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A majority panel of New York’s Appellate Term, 1st Department, has set aside a lease provision that requires a tenant to pay the landlord’s attorneys’ fees in a failed legal action. The panel exercised its equitable power to overlook the lease term, holding that the tenant had stated a viable claim for a rent overcharge, even though the action ended in a dismissal of the tenant’s claims. In Rose v. Montt Assets Inc., 00-030, the landlord asked for attorneys’ fees after prevailing in the lawsuit against plaintiff, Alison Rose. Rose filed suit in February 1996 to recover rent overcharges over an eight-year period. She claimed that the landlord failed to file an initial rent registration requirement when the apartment became subject to rent stabilization. The trial judge dismissed the case under the Rent Regulation Reform Act of 1997, holding that Rose had failed to challenge the amount of rent set out in annual rent registration statements filed by the landlord. Furthermore, the 1997 act precluded from inquiry the apartment’s rental history prior to the four-year period immediately preceding the filing of the lawsuit. The Rent Regulation Reform Act was made applicable to pending proceedings, the majority noted, and significantly altered the framework for rent overcharge litigation. According to the trial court, the act “completely altered the landscape of the law of rent overcharge in this State.” The majority, Justices William J. Davis and Phyllis Gangel-Jacob, said the changes in the legal landscape mean that Rose should not suffer the penalty of having to pay her landlord’s attorneys’ fees. When the lawsuit was first filed, Rose had a tenable claim under then-existing law, the majority observed. “In this posture, where plaintiff’s action was properly commenced under existing law, but was dismissed because of a change in the law affecting rent overcharge cases, we deem it appropriate that each side bear its own legal costs,” the majority said. Justice William P. McCooe wrote a lengthy dissent, arguing that the court must enforce the lease term calling for the tenant to pay the defendant’s attorneys’ fees in the event of a failed legal action against the landlord. McCooe noted that the attorney for the landlord gave Rose an opportunity to discontinue the lawsuit after the new Rent Regulation Reform Act took effect, and was approved in a court decision. “Continuing the proceeding after the statutory and decisional law had changed, particularly where the plaintiff had the opportunity to discontinue, makes the plaintiff liable for attorney’s fees,” McCooe wrote. A lease is a contract, he argued, in the absence of fraud, collusion, mistake, accident or unconscionability. The attorneys’ fees clause creates a contractual entitlement on behalf of the prevailing landlord, according to McCooe. But the majority said the court has the authority to withhold fees in a particular case based on equitable considerations and “other considerations fact-specific to the litigation.” The Manhattan firm Kossoff, Alper & Unger represented Rose, and David A. Kaminsky, also of Manhattan, was counsel to the landlords.

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