Nativ Winiarsky
Nativ Winiarsky ()

In the world of landlord-tenant law, issues surrounding an award of attorney fees are often found to be a “proceeding within a proceeding” and the ability of either party engaged in such litigation to recoup its attorney fees often looms large in the context of the more substantial and complex landlord-tenant summary proceedings. In some cases, the attorney fees expended by both sides often times equals, if not dwarfs, the amount in dispute. Thus, the ability to recover, or in some instances the necessity to reimburse, attorney fees is, and must always remain, front and center in the minds of the parties embroiled in the fray of costly litigation.

Courts’ Discretionary Power

First, the preliminaries. Most practitioners are fully familiar with the “American Rule” which precludes a prevailing party from recouping its legal fees from the losing party except where authorized by a statute, agreement or court rule.1 In the landlord-tenant arena, attorney fees are frequently in play because the great majority of such cases involve leases between the parties which typically include some type of clause generally allowing the landlord to recover attorney fees in the event of default by the tenant.

In order to level the playing field and create mutual obligations between landlords and tenants, the New York State Legislature enacted Real Property Law (RPL) §234 which provides that a residential tenant, who is successful in litigation with his landlord, is entitled to an award of attorney fees wherever the lease provides for an award of attorney fees to the landlord where the tenant would be required to pay such fees as additional rent. In enacting RPL §234, the Legislature had hoped to provide “an incentive to resolve disputes quickly and without undue expense.”2 This has often proved not to be the case as case law is replete with examples of numerous hotly contested cases that have indeed solely centered on the interpretation and application of RPL §234.

Now here comes the twist. Even assuming there exists a clause in the lease that provides for the landlord’s entitlement to attorney fees in an action involving the tenant’s breach, or conversely if the tenant is entitled to a reciprocal right in an action involving the landlord’s breach, and even assuming that party prevails with respect to the central relief sought and receives a substantially favorable judgment, the courts of this state have still in a number of instances, based upon their self-termed “discretionary power,” denied attorney fees to a prevailing party based upon “equitable considerations” and “fairness.”

The Court of Appeals has just recently addressed this issue in the case of 433 Sutton Corp. v. Broder.3 In that case, the tenant’s neighbors complained of a stench emanating from the tenant’s apartment causing the cooperative’s staff to use a spare key to enter the apartment and ascertained that the source of the odor was the tenant’s pet cat. The tenant was away from the apartment at the time and when he returned, he removed the cat. Subsequent to the removal of the cat, the cooperative commenced an action seeking injunctive relief and damages on account of the tenant’s alleged violation of the proprietary lease and house rules.

The trial court sua sponte dismissed the action upon a finding that the cooperative had breached the lease by failing to give the tenant the requisite notice and opportunity to cure before resorting to self-help. Based upon said dismissal, the tenant moved for attorney fees predicated upon the existence of a valid attorney fees clause in the proprietary lease between the landlord and tenant. The trial court denied the tenant’s application stating, without any further explanation, that “equitable considerations dictate that the instant motion for attorneys’ fees [by the tenant] be denied.”

The Appellate Division reversed the trial court and remanded for a hearing on the amount of reasonable attorney fees owed to the tenant on the basis that due to the fact the trial court dismissed the action and had in fact ruled that the cooperative had breached the lease by failing to give the tenant the requisite notice and opportunity to cure mandated by the proprietary lease, the tenant “was unquestionably the ‘prevailing party’ under the relevant case law.”

Justice Karla Moskowitz wrote a dissent, however, wherein she stated that the trial court correctly used its discretion in denying attorney fees “based on equitable consideration and fairness” citing to Kralik v. 239 E. 79St Owners Corp.4 and Solow Mgt. Corp. v. Lowe.5 Moskowitz supported her determination by reasoning that “plaintiff received essentially the relief it requested in its application—namely, ‘permission to enter the apartment….and remove the noxious producing organic matter.’ Thus, on this basis, it is reasonable to conclude that plaintiff substantially prevailed, notwithstanding the court’s ultimate dismissal of the action.”

The Court of Appeals ultimately reversed the Appellate Division, and apparently agreeing with Moskowitz’s analysis, stated that the “Appellate Division erred in determining that defendant was the prevailing party.”

Little Guidance

However important 433 Sutton is to the landlord-tenant community as one of the relatively few landlord-tenant cases addressed per year by the Court of Appeals, it unfortunately provides little in the way of guidance in terms of the circumstances in which a court may use its discretion to deny attorney fees in the face of a valid attorney fees allowing for same. In the first instance, did Justice Moskowitz, and ultimately the Court of Appeals, deny attorney fees because she/they felt that the cooperative didn’t “prevail” in the usual sense of the word, or were attorney fees denied because given the fact that the plaintiff was forced to take action to protect complaining neighbors from a horrific stench that grew progressively worse, it was only “fair” to deny attorney fees?

Furthermore, Moskowitz’s citation to Kralik and Solow didn’t help clarify matters. In the first instance, the Appellate Division decisions in both Kralik and Solow are curt one-paragraph decisions devoid of any meaningful factual recitations making it difficult to determine the context of the resulting decisions. However, as can be gleaned from the decisions, in Kralik, the tenant of a cooperative sued its landlord and ultimately prevailed. The tenant thereafter sought attorney fees pursuant to RPL §234. The motion court denied the tenant’s request despite the fact that the tenant prevailed, and the tenant appealed.

The Appellate Division affirmed the lower court’s denial of attorney fees finding that it would be manifestly unfair to require the defendant to pay plaintiff’s attorney fees given the fact that the defendant-cooperative’s position was justified by the state of the law when the action by the tenant was commenced. To this end, the denial of attorney fees in Kralik was understandable in view of prior established case law which held that in the event of a change in law, attorney fees would often be denied where the facts when the case commenced would have supported the position of the non-prevailing party.6

The citation to Solow is far more problematic. In Solow, the landlord and tenant had engaged in protracted litigation which ultimately resulted in defendant-tenant’s decision to pay all claimed rent arrears and forgo his claim for a rent abatement. In view of that, the landlord moved for attorney fees which was denied by the trial court despite the existence of a valid attorney fees clause. The plaintiff-landlord appealed, and the Appellate Division affirmed the denial of attorney fees stating “[e]ven assuming that plaintiff should be viewed as having substantially prevailed, the imposition of attorneys’ fees would be unfair under the particular circumstances of this case.” The circumstances were not stated in the decision in Solow.

In support of its determination, the Appellate Division in Solow cited to Jacreg Realty Corp. v. Matthew Barnes,7 and Nesbitt v. NYC Conciliation & Appeals Bd.,8 both of which stand for the proposition that an award of attorney fees may be denied where bad faith is established on the part of the successful party or where unfairness is manifest.

Thus, the sole cases cited by Justice Moskowitz in her dissenting opinion in support of the position that a court may deny a contractual right to attorney fees based upon “equitable considerations” and “fairness” are cases that would allow a denial of such fees in the event of a) a change of law; b) bad faith; and/or c) where unfairness is manifest. However there was nothing in the facts as reported, or in Moskowitz’s dissent, to indicate that any of these three factors existed in the circumstances leading to her dissenting opinion in 433 Sutton. Nor did the Court of Appeals’ reversal in 433 Sutton help illuminate matters as it merely reversed the majority opinion of the Appellate Division without even referencing Moskowitz’s decision.

Consequently the bar in general, and the lower courts in particular, are left in the unenviable position of trying to discern the extent of discretion afforded a court to deny a party attorney fees. Nor does it help matters that “bad faith” and/or “manifest unfairness” have never been defined in the context of a denial of attorney fees to which a party is otherwise entitled.

It is a well-settled axiom of law that when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms and that such a rule has special import in the context of real property transactions, “where commercial certainty is a paramount concern, and where…the instrument was negotiated between sophisticated, counseled business people negotiating at arm’s length.”9 Hence, “courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.”10 It would seem to this author based upon this almost proverbial rule that use of the court’s blurred retention of “discretionary” power to deny a contractual negotiated remedy should be sparingly used.

Parties entering litigation rely upon their contractual rights and make decisions based upon the rights they believe they possess and are entitled to based upon documents oftentimes drafted by and agreed to by sophisticated parties. Departing from this rule, and allowing a court to haphazardly decide when, and if, an attorney fees provision should apply unfairly prejudices the parties and their respective counsel seeking clarity. Litigants need to be aware that to the extent they are relying on having their attorney fees reimbursed in the event they prevail, the ability to procure a judgment to recoup such fees is far from guaranteed.

Nativ Winiarsky is a senior partner at Kucker & Bruh.

Endnotes:

1. Gotham Partners v. High River Limited Partnership, 76 A.D.3d 203, 906 N.Y.S.2d 205 (1st Dept. 2010).

2. Duell v. Condon, 84 N.Y.2d 773, 780, 647 N.E.2d 96, 622 N.Y.S.2d 891 (1995).

3. 22 N.Y.3d 1161, 984 N.Y.S.3d 636, 7 N.E.1124, 2014 N.Y. LEXIS 584 (2014), rev’g 107 A.D.3d 623, 968 N.Y.S.2d 71 (1st Dept, 2013) rev’g 2012 NY Misc LEXIS 6162, 2012 Slip Op 33210(U).

4. 93 A.D.3d 569, 570, 940 N.Y.S.2d 488 (1st Dept. 2012).

5. 1 A.D.3d 135, 766 N.Y.S.2d 838 (1st Dept. 2013).

6. See e.g. Wells v. East 10th Street Assoc., 205 A.D.2d 431, 613 N.Y.S.2d 634 (1st Dept. 1994).

7. 284 A.D.2d 280, 727 N.Y.S.2d 103 (1st Dept., 2001).

8. 121 Misc.2d 336, 340, 467 N.Y.S.2d 528 (Sup. Ct., N.Y. 1983).

9. Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 807 N.E.2d 876 (2004).

10. Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199, 738 N.Y.S.2d 658, 764 N.E.2d 958 (2001).