Morgan Guar. Trust Co. of New York v. Solow

• Decision Date: 26 November 1985
• Citation: 114 A.D.2d 818,495 N.Y.S.2d 389
• Parties: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Plaintiff-Appellant-Respondent, v. Sheldon H. SOLOW, etc., Defendant-Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 389

495 N.Y.S.2d 389

114 A.D.2d 818

MORGAN GUARANTY TRUST COMPANY OF NEW YORK Plaintiff-Appellant-Respondent, v. Sheldon H. SOLOW, etc., Defendant-Respondent-Appellant.

Supreme Court, Appellate Division First Department.

Nov. 26, 1985.

R.F. Wise, Jr., New York City, for plaintiff-appellant-respondent.

J.M. Miller, New York City, for defendant-respondent-appellant.

Before SANDLER, J.P., and SULLIVAN, BLOOM, LYNCH and KASSAL, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (William P. McCooe, J.) entered February 6, 1985, which denied plaintiff's cross-motion to confirm the arbitrator's award, for leave to serve an amended and supplemental complaint and for related temporary injunctive relief and which denied defendant's motion to vacate the award and which remanded the matter to the arbitrators for the purpose of computing the amount due under the terms of the award, unanimously modified on the law and the facts and in the exercise of discretion (1) to confirm the award dated November 20, 1984 as a final and definitive award; (2) to permit plaintiff to serve an amended and supplemental complaint; and (3) to temporarily enjoin defendant from serving demands for escalation in rent which vary from the formula found to be applicable by the arbitrators except as may be agreed to by the parties or necessitated by modifications in the collective bargaining agreement or agreements by which the defendant is or will hereafter be bound, and otherwise affirmed, with costs to plaintiff.

The controversy before us centers upon a lease dated August 16, 1973, pursuant to which plaintiff Morgan leased from defendant Solow seven and a fraction floors in premises 9 West 57th Street for a period of twenty-five years. In addition to a fixed rent, Morgan was required to pay additional rent under an escalation clause based upon the increase in wages granted to certain workers pursuant to the collective bargaining agreements by which Solow is bound. Prior to its entry into the lease Morgan requested and received from Solow a sample calculation of how the escalation clause would work. The lease includes a "pay now, fight later" clause, i.e. upon receipt of a bill for additional rent Morgan is required to pay the amount demanded. If the amount is disputed, Morgan may demand arbitration. Upon a determination by the arbitrators that there has been an overpayment, Solow is then required to repay the overpayment to Morgan with interest, or to credit the overpayment against future rent.

Up to 1980, Solow calculated additional rent on the basis of the formula provided to Morgan prior to its entry into the lease. In 1980, Solow submitted to Morgan a wage escalation notice based on a method of computation substantially different from that used in preceding years. When Morgan protested this new method of calculation, it was informed that the prior formula was erroneous. By consequence, plaintiff demanded arbitration. However, difficulties arose in completing the panel of arbitrators and the demand for the escalated rent due for 1981 was served prior to the completion of the arbitration panel. This time, the formula employed differed not only from the pre-1980 formula, it also differed from that employed in 1980. Moreover, it included bills for prior years. Again arbitration was demanded. At or about the same time Morgan brought this action seeking a declaration that the new methods of calculation employed by Solow were in violation of the lease and demanding a refund of all excess escalated rent previously paid. The thinking behind the action was that Morgan, as a result of the changes in the formula employed in computing the additional rent, would be fixed with annual arbitrations. Under the "pay now, fight later" clause it would be compelled to pay the sums demanded at peril of having its "valuable leasehold" terminated. The sums overpaid would be recouped only after the arbitrations were completed and the substantial difference in interest payable on the arbitration award and the interest available in the then current market would amount to low interest loans to Solow, subsidized by Morgan.

Moreover, at or about the time that this controversy was brewing, Avon, another tenant in the building, had proceeded against Solow by bringing an action against him, which Solow had sought to and did stay pending arbitration (Avon Products, Inc., v. Solow, 79 A.D.2d 53, 435 N.Y.S.2d 728 affd. 54 N.Y.2d 637, 442 N.Y.S.2d 506, 425 N.E.2d 894). However, the issue of arbitrability was not finally resolved until after the commencement of the action by Morgan. Based upon the determination in Avon, Solow moved to dismiss Morgan's complaint. Special Term granted that motion to the extent only of staying the action pending arbitration.

Meanwhile, and prior to the commencement of the hearings in arbitration which began in February, 1984, Solow served its demands for the escalated rents for 1982 and 1983. Whatever the reasons, Morgan did not demand arbitration with respect thereto.

Before or during the arbitration Solow served his demand for escalated rent for 1984. Morgan objected thereto and demanded arbitration. That claim was heard by the arbitrators by agreement of the parties and is encompassed within their award.

After the completion of the arbitration hearings and within the time fixed for decision by stipulation of the parties, the arbitrators, by a vote of two to one, rendered an award in which they determined:

(1) that the pre-1980 formula used in calculating the wage rate and base wage rate under the lease is the correct one;

(2) the elements to be utilized in computing the cost of peripheral employment benefits;

(3) that the institution of this action did not constitute a waiver by Morgan of its right to arbitrate the 1981 wage escalation dispute;

(4) that by...