Olympia & York OLP Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Decision Date: 27 April 1995
• Court: New York Supreme Court — Appellate Division
• Parties: OLYMPIA & YORK OLP COMPANY, Plaintiff-Respondent, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant -Appellant.

Page 69

626 N.Y.S.2d 69

214 A.D.2d 509

OLYMPIA & YORK OLP COMPANY, Plaintiff-Respondent, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant -Appellant.

Supreme Court, Appellate Division First Department.

April 27, 1995.

R.C. Seltzer, for plaintiff-respondent.

C. Fastenberg, for defendant-appellant.

Before RUBIN, J.P., and ROSS, NARDELLI, WILLIAMS and TOM, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Stephen Crane, J.), entered on or about October 26, 1993, which granted plaintiff partial summary judgment on its claim for unpaid additional rent and dismissed defendant's counterclaims for rent overcharges, and which denied defendant's cross-motion for partial summary judgment, unanimously affirmed, without costs. Judgment of the same court and Justice, entered January 19, 1994, which awarded plaintiff $61,211.74, together with interest costs and disbursements, for a total of $66,622.44, unanimously affirmed, without costs.

Defendant Merrill is a tenant of One Liberty Plaza under a lease with plaintiff Olympia and York. The lease provides for the payment of additional rent to compensate the landlord for annual expenses incurred in the operation of the premises and for arbitration of any dispute concerning the additional rent assessment.

Detailed procedures are set forth in Article 5.05 of the lease, which affords the tenant an opportunity to evaluate the propriety of the additional rent demanded and includes a schedule for conducting the review and giving notice of any disputed amounts. The applicable time periods are measured from the date the landlord submits a year-end statement of operating expenses to the tenant. After receipt of the year-end statement, the tenant has 20 days to pay the additional rent assessed, if any, without prejudice to any adjustments that may subsequently be made. The tenant is then given the opportunity to audit the landlord's books and records, which is to commence within 30 days and culminate within 90 days after receipt of the year-end statement. Within this 90-day period, the tenant must notify the landlord of any dispute regarding amounts assessed as additional rent. The tenant then has an additional 90 days to submit any unresolved dispute to arbitration which, pursuant to Article 34 of the lease, is required to be on written notice to the landlord.

At issue is an additional rent charge of $61,211.74, alleged to be due to the landlord for operating expenses incurred during the years ending in 1989 and 1990. In completing the review provided for in the lease, Supreme Court found, and the parties do not dispute, that there were various derelictions on both sides in complying with provisions governing the time within which certain actions were to be taken. Supreme Court further found that Merrill's letter dated July 13, 1992, in which it complains of certain overcharges, constitutes the requisite notice of dispute, rejecting the landlord's assertion that it was untimely given. The landlord now takes the position that Merrill has waived any rights to recover alleged overcharges under the lease. Merrill argues that, by terminating its ongoing audit in response to its July 13 letter, the landlord "prevented Merrill from identifying particular disputes", presumably frustrating its attempt to provide notification of disputed amounts. Merrill asserts that, as a result, the time within which to demand arbitration never commenced to run.

While Merrill submits that the notice was merely preliminary based upon the limited audit it was able to conduct up to that time, the letter does express disagreement with nine specified items of expense. Therefore, it is sufficient as a notice of dispute within the contemplation of Article 5.05 of the lease. This finding is significant only in terms of the commencement of the 90-day period in which to submit the disputed items (and perhaps other items) to arbitration. However, as Merrill seeks to contest the additional rent in court rather than in arbitration, the date of notice is immaterial.

At issue on this appeal is whether a party to an arbitration agreement, having failed to comply with a notice requirement to make a written demand for arbitration, may nevertheless litigate a dispute falling squarely within the confines of the arbitration provision. Although defendant contends that this is a case of first impression in New York, this Court has adjudicated a similar controversy, holding that a party failing to demand arbitration is barred from seeking relief before the courts in a matter within the operation of an arbitration clause (Rio Algom v. Sammi Steel Co., 168 A.D.2d 250, 562 N.Y.S.2d 486, lv. denied 78 N.Y.2d 853, 573 N.Y.S.2d 466, 577 N.E.2d 1058). As we noted there (at 251, 562 N.Y.S.2d 486), "the court's inquiry is limited to whether or not the dispute is encompassed by the governing arbitration provision, while interpretation of the provisions of the contract is for the arbitrator" (citing Matter of Denihan [Denihan], 119 A.D.2d 144, 149, 506 N.Y.S.2d 39, aff'd 69 N.Y.2d 725, 512 N.Y.S.2d 367, 504 N.E.2d 694; Brown v. V & R Adv., 112 A.D.2d 856, 861, 493 N.Y.S.2d 137, aff'd 67 N.Y.2d 772, 500 N.Y.S.2d 506, 491 N.E.2d 679). There is no question that the dispute herein "falls squarely within the purview of the arbitration provision" contained in the lease (id., at 251, 562 N.Y.S.2d 486). As we observed in Brown v. V & R Adv., supra, at 861, 493 N.Y.S.2d 137, "Once the courts have determined that there is a reasonable relationship between the arbitration contract/clause and the subject matter of the dispute (as properly found here), the court's inquiry...