Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Rent Control—Succession Claim Rejected—Alleged Nontraditional Family Member—Respondent Failed to Establish That “Emotional and Financial Commitment and Interdependence Existed”—a Non-Traditional Familial Relationship May Exist Without “Intermingled Finances”—Evidence Described a “Loving Friend,” But Not a Non-Traditional Family Member

A LANDLORD COMMENCED a holdover proceeding, seeking possession of a rent-controlled, cooperative apartment from the respondent, on the grounds that the respondent’s “license to occupy the premises expired upon the death of the tenant of record….” The landlord moved for summary judgment.

A prior court held that the landlord had demonstrated that there were no triable issues of fact regarding respondent’s succession defense, and had made certain findings of fact. The respondent had previously failed to provide any “documentary evidence connecting him to the tenant to establish a non-traditional family relationship. The tenant had a health care proxy, but the respondent is not the proxy. The tenant had a will, but respondent was neither executor nor a beneficiary of the will. Respondent was not the emergency contact person for the tenant. Respondent has credit cards and a savings account, and the tenant was not on any of the accounts, nor did the tenant have survivor’s benefits under respondent’s bank account…Respondent failed to produce any photographs…where he and the tenant presented themselves as a family to the community….”

However, the prior court denied summary judgment, on the grounds that notwithstanding the lack of documentary evidence or corroborating testimony from another witness, the respondent was “entitled to present his testimony at trial and have his credibility assessed by the trial judge.” Based on the evidence presented at trial, the subject court agreed that the respondent had failed to provide “documentary evidence” to support his succession claim. The court considered the testimony of the landlord’s witness and the respondent’s four witnesses.

Section 9 NYCRR §2204.6(d)(1) provides, inter alia, “that a member of the tenant’s family ‘…shall not be evicted under this section where the tenant has permanently vacated the housing accommodation and such family member has resided with the tenant in the housing accommodation as a primary residence for a period of no less than two (2) years….’ ‘Family member’ is defined…as certain persons related to the tenant by blood, marriage or adoption, and as ‘…any other person residing with the tenant in the housing accommodation as a primary residence who can prove emotional and financial commitment, and interdependence between such person and the tenant.’” In determining whether such “emotional and financial commitment and interdependence existed,” courts will consider:

(a) longevity of the relationship; (b) sharing of or relying upon each other for payment of household or family expenses, and/or other common necessities of life; (c) intermingling of finances as evidenced by, among other things, joint ownership of bank accounts, personal and real property, credit cards, loan obligations, sharing a household budget for purposes of receiving government benefits, etc.; (d) engaging in family-type activities by jointly attending family functions, holidays and celebrations, social and recreational activities, etc.; (e) formalizing of legal obligations, intentions, and responsibilities to each other by such means as executing wills naming each other as executor and/or beneficiary, conferring upon each other a power of attorney and/or authority to make health care decisions each for the other, entering into a personal relationship contract, making a domestic partnership declaration, or serving as representative payee for purposes of public benefits, etc.; (f) holding themselves out as family members to other family members, friends, members of the community or religious institutions, or society in general, through their words or actions; (g) regularly performing family functions, such as caring for each other or each other’s extended family members, and/or relying upon each other for daily family services; [and] (h) engaging in any other pattern of behavior, agreement, or other action which evidences the intention of creating a long term, emotionally-committed relationship.

The respondent failed to provide “any documentary evidence of a financial interdependence, formalization of legal obligations, or shared household expenses.” He was not the tenant’s “health care proxy,” was not a “beneficiary or executor of her will, did not share any bank accounts with [her], did not make her funeral arrangements,” and was “not provided with her ashes after her death.” Most of the expenses for “the rent and home health aide” were “paid for by the [tenant's] Social Security and Medicaid.” The respondent claimed that “he paid for household expenses and utilities,” but failed “to provide a single receipt in support.” The court acknowledged that “a non-traditional familial relationship may be demonstrated in the absence of intermingled finances.”

Additionally, none of the respondent’s witnesses testified that the respondent and tenant “regularly performed family functions, held themselves out to the community as family or were in a ‘spouse-like relationship.’” Rather, testimony indicated that the respondent and the tenant “were very close and dear friends,” and the respondent had “assumed the role of one of [tenant's] caretakers.” A reverend had testified that the tenant and the respondent “appeared to have a close and ‘special’ relationship,” but he “never described them as a ‘couple.’” He testified that the respondent had discussed with him the possibility of the respondent marrying the tenant, but the reverend had never spoken with the tenant about such an arrangement. The respondent had not called “one witness who could testify without hesitation that they were a couple, or familial….”

The court found that the respondent had “a loving, caretaking relationship,” but that there was no evidence that would indicate “a ‘spouse-like relationship’ or that they held themselves out to the community as family.” Additionally, the respondent had misrepresented that he was the tenant’s cousin to the landlord’s agent, and that damaged his claim “which relies solely on testimony to prove succession; especially when none of respondent’s other witnesses described the two in a non-traditional family member sense.” In essence, the respondent and his witnesses’ testimony described “a loving friend, but not of a non-traditional family member as the term has been utilized and interpreted by legal statute and precedent.” Accordingly, the court granted the landlord a final judgment against the respondent.

7825 Realty Associates v. Doll, L&T 53941/15, NYLJ 1202781584434, at *1 (Civ., KI, Decided Feb. 8, 2017), Scheckowitz, J.

Contracts—Dispute Involving Obligation To Obtain Land Use approvals—Rules of Contract Interpretation— Contract Required A “Determination,” Not Necessarily An “approval”

THIS CASE INVOLVED the sale of real property. In April 2014, pursuant to a purchase/sale contract, “A” (seller) sold 100 percent of the owner’s membership interests to “B” (purchaser). Disputes arose from the failure to obtain all “regulatory approvals” that the purchaser “needed to legally develop the property into condominiums.” A dispute arose over the seller’s “contractual responsibility for procuring such approvals.”

Although the seller’s brother was not a party to the contract, the purchaser sought to hold the brother personally liable for the seller’s contractual obligations, “because he was ‘solely responsible for all aspects of seller’s negotiation of, and performance under, the agreement.’” The court noted that “A” was “the seller and sole contractual counterparty,” who was “fully disclosed,” and notwithstanding that the brother acted as the seller’s agent and the various irrelevant accusations about the brother’s “checkered professional past (a fact about which [the purchaser] apparently knew),” the complaint did not explain how the brother’s involvement “satisfies the fraud prong of the applicable veil piercing standard.”

The contract provided that the purchaser would pay “A” $42 million (price), based on plans for 65,000 net sellable square feet (containing at least 10 multifamily units) (the plans). The plans were subject to approval by the Landmarks Preservation Commission (LPC approval). The plans were also to be submitted to the NYC Dept. of Buildings (DOB) “for a determination on the plans['] compliance with the [NYC] Building Code, Zoning Resolution and [NYS] Multiple Dwelling Law [MDL] standards for light and air (the ‘Light and Air approval’ [LAA approval]; together with the LPC] [A]pproval, the ‘approvals’).” The price was to be reduced “to the extent that the net sellable residential square feet obtained in the approvals are less than 65,000 square feet at a rate of $1,000 per square feet….”

The seller had made a $2 million down payment. Another $30.22 million payment was due on the closing date (in June 2014) and “payment of the balance…, $10 million, was dependent on…approvals.” The seller had agreed to leave $1 million (DOB payment) of the approval payment “in escrow pending the final plan approval by the [DOB] plans (DOB approval).” Within three (3) business days of the purchaser receiving DOB approval, the purchaser was to direct purchaser’s attorney “to release the DOB payment to seller.”

Although certain sections of the contract “define three approvals (the LPA, LAA, and DOB approvals), the definition of ‘approvals’ only encompasses the LPC approval and LAA approval. The DOB approval [was] not one of the ‘approvals,’ and was to (and could only) occur after the first two approvals were procured.” The “$10 million was contingent on regulatory approval, $9 million was due upon the LPA and LAA approvals, and the final $1 million was due upon the DOB approval.” Although the contract did not obligate the seller to help obtain the DOB approval, “the final $1 million served as incentive for her to do so.” The purchaser alleged that the seller never obtained the approvals.

After the closing date, the brother concluded that the plans contained errors and would not lead to the granting of the approvals. He allegedly replaced the architect and the new architect developed new plans. The plans required an appeal to the NYC Board of Standards and Appeals (BSA) for waivers from the NYS MDL and variances from the zoning resolution. The seller moved forward with its new strategy, but had yet to obtain approvals at the time the subject motions were made.

On March 17, 2015, the LPC issued a certificate of appropriateness (certificate). The certificate stated that “the LPC-approved alterations are: 1) subject to review…by the BSA, and 2) contingent upon LPC review of final DOB filing drawings.” The DOB thereafter issued a denial which listed three objections. Accordingly, the development required an appeal to the BSA. Without BSA approval, the LAA approval remained outstanding. Thus, the seller had not yet obtained the approvals and seller could not obtain the approvals on or before April 25, 2016, since the BSA had “calendared a continued public hearing…on June 2, 2016.”

By letter dated Jan. 20, 2016, the brother demanded that the purchaser pay the seller, the approval payment. The purchaser refused and contended that “the lack of DOB approval defeats any claim ['A'] had to the approval payment….” The purchaser thereafter commenced the subject action, asserting claims, inter alia, for a declaratory judgment finding that the defendants had not obtained the approvals, the approval payment was not due, the approval payment has been reduced by $2.5 million per month after Dec. 24, 2015, the purchaser’s “obligation to pay the approval payment has been extinguished, or alternatively, the…price must be reduced….,” a breach of contract claim against the brother, alleging that the brother was the seller’s “alter ego” and that the seller breached the contract, a preliminary and permanent injunction prohibiting a defendant from obtaining the collateral under a pledge based on the seller’s “right to the approval payment having been extinguished due to the 18-month time” contractual period that had elapsed.

The purchaser also sought an accounting against, inter alia, seller and her brother regarding the “carrying costs” that had accrued and asserted a conversion claim against, inter alia, the seller and her brother, for the “carrying costs” owed under the contract.

The defendants moved to dismiss several causes of action, including claims asserted against the brother. The court reviewed the rules governing interpretation of contracts. A primary issue was whether the seller “obtained the approvals,” which the contract required her to do before being entitled to the first $9 million of the approval payment. The court explained that:

While the verb used to describe her obligation under section 2.2.4 is “obtain,” what it means to “obtain” the approvals turns on what the approvals, a defined term, actually encompass. The first of the approvals, the LPC approval, is expressly defined to include actual approval of the plans by LPC…. (“The plans shall be…, subject to modifications, and approved by the [LPC].”)…. Thus, the parties do not dispute that actual LPC approval (…) is required for [seller] to “obtain” the LPC approval.

That being said, the parties disagree about whether DOB had to actually approve the plans as compliant with the myriad applicable regulatory requirements (e.g., zoning) for [seller] to be said to have obtained the LAA approval. That is because, unlike the LPC approval, which explicitly requires actual approval by the LPC, the LAA approval is defined as follows:

the plans shall be submitted to the [DOB] for a determination on the plans['] compliance with the New York City Building Code, Zoning Resolution and New York State [MDL] standards for light and air.

The seller argued that “since the definition of LAA approval did not include the word ‘approve,’ but only states that [seller] must cause the plans to ‘be submitted…for a determination,’ DOB actually approving the plans is not part of ‘obtaining’ the LAA approval.”

The seller emphasized that “the parties knew how to define an approval to include actual regulatory agency approval—and they did just that with the LPC approval.” The seller contended that since “they omitted the requirement that DOB approve the plans from the definition of the LAA approval indicates that they clearly intended DOB approval not to be [seller's] responsibility.” Thus, the seller argued that in order “to ‘obtain’ the LAA approval” and receive the $9 million, she was only obligated to “(in good faith)…submit the plans to DOB so that DOB could make a ‘determination.’” “Unlike the LCP approval, the definition of LAA approval does not require a particular determination….”

The seller asserted that the parties had “specifically carved out actual DOB approval as being the predicate for [seller] receiving the final $1 million. The definition of DOB approval—like the definition of LPC approval, and unlike the definition of LAA approval—explicitly includes actual regulatory approval.” Thus, the seller argued that the only way to “harmonize” the contract provisions, was to find that DOB approval “is only a prerequisite to [seller] receiving the final $1 million, but not a prerequisite to her receiving the $9 million.”

The purchaser countered that the seller should not prevail on a motion to dismiss. The purchaser argued that “the entire framework of and consideration for the agreement turns on successfully obtaining the necessary authorizations from New York City agencies to proceed with the residential conversion in accordance with the plans.”

The court found that the purchaser’s version of the parties’ intentions “cannot be gleaned from the agreement itself.” Although the purchaser’s argument “that ['A'] was…obligated to obtain DOB approval prior to being entitled to the $9 million would have been commercially reasonable,” the court explained that such fact “is not something that may inform the court’s analysis.” The court further stated that “[n]or is the fairness of the deal” actually struck “by these sophisticated parties an issue.”

The court reasoned that “the agreement…clearly delineates when actual regulatory approval is required and when it is not.” The court believed that to define LAA approval to include actual DOB approval “would be to redefine the term LAA approval” and the court may not “rewrite the agreement in this manner.” The court opined that “the parties and their counsel understand how the…regulatory approval processes work and the interplay between the…agencies that were required to bless the proposed condominium development.” However, “they only premised one payment—the final $1 million—on actual DOB approval. Their decision to omit DOB approval from the definition of LAA approval must be given effect.” Accordingly, the court dismissed the purchaser’s claims based on the seller’s alleged failure to obtain DOB approval.

The court also dismissed the claims against the brother, since he was not a party to the contract and was “an agent for a disclosed principal.” The purchaser knew that the brother did not own a membership interest and was not entitled to enforce the agreement against the seller’s brother. Moreover, the brother had not concealed the fact that he was acting on his sister’s behalf or that she would be the sole “source of recourse under the agreement.” The court found no authority “for the proposition that a more business savvy family member is legally prohibited from acting as an agent for another family member on a complex business deal without incurring personal contractual liability.” Additionally, the seller’s brother was “not alleged to have committed any act which, in of itself, is unlawful.”

Finally, the court dismissed the conversion claim. The court explained that “[c]ash is fungible” and the purchaser did not allege that there was “specific cash earmarked by the parties which was diverted to [the brother].”

Comment: Disclosure—My firm represented “B.” The decision is being appealed.

CP JBAM Holdings v. Shapiro, 651630/2016, NYLJ 1202781584098, at *1 (Sup., NY, Decided Feb. 8, 2017), Kornreich, J.