Scott E. Mollen
Scott E. Mollen ()

Landlord-Tenant—Nuisance Summary Holdover Proceeding Dismissed—Tenant Struck Building Employee in the Head With a Screwdriver—Isolated Incident Failed to Establish a “Pattern of Continuity or Recurrence of Objectionable Conduct”

A landlord commenced a nuisance summary holdover proceeding against a tenant. The petition alleged that the tenant created a nuisance, “when he threatened and struck a building employee” (superintendent) “on the head with a screwdriver” (assault). The tenant denied the allegations and counterclaimed for “retaliatory eviction, harassment and breach of warranty of habitability.”

“To establish an actionable nuisance, the petitioner must prove by a fair preponderance of the evidence, that the tenant has engaged in a recurrent pattern of objectionable conduct that has substantially threatened the health, safety and comfort of other tenants… Isolated annoyances are insufficient; ‘nuisance imports a continuous invasion of rights’… ‘a pattern of continuity or recurrence of objectionable conduct.’” Here, the court found that the landlord “failed to prove a pattern of nuisance behavior” and the court dismissed the petition.

The superintendent had testified that “he and [the tenant] had a troubled relationship” and the tenant would attempt “to rile him up by tossing garbage around, yelling in an aggressive manner and spitting on the floors when [the superintendent] was mopping.” However, “[n]o dates or details of these alleged incidents were elicited at trial.” The superintendent further testified that on the date of the assault, the tenant complained about a lack of heat and the tenant hit the superintendent “with a screwdriver on the left side of the back of his head, causing him to stumble and fall forward.” The superintendent continued to work, but had been “shaken, afraid and in pain. He filed a police report and went to the hospital where he was treated and released.” The superintendent also obtained an order of protection against the tenant, “and now works in another building to avoid contact with [the tenant].” The incident report had been submitted into evidence. The superintendent’s supervisor “testified credibly” that he had heard the tenant say “he was going ‘f*** up [the superintendent].’” He saw the tenant and the superintendent struggle and the superintendent “stumble and fall.”

The tenant testified that he was extremely frustrated by a lack of heat and had “complained to management and called 311. No evidence of those calls or lack of heat was submitted into evidence.” The tenant further testified that on the subject morning, “he woke up freezing,” it “was ‘minus ten degrees out,’” “he was frustrated” and the conversation with the superintendent “grew heated.” Although he admitted “he was carrying the screwdriver which was a tool he used for work,” he denied that he hit the superintendent. Additionally, the court heard an “audio recording and watched a video of the confrontation….” However, the parties were not visible in the video.

The court explained:

tenants may be removed if they commit or permit a nuisance in the subject premises. (RSC §2425.3 [b].) A nuisance occurs when a “tenant engages in a persistent and continuing course of conduct evincing an…unreasonable or unlawful use of the property to the annoyance … or damage of others, the primary purpose of which is intended to harass the owner or other tenants … by interfering substantially with their comfort or safety.”

Although the court credited the petitioner’s testimony and found that the tenant’s denial of the assault was “incredible,” the court found that the landlord had proven “just this one instance of violent behavior.” The court reasoned that such behavior, “although unconscionable, does not rise to the level of” conduct cited in a prior case, “in which the respondent shot another individual in her apartment with an illegal handgun. That behavior was found to be sufficient in and of itself to support a nuisance case of action.”

The court explained that although the tenant’s conduct was “reprehensible,” the court was “constrained to follow the Court of Appeals decision in Domen Holding v. Aranovich, 1 NY3d 117, 124 (2003)], and dismiss the petition after trial.” The court also dismissed the tenant’s counterclaims based on a lack of evidence.

Comment: There is “no strict quantitative test as to how many incidents warrant a claim of nuisance.” Courts must “weigh both the quantitative and qualitative aspects under the specific set of facts to determine if that threshold has been met.” 160 W. 118th St. Corp. v. Gray, 801 NYS2d 238 (Civ. Ct. 2004).

Here, since the court found that the superintendent’s supervisor had “credibly” testified that the tenant had said he was “going to f*** up the superintendent” and the tenant assaulted the superintendent by hitting him on the head with a screwdriver, could the court have found that an attack involving a blow with a screwdriver to the head is comparable to a case where a tenant shoots a person in their building and constitutes a nuisance? Although the injury in the subject case may not have been “severe,” a screwdriver could kill or seriously maim a person, especially when used to strike someone’s head. After all, a jury in a criminal case might find, depending on the circumstances, that an attack with a screwdriver to the head constitutes the use of deadly force. Here, the superintendent was able to work in another building to avoid future contact with the tenant. What if an owner owns only one building and could not transfer the superintendent to another building? Must such superintendent go to work each day with fear of serious bodily harm?

Since I don’t know all of the facts and circumstances of the subject case, including any mitigating circumstances, my comments are general comments and are merely intended to note my belief that under certain circumstances, a tenant’s assault upon a building employee with a screwdriver could support an eviction.

Pelham 1130 v. Cause, L&T 18436/16, NYLJ 1202793830030, at *1 (Civ., BX, Decided July 13, 2017), Breier, J.


Real Estate Mortgage Investment Conduit Trusts – Plaintiffs Stated a Cause of Action for Breach of Contract – Trustee Exercised an Early Termination of Trusts – Trustee Appropriated the Residual Securities Owner’s Equity by Usurping the Profitable Value of the Assets for Itself

The plaintiffs appealed from a trial court order which granted the defendant’s motion to dismiss the complaint. The plaintiffs own “residual interests in real estate mortgage investment conduit (REMIC) trusts.” The plaintiffs commenced an action, asserting that “when the trustee exercised its…valid option to effectuate an early termination of certain trusts, it breached its contractual duties to plaintiffs by purchasing the remaining trust assets in its own name, at millions of dollars below market value” and then reselling the securities at a profit to a third party and keeping the profits for itself. The defendant trustee (trustee) did not contest that it “purchased the trust assets for its own account at below market value.” The trustee claimed that “under the trust agreements it was expressly authorized” to make such purchases. The trial court agreed with the trustee and dismissed the complaint. The Appellate Division (court), however, held that the trustee lacked “the right under the trust agreements to personally profit from the sale of the trust assets” and that the plaintiffs had stated a cause of action for breach of contract.

The trusts consist of “pooled securities backed by residential mortgages.” The securities had two classes of ownership, “regular security holders and residual security holders.” Owners of the regular securities were entitled to receive “regular payments on specified distribution dates.” Residual security holders “were only entitled to receive the proceeds of the dispositions of any assets remaining in the trusts after…the regular security holders’ interests had been fully paid.”

Trust documents limited “the trustee’s duties to those…set forth in the trust agreements” (agreements). The agreements require that “the trustee hold all trust assets for the exclusive use and benefit of all…holders and otherwise limit the trustee’s right to…assert any claim or interest in the trust assets….” The agreements also provide “for circumstances permitting early termination.” The subject dispute arose “out of the trustee’s election to exercise an early termination of certain trusts.”

The court explained that “as the underlying mortgages are repaid, the…principal balances of the trust decline” and “[t]he…agreements expressly provide that when the original class principal balance of a trust declines to less than 1 percent, the trustee has the option to effect an early termination.” The early termination provision is “intended to permit the trustee to end a trust that is no longer profitable, e.g., when the cost of administering the trust exceeds the benefits of operation….” The trust documents incorporate the “mechanics of liquidation” and require the trustee to “decide whether it is going to purchase the remaining trust assets itself, or sell them to a third party.”

The complaint alleged that in 2015, “the trustee exercised its option of early termination for…trusts in which plaintiffs were the residual security holders” and the trustee had “elected to purchase the remaining trust assets for itself at the termination price, fully aware that the market price greatly exceeded the termination price.” The agreements defined “termination price” as “[t]he Aggregate Remaining Balance as of the Termination Date, plus thirty days of accrued interest on the outstanding Trust Assets.” The complaint alleged that the trustee had then “flipped” the remaining trust assets by selling them to a third party and “realizing a personal profit believed to be in excess of $10 million.” The plaintiffs further alleged that “[n]o part of the profit was remitted to the trusts or distributed to the residual security holders” and the trustee’s conduct violated the agreements and “duties imposed upon commercial trustees by New York law.”

It was uncontested that the trustee was entitled to effect an early termination of the trust based upon the value of the original class principal balance and that the termination procedure vested the trustee with “the option of either purchasing the remaining trust assets in its own name or selling them to a third party.” “[I]f the trustee had elected to sell the remaining assets to a third party, the trustee would have been required to deposit the proceeds (net of the book-entry deposit and expenses) into the trust to be distributed to the residual security holders.” The salient issue was whether under the agreements, when the trustee purchases “the remaining trust assets in its own name, it can do so at the ‘termination price,’ which in this case was substantially below the market value. If the trustee has that right, then at its sole option and for its sole financial benefit, it can completely defeat the interest of the residual security holders.”

The court explained that “[u]nlike an ordinary trustee, the rights,…and obligations of an indenture trustee are not defined by a fiduciary relationship. Instead, they are defined exclusively by the terms of the agreements by which the relationships were formed….” However, the court stated that “an indenture trustee does owe security holders a duty of care.” Decisional precedent held that “even an indenture trustee has a fundamental duty to avoid conflicts of interest….” and that “[a]voiding conflicts of interest encompasses a trustee’s duty ‘not to profit at the possible expense of [the] beneficiary.’”

Here, although “the trustee had an express right to purchase the remaining trust assets in its own name, there was no express contractual right to purchase the assets at less than market value.” Absent an express contractual right to do so, the court found that “the trustee’s action clearly constitutes a prohibited conflict of interest, because it financially benefitted the trustee at the expense of the residual security holders,” i.e., the trustee had “completely defeated the equity value of the trust assets that belonged to the residual security owners by usurping the profitable value of the assets for itself.”

The trustee contended that the agreements permitted it to purchase the trust assets for the termination price. However, the court found that such “right,” was “not clearly delineated in the…agreements.” The court reasoned that the agreements merely permit “the trustee to terminate the trust by purchasing the assets. There is no express reference to a purchase price or some other equivalent language.” The sole reference in a certain section of the agreements with respect the termination price was “only a requirement that the trustee must deposit such amount” in a certain account. The court explained that “[t]he obligation to deposit a sum certain into a book-entry depository account does not equate to the trustee having the right to purchase the trust assets for the sum that must be deposited. Nor does it set a ceiling price that the trustee can pay for the assets. Indeed, the…agreements expressly require that any assets in excess of the termination price received by the trustee qualify as cash on hand, which must be distributed outright to the residual security holders….” The court noted “[a]s a practical matter, there could never be any cash on hand, and this provision would be rendered entirely superfluous, if the trustee’s interpretation of the…agreements is accepted.” The court found that the trustee’s actions “to profit itself is not simply an inherent financial risk the residual security holders undertook when they decided to invest in the securities.” The court stated that “[t]he value of their investment, under such circumstances, would not be market driven, but dictated by whatever the trustee chooses to do (‘Heads I win, Tails I win’).” The court viewed such interpretation of the agreements as “untenable and inconsistent with the trustee’s general contractual duties to act on behalf of all security holders.”

The court further explained that a certain section of the agreements did not clearly provide that “the trustee may purchase the trust assets at the termination price.” That provision involved the termination of the agreements and provided, inter alia, that “the trustee’s obligations ‘shall terminate upon (a) the payment of all principal and accrued interest on the securities … and all other amounts due and owing by the trustee under such trust agreement….’” One condition for terminating the trust was that “the trust assets be purchased ‘at a price equal to the termination price….’” The court opined that “[s]uch language reflects a threshold amount that must be met before the trust can be terminated, not a cap on the amount that is required to be paid for the assets.”

The court acknowledged that under the agreements, “the trustees’ stated compensation for ‘all services’ is a Trustee Fee calculated in accordance with the agreement….” The court noted that there was “no clear provision giving the trustee any right to additional fees and/or compensation by selling trust assets for its own account.”

The court also rejected the trustee’s contention that “once it purchased the trust assets in its own name, whatever responsibilities it had to plaintiffs under the trust documents terminated. The agreements provide that the trustee’s obligations continue “at least through the trust termination date, which is when the assets are actually distributed to the security holders” and “[t]he termination date cannot occur until after any sale of the trust assets is consummated.”

Additionally, the court rejected the trustee’s assertion that since it was not required to elect an early trust termination and could have operated the trust until the assets had no value, “it had no obligation upon early termination to purchase or sell the trust assets at a price that would benefit the residual security holders.” Although the trustee was entitled to either elect or not elect an early trust termination, “having made such election, it was obligated to act in conformance with its contractual duties.”

Thus, the court held that the plaintiffs had stated a claim for breach of contract. However, the court held that claims for conversion and anticipatory breach of contract had been properly dismissed.

Comment: The trust agreements had been “developed by Ginnie Mae.” Ginnie Mae was the guarantor of the regular security holders’ interest. The court found it logical that Ginnie Mae “would require that the early termination price cover, at a minimum, the financial interests that Ginnie Mae undertook the risk to pay.”

Lance Gotthoffer, of Chaitman LLP, attorney for the plaintiffs, stated that “[t]his is a decision of immense importance to the financial marketplace. The REMIC market is enormous. Each year GNMA guaranties more than ten billion dollars in new REMIC securities. The contract language construed by the court is part of the GNMA standard terms that are incorporated into virtually all GNMA REMIC trust agreements. The Appellate Division’s reversal of the lower court’s erroneous reading of the trust agreement emphatically reaffirms New York’s long standing rule that corporate trustee’s cannot, directly or indirectly, reward themselves at the expense of their beneficiaries will have far reaching consequences for all investors.”

Cece & Co. v. U.S. Bank, 652491/15, NYLJ 1202794949516, at *1 (App. Div., 1st, Decided August 1, 2017), Acosta, P.J., Manzanet-Daniels, Mazzarelli, Gische, Kahn, JJ. Decision by Gische, J. All concur.