Landlord-Tenant—Court Warned That "Practice of ‘Robo-Signing’ Is as Intolerable in Residential Housing Court Proceedings, as" the Chief Judge of the Court of Appeals, Jonathan Lippman Found the Practice to Be in Residential Foreclosure Actions—Depending on the Credibility of the Witness or if the Witness Fails to Appear, Matter May Be Referred to the District Attorney

ACivil Court judge explained that 14 cases had been submitted to the court for entry of default judgments and issuance of warrants of eviction. The court consolidated the actions for purposes of the subject decision. The "[c]ommon factors shared in these fourteen (14) consolidated cases," involving "eleven (11) different petitioners…include: (1) all the petitioners are represented by the same attorney; (2) each affidavit in support of the entry of the default judgment is sworn to by the same individual, to wit: ['A']; (3) the affiant claims to be an employee of each named petitioner in each of the fourteen (14) cases; (4) all fourteen (14) affidavits are notarized by the same individual; and (5) each of the fourteen (14) documents submitted by the eleven (11) different named [petitioner] entities," essentially contained identical wording. The only differences were the dates of execution.

The court was "troubled" because each "Affidavit of Merit/Default" shows that the same individual stated that "he is an employee of each of the eleven (11) different named petitioners, each states that the affiant has ‘personal knowledge’ and is ‘fully familiar with the facts and circumstances surrounding [each] proceeding’ yet each affidavit is silent as to how exactly the affiant gleans his ‘personal familiar[ity] with the facts and circumstances surrounding [each] proceeding.’" The affiant had not stated that it was "his responsibility to maintain the books and records of each (or any) of the eleven (11) different entities that he claims employ him, nor does he state that it is his responsibility to maintain any of the petitioners’ records, nor does he authenticate any records to be true and accurate documents, kept in the ordinary course of [each, or any of] petitioners’ business.’"

Although the affiant stated in each affidavit that he had reviewed each petition and that he verified that the facts contained therein are true to his own personal knowledge, the affiant failed "to state the basis of his personal knowledge, whether he came to court to view the contents of each petition, the contents of each, which he verifies is true, or whether he keeps copies of each petition in each of the offices of each petitioner that he claims he is employed by, and reviewed them in each separate petitioners’ office." Moreover, "A" failed "to factually detail the basis for his conclusion that the ‘facts contained are true to my own personal knowledge.’"

Additionally, there were no facts alleged for "A"’s conclusion that "[t]he within petition remains unsatisfied and no part of the rent demanded…has been paid." Since "each of the fourteen (14) affidavits, for each of the eleven (11) different entities read identically and assert conclusory allegations without alleging any factual support," the court "was concerned," that petitioners sought "to submit affidavits that are executed by a ‘robo-signer,’ rather than by an individual based upon actual first hand personal knowledge."

The court explained that in a non-payment summary proceeding commenced in Housing Court, where the petitioner seeks a default judgment,

the petitioner "must tender ‘evidentiary proof’ in admissible form,"…. A petition, verified by an attorney without stating that is it based on personal knowledge and detailing the basis for that personal knowledge, is insufficient….Additionally, an affidavit by petitioner based upon information and belief is insufficient and incapable of supporting a default judgment where it made no reference to the source of the information nor the grounds for the belief.

"A proper foundation for the admission of a business record must be provided by someone with personal knowledge of the maker’s business practices and procedures"….Where the actual basis of the affiant’s knowledge is not specific, the conclusions asserted may be deemed questionable.

The court was concerned because "the identical affidavits submitted, fail to assert any factual basis for its conclusions in all fourteen (14) cases" and "such identical affidavits, leads to a ‘suspicion of robo-signing.’"

The court then noted that several courts have "demonstrated an intolerance for ‘robo-signing.’ The practice has been specifically rejected in residential foreclosure cases" and "as a result of the courts’ intolerance to affidavits which are ‘robo-signed,’" the Chief Judge of the Court of Appeals, Jonathan Lippman, "introduced a filing requirement addressed to remedy this flawed practice…." Moreover, "intolerance for ‘robo-signed’ affidavits has been met with similar disdain in consumer debt cases and…in no-fault, health care provider cases."

The court acknowledged that "the "suspicion of ‘robo-signing’ does not automatically indicate impropriety." Rather, "’it is reason enough to ‘give [the] court pause’ to make further inquiry as to the veracity of the allegations of the affidavit." Thus, the court held that "the practice of ‘robo-signing’ is as intolerable in Residential Housing Court proceedings, as the Honorable Jonathan Lippman, Chief Judge of the Court of Appeals, found the practice to be in Residential Foreclosure actions." Accordingly, the court ordered a hearing to determine:

if, ["A"], a sworn employee of all fourteen (14) petitioners of the eleven (11) different entities, is in fact an "employee" of each such entity he swears under penalties of perjury to be employed by; if {"A"] does, in fact have personal knowledge of the charges and debits made to each of the accounts of each of the fourteen (14) different respondents’ and if he can so attest to such facts, he is to identify the basis of his personal knowledge that, as of the relevant dates, each allegation that he previously swore to, in each affidavit, is true, pursuant to penalties of perjury….

The court’s order further provided:

that the witness, ["A"], may appear at the hearing along with counsel of his choosing, and with documents to establish that, during the relevant time, he was in fact, an employee of each of the eleven (11) different entities, that he swears "under penalties of perjury" that he is employed by. Such proof may consist of pay-stubs from each of the eleven (11) different entities and/or 2012 tax returns, if already prepared, redacted as to personal information such as salary, social security number and any information not relevant to demonstrating an employee-employer relationship during the relevant time period. Additionally, the witness may appear with any rent ledger that he can authenticate as a business record, kept in the ordinary course of each of the fourteen (14) petitioners’ business, which the witness may have relied on, when making his sworn statements, under penalties of perjury. Depending on the credibility this court determines the witness’ testimony merits, or upon the witness’ default, this matter may be referred to the Office of the District Attorney for appropriate action; and it is further,

ORDERED, that the named respondents in each action, if so inclined, may appear in court at the hearing…and if any respondent so chooses, may present testimony and submit proof of payments, if any, each may have remitted to any petitioner during the relevant time period.

Intervale Ave. Assoc. v. Amanda Donlad, L&T 60527/12, NYLJ 1202591661017, at *1 (Civ., BX, Decided Feb. 7, 2013), Avery, J.

Commercial Landlord-Tenant—Department Store Purported to Terminate Lease Because of Failure to Obtain NYS Dept. of Transportation Permit—Court Found That Such Reason Was Pretext—Real Reason Was Tenant’s Desire to Scale Back National Expansion Due to Downturn in U.S. Economy—Anticipatory Repudiation

This decision involves issues relating to a lease between a plaintiff property owner and a department store company. The lease provided that the department store was to construct an 88,400 square foot building. The salient issue was whether the store had the right to terminate the lease.

The store claimed that since government approvals had not been obtained on or before Jan. 21, 2009, the store had the right to terminate the lease. The owner had rejected the store’s alleged termination and demanded that the store continue to perform. A necessary NYS Dept. of Transportation (DOT) permit remained outstanding. However, the owner asserted that the store had "waived its right to terminate the Lease for that reason" and the store’s "true" motivation was its "desire to scale back its national expansion plans due to a downturn in the U.S. economy." The owner contended that the store’s purported reason for termination was a "pretext."

The owner’s obligation to obtain a zoning approval had been satisfied as of May 23, 2008. The lease required that the store obtain certain governmental approvals on or before Dec. 23, 2008, i.e., six months from May 23, 2008.

An approval had been sought from the DOT to construct a curb cut onto the service road of an expressway (DOT permit). Initially, the parties believed that the DOT permit had to be obtained before a building permit would be issued by the town. The parties had also believed that it was "unlikely" that the DOT permit would be obtained before the date on which the store wanted to commence construction. Commencing construction on or before a particular date was important to the store. The store was a national retailer that had "established an internal practice of opening new stores only at certain times of the year" (opening cycle). Thus, the commencement and completion of the building had to occur before certain dates designated by the store.

The parties agreed that the DOT permit had been in process and was proceeding without issue, but that it would not be timely obtained for the opening cycle. The store attempted to resolve such issue.

Based on the advice of its experts, the store approved an approach that would permit the building permit to issue upon receipt by the town of a letter from the DOT. The store had been advised that the town would "issue the building permit if it received a letter from the DOT advising…that the DOT did not object to the issuance of a building permit." The town and the DOT agreed to pursue such approach. The DOT thereafter issued a letter which provided:

Inasmuch as we are in conceptual agreement with the mitigation measures proposed and believe that all involved are working diligently towards a resolution that will not compromise public safety on the state highway, we have no objection to the Town…issuing a building permit for this site.

In order to insure that all public safety concerns relating to traffic have been addressed in the final site plans, we request, by copy of this letter, that the Town…contact us prior to the issuance of the certificate of occupancy.

Following receipt of that letter, the town issued a building permit. Thereafter, the store was "free to begin construction of the Building." However, the store did not commence construction. The store’s "agents" had continued to move forward with the DOT permit and at the time of the store’s purported lease termination, although "items remained outstanding there were no known impediments to obtaining the DOT Permit."

Notwithstanding the foregoing, on Jan. 21, 2009, the store had sent an internal email indicating that it planned to terminate 23 development projects throughout the country, including the subject proposed store. The email stated that these projects "have a negative Net Present Value (NPV)" and "that’s why each such project made the list." However, on Jan. 21, 2009, the store advised the owner in writing that it was terminating the lease in view of the fact that the store "had not obtained all of the Governmental Approvals necessary for the construction and operation of the building including, without limitation, applicable permits and approvals from the [DOT]."

The owner advised the store that its actions constituted "an anticipatory repudiation of the Lease" since the store had "sought and received the Town’s deferral of the requirement of the DOT Permit until a date well in excess of the six (6) month Governmental Approval termination date provided" in the lease. The owner thereafter issued a 30-day written notice of default and then commenced the subject litigation.

The owner asserted that the store’s conduct regarding the DOT Permit constituted a waiver in that the store had "orchestrated the process to defer receipt of the DOT Permit until well after construction had been commenced and, most likely, substantially completed." The owner emphasized that the real reason for the purported termination was the store’s decision to scale back its expansion plans and the project’s NPV. The store countered that it was within its rights to terminate the lease because the DOT permit remained outstanding on Jan. 21, 2009.

Following a trial, the court found that "the [store] sought to terminate the Lease for reasons unrelated to the failure to obtain the DOT Permit and that such failure provided a mere pretext for the termination." It was the store’s decision to "scale back its operations throughout the United States by cancelling projects and abandoning retail sites that motivated its desire to terminate the Lease" and the failure to obtain the DOB Permit by Jan. 21, 2009 "was not the reason the [store] sought to terminate the Lease."

Moreover, at no time had the parties reasonably believed that the DOT permit would not be obtained in a timely manner. The DOT had explicitly stated that it was "in conceptual agreement with the request for the curb cut." The only DOT issue was not whether the permit "could be obtained, but when it would be obtained." Additionally, the DOT permit was "a relatively minor issue which could have waited until the end of the construction process."

Although further work was necessary before a final permit was issued, "there was never an indication that requests by the DOT could not be satisfied or that the DOT Permit would not be issued at or about the time of substantial completion of the Building when it was actually needed." Thus, "the only credible explanation for the [store's] attempted termination of the Lease…was unrelated to the failure to obtain the DOT Permit." Rather, the real reason was the store’s "overall financial condition and its desire to scale back its plans to construct a new [department store]." Such conclusion was confirmed by the fact that the store had failed to commence construction "despite its previous desire to begin as soon as possible." The store’s arguments with respect to the DOT permit were "simply an attempt to use form over substance." Thus, the court held that the store’s "failure to move forward under the Lease constituted a breach."

Comment: David I. Rosenberg, of Rosenberg Fortuna & Laitman, attorneys for the landlord, stated that the subject decision "reaffirms the proposition that there is an implied covenant of good faith and fair dealing in every contract, a pretextual termination deprives the non-terminating party of the benefits of its bargain and will constitute a breach of that covenant" and "notwithstanding a ‘no waiver’ clause, a limited right of termination in a contract may be waived by a party’s conduct."

Grandfeld II v. Kohl’s Department Stores, Sup. Ct., Suffolk Co., Index No. 22962-09, Emerson, J., decided Feb. 4, 2013.

Scott E. Mollen is a partner at Herrick, Feinstein and an adjunct professor at St. John’s University School of Law