Scott E. Mollen
Scott E. Mollen ()

I begin with an update on the first case in the April 9 column on the Hurricane Sandy class action, Adler v. Ogden Cap Properties. The column quoted lawyers from my firm, who represented certain defendants in Adler. The comments discussed whether an appeal was perfected. This matter is not resolved. Plaintiffs advise that they intend to pursue an appeal pursuant to Section 600.11 of Appellate Division First Department Rules. Adler v. Ogden Cap Properties, 650292/2013, NYLJ 1202633381044 (Sup. N.Y., Decided Dec. 11, 2013) Kornreich, J.).

Landlord-Tenant—Rent Stabilization— Non-Primary Residence—Appellate Division Affirmed Trial Court’s Finding That Tenant Actually Resided In Vermont From 2004-2006 and Had Not Used her New York Apartment as her Primary Residence During That Time—Standard for Appellate Review of Non-Primary Residence Cases

A trial court had awarded possession of a rent-stabilized apartment to the landlord in a summary holdover proceeding. The landlord had alleged that the tenant had not been using her apartment as her primary residence as required by Rent Stabilization Code 2524.4(c). Following a nonjury trial, the trial court determined that the tenant had not used her apartment as her primary residence. The Appellate Term had affirmed the judgment. The Appellate Division (court), in a 3-2 decision, had reversed the Appellate Term, denied the holdover petition and dismissed the proceeding. The Court of Appeals thereafter reversed, finding that “in primary residence cases, where the Appellate Division acts as the second appellate court, ‘the decision of the fact-finding court should not be disturbed upon appeal unless it is obvious that the court’s conclusions could not be reached under any fair interpretation of the evidence, especially when the findings of fact rest in large measure on considerations relating to the credibility of witnesses’….”

Applying such standard, the court found that “competent evidence in the record supports the trial court’s conclusion that the tenant actually resided in a house in Vermont from 2004 to 2006, and that she had not used her New York apartment as her primary residence during that same time.” Although the tenant attempted to explain away such fact, the tenant’s assertions merely “raise[d] questions of fact and credibility for the trial court….”

Comment: Joseph Burden and Magda Cruz, partners at Belkin Burden Wenig & Goldman, attorneys for the landlord, stated, “[a]fter seven years of litigation, the owner finally recovered possession of this rent stabilized apartment.” They explained that “this case was important because the Court of Appeals enunciated the standard that the Appellate Division is to follow in reviewing a trial court’s ruling in a non-primary residence proceeding.”

409-411 Sixth Street LLC v. Mogi, 570068/09, NYLJ 1202636871437, at *1 (App. Div., 1st, Decided Dec. 31, 2013). Before: Mazzarelli, J.P., Friedman, Renwick, Freedman, JJ.

Contracts—Anticipatory Breach—Notice of Pendency Will Be Cancelled if Seller Posts an Undertaking of $1.15 Million, Unless Purchaser Then Posts a Bond of $500,000

A plaintiff purchaser (purchaser) commenced an action to compel specific performance of a purchase/sale contract (contract) relating to real property and had filed a notice of pendency (notice). The defendant seller (seller) moved “to cancel the [notice] pursuant to CPLR 6514(b), or in the alternative, pursuant to CPLR 6515.”

The contract was entered into in July 2011. The price was $3.2 million. The contract provided, inter alia, that the seller would not convey any interest in the property without the purchaser’s approval. The contract also provided that if the purchaser breached the contract and such breach was not cured within 10 business days after notice provided by the seller, then the seller could cancel or terminate the closing escrow and keep the deposit “as its sole…remedy and as liquidated damages.” If the seller breached the contract and such breach had not been cured within 10 days after notice given by the purchaser, the purchaser could terminate its contractual obligations or seek specific performance. The closing date could be extended provided that the purchaser made certain “extension payments.”

In February 2013, the seller sent the purchaser a notice of cancellation of the contract, citing a conversation wherein the purchaser allegedly admitted that it was unwilling to provide the next required extension payment. The seller deemed such unwillingness to constitute an anticipatory breach and accelerated the contract’s default provisions. The purchaser denied that it was unwilling or unable to close and argued that even if it had failed to timely make the extension payment, the contract required the seller to give the purchaser a notice to cure before it could terminate the contract, provided that the seller was not in default.

The purchaser thereafter commenced the subject action. The purchaser sought specific performance, “a $150,000 lien on the property representing the amount of its security deposit, a lien in excess of $1 million representing investments and improvements it made on the property during the contract period, and damages in excess of $1 million.” The purchaser alleged that the seller breached the contract by selling its membership interests to an apparent relative of the seller’s managing partner and by attempting to terminate the contract and cancelling the closing due to the purchaser’s alleged unwillingness to provide the required extension payment. The purchaser also alleged that “the attempt to terminate the contract without first giving a notice to cure also constituted a breach.”

A seller’s principal alleged that he had been advised by one of the purchaser’s principals that the purchaser was unable to make the required extension payment and close. Moreover, in a federal court litigation, the purchaser had alleged that it could not purchase the subject property and had abandoned the subject project, because of wrongful conduct by a third party who was to help with financing. The seller argued that the purchaser’s assertions in the federal action constituted admissions that the purchaser lacked the required financing.

The seller argued that the notice should therefore be cancelled or “the Court should condition the continuation of the [Notice] upon a requirement that the parties post undertakings in an amount fixed by the Court.” The seller asserted that its bond should not exceed $672,000, the damages sought in the federal action by the purchaser, and the purchaser should be required to post a $3.2 million bond, the purchase price.

The purchaser countered that its principals had “sufficient cash on hand” and the federal action dispute did not impair its ability to close. The purchaser also argued that the seller’s letter accusing the purchaser of anticipatorily breaching the contract, was itself an anticipatory breach by the seller and the purchaser was entitled to notices to cure. The purchaser further alleged that the transfer of the seller’s interest was done to appropriate the purchaser’s “development” work and such transfer was to a related party who wanted to take over the project. The purchaser had allegedly spent approximately $800,000 for, inter alia, land use approvals, relocation of electrical lines and environmental reviews. The purchaser also argued that an undertaking “would not adequately protect it given the uniqueness of the property.”

The court found that cancellation of the notice, pursuant to CPLR 6514 was not warranted. However, the court required “contingent double bonding pursuant to CPLR 6515.” CPLR 6514(b) authorizes the court to cancel a notice, “if the plaintiff has not commenced or prosecuted the action in good faith.” Here, the seller had failed to establish that the purchaser had commenced the subject action in bad faith.

CPLR 6515 authorizes the cancellation of a notice, “upon such terms as are just…, if the moving party shall give an undertaking in an amount to be fixed by the court, and if:

1. the court finds that adequate relief can be secured to the plaintiff by the giving of such an undertaking; or

2. in such action, the plaintiff fails to give an undertaking, in an amount to be fixed by the court, that the plaintiff will indemnify the moving party for the damages that he or she may incur if the notice is not cancelled.

Thus, under CPLR 6515′s “‘double bonding’ approach,” a court may cancel a notice “upon the posting of [a] bond by the defendant unless plaintiff posts an undertaking that will indemnify the defendant for any damages flowing from the [Notice].”

Although “consideration of the likelihood of success on the merits is ‘irrelevant to determining the validity of [a] [Notice],’…it is proper to consider the likelihood of success on the merits when considering whether to discretionarily cancel a [Notice] pursuant to CPLR 6515….” The court considered the purchaser’s likelihood of success on the merits to be “low,” since it must show that it was “ready, willing, and able to perform” and the purchaser’s allegations against its co-venturer in the separate federal action, appeared to demonstrate that the co-venturer’s actions had “interfered with the [purchaser's] ability to obtain the necessary financing it needed to close on the sale.” Moreover, even if the purchaser’s principals personally had the funds to close, “the ability to pay is irrelevant if these parties were not ready or willing to pay…unless the purchase was financed by a loan.” The court then explained that:

[a]n anticipatory breach by the party from whom specific performance is sought excuses the party seeking specific performance from tendering performance, but not from the requirement that the party seeking specific performance establish that he or she was ready, willing, and able to perform….

Based on “the unique nature of real property,” the court opined that “adequate relief cannot be afforded to the [purchaser] simply by requiring the [seller] to post an undertaking pursuant to the ‘single bonding’ approach in CPLR 6515 (1).” The double bonding approach provided for in CPLR 6515(2), “is considered preferable even where the plaintiff’s likelihood of success is doubtful….”

The court found that the seller’s proposal that it be required “to post a bond for $672,000, the amount of the damages sought to be recovered in the federal action,” was insufficient. The complaint sought to recover $1.15 million dollars. The seller disputed some of the alleged expenses. The court stated that such dispute should be determined through the “litigation process” and “not on this motion.” Moreover, although it may be appropriate to “consider whether the property [had] increased in value during the contract period in considering the amount of an undertaking necessary to protect the [purchaser],” the record lacked evidence as to the current appraised value of the property.

Accordingly, the court held that the seller “should…post a bond in the amount of $1.15 million, representing the…[purchaser's] deposit” and the aforementioned development expenses. The court further held that the seller’s request that the purchaser post a bond in the amount of the purchase price was excessive. The court concluded that if the seller posts a bond of $1.15 million, the notice will be cancelled unless the purchaser posts a bond of $500,000.

Crestwood Loft Partners v. Crestwood Station Plaza, 58594/2013, NYLJ 1202634502221, at *1 (Sup., WE, Decided Dec. 11, 2013), Connolly, J.

Contracts—Purchase of Co-Op—Escrow Agent’s Counterclaims Dismissed—No Common Law Cause of Action for Harassment

The plaintiff had entered into a contract with the defendant seller for the purchase/sale of a cooperative apartment. Defendant “A” acted as the seller’s attorney and pursuant to the parties’ escrow agreement, held the purchaser’s $7,100 down payment, as escrow agent. After the purchaser’s application to purchase the apartment had been denied by the co-op’s board of directors, the purchaser requested that the seller return the down payment. The seller refused to comply on the ground that the purchaser had transmitted its application to purchase the apartment more than 10 business days after the contract date, in violation of the terms of the contract and had thereby forfeited the down payment.

The purchaser then commenced the subject action against the seller and “A,” to recover the down payment. The seller moved to dismiss the complaint. The purchaser cross-moved for summary judgment. The trial court had denied the seller’s motion to dismiss without prejudice and the purchaser’s motion for summary judgment and directed the seller to answer the complaint. The defendants submitted answers, in which they denied liability and asserted counterclaims.

The seller thereafter instructed “A” to return the down payment to the purchaser and withdrew his counterclaim. “A” returned the down payment and the purchaser accepted such down payment in “full settlement of all of her causes of action.” “A” thereafter moved for summary judgment on the counterclaims. The court denied “A’s” motion and upon searching the record, granted the purchaser summary judgment dismissing “A’s” counterclaims.

In his first counterclaim, “A” alleged that only the seller was entitled to retain the down payment and the seller had subsequently directed “A” to return the down payment to the plaintiff and abandon all claims thereto. Therefore, any issues pertaining to the dismissal of that counterclaim are moot.

In the second counterclaim, “A” sought payment of attorney fees that he had incurred in defending the action brought against him by the purchaser and attorney fees he had incurred in connection with the prosecution of his counterclaims. The escrow agreement provided for an indemnity provision for the escrow agent, which included attorney fees.

The court explained that the purchaser only sought to recover a down payment and that while “A” was named as a party to the litigation, it was solely in his capacity as a “stakeholder.” Under the terms of the escrow agreement, “A” had the right to terminate his role in the litigation by simply “depositing the down payment into court.”

“A” failed to provide evidence from which it could be determined that the escrow agreement was intended to confer a right to have the escrow agent indemnified for legal costs he incurred in connection with his assertion of defenses to the controversy between the purchaser and the seller or in connection with his assertion of counterclaims. Thus, the Appellate Term (court) concluded that the trial court properly denied the branch of “A’s” motion seeking summary judgment with respect to his second counterclaim and upon searching the record, granted summary judgment to the purchaser dismissing the second counterclaim.

In his third counterclaim, “A” alleged that had been wrongfully named as a defendant in the purchaser’s action to recover her down payment. The court found that since “A” was properly named as a defendant in the action, the trial court had “correctly denied the branch of ['A''s] motion which sought summary judgment with respect to his third counterclaim and, upon searching the record,…granted summary judgment to [the purchaser].” The court explained that “[i]n a dispute between the buyer and the seller over escrow funds, the escrow agent is a proper party, ‘so that he [or she] will be amenable to any judgment rendered after trial with respect to the disposition of the escrow funds’….”

In the fourth counterclaim, “A” asserted that the plaintiff had “harassed him by serving him by registered mail with an additional copy of the summons and complaint.” The court explained that “‘New York does not recognize a common-law cause of action to recover damages for harassment’….” Thus, the court held that the trial court had “properly denied the branch of ['A''s] motion seeking summary judgment with respect to his fourth counterclaim, and, upon searching the record,…granted summary judgment to [purchaser] dismissing the fourth counterclaim.”

With respect to “A’s” assertion that the trial court had erred in denying its request for sanctions against the purchaser’s counsel, the court noted that “A” had never formally moved pursuant to CPLR 2214 for such relief. (See Rules of the Chief Administrator [22 NYCRR] §130.1.1 [d]). The court further opined that “sanctions against [purchaser's] counsel were not warranted under the circumstances presented.”

Pitter v. Gregory, 2011-2980 W C, NYLJ 1202640782745, at *1 (App. Tm., 2nd, Decided Jan. 10, 2014). Before: Tolbert, J.P., Nicolai and Iannacci, JJ. All concur.

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