Commercial Landlord-Tenant—Tenant Claimed Landlord’s Effort to Evict was Part of a Pattern of Illegal Discrimination Against a Bar That Attracted African American Customers—Malicious Prosecution—Abuse of Process—Injurious Falsehood—Tortious Interference with Business Relationships—Fraudulent Misrepresentation

The plaintiff/former tenant commenced an action against its landlord, alleging "violations of 42 U.S.C. §§1981 and 1982 and state law claims for malicious prosecution, abuse of process, injurious falsehood, unfair competition based on disparagement, tortious interference with business relations and fraudulent misrepresentation." Essentially, the plaintiff alleged that the defendants discriminated against the plaintiff because the plaintiff "served a predominately African-American clientele." The defendants moved to dismiss pursuant to Fed. R. Civ. P. 12(c). The court granted the defendants’ motion in part, denied the motion in part and denied the plaintiff’s request for leave to amend the complaint.

In March 2007, the plaintiff and the landlord entered into a lease for space to be used as a restaurant and bar. The plaintiff alleged that prior to execution of the lease, the landlord represented that "it had physical possession of the liquor license ['license'] issued to the previous tenant and that it would transfer the liquor license to Plaintiff at the lease signing." The plaintiff allegedly relied upon such representation and expected to be able to sell liquor immediately upon signing the lease. However, the lease was conditioned upon approval by the NYS Liquor Authority (SLA) of the plaintiff’s application for a license. The lease provided that if the license was denied, the plaintiff could cancel the lease.

Shortly after the lease was executed, the landlord revealed that it had accidently lost the prior license. The plaintiff received its license in October 2007. In November 2007, the parties amended the lease by providing that the landlord waived certain rent payments because of the delay in obtaining the liquor license. The plaintiff alleged that the landlord’s misrepresentation that it had a liquor license that could be immediately used had caused the plaintiff to suffer a loss in profits.

The plaintiff opened for business in November 2007. The plaintiff asserted that in the beginning, its bar was busy and served a diverse clientele. However, after the first six months, the plaintiff alleged that there was a significant decline in business and "the number of non African-American patrons had decreased…."

The plaintiff contended that "[t]he decrease in the diversity of [the plaintiff's] clientele" occurred because the landlord’s agents had made comments to the public, employees, and to patrons that it was "a ‘black bar’—catering only to African Americans." The plaintiff asserted that as a result of unfounded complaints by the landlord, the police and fire departments had visited plaintiff’s bar more frequently than it had visited other bars in the area. The plaintiff alleged that the defendants hoped that the plaintiff "would be caught violating a rule, ordinance or law" and create a "perception that there was ongoing illegal and unsafe activity occurring at the [bar]." Twice, the bar was found to have violated "a rule, ordinance or law." The plaintiff had been charged with selling alcohol to a minor. The minor had used a forged identification card and the charge had been dismissed. The fire department had issued a violation for overcrowding for which the plaintiff paid a fine.

In June 2009, the landlord sent the plaintiff a notice to cure (notice), stating that the plaintiff had violated the lease because it had "caused,…and/or permitted numerous violations of law to transpire in the Premises." The notice listed 19 violations which the plaintiff alleged were based on fire and police reports instigated by the landlord. The notice did not specify the violations which the landlord wanted the plaintiff to cure. Although the landlord had not responded to the plaintiff’s request for clarification, the plaintiff began using a magnetometer wand, installed ropes and stanchions to create a security area at the entrance to the premises, held frequent security staff meetings and used a second "clicker" device to accurately count the number of patrons.

The landlord thereafter contacted the plaintiff to see if he was interested in selling its bar. The plaintiff rejected the overture. Although the landlord denied that he was looking to evict the plaintiff, the plaintiff alleged that managers at a nearby restaurant/bar owned and run by the landlord had told him that the plaintiff’s "African-American patrons were ‘scaring away’ the customers at [the landlord's] nearby establishment" and made other similar comments.

The landlord thereafter served a three-day notice of termination and then initiated an eviction proceeding. A court dismissed the eviction proceeding. That court found that the alleged crimes had neither been committed by the plaintiff nor an agent of the plaintiff, the plaintiff had not knowingly or negligently caused or permitted the violations to occur, the plaintiff had taken several steps to address the subject incidents and the landlord failed to establish a violation of the lease.

Additionally, the plaintiff alleged that the landlord had provided the police with false information and the police had then conducted a raid at the bar which resulted in a charge being filed against the plaintiff by the SLA for the presence of narcotics. The police had failed to appear at the SLA hearing and the SLA charge was dismissed.

Thereafter, the landlord commenced a second eviction proceeding based on alleged overdue property tax and insurance obligations. The plaintiff denied such claims. Moreover, the plaintiff learned that although the taxes had actually decreased, the landlord had increased the plaintiff’s tax obligations. The plaintiff alleged, upon information and belief, that the landlord had not increased the tax obligations for its other tenants. The landlord thereafter allegedly "agreed to stop ‘overcharging’ Plaintiff for…taxes and confirmed that Plaintiff did not owe back taxes."

The plaintiff asserted that the second eviction proceeding had been commenced "to eliminate the…Plaintiff’s predominantly African-American clientele…." The second eviction proceeding had been dismissed pursuant to a settlement agreement. The plaintiff also alleged that as a result of numerous racist comments made against the plaintiff by the defendants or defendants’ agents, the plaintiff lost "white customers" to nearby establishments owned by the defendants.

In May 2011, the plaintiff commenced the subject action. With respect to the §§1981 and 1982 claims, the plaintiff cited the landlord’s provision of false information to the police which caused the police to conduct a raid, the resultant SLA charges which were later dismissed and two failed attempts to evict the plaintiff without cause or justification.

The defendants argued, inter alia, that there was "no causal connection between the allegedly discriminatory statements or actions cited by Plaintiff and the Defendants’ conduct." However, the court found that the complaint contained "detailed allegations of specific conduct and statements which, if proven at trial, could give rise to an inference of discrimination." The allegations of discriminatory statements "combined with two efforts…to evict Plaintiff on grounds that Plaintiff claims [were] essentially baseless, [were] sufficient to support §§1981 and 1982 claims." Given the proximity between the alleged discriminatory statements and eviction proceedings, the court did not believe that the subject statements were merely "isolated stray remarks." The court found that "a reasonable inference may be drawn that Defendants’ conduct was motivated by a desire to shut down [plaintiff] because of its predominantly African-American clientele."

Additionally, the plaintiff had sufficiently set forth allegations that the defendants’ racially motivated conduct interfered with the plaintiff’s direct relationship with the landlord so as to constitute a violation of §1981. However, the court granted the motion to dismiss the §1981 claim that was based upon the plaintiff’s lost contractual opportunities with its customers who did and would have frequented the plaintiff’s bar. The plaintiff had failed to identify any specific contract that the defendants prevented the plaintiff from making. The court also found that the plaintiff had adequately alleged that the defendants had impaired its property rights under the lease and therefore denied the defendants’ motion to dismiss the §1982 claim.

With respect to the state law claims, the court dismissed the malicious prosecution claim. The complaint failed to allege "any special damages resulting from the first eviction proceeding." The plaintiff had also argued that the commencement of the SLA proceeding constituted an abuse of process. However, the SLA proceeding did not "fall within the definition of ‘process’ for the purpose of an abuse of process claim in New York because it is not a court proceeding."

Moreover, the second eviction proceeding did not "fall within the definition of ‘collateral objective’ since Plaintiff does not allege that Defendants interfered with its property under color of process, other than stating that Defendants intended to cause economic injury to [the plaintiff] and ultimately force the business to close." Thus, the court dismissed the abuse of process claim.

Additionally, the plaintiff had failed to allege special damages "with the requisite specificity to proceed on an injurious falsehood claim." Thus, the court dismissed the injurious falsehood claim. In dismissing the unfair competition claim "based on disparagement," the court held that the plaintiff failed to indicate "with any specificity the customers it has lost due to Defendants’ alleged conduct" and the plaintiff had failed to demonstrate "any quantitative and itemized financial loss."

The court dismissed the tortious interference with business relations claim, since the plaintiff had failed to adequately set forth specific business relationships with which the defendants had allegedly interfered. The court also dismissed the claim for fraudulent misrepresentation based on the landlord’s representation that it had physical possession of the liquor license issued to the previous tenant and that it would transfer the liquor license to the plaintiff. The complaint did not indicate the motive for the defendants’ alleged conduct. Nor did it allege "sufficient facts to establish conscious misbehavior or recklessness."

Moreover, the allegations did not "support any reasonable inference the Defendants acted with fraudulent intent." The defendants had acknowledged that they accidently lost the liquor license and had waived certain rent. Additionally, the lease stated that it was "specifically conditioned upon the approval by the [SLA]" of the plaintiff’s application. The lease protected the plaintiff if it could not obtain its own liquor license and therefore, it seemed "disingenuous for the Plaintiff to allege that it was harmed by Defendants’ representations" when plaintiff could terminate the lease if it did not obtain a liquor license. Accordingly, the court dismissed the fraud or misrepresentation claim.

The court denied the plaintiff’s request for leave to file an amended complaint, since it had failed to show how it might amend the complaint to cure the deficiencies.

Comment: The court acknowledged that there was "some authority for the proposition that special damages are not required when an allegedly false disparagement of plaintiff’s product ‘directly impeaches the knowledge, skill, integrity, etc. of the owner of the goods as an individual or in respect to his business methods,’ but nevertheless, other cases indicate that ‘the complaint should be dismissed if special damages are not alleged with sufficient particularity.’" Here, the character of the plaintiff’s owners was not at issue.

Korova Milk Bar of White Plains, Inc. v. Pre Properties, LLC, 11 Civ. 3327, NYLJ 1202587554166, at *1 (SDNY, Decided Feb. 1, 2013), Ramos, J.

Court Vacates Mechanic’s Lien—Home Improvement Contractor Failed to Have Home Improvement License—Need to Name Partners if Lienor Is A Partnership

A court granted a petition seeking to vacate a mechanic’s lien. The petitioner was a cooperative housing corporation. The respondent had been hired by a shareholder to make home improvements in an individual apartment. After the shareholder failed to pay the respondent for his services, the respondent filed a notice of mechanic’s lien in the sum of $145,000 against the petitioner’s property. The petitioner then sought to discharge the lien, alleging that the respondent had "not only failed to include the names of his co-partners on the lien notice, but that respondent was not a licensed home improvement contractor at the time he performed the work."

The petitioner had submitted the "respondent’s notice of mechanic’s lien, and a copy of an Online License Check and a Certification of Non-Licensure from the [NYC Dep't of Consumer Affairs]."

Under Lien Law §9, "if the lienor is a partnership, the notice of lien should include ‘the names of partners and principal place of business.’" Here, the lienor described himself as "being in a Co-partnership," but failed to include the names of his co-partners in the notice of lien. However, the court noted that it was "unclear whether this defect by itself is sufficiently material to warrant discharging the lien, particularly where the lienor’s business address appeared directly below the assertion of a co-partnership."

Moreover, the respondent had submitted an affidavit alleging that "he has no co-partners, and that the ‘co-partnership’ referred to on the notice of mechanic’s lien was merely part of the preprinted form used to file the notice of lien." Thus, issues of fact existed as to bar discharge of the lien on that ground.

The petitioner had also argued that the lien must be discharged since the respondent is unlicensed and "[a]n unlicensed contractor may neither enforce a home improvement contract against an owner nor seek recovery in quantum meruit."

The petitioner’s web search and certification from the Dept. of Consumer Affairs revealed that the "respondent was unlicensed as a Home Improvement Contractor from January 10, 2012 through March 22, 2012," the time period during which the lienor claimed that the work had been completed. Thus, the court found that the petitioner had "met its burden and it was incumbent on respondent to raise a triable issue of fact" as to that issue. The respondent claimed that "he provided ‘all material and cost of labor,’ but that he was ‘only a laborer/material man." The respondent conceded that "he is not a licensed contractor." He asserted that the co-op board had approved him to work on the subject apartment and "had similarly authorized him to work on another unit in the…building in 2011."].

The court explained that "’strict compliance with the licensing statute is required,’ and ‘[t]he fact that the homeowner was aware of the absence of a license…creates no exception to the statutory requirement." Since the "respondent was not licensed at the time the work was performed, he is barred from recovering from the home improvement contract" and accordingly, the court cancelled and discharged the mechanic’s lien.

Comment: Matthew S. Dulberg and Alexander B. Rubin, attorneys for the petitioner, stated that the subject case is one of first impression since there were "no other cases in which a notice of mechanic’s lien was discharged on these grounds."

In the Matter of an Article 78 Proceeding 81 & 87-28th Street Jackson Heights, Inc. v. Scotti, Sup. Ct., Queens Co., Index No. 16197/12 decided Dec. 7, 2012, Pineda-Kirwan, J.

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