|23 E. 39th St. Mgt. Corp. v 23 E. 39th St. Dev., LLC|
|2011 NY Slip Op 51390(U) [32 Misc 3d 1222(A)]|
|Decided on June 21, 2011|
|Supreme Court, New York County|
|Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.|
|This opinion is uncorrected and will not be published in the printed Official Reports.|
23 East 39th Street Management Corporation, Plaintiff,
23 East 39th Street Developer, LLC, BRUCE BENJAMIN, MOUSSA YEROUSHALAMI, and FARZANEH YEROUSHALAMI, Defendants.
Plaintiff 23 East 39th Street Management Corporation moves: (1) for summary judgment in its favor, pursuant to CPLR 3212; (2) to dismiss all counterclaims in this action against it; and (3) to amend the caption of this action, pursuant to CPLR 3025(b), to change the name of [*2]defendant Bruce Benjamin to "Bruce Benjamin a/k/a Behrouz Benaminpuur a/k/a Bruce Benaminpour." Counterclaim-defendant Allen Gutterman ("Gutterman") also moves to dismiss all counterclaims in this action against him.
The underlying facts are as follows. In October 2007, plaintiff sold the building it owned at
23 East 39th Street, New York, New York to defendant 23 East 39th Street Developer, LLC
("Developer"). Subsequent to the sale of the premises, plaintiff remained in occupancy of the
premises, pursuant to a lease agreement between plaintiff, as the tenant, and Developer, as the
landlord (the "Lease Agreement"). The First Rider to the Lease Agreement, dated September 11,
2007, contained a provision governing the parties' right to terminate the five-year lease. It stated:
"Subsequent to the first consecutive twelve month anniversary of the rent, either party shall have
the right to terminate this Lease by providing at least ninety days (90) day [sic] written notice to
the other by certified mail, R.R.R. of overnight courier of its intent." Allen Gutterman Aff, Exh G
at ¶ 2. Title to the building was transferred from plaintiff to the Developer on October 9,
2007 and it is undisputed that the Lease Agreement took effect on such date. The Lease
Agreement also provided for a security deposit of $400,000 to be given by plaintiff to the
landlord. In pertinent part, paragraph 29 of the Lease Agreement stated:
The Tenant upon the Commencement of the lease will deposit with the Landlord the sum of $400,000 as security for the payment of the rent hereunder and the full and faithful performance by the Tenant. Tenant shall receive such amount with interest, after the expiration of the term hereof, provided that the tenant has fully and faithfully performed all such covenants and conditions and is not in arrears in rent. . . . The security deposit shall be deposited in a banking institution at Landlord's discretion in a segregated account. Tenant shall be entitled to interest minus 10% administration fee to Landlord.
Id., Exh F at ¶ 29 (emphasis added).
On May 15, 2008, plaintiff informed defendants that it would be vacating the building on August 15, 2008. However, plaintiff, in fact, vacated the building on October 8, 2008. Plaintiff thereafter sought return of the remainder of the security deposit. No payment has been forthcoming. Plaintiff then commenced this action to recover $115,944.19 [FN1], the balance of its $400,000 security payment that it alleges defendant Developer was obligated to maintain in a segregated escrow account, pursuant to the Lease Agreement, and sues for conversion. Developer counterclaims and alleges that plaintiff remained liable for rent, taxes and insurance for an additional three months after plaintiff vacated, pursuant to the First Rider of the Lease Agreement.
Plaintiff now moves for summary judgment, pursuant to CPLR 3212, contending that defendants' failure to deposit plaintiff's $400,000 security deposit into a segregated bank account, as required by section 7-103 of the General Obligations Law, constitutes a conversion and [*3]entitles plaintiff to judgment as a matter of law. Plaintiff attaches email correspondence between defendant Bruce Benjamin, one of Developer's members, and Allen Gutterman, plaintiff's president, wherein Bruce Benjamin acknowledges that the security deposit was never placed into a segregated bank account. Id., Exh L. In addition, plaintiff contends that not only is defendant Developer liable for the conversion, but so are the individual members of the LLC.
Further, movants seeks dismissal of defendants' counterclaim asserted against them for rent and other charges under the Lease Agreement for the three months following plaintiff's vacatur from the building, in the amount of $246,212.12. Plaintiff contends that it vacated the building in accordance with the provisions of the Lease Agreement, by giving at least 90 days' notice and vacating subsequent to the one year anniversary of the tenancy, and therefore no further amount is owed Developer following the time it vacated.
In opposition, defendants contend that plaintiff prematurely vacated the premises and stopped paying its monthly base rent payments in April 2008. Thus, defendants argue that plaintiff is liable for rent and other expenses up to and including January 2009, three months following the one year anniversary of the tenancy. Further, with regard to the security deposit, defendants contend that plaintiff did not give a security deposit to any of them. To support its contentions, defendants submit the affidavit of defendant Moussa Yeroushalmi, which states that plaintiff did not make any security deposit to that defendant or any others. See Moussa Yeroushalmi Aff ¶ 15.
Moreover, with regard to counterclaim-defendant Gutterman,
defendants/counterclaim-plaintiffs contend that, pursuant to his personal guaranty, Gutterman
was not allowed to assert any defense and answer to the third-party complaint. In connection with
the Lease Agreement, Gutterman signed a personal guaranty, wherein it stated that the guarantor,
Gutterman, would be "irrevocably and unconditionally, without offset, defense, or counterclaim
or any nature . . . bound and liable hereunder." Gutterman Aff, Exh H at ¶ 1.
Plaintiff's Motion for Summary Judgment on its Conversion Claim
It is well settled that the proponent of a summary judgment motion must make a prima facie
showing of entitlement to judgment as a matter of law, tendering sufficient evidence to
demonstrate the absence of any material issues of fact. Winegrad v New York Univ. Med.
Ctr., 64 NY2d 851, 853 (1985); Zuckerman v City of New York, 49 NY2d 557, 562
(1980). Once this showing has been made, the burden shifts to the party opposing the summary
judgment motion to produce evidentiary proof in admissible form sufficient to establish the
existence of material issues of fact which require a trial of the action. Zuckerman, 49
NY2d at 562. Mere conclusions, expressions of hope, or unsubstantiated allegations or assertions
are insufficient to defeat summary judgment. Id.
The legal relationship between landlord and tenant with regard to the security deposit has changed — where once the landlord was thought of as a debtor who owed tenant a debt, now the landlord acts as a trustee and "owes a duty not to commingle the deposit with his own funds." LeRoy v Sayers, 217 AD2d 63, 68 (1st Dep't 1995) (quoting Matter of Perfection Tech. Servs. Press, 22 AD2d 352, 356 [2d Dep't 1965], aff'd 18 NY2d 644 ) . Failure by a landlord to segregate a security deposit constitutes conversion. See Matter of Ideal Reliable Sundries, Inc., 49 AD2d 852 (1st Dep't 1975). Upon a breach of that duty to segregate, the landlord forfeits his [*4]right to avail himself of the security deposit for any purpose and "vest[s] in plaintiff an immediate right' to receive those monies." Tappan Golf Drive Range, Inc. v Tappan Property, Inc., 68 AD3d 440, 440 (1st Dep't 2009), quoting LeRoy, 217 AD2d at 68—69; see Dan Klores Assocs., Inc. v Abramoff, 288 AD2d 121, 121 (1st Dep't 2001). "Nor is the tenant's non-compliance with the lease terms a defense to a landlord's breach of his duty in this regard." LeRoy, 217 AD2d at 68.
Here, plaintiff has demonstrated a prima facie case that it is entitled to summary judgment on
its claim for conversion. It is undisputed that defendant Developer failed to deposit the $400,000
security deposit into a segregated account, pursuant to GOL § 7-103 and as required by the
Lease Agreement. Section 7-103 of the General Obligations Law provides that:
1. Whenever money shall be deposited or advanced on a contract or license agreement for the use or rental of real property as security for performance of the contract or agreement or to be applied to payments upon such contract or agreement when due, such money, with interest accruing thereon, if any, until repaid or so applied, shall continue to be the money of the person making such deposit or advance and shall be held in trust by the person with whom such deposit or advance shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same."
Further, the Lease Agreement also provided for segregation of the security deposit, pursuant to paragraph 29, which stated: "The security deposit shall be deposited in a banking institution at Landlord's discretion in a segregated account." Gutterman Aff, Exh F at ¶ 29.
The email correspondence dated February 15, 2008, submitted by plaintiff, demonstrates that Developer admits that the funds were never separately placed in an account, as required. Therein, Bruce Benjamin, one of Developer's members states: "With regard to the statement of the escrow account, as courtesy and good faith we are going to forward you the interest earned for the past 4 months on the security deposit of $400,000. This [sic] funds were not placed in a seperate [sic] account, however as courtesy we will gladly forward . . . the interest earned for the past four months." Gutterman Aff, Exh M (emphasis added). Thus, Developer has conceded its failure to place the security deposit into a segregated account, which is clearly a violation of GOL § 7-103, and constitutes conversion.
In opposing plaintiff's motion for summary judgment, defendants fail to produce sufficient admissible evidence to establish the existence of any material issue of fact. Defendants attempt to create an issue of fact by stating that plaintiff never made the security deposit. See James O. Guy Affirmation in Opp ¶¶ 26-30.[FN2] However, other than an attorney affirmation, which lacks personal knowledge, only an affidavit by one of the defendants, Moussa Yeroushalami, was submitted. While the affiant states, in a conclusory fashion, that "[Plaintiff] did not deposit anything with (a) Developer LLC, (b) any co-defendant or (c) me" (Moussa Yeroushalami Aff ¶ 15), this affidavit is not sufficient to adequately challenge plaintiff's claims. Notably, Moussa never states his relationship to Developer and how he could have any personal knowledge as to [*5]whether a security deposit was given to Developer. Nor does he explain his basis for personal knowledge as to how he knows that his co-defendants did not receive a deposit. Moreover, the Verified Answer filed by defendants states that Moussa is not a member of Developer and defendants' attorney also makes that representation. See Verified Answer and Counterclaim, Gutterman Aff, Exh B; Guy Affirmation in Opp ¶ 25. Further, in light of the email correspondence discussed above, in which defendant Bruce Benjamin, who is a member of Developer, discusses the security deposit, yet never states that one was not given, but instead concedes that defendant is willing to give plaintiff interest on the funds, Moussa's contentions are unsubstantiated and insufficient to preclude summary judgment. See Gutterman Aff, Exh L.
As to the remedy for Developer's conversion, "[w]hile section 7-103 [of the General
Obligations Law] does not provide any specific penalty or sanction for its breach, it has been
uniformly held that a commingling constitutes a conversion and entitles the tenant to the
immediate recovery of his deposit or advances." LeRoy, 217 AD2d at 69. Therefore,
summary judgment is granted in favor of plaintiff against defendant Developer as to its first
cause of action for conversion, entitling plaintiff to the immediate return of $115,944.19 (the
amount sought by plaintiff in the complaint representing the total security deposit, less monies
plaintiff admits is owed to defendant for rent and other charges)[FN3], with interest at the statutory rate from the date
that the funds were converted, i.e. October 9, 2007, the date the Lease Agreement went into
Plaintiff's Motion for Summary Judgment with Respect to the Individual Defendants
With regard to the individual defendants, plaintiff contends that they are also liable for Developer's conversion. Plaintiff asserts that corporate officers and directors may be held personally liable for fraudulent acts committed in the furtherance of company business.
As discussed above, "the legal relationship between landlord and tenant [changed] from debtor-creditor to trustee-cestui que trust." Id. at 68 (internal quotations omitted). In this case, defendant Developer, as landlord, owed plaintiff a fiduciary duty not to commingle the funds. However, as regarding the members of Developer, "it is well settled that any one who knowingly participates with a fiduciary in a breach of trust is liable for the full amount of the damage caused thereby." Talansky v Schulman, 2 AD3d 355, 359 (1st Dep't 2003) (internal citations and quotations omitted). This has been held to apply to officers of a corporation "who knowingly participate with a fiduciary in a breach of the corporation's fiduciary duties." Id. at 360. Personal liability for torts committed by a company has also been extended to members of limited liability companies if they participated in the commission of the tort in furtherance of the company's business. See Rothstein v Equity Ventures, LLC, 299 AD2d 472, 474 (2d Dep't 2002).
Thus, any member of Developer who knowingly participated in the breach of its fiduciary
duty is personally liable. However, in its motion for summary judgment, plaintiff failed to assert
any facts as to which, if any, of the individual defendants knowingly participated in the alleged
breach of such duty. Thus, as pursuant to CPLR 3212(b), a court presented with a motion for
[*6]summary judgment is empowered to search the record and
grant summary judgment to any party, including a non-moving party, which is entitled to such
relief. See e.g. Levin v 117 Ltd., 291 AD2d 304 (1st Dept 2002), citing Merritt Hill
Vineyards v Windy Hgts. Vineyard, 61 NY2d 106 (1984). Here, this court has searched the
record and grants summary judgment of dismissal in favor of the individual defendants, as there
is no proof in the record of any personal liability by such defendants in the submitted papers.
Therefore, plaintiff's motion for summary judgment as to the individual defendants is denied and
summary judgment of dismissal is granted in favor of the individual defendants.
Plaintiff's Motion for Summary Judgment Dismissing Defendants' Counterclaim
Plaintiff and counterclaim-defendant Gutterman also move to dismiss defendants' counterclaims against them. Defendants seek the sum of $246,212.12 for rent and additional rents due from the month of May 2008 through January 15, 2009, together with interest, costs and disbursements. As to plaintiff, defendants counterclaim for breach of the Lease Agreement, in that plaintiff remained liable to pay rent and other expenses under the Lease Agreement through January 15, 2009, three months after plaintiff vacated the premises. Defendants contend that plaintiff was only allowed to give its 90-day notice of its intent to terminate the lease, at the earliest, after one year of entering the Lease Agreement, and that plaintiff's Surrender Declaration of October 20, 2008 constituted such notice. As to counterclaim-defendant Gutterman, defendants allege that he is personally liable for the rent obligations of plaintiff due to his execution of a guaranty of the obligations of plaintiff as tenant pursuant to the Lease Agreement.
The parties' agreement with regard to termination of the lease is set forth in the First Rider to the Lease Agreement, dated September 11, 2007. The relevant provision found therein states: "Subsequent to the first consecutive twelve month anniversary of the rent, either party shall have the right to terminate this Lease by providing at least ninety days (90) day [sic] written notice to the other by certified mail, R.R.R. of overnight courier of its intent" (the "Termination Provision"). Gutterman Aff, Exh G at ¶ 2.
"[W] hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms." Signature Realty, Inc. v Tallman, 2 NY3d 810, 811 (2004). On its face, the Termination Provision sets out the time frame for either party to give notice of its intention to terminate the Lease Agreement. It provides that, after one year, either party could then give 90 days' notice of its termination of the Lease Agreement. By prefacing the entire phrase as to termination on 90 days' notice with the separate, independent phrase "[s]ubsequent to the first consecutive twelve month anniversary of the rent," the language is unambiguous that the notice could only occur after one year of the Lease Agreement being in effect, contrary to plaintiff's contention. Thus, the notice plaintiff sent of its forthcoming vacatur of the building on October 8, 2008 was premature, as plaintiff could not vacate prior to three months after the one year anniversary, that is, January 2009.
As a result, plaintiff's motion for summary judgment dismissing defendants' counterclaims is denied. Although, as discussed above, the security deposit must be returned to plaintiff due to defendant Developer's commingling of the funds which constituted conversion, Developer is nonetheless entitled to seek any rental payments properly due and owing. Developer's counterclaim for rent may go forward, as "[a] covenant to pay rent is independent [*7]from a covenant by the landlord to return a security deposit" (Matter of Ideal Reliable Sundries, Inc., 49 AD2d at 852; see also Paterno v Carroll, 75 AD3d 625, 628 [2d Dep't 2010]). While a landlord is not entitled to offset the security deposit with any amounts resulting from a breach of the lease (see Tappan Golf Drive Range, Inc., 68 AD3d at 441; Dan Klores Assocs., Inc., 288 AD2d at 121), here, as indicated above, plaintiff in its complaint sought the return of only a portion of the security deposit, as plaintiff provided an offset for the amount it conceded was owed to the landlord under the Lease for rent and additional rent, including taxes and insurance payments.
Further, as the Lease Agreement between the parties provides that plaintiff could only terminate the agreement as of 90 days following the one year anniversary of rent, defendant is entitled to rent and additional rent up to January 2009. Moreover, as plaintiff does not dispute that it has not made rent, taxes or insurance payments beginning in May 2008, while plaintiff was still occupying the premises, defendants are entitled to summary judgment in their favor on their counterclaim against plaintiff for rent and additional rents due from the month of May 2008 through January 15, 2009, together with interest, in an amount to be determined by a Special Referee, as detailed below. Although defendants did not cross-move for summary judgment, defendants did in fact request that the court search the record and grant them summary judgment instead of plaintiff. As indicated above, CPLR 3212(b) provides for such relief, as it states that "[i]f it shall appear that any party other than the moving party is entitled to a summary judgment, the court may grant such judgment without the necessity of a cross-motion."
Additionally, with regard to counterclaim-defendant Gutterman, the guaranty which he signed made him personally liable on the debts of plaintiff under the Lease Agreement. The guaranty further stated that Gutterman would be "irrevocably and unconditionally, without offset, defense or counterclaim of any nature . . . bound and liable hereunder." Gutterman Aff, Exh H at ¶ 1.
Thus, defendants are also entitled to summary judgment in their favor on their counterclaim
against Allen Gutterman for rent and additional rents due from the month of May 2008 through
January 15, 2009, together with interest, cost and disbursements, in an amount to be determined
by a Special Referee in accordance with CPLR 4317(b), as detailed below.
Plaintiff's Motion to Amend the Caption
Plaintiff also moves to amend the caption of this action to change the name of defendant Bruce Benjamin to "Bruce Benjamin a/k/a Behrouz Benaminpour a/k/a Bruce Benaminpour," pursuant to CPLR 3025(b). CPLR 3025(b) provides that: "Leave shall be freely given upon such terms as may be just." As defendants have not submitted opposition on this branch of the motion, it is granted.
Accordingly, it is
ORDERED that plaintiff's motion for summary judgment is granted in its favor only to the extent as against defendant 23 East 39th Street Developer, LLC on its first cause of action for conversion, in the sum of $115,944.19, the amount sought in the complaint, with interest at the statutory rate from October 9, 2007, as calculated by the Clerk; and it is further
ORDERED that summary judgment is granted to defendant 23 East 39th Street Developer, LLC in its favor on its counterclaim against plaintiff and counterclaim-defendant Allen [*8]Gutterman for rent and additional rents due from the month of May 2008 through January 15, 2009, in an amount to be heard and determined by a Special Referee in accordance with CPLR 4317(b)[FN4], together with interest, costs and disbursements; and it is further
ORDERED that plaintiff's motion to amend the caption of this case to change the name of
one of the defendants is granted. The amended caption shall read as follows:
23 East 39th Street Management Corporation,
- against -
23 East 39th Street Developer, LLC, Bruce
Benjamin a/k/a Behrouz Benaminpour a/k/a
Bruce Benaminpour, Moussa Yeroushalami,
and Farzaneh Yeroushalami,
23 East 39th Street Developer, LLC,
It is further
ORDERED that, within 30 days of entry of this order, plaintiff shall serve a copy of
this order with notice of entry upon: (1) all parties; (2) the County Clerk and the Clerk of the
Trial Support Office, who shall mark their records to reflect the amendment to the caption; and
(3) the Clerk of the Judicial Support Office to arrange a calendar date for the reference to a
Dated:June 21, 2011
DORIS LING-COHAN, J.S.C.