, defendant argues that plaintiffs action is barred by its own unclean hands and bad faith and that plaintiff violated the implied covenant of good faith and fair dealing. (NYSCEF No. 3 at 4.) Defendant offers no evidence of bad faith on plaintiffs part. Defendants fourth and fifth affirmative defenses are dismissed. Similarly, defendants thirteenth defense, that [p]laintiffs claims are barred by the doctrines of laches waiver and estoppel, is accompanied by no evidence showing that the alleged untimeliness prejudiced defendant. Nor does defendant allege any fact to support the conclusion that plaintiff is estopped from bringing this claim. This defense is dismissed.
Several defenses offered by defendant relate to frustration of purpose and impossibility of performance due to the COVID-19 pandemic. (NYSCEF No. 3 at 5.) New York courts have not been receptive to this defense. (See Knickerbocker Retail LLC v Bruckner Forever Young Social Adult Day Care Inc., 204 AD3d 536, 537 [1st Dept 2022]; 558 Seventh Ave. Corp. v Times Sq. Photo Inc., 194 AD3d 561 [1st Dept 2021]; Arista Dev., LLC v Clearmind Holdings, LLC, 207 AD3d 1127 [4th Dept 2022].) Accordingly, Defendants sixth, seventh, eighth, ninth, tenth, and eleventh affirmative defenses are dismissed.
The evidence directly refutes defendants twelfth defense: that plaintiff failed to provide rent bills. (See NYSCEF No. 69.) This defense is dismissed.
Defendants fourteenth defense, that plaintiffs success in this action would cause it to receive a financial windfall, is refuted by the facts on the record. Plaintiff had to pay rent under the head lease in all months in which defendant did not pay rent. (See NYSCEF No. 22 at 12.) This defense is dismissed.
Defendants fifteenth (failure to comply with obligations), sixteenth (improper verification), and seventeenth (excessive damages) affirmative defenses are dismissed as boilerplate and conclusory.
Given this courts conclusion that plaintiff is entitled in part to summary judgment on its breach-of-contract claims, defendants eighteenth affirmative defense, that plaintiff has failed to state a cause of action, is without merit.
Defendants nineteenth affirmative defense asserts that plaintiff is not entitled to attorney fees in this action. The sublease between the parties includes a provision for the prevailing party to receive attorney fees from the losing party in an action. (See NYSCEF No. 26 at 6.) This defense is dismissed.
With respect to defendants twentieth affirmative defense, that plaintiffs quantum-meruit claim should be dismissed as duplicative, plaintiffs motion is denied for the reasons given above with respect to defendants cross-motion for summary judgment dismissing that claim.
Accordingly, it is
ORDERED that the branch of plaintiffs motion seeking summary judgment dismissing defendants counterclaims is denied with respect to defendants security-deposit counterclaim and granted with respect to defendants attorney-fee counterclaim; and it is further
ORDERED that the branch of defendants cross-motion seeking partial summary judgment motion on its security-deposit counterclaim is granted; and it is further
ORDERED that the branch of defendants cross-motion seeking dismissal of plaintiffs quantum-meruit cause of action is granted, and that claim is dismissed; and it is further
ORDERED that the branch of plaintiffs motion seeking summary judgment in its favor is granted in part and denied in part; and it is further
ORDERED that the branch of plaintiffs motion seeking dismissal of defendants affirmative defenses is denied with respect to defendants third and twentieth affirmative defenses, and otherwise granted; and it is further
ORDERED that plaintiff is awarded a judgment against defendant for $186,461.07, with interest on that sum running at 9% from the reasonable intermediate date of November 1, 2020, plus costs and disbursements as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that plaintiff may enter a supplemental judgment for the amount of its reasonable attorney fees, with the amount of those fees to be determined by motion made on notice; and it is further
ORDERED that plaintiff serve a copy of this order with notice of its entry on defendant; and on the office of the County Clerk (by the means set forth in the courts e-filing protocol, available on the e-filing page of the courts website, https://ww2.nycourts.gov/courts/1jd/ supctmanh/E-Filing.shtml), which shall enter judgment accordingly.
DATE 7/12/2024
Gerald Lebovits, J.