159 MP Corp. v. Redbridge Bedford, LLC

• Decision Date: 31 January 2018
• Docket Number: Index No. 4599/14,2015–01523
• Citation: 71 N.Y.S.3d 87,160 A.D.3d 176
• Parties: 159 MP CORP., et al., appellants, v. REDBRIDGE BEDFORD, LLC, respondent.
• Court: New York Supreme Court — Appellate Division

160 A.D.3d 176

71 N.Y.S.3d 87

159 MP CORP., et al., appellants,

v.REDBRIDGE BEDFORD, LLC, respondent.

2015–01523

Index No. 4599/14

Supreme Court, Appellate Division, Second Department, New York.

Argued—October 17, 2016

January 31, 2018

Wenig Saltiel LLP, Brooklyn, N.Y. (Meryl L. Wenig and Leslie Perez–Bennie of counsel), for appellants.

Lupkin & Associates PLLC, New York, N.Y. (Jonathan D. Lupkin and Rebecca C. Smithwick of counsel), for respondent.

MARK C. DILLON, J.P., CHERYL E. CHAMBERS, COLLEEN D. DUFFY, FRANCESCA E. CONNOLLY, JJ.

OPINION & ORDER

DILLON, J.P.

APPEAL by the plaintiffs, in an action, inter alia, for a judgment declaring that two commercial leases are in full force and effect and that the plaintiffs are not in violation of their obligations under the leases, from an order of the Supreme Court ( David I. Schmidt, J.) dated January 29, 2015, and entered in Kings County, which denied their motion for a Yellowstone injunction (see First Natl. Stores v. Yellowstone Shopping Ctr. , 21 N.Y.2d 630, 290 N.Y.S.2d 721, 237 N.E.2d 868 ) and granted the defendant's cross motion for summary judgment dismissing the complaint. Justice Dillon has been substituted for former Justice Dickerson (see 22 NYCRR 670.1 [c] ).

This appeal raises an issue of first impression in the appellate courts of New York, which was identified in an Outside Counsel article in the New York Law Journal in 2014.¹ Specifically, we address the question of whether written leases negotiated at arm's length by commercial tenants may include a waiver of the right to declarative relief that is enforceable at law or, alternatively, whether such a waiver is void and unenforceable as a matter of public policy.

For reasons set forth below, we conclude that under the circumstances of this case, the commercial tenants' voluntary and limited waiver of declaratory judgment remedies in their written leases is valid and enforceable, and not violative of New York's public policy, particularly as the tenants in this instance did not waive other available legal remedies.

I. Factual and Procedural Background

On April 7, 2010, the plaintiffs, 159 MP Corp. and 240 Bedford Ave Realty Holding Corp., entered into leases for 10,000 square feet of retail space and 3,000 square feet of storage space, respectively, at premises located at 159 North 3rd Street, also known as 241 Bedford Avenue, also known as 160 North 4th Street, in Brooklyn. The original landlord on the leases, BFN Realty Associates, LLC, was later succeeded by the defendant, Redbridge Bedford, LLC. Each lease was to run for 20 years from May 1, 2010, with a 10–year renewal option.

Paragraph 67(H) in the rider of each lease provided that the tenant:

"waives its right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease. Any breach of this paragraph shall constitute a breach of substantial obligations of the tenancy, and shall be grounds for the immediate termination of this Lease. It is further agreed that in the event injunctive relief is sought by Tenant and such relief shall be denied, the Owner shall be entitled to recover the costs of opposing such an application, or action, including its attorney's fees actually incurred, it is the intention of the parties hereto that their disputes be adjudicated via summary proceedings."

Four years later, on March 12, 2014, the defendant issued to each of the plaintiffs a "Ten (10) Day Notice to Cure Violations" (hereinafter Notice to Cure) arising out of their alleged breaches of stated paragraphs of the leases and their riders. The plaintiffs' alleged breaches included the failure to obtain various permits, the arrangement of the premises in a manner that created fire hazards, the existence of nuisances and noises, and the failure to allow for sprinkler system inspections by the Fire Department. The Notices to Cure demanded that the alleged lease violations be cured by March 27, 2014, which was 15 days from the date of the documents, otherwise the defendant would terminate the tenancies and thereafter commence summary proceedings to recover possession of the premises.

On or about March 19, 2014, the plaintiffs commenced an action in the Supreme Court for declaratory and injunctive relief, and to recover damages for breach of contract. Specifically, the first cause of action was for a judgment declaring that the leases are in full force and effect and that there are no lease violations as alleged by the defendant. The second cause of action was for preliminary and permanent injunctive relief, enjoining the defendant from taking any steps to terminate the leases. The third cause of action was for a judgment declaring that the defendant is equitably estopped from terminating the leases based on usages of the premises of which the defendant had been aware without objection. The fourth cause of action sought money damages for the defendant's own breaches of contract.

On March 26, 2014, prior to the expiration of the stated cure period, the plaintiffs moved by order to show cause for a Yellowstone injunction (see First Natl. Stores v. Yellowstone Shopping Ctr., 21 N.Y.2d 630, 290 N.Y.S.2d 721, 237 N.E.2d 868 ) staying and tolling the cure period and enjoining the defendant from terminating the leases or commencing a summary proceeding for eviction. In their supporting papers, the plaintiffs argued that although they disputed the claim that they had violated the leases, they were nevertheless ready, willing, and able to cure any breaches of the leases if obligated to do so. The plaintiffs maintained that the defendant, as the property owner, was instead responsible for the necessary permits and certificates of occupancy, and that the defendant had waived its other objections by having accepted years of rent payments with knowledge of the alleged violations.

The defendant interposed an answer dated April 25, 2014, denying the material allegations of the complaint and asserting an affirmative defense that the plaintiffs "have contractually waived the right to seek injunctive relief." Contemporaneously, the defendant cross-moved for summary judgment dismissing the complaint based on the waiver language of Paragraph 67(H) in the two lease riders, contending that the mere commencement of the declaratory judgment action constituted contractual grounds for terminating the tenancies.

In opposition to the cross motion, the plaintiffs argued that the provision of the leases waiving the right to declaratory relief did not separately prohibit Yellowstone injunctions. Further, the plaintiffs argued that a blanket covenant not to sue cannot be interpreted to extend to actions to enforce the obligations of the leases at issue.

In the order appealed from, dated January 29, 2015, the Supreme Court denied the plaintiffs' motion for Yellowstone relief. The court reasoned that although the leases did not expressly prohibit Yellowstone applications, such relief was nevertheless encompassed within the broader provisions of Paragraph 67(H) in the riders that prohibited declaratory judgment actions. The court construed the waiver of declaratory remedies as an agreement to instead resolve contractual disputes through the mechanism of summary proceedings. The court further noted that the waiver of declaratory remedies did not prevent any of the parties from performing the agreements, or from commencing actions seeking damages for either breach of contract or tortious conduct. The court did not address whether the plaintiffs' waiver of declaratory judgment remedies in Paragraph 67(H) of the riders violated public policy, as the issue had neither been raised in the pleadings nor in any of the papers submitted in connection with the plaintiffs' motion or the defendant's cross motion. Finding that all the plaintiffs' claims were actual or disguised causes of action for declaratory relief, the court denied the plaintiffs' motion and granted the defendant's cross motion for summary judgment dismissing the complaint.

On March 2, 2015, this Court granted the plaintiffs' application for a temporary stay of the defendant's enforcement remedies, which was thereafter extended by a decision and order on motion of this Court dated March 26, 2015, pending the determination of this appeal.

II. Yellowstone Injunctions Generally

A Yellowstone injunction is not a creature of statute (see CPLR article 63). It is, instead, a creation of case law originating in 1968 with the decision of the Court of Appeals in First Natl. Stores v. Yellowstone Shopping Ctr., 21 N.Y.2d 630, 290 N.Y.S.2d 721, 237 N.E.2d 868. While Yellowstone is a relatively brief opinion, its brevity should not be interpreted as lacking in importance since Yellowstone 's impact in landlord-tenant litigation is as strong today as it was when it was rendered nearly 50 years ago (see Mark C. Dillon, The Extent to Which "Yellowstone Injunctions" Apply in Favor of Residential Tenants: Who Will See Red, Who Can Earn Green, and Who May Feel Blue? , 9 Cardozo Pub.L. Pol'y & Ethics J. 287, 312 [2011] ).

In Yellowstone, the landlord of commercial premises was contractually obligated to provide its tenant with a 10–day notice to cure for any default in the tenant's performance of the lease, and the tenant's failure to cure permitted the landlord to terminate the lease, re-enter the premises, and evict the tenant (see First Natl. Stores v. Yellowstone Shopping Ctr., 21 N.Y.2d at 634–635, 290 N.Y.S.2d 721, 237 N.E.2d 868 ). The landlord served the tenant with a 10–day default notice for the tenant's failure to comply with a sprinkler order issued by the Fire Department. In response, the tenant commenced an action for a judgment declaring that sprinkler compliance was the responsibility of the landlord rather than the tenant. Nine days later, the tenant moved by order to show cause for a preliminary injunction to enjoin the landlord from enforcing its remedies under the...