Liberty & Nassau Assocs., LLC v. Cohn

• Decision Date: 08 May 2018
• Docket Number: Index No.: 655926/2017
• Citation: 2018 NY Slip Op 30915 (U)
• Parties: LIBERTY & NASSAU ASSOCIATES, LLC, Plaintiff, v. RICHARD COHN and ABRAHAM MERCHANT, Defendants.
• Court: New York Supreme Court

2018 NY Slip Op 30915(U)

LIBERTY & NASSAU ASSOCIATES, LLC, Plaintiff, v. RICHARD COHN and ABRAHAM MERCHANT, Defendants.

Index No.: 655926/2017

NEW YORK STATE SUPREME COURT NEW YORK COUNTY: PART 7

RECEIVED: May 11, 2018

May 8, 2018

NYSCEF DOC. NO. 23

DECISION/ORDER

Motion Seq. Nos. 001; 002

Recitation as required by CPLR 2219 (a), of the papers considered in reviewing the motion of defendants Richard Cohn and Abraham Merchant for dismissal of the complaint of plaintiff Liberty & Nassau Associates, LLC (motion sequence no. 001), and the motion of nonparty Liberty Knights, LLC (Liberty Knights) to intervene in this action (motion sequence no. 002).

 Papers Numbered Motion Sequence No. 001 (Motion to Dismiss):   Defendants' Notice of Motion and Affirmation in Support  1  Plaintiff's Memorandum in Opposition  2  Defendants' Affidavit in Reply  3 Motion Sequence No. 002 (Motion to Intervene):   Proposed Intervener's Notice of Motion and Affidavit in Support  1  Plaintiff's Memorandum in Opposition  2  Proposed Intervenor and Defendants' Affidavit in Reply  3 

Matalon Shweky Elman PLLC, New York (Joseph Lee Matalon of counsel), for plaintiff.

Alonso, Andalkar & Facher, P.C., New York (Mark. J. Alonso of counsel), for defendants and proposed intervenor.

Gerald Lebovits, J.

Upon the foregoing papers, it is ordered that the motion to dismiss (motion sequence no. 001) and the motion to intervene (motion sequence no. 002) are both denied.

Plaintiff brings this action against defendants, the co-guarantors of a commercial lease for premises in Manhattan. Plaintiff elected not to sue Liberty Knights (the tenant), a shell entity controlled by defendants, and to proceed solely against the guarantors. Defendants move to dismiss this action on the ground that this action may not proceed in the absence of the tenant. Liberty Knights moves separately to intervene in this action.

In 2003, plaintiff, the landlord of the commercial space at 55 Liberty Street in Manhattan, entered into a sublease with nonparty Liberty Knights for certain premises at that location (the lease [see affirmation of Mark J. Alonso, exhibit A]). Under the lease, the tenant is required to pay plaintiff base annual rent and additional rent as specified in the sublease, including real estate taxes, water and sewer charges, and fees for a security guard at the premises (complaint, ¶ 6).

At the same time, Cohn and Merchant, who own and control the tenant, entered into a "Limited Guaranty" in favor of plaintiff (the guaranty [see Alonso affirmation, exhibit C]; lease § 47 [c]). In 2007, the lease and guaranty were amended (see id., exhibit B).

Pursuant to the guaranty, defendants agreed to be "jointly and severally" liable for the "Obligations," which include "Minimum Rent" under the Lease, and "Additional Rent," meaning "all other monetary obligations (other than Minimum Rent) under the Lease" (Guaranty at 1). Defendants agreed to be liable for Obligations, even if the landlord could not collect it from the tenant by reason of a release, discharge, defense, or lack or enforceability as to the Tenant:

"Guarantor jointly and severally guarantees prompt payment when due of the obligations, regardless of law, regulation or order now or hereafter in effect in any jurisdiction affecting any terms governing the Obligations or the rights of Landlord with respect thereto. The Guarantor hereby agrees that its obligations under the Guaranty shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of any of, or any release or discharge of the Tenant from liability relating to, the Obligations or any agreement or instrument relating thereto; (b) the absence of any attempt by the Landlord to collect all or any party of the Obligations . . . or (e) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Tenant"

(Guaranty, at 1 [emphasis added]).

Similarly, the Guaranty provides:

"This Guaranty is a continuing Guaranty primary, absolute, and unconditional and all Obligations to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance thereon. This guaranty shall be a guaranty of payment and not of collection. Guarantor hereby waives any right to require that any legal action be taken by Landlord against Tenant before enforcement of Landlord's rights under this Guaranty"

(id.).

When this action was commenced in September 2010, the tenant owed at least $250,000 to plaintiff in past due base minimum rent and additional rent (complaint, ¶ 10). Because of the guaranty, the guarantors likewise owed plaintiff more than $250,000 (id., ¶ 11). Plaintiff elected to proceed solely against the guarantors under the guaranty, as was its right.

In lieu of answering the complaint, defendants move to dismiss under CPLR 3211 (a) (10) on the ground that "the court should not proceed in the absence of a person who should be a party" (Alonso affirmation, ¶ 1 [a]). Defendants do not identify any prejudice to them, but rather argue that the tenant has an "inherent interest" in assuring that the action "is properly defended," and express concern about the potential collateral estoppel effects to the tenant (see defendants' memorandum at 2-3).

The day after defendants moved to dismiss, the tenant, represented by the same attorney, moved to intervene under CPLR 1012 (as of right) or CPLR 1013 (discretionary). The tenant asserts that it "possesses defenses" to plaintiff's claims, which it describes as "concessions of and changes of operations by Tenant granted to Landlord," "estoppel," and "representations" made by plaintiff to the tenant (aff of Daniel Hannagan, ¶ 6). The tenant argues that because a judgment against the guarantors may be "res judicata" against it, it has a right to intervene (see Tenant's memorandum at 2-3). In the alternative, it argues that, because of the existence of common questions of law and fact, it should be permitted to intervene (id. at 3).

Both motions are denied, as, under the terms of the guaranty, the landlord is free to sue the guarantors without first taking any action against the tenant, and the intervenor has not demonstrated that its interests would not be adequately protected by an existing party, and that it may be bound by the judgment.

The Motion to Dismiss (Motion Sequence No. 001)

The guaranty specifically provides that "[g]uarantor hereby waives any right to require that any legal action taken by Landlord against Tenant before enforcement of Landlord's rights under this Guaranty." Defendants nevertheless argue, without citing any applicable authority, that this action must be dismissed because the tenant is not a party. But consistent with the guaranty itself, the law is clear that a creditor need not proceed against the obligor, but may sue only the guarantor (see News Ltd. v Australis Holdings Party, Ltd., 293 AD2d 276, 277 [1st Dept 2002] [rejecting argument that obligor's affiliates were necessary parties when guarantee itself provided that suit may be brought against guarantors alone]; accord Congress Factors Corp. v Meinhard Commercial Corp., 129 Misc 2d 726, 728-729 [Sup Ct, NY County 1985] [holding that principal debtors are not necessary parties in action to enforce guaranty against factor, as "the specific purpose of a guarantee is to give the beneficiary recourse separate from any action against the principal debtor and it is not usual for the beneficiary of a guarantee to sue a guarantor alone"]).

Thus, courts routinely grant summary judgment to landlords in actions brought against guarantors where the tenants were not defendants (see e.g. Thor Galaxy At South Dekalb, LLC v Reliance Mediaworks (USA) Inc., 143 AD3d 498, 498-499 [1st Dept 2016]; accord Bank of Am., N.A. v Solow, 59 AD3d 304, 304-305 [1st Dept 2009]; Samsung Am. v Noah, 209 AD2d 367, 367 [1st Dept 1994]).

Accordingly, the motion to dismiss is denied (see Stonehill Institutional Partners, L.P. v Frac Diamond Aggregates, LLP, 2014 NY Slip Op 33037 [U], *2, 2014 WL 6769900, at *2[Sup Ct, NY County 2014] [denying motion by borrower to intervene in lawsuit between lender and guarantor on ground that "[i]t would be contrary to the very purpose of a guarantee if the lenders did not have the ability to seek collection from the guarantors, separate and apart from their ability to bring a claim against the borrowers"]; see also 500 Eighth Ave. Ltd. v Tsang, 2016 WL 930130, *1 [Sup Ct, NY County 2016] [denying motion of principal debtor for leave to intervene in action against guarantor]).

The Motion to Intervene (Motion Sequence No. 002)

CPLR 1012 (a) (2), the basis for the tenant's intervention as of right, requires the movant to satisfy two prongs: (1) risk of inadequate representation by an existing party; and (2) the non-party may be bound by the judgment. Whether the entity seeking intervention will be bound by the judgment within the meaning of CPLR 1012 (a) (2) is determined by its res judicata effect (Vantage Petroleum, Bay Isle Oil Co. v Board of Assessment Review of the Town of Babylon, 61 NY2d 695, 698 [1984] [holding that Board of Education was denied intervention in tax certiorari proceeding as judgment fixing value of property for taxation purposes in one year is not res judicata]; accord Matter of Tyrone G. v Fifi N., 189 AD2d 8, 17 [1st Dept 1993]). "Under res judicata, or claim preclusion, a valid final judgment bars future actions between the same parties on the same cause of action" (Parker v Blauvelt Volunteer Fire Corp., 93 NY2d 343, 347 [1999]; accord Gramatan Home Investors Corp. v Lopez, 46 NY2d 481,485 [1979] [noting that doctrine of res judicata holds that "as to the parties in a litigation and those in privity with them, a judgment on the merits by a court of competent jurisdiction is conclusive of the issues of fact and questions of law necessarily decided therein in any subsequent action"]).

As to the first prong of CPLR 1012 (a) (2)...