FILED: NEW YORK COUNTY CLERK 08/14/2012 INDEX NO. 153389/2012 MIX NYSCEF DOC. NO. 41 RECEIVED NYSCEF: 08/14/2012 Paper from responsible sources FSC6 C014618 Exhibit C
INGRAM YUZEK GMNEN CARROLL & BERTOLOTTI, JJ,P 250PARKAVENUE NEWYORK, NEWYORK 10177 Telephone (212) 907-9600 Forscimile 012)907-9681 www.ingramlip.com FILESURFED John G. Nicolich Writer's Direct Dial: (212) 907-9685 E-Mail: jnicolich@ingramllp.com Member: Legal Netlink Alliance wwwlegalnettink..net BY HAND DELIVERY Honorable Shlomo S. Hagler Supreme Court, New York County 111 Centre Street, Room 325 New York, NY 10013 Re: Goidel & Siegel, LLP v. 122 East 42nd Street, LLC, Index No. 101979/2011 Dear Justice Hagler: This firm represents defendant 122 East 42nd Street, LLC ("Landlord") in the above action commenced by plaintiff pro se Goidel & Siegel, LLP ("Tenant"). This firm also represents Landlord as petitioner in a related summary non-payment proceeding in the Non- Housing Part of the New York City Civil Court, L&T Index No. 50778/2011 (the "Civil Court Proceeding"). Both this action and the Civil Court Proceeding arise from Tenant's default in payment of the full amount of rent and additional rent (collectively, "Rent") that Landlord invoiced to Tenant under the lease between Landlord and Tenant dated March 30, 2004 (the "Lease"). On May 7, 2012, this Court heard oral argument (the "Oral Argument") on the following motions (collectively, the "Motions"): (1) Tenant's motion concerning certain procedural issues; (2) Landlord's cross-motion for summary judgment dismissing Tenant's complaint; (3) Tenant's motion to amend its complaint; and (4) Landlord's cross-motion-for sanctions. At Oral Argument, your Honor reserved decision on the Motions and requested that counsel for the parties submit a letter providing case law on the following three issues: (1).. whether Tenant's payment of an amount less than the Rent that Landlord billed Tenant constitutes an objection that entitles Tenant to challenge the amount of 409289 3/00390-0177
Page 2 Rent sought by Landlord in the Civil Court Proceeding (May 7, 2012 Transcript, pp. 7-8); (2) whether the 4% late fee provision in the Lease is enforceable (May 7, 2012 Transcript, p. 9); and (3) whether Judge Kennedy's decision and order in the Civil Court Proceeding dismissing Tenant's affirmative defenses and counterclaims should have collateral estoppel and res judicata effect in this Supreme Court action (May 7, 2012 Transcript, p. 9). As explained below, case law establishes that partial payment of an invoice results in an account stated and entitles the creditor -- in this case, the Landlord -- to the full amount stated in the invoice. Accordingly, Tenant's partial payment was not an objection, and Tenant is therefore barred from now challenging the amount of Rent billed by Landlord. Case law further establishes that the 4% late fee provision in the Lease is enforceable because the Lease, which concerns commercial space, was negotiated at arm's length between sophisticated parties represented by counsel, and the 4% late fee provision is less than the 5% late fee that has been recognized as acceptable by the First Department under such circumstances. Also, Judge Kennedy's decision and order should have collateral estoppel and res judicata effect in the present action because Judge Kennedy granted summary judgment in the Civil Court Proceeding dismissing the affmnative defenses and counterclaims that form the bases of Tenant's causes of action here. Finally, this letter briefly addresses Tenant's improper ex parte letter to the Court dated May 23, 2012, which Tenant belatedly delivered to this firm nine days later, on the afternoon of June 1, 2012. The discussion below refers to the following prior submissions on the Motions: (1) Affidavit of Richard Czaja in Opposition to Plaintiff s Motion and In Support of Defendant's Cross-Motion, sworn to May 20, 2011 ("Czaja Aff."); -. - (2) Re 1 Mfi 1 1 4.'es gi * sag A egg@.14 Opposition to Cross-Motion for Summary Judgment, sworn to June 21, 2011 ("Siegel Reply Affidavit"); (3) Affirmation of Cherish A. O'Donnell in Opposition to Plaintiff's Motion for Leave to Amend Complaint, dated August 19, 2011 ("O'Donnell Aff."); 409289_3/00390-0177
Page 3 (4) Supplemental Affirmation of Cherish A. O'Donnell in Further Support of Defendant's Cross-Motion for Summary Judgment, dated September 30, 2011 ("O'Donnell Supplemental Aff."); and (5) Defendant 122 East 42 n1 Street, LLC's Supplemental Memorandum of Law in Further Support of its Cross-Motion for Summary Judgment, dated October 3, 2011 ("Landlord's Supplemental Memorandum of Law"). I. Tenant's Partial Payment Did Not Constitute An Objection To An Account Stated Under Paragraph 38D of the Lease, electricity charges are calculated based on both an "Electricity Inclusion Factor" and an "Electricity Statement," which increase the amount of Tenant's Rent. (Czaja Aff., Ex. A, 38D.) Increases in the Electricity Inclusion Factor may occur under circumstances described in paragraphs 38D(1), 38D(2), and 38D(3)(a) of the Lease. (Id.) Paragraph 38D(3)(b) of the lease provides, in relevant part, that any increase in the Electric Inclusion Factor shall be furnished to Tenant in an Electricity Statement. Paragraph 38D(3)(c) of the Lease makes any such Electricity Statement "conclusive and binding upon Tenant" unless Tenant disputes the Electricity Statement within thirty days: Each such Electricity Statement given by [Landlord] pursuant to Article 38D(3)(b) above, shall be conclusive and binding upon Tenant, unless within thirty (30) days after the receipt of such Electricity Statement, Tenant shall notify [Landlord] that it disputes the correctness of the Electricity Statement. If such dispute is based on Tenant's demand and consumption of electric current, Tenant shall submit a survey and determination of such adjustment, made at its sole cost and expense, by a reputable and independent electrical engineer or electrical consulting firm ("Tenant's Engineer") within thirty (30) days after receipt of such Electricity Statement. (Id., Ex. A, I 38D(3)(c)) (emphasis added). 409289_3/00390-0177
Page 4 Also, Paragraph 25 of the Lease provides, in relevant part, as follows: No payment by Tenant or receipt by [Landlord] of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and [Landlord] may accept such check or payment without prejudice to [Landlord's] right to recover the balance of such rent or pursue any other remedy in this lease provided. (Id, Ex. A, 25) (emphasis added.) Here, Landlord furnished Tenant, on a monthly basis, with statements/invoices that included the line item amounts of rent, additional rent and fees, including specifically "Electric Rent Inclusion," other electric charges, and late fees due and owing for a particular monthly period, as well as the current and outstanding amount of rent and additional rent due. (Id., I 33 and Exhibit I thereto.) Tenant voluntarily made payments against these statements/invoices without any written objection and without notifying Landlord that Tenant disputed the accuracy of the Electric Rent Inclusion or other electric charges on the invoices. (Id., 34-36; O'Donnell Aff, Ex. 2, 11 33.) Under New York law, "[a]n account stated is an agreement between the parties to an account based upon prior transactions between them with respect to the correctness of the separate item composing the account and the balance due, if any, in favor of one party or the other." Shea & Gould v. Burr, 194 A.D.2d 369, 370 (1st Dep't 1993) (citations and internal quotations omitted). In this regard, "receipt and retention of plaintiff's accounts, without objection within a reasonable time, and agreement to pay a portion of the indebtedness, [gives] rise to an actionable account stated..." Id (citations and internal quotations omitted); see also Marchi Jaffe Cohen Crystal Rosner & Katz v. All-Star Video Corp., 107 A.D.2d 597 (1st Dep't 1985) ("Even if defendant had received plaintiff s accounts and did not expressly assent, but failed to object to them within a reasonable time, he would be bound by them as accounts stated...") (citations and internal quotations omitted). Where, as here, there has been a partial payment of outstanding bills, an account stated is established. See, e.g., Morrison Cohen Singer & Weinstein, LLP v. Waters, 13 A.D.3d 51 (1st Dep't 2004) ("The rule to which we have adhered and which we now reiterate is that either retention of bills without objection or partial payment may give rise to an account stated") (emphasis added); see also Risk Management Planning Group, Inc. v. Cabrini Med. Ctr., 63 A.D.3d 421 (1st Dep't 2009) (same); Chisholm-Ryder Co. v. Sommer & Sommer, 70 A.D.2d 429, 433 (4th Dep't 1979) ("Plaintiff's acquiescence in the account for several months and its two payments on account during the period of the dispute without questioning the balance constitute 409289_3/00390-0177
Page 5 implied agreement as to the whole"); Paul, Weiss, Rifkincl Wharton & Garrison v. Koons, 4 Misc. 3d 447, 450 (Sup. Ct. N.Y. County 2004) ("An implicit agreement to pay, warranting summary judgment, will arise from either the absence of any objection to a bill within a reasonable time or a partial payment of the outstanding bills") (emphasis added); Cohen Tauber Spievak & Wagner, LLP v. Alnwick, 33 A.D.3d 562 (1st Dep't 2006) (same). Accordingly, Tenant's partial payment of Landlord's invoices did not constitute an objection under the terms of the Lease, but instead gave rise to an account stated entitling Landlord to the full amount of the Electric Rent Inclusion and other electrical charges invoiced. In addition, paragraph 38D(3)(c) of the Lease further bars Tenant from challenging the amount of electricity charges included in Landlord's invoices because Tenant failed to dispute Landlord's Electricity Statement within thirty days. This Court therefore should deny Tenant's motion for leave to amend its complaint to assert additional claiins based on Landlord's purported overcharging of electric charges. Tenant's May 23, 2012 letter to the Court fails to refute the foregoing analysis. Tenant concedes that it now challenges only the purported "miscalculation of base 'Electricity Inclusion Factor' charges," and Tenant contends that paragraph 38D(3)(c) of the Lease purportedly "has absolutely no applicability" (Tenant's May 23, 2012 letter, p. 1). Paragraph 38D(3)(c), however, expressly applies to each "Electricity Statement given by Owner pursuant to Article 38D(3)(b) above," and paragraph 38D(3)(b) expressly states that each such Electricity Statement shall include 'any increase which has occurred in the... Electricity Inclusion Factor (and therefore the Fixed Rent) pursuant to the provisions of this Article 38D." Tenant also concedes that, pursuant to paragraph 1 of the Stipulation of Settlement annexed as Exhibit A to Tenant's May 23, 2012 letter to the Court, the Electric Rent Inclusion under paragraph 38D(1) of the Lease was increased. Accordingly, Tenant was required to dispute Owner's Electricity Statements within thirty (30) days, and the Electricity Statements therefore are "conclusive and binding upon Tenant" because Tenant fthled to notify Owner of any dispute within such thirty (30) day period. This Court accordingly should reject Tenant's contention that it may now belatedly challenge Electric Inclusion Factor charges or the Electricity Statements in the invoices provided to Tenant. II. The 4% Late Fee Provision In The Lease Is Enforceable Paragraph 37(C)(6) of the Lease provides, in relevant part, as follows: If Tenant shall fail to pay any installment of Fixed Rent or any amount of additional rent for more than ten (10) Business Days after it shall have become due and payable, then, whether or not a notice of default has been given therefore, Tenant shall pay [Landlord] a late charge of four (4) cents for each dollar of the amount of such Fixed Rent or 409289 3100390-0177
Page 6 additional rent as shall not have been paid to [Landlord] within ten (10) Business Days after becoming due and payable. Such late charge shall be without prejudice to any of [Landlord's] rights and remedies hereunder or at law for non-payment or late payment of rent, including interest, and shall be in addition thereto. (Czaja Aff., Ex. A, 37(C)(6) (emphasis added). Accordingly, pursuant to Paragraph 37(C)(6) of the Lease (the "Late Fee Provision"), the Lease provides for the assessment of a 4% late fee. This 4% late fee is charged only once with respect to Rent not paid within 10 Business Days of becoming due, and therefore is not compounded. Under New York law, the Late Fee Provision is not an unenforceable penalty. In KI.D.E. Assocs. v. Garage Estates Co., 280 A.D.2d 251 (1st Dep't 2001), the Court found that a contractual provision authorizing a late fee of 5% per month was enforceable, and not a penalty, in a commercial lease negotiated by sophisticated parties. See id. at 254 ("The JHO's finding that the late charge of five percent per month was not unconscionable was correct, given that this case involves a commercial lease negotiated by sophisticated business people and that KIDE submitted no evidence suggesting that the late charge was unreasonable or against public policy in this situation"). Similarly, in Sidley Holding Corp. v. Ruderman, No. 08 Civ. 2513 (WHP)(MHD), 2009 WL 6047187, at *9 (S.D.N.Y. Dec. 30, 2009), the court held that "[a] liquidated damages clause in a commercial lease imposing a one-time payment of three percent of past-due rent and related expenses is not unreasonable." Here, the Late Fee Provision was included in a commercial lease that was negotiated between sophisticated parties. Prior to execution, the parties engaged in extensive negotiations with the assistance of counsel. (Czaja Aff, 1123-24.) The specific terms, conditions, and provisions contained in the Lease were the product of multiple discussions, comments and lineby-line suggested changes to various articles of the Lease, and proposed drafts of the Lease were circulated between counsel for the parties. (Id, I 25.) Moreover, Tenant, with the assistance of counsel, specifically focused on the amount of the Late Fee Provision and negotiated its reduction to the current rate of 4%, which is imposed only once on any past due amount. (Id, If 28 and Ex. A, 37(C)(6)). By contrast, the cases cited in the Siegel Reply Affidavit primarily concern residential leases, involve the imposition of late fees that were substantially higher than 4%, and therefore do not support Tenant's claim that the 4% Late Fee Provision in a commercial lease is unenforceable. For example: In Spring Valley Gardens Assocs. v. Earle, 112 Misc. 2d 786, 787 (Sup. Ct. Rockland Co. 1982), the Court invalidated a late charge 409289 3/00390-0177
Page 7 in a residential lease that amounted to "an annual interest rate of about 450%." In 943 Lexington Avenue, Inc. v. Niarchos, 83 Misc. 2d 803, 804 (App. Term, 1st Dep't 1975), the Court invalidated a rent surcharge "at the rate of 60% a year" that was imposed in a residential cooperative nearly 20 years after the tenant had entered possession of the premises. In Sandra's Jewel Box Inc. v. 401 Hotel, LP, 273 A.D.2d 1, 3 (1st Dep't 2000), the Court refused to enforce a late charge provision that "awarded a 365%"per annum penalty." In Rock v. Klepper, 23 Misc. 3d 1103(A), 885 N.Y.S.2d 713 (Civ. Ct. Plattsburg 2009), the Court held that a late fee in a residential lease amounting to 17% of the rent was unreasonable and unenforceable. Accordingly, the modest 4% Late Fee Provision of the Lease is enforceable and is not a penalty based on applicable appellate authority in this Department. Notably, Tenant's May 23, 2012 letter to this Court fails to address this issue, even though the Court expressly requested the parties to provide case law concerning whether the "late fee provision [is] enforceable" (May 7, 2012 Transcript, p. 9). Tenant thus appears to have abandoned its contention that the 4% Late Fee Provision is unenforceable. Accordingly, Landlord's cross-motion for summary judgment dismissing Tenant's causes of action based on the Late Fee Provision should be granted in its entirety. III. Judge Kennedy's Decision And Order In The Civil Court Proceeding Are Collateral Estoppel And Res Judicata In This Action A. Collateral Estoppel By Decision and Order dated May 16, 2011, Judge Kennedy dismissed Tenant's defenses and counterclaims in the Civil Court Proceeding that were based on allegedly improper electrical charges and late fees. (Czaja Aff, Ex. E.) Under the doctrine of collateral estoppel, "issues of law and questions of fact necessarily decided by a court of competent jurisdiction remain binding upon the parties... in all subsequent litigation in which the same issues are material." Ginezra Assocs. LLC v. Ifantopoulos, 70 A.D3d 427, 429 (1st Dep't 2010). Collateral estoppel applies "whether or not the tribimals or causes of action are the same." Nissequogue Boat Club v. State, 14 A.D.3d 542, 544 (2d Dep't 2005) (citations omitted). The doctrine of collateral estoppel is properly invoked where: (1) the 409289 3/00390-0177
Page 8 moving party establishes "an identity of issue which has necessarily been decided in [a] prior action [or proceeding] and is decisive of the present action," and (2) the party opposing preclusion is unable to satisfy its burden of proving that it did not have a "full and fair opportunity to contest the decision now said to be controlling." Beuchel v. Bain, 97 N.Y.2d 295, 303-04 (2001); see also Schwartz v. Pub. Adm'r of County of Bronx, 24 N.Y.2d 65, 73 (1969). Here, as explained more fully in Landlord's Supplemental Memorandum of Law, Tenant's complaint in this case is predicated on the alleged invalidity and unenforceability of the Late Fee Provision, and Tenant's proposed Amended Complaint is based on allegedly improper electrical charges. Judge Kennedy, however, specifically found these fees and charges to be valid in granting Landlord's motion for summary judgment and dismissing Tenant's defenses and counterclaims in the Civil Court Proceeding. See Czaja Aff., Ex. E, at 7 ("there is no evidence that [Tenant] notified petitioner to dispute [the electric charges]. Therefore the fifth affirmative defense is dismissed... [Tenant] has not presented any evidence that the disputed [Late Fee Provision] is unreasonable or against public policy. Therefore the sixth affirmative defense is dismissed.") Moreover, Tenant vigorously opposed Landlord's motion and asked the Civil Court to determine both that the Late Fee Provision was unlawful and unenforceable as a penalty, and that the electric charges were improper. (O'Donnell Supplemental Aff., Ex. 4, 48-65.) Accordingly, both prongs of the test for collateral estoppel are satisfied, and the doctrine bars relitigation of Tenant's claims regarding the Late Fee Provision and electric charges in this action. See, e.g., Patrick v. Shaffer, 94 N.Y. 423, 429-30 (1884) (holding that defendant's claim is barred where it was fully litigated as a defense in a prior action); Nissequogue, 14 A.D.3d at 544; see also Pace v. Perk 81 A.D.2d 444, 461 (2d Dep't 1981) (holding that, having presented the subject matter of the instant action as a defense to a prior action, plaintiffs could have fully litigated the issue in the prior action). B. Res Judicata Judge Kennedy's Decision and Order also are res judicata in the present action. Under the doctrine of res judicata, "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy." 0 'Brien v. City of Syracuse, 54 N.Y.2d 353, 357 (1981). Here, as discussed in Landlord's Supplemental Memorandum of Law, Judge Kennedy expressly brought to a final conclusion Tenant's claims and defenses based on the Late Fee Provision and electric charges by dismissing Tenant's affirmative defenses and counterclaims on summary judgment in the Civil Court Action. (Czaja Aff.,1132, and Ex. E at 8-9.) Tenant's claims in this action arise out of the same Late Fee Provision and electric charges (id.), and are therefore barred by the doctrine of res judicata. See, e.g., Lau v. Capital One Bank 63 A.D.3d 409289_3/00390-0177
Page 9 641, 641 (1st Dep't 2009) ("Plaintiff's claims against the defendants named in both the Civil Court and Supreme Court actions are barred by the doctrine of res judicata, notwithstanding that some of the claims now asserted are based on different theories") (internal citations omitted.) Landlord's cross-motion for summary judgment dismissing Tenant's causes of action based on the Late Fee Provision should therefore be granted in its entirety, and Tenant's motion for leave to amend its complaint based on the electric charges should be denied. *** Accordingly, for the reasons stated above and in Landlord's motion papers, Landlord respectfully requests that the Court deny Tenant's motions and grant Landlord's cross-motions in their entirety. Respectfully yours, cc: Goidel & Siegel, LLP 56 West 451 Street, Third Floor New York, NY 10036 (By Hand) 409289 3/00390-0177