Scarola v. Malone
| Docket Number | 652186/2017 |
| Decision Date | 30 October 2023 |
| Citation | 2023 NY Slip Op 33878 (U) |
| Parties | SCAROLA, RICHARD J.J. Plaintiff, v. MALONE, DANIEL C. Defendant. |
| Court | New York Supreme Court |
Unpublished Opinion
DECISION + ORDER ON MOTION
The following e-filed documents, listed by NYSCEF document number (Motion 009) 101, 102, 103, 104, 105, 106, 107, 109, 120 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 139, 140 were read on this motion to/for AMEND CAPTION/PLEADINGS.
The following e-filed documents, listed by NYSCEF document number (Motion 010) 132, 133, 134, 135, 138, 141, 142, 143, 144 145, 146, 147, 148 were read on this motion to/for ENFORCE/EXEC JUDGMENT OR ORDER.
This special proceeding arises out of an arbitrated dispute between the parties, who were former law partners. Presently before the court are (1) respondent Daniel Malone's motion for leave to file a supplemental verified answer to assert counterclaims (MS 009); and (2) petitioner Richard Scarola's motion for an order enforcing the arbitration award that has been confirmed and entered into judgment (MS 010). Both motions are opposed.
Scarola and Malone were former law partners who had numerous disputes arising from their unsuccessful partnership. As required by their partnership agreement dated February 1, 2012 (Partnership Agreement), Scarola and Malone arbitrated their disputes under the auspices of the American Arbitration Association, before mediator/arbitrator Michael J. Oberman Esq. (Arbitrator) (NYSCEF #'s 2-6). The arbitration lasted three years, from March 2014 to May 2017 (NYSCEF # 33, ¶ 3). The Arbitrator issued five separate written interim and final determinations, culminating in a final award dated May 8, 2017, which incorporated by reference the determinations in the Interim Award dated April 28, 2015, the Second Interim Award dated July 13, 2016, the Third Interim Award dated October 26, 2016, and the Partial Final Award dated February 6, 2017 (together, the Award) (NYSCEF #'s 2-6, 13).
The part of the Award at issue here concerns a long-term commercial lease for office space on the 41st Floor of 1700 Broadway, New York, New York (the Lease,' NYSCEF # 141, ¶ 3). The Lease had a term of more than ten years and annual rent close to $1 million (NYSCEF # 133, ¶ 3). Scarola and Malone shared a security deposit exceeding $850,000, and they each personally guaranteed the Lease with obligations of approximately $10 million (NYSCEF # 133, ¶ 3; NYSCEF # 141, ¶ 26). The Lease permitted Scarola and Malone to sublease up to 60% of the leased space to third parties but required them to operate a law firm occupying at least 40% of the leased space (NYSCEF # 3 at 32). Given this requirement, the Arbitrator found that even after Malone's departure from his prior law firm with Scarola, "the vitality of the Law Firm is [still] of continued importance to both Partners" to not default under the Lease (id. at 32, 36-38). As such, in the First Interim Award, the Arbitrator decided that if Scarola could continue operating a successor law firm occupying 40% of the leased space so as to prevent a default under the Lease, Malone should bear some of the costs Scarola incurred, in an amount to be determined at stage two of the arbitration (id. at 41, ¶ 7).
In the Second Interim Award, the Arbitrator allocated to Malone a portion of the operating expenses associated with the Lease and the rent shortfall-the amount of rent the parties owed under the Lease less the parties' subleasing revenue (NYSCEF # 4 at 20-24). Specifically, the Arbitrator (1) allocated 30% of the rent shortfall and operating costs to Malone and the remaining 70% to Scarola, (2) estimated the annual rent shortfall to be $303,096 and the annual operating costs to be $147,585, and then (3) ordered that Malone pay Scarola $7,577.40 for monthly rent shortfall and $3,689.63 for monthly operating costs (id. at 20-24, 36-37). Such payments applied to January through December 2016 as is and applied to January 2017 through the duration of the Lease with annual inflation adjustment of 2% for rent shortfall and 1% for operating costs (id. at 36-37).
In April 2017, Scarola commenced this special proceeding to confirm the Award (NYSCEF # 1). As an exhibit to his reply affidavit, Scarola provided a proposed bill that specified the amounts of monthly payments Malone owed him, calculated per the Award's terms (NYSCEF # 16). Hon. Eileen Bransten, by Order and Decision dated August 16, 2017, confirmed the Award but noted (NYSCEF # 18 at 7).
The parties complied with the Award until November 2021 when Malone stopped making monthly payments for his share of the rent shortfall and operating expenses associated with the Lease (NYSCEF# 133, ¶¶ 6'7). Malone argued that his payment obligations were conditioned on Scarola paying 70% of the rent shortfall and operating expenses, and Scarola did not pay his share of 70%, thus relieving Malone from the obligations to pay his 30% share (NYSCEF # 141, ¶¶ 20, 24). Malone contended that Scarola had received substantial rent abatement for the period from April 2020 to August 2022 because of the Covid-19 pandemic (the Abatement), as evidenced in a Lease & Settlement Agreement dated October 30, 2020 (id. ¶¶ 25, 27-33; NYSCEF # 85).
In response to Malone's non-payment, Scarola moved for entry of judgment on the Award in December 2021 (MS 002), and after the motion was denied without prejudice to renewal, Scarola moved again in August 2022 (MS 003) (NYSCEF #'s 21-34). By Order dated December 20, 2022, this court granted MS 003 and entered judgment on the Award (NYSCEF # 73 - Order; NYSCEF # 97 - Judgment). In entering the Judgment, this court did "not reach whether [Malone] is required to pay his 30 % share for the period at issue" as "prior to entry of judgment it would be premature for the court to render a determination as to the intent and meaning of the Award" (NYSCEF # 73 at 4). The court made clear that "the entry of judgment is without prejudice to the parties seeking further relief from the court, including regarding the meaning and application of the Award" (id.).
In April 2023, the court referred this special proceeding to the Commercial Division Alternative Dispute Resolution program for mediation (NYSCEF # 100). The mediation fell through. In June 2023, Malone moved for leave to file supplemental verified answer (NYSCEF # 105 - MS 009) and in October 2023, Scarola moved for an order enforcing the Judgment (NYSCEF # 138 - MS 010). At issue in both MS 009 and MS 010 is Malone's position that he was freed from payment liabilities for the period of November 2021 to August 2022 because of the Abatement. This Decision and Order addresses MS 009 and MS 010 below.
Malone's Motion to Amend (MS 009)
In MS 009, Malone seeks to file a supplemental answer to allege that his payment obligations are conditional on (1) Scarola paying 70% of the rent shortfall and operating costs (the 70/30 Condition) and (2) there being no default or early termination of the Lease (NYSCEF # 103, ¶¶ 35-37). Malone asserts that the Abatement not only justifies his failure to pay for the period of November 2021 through August 2022 but in fact causes him to have overpaid Scarola from April 2020 to October 2021 (id. ¶¶ 97-101). Malone therefore seeks an award of repayment in the amount of $230,812.09 by adding (i) a counterclaim for a declaratory judgment that he has no obligation to pay during November 2021 to August 2022, and his previous payments have resulted in an overpayment (id. at 26-28), (ii) a second counterclaim for unjust enrichment (id. at 28-29), and (iii) a third counterclaim for money had and received (id. at 29-31).
In opposition, Scarola contends that Malone's motion to amend, after entry of the Judgment, should be denied as untimely (NYSCEF # 131 at 8-9, 15-16). Scarola further argues that Malone's attempt to change or undo the Award by this motion to amend is futile because first, the Award has specified that mediation or arbitration is the only mechanism for adjusting the parties' payment obligations (NYSCEF # 4 at 30-31; NYSCEF # 131 at 7-14); and second, even if the court were to overturn the Award, it lacks evidence to re-assess or re-allocate the rent shortfall and operating costs, therefore cannot re-determine the parties' payment obligations (NYSCEF # 131 at 7-14).
Malone counters that there is no delay on his part that warrants denial of his motion to amend (NYSCEF # 139 at 4-7); and that the dispute on the 70/30 Condition arises from the Award, not the Partnership Agreement, thus is not subject to the arbitration clause of the Partnership Agreement (id. at 7-9). Malone adds that Scarola fails to show that Malone's proposed amendments regarding the 70/30 Condition are "palpably insufficient or clearly devoid of merit" (id. at 9-12).
Leave to amend a pleading should be "freely given" (CPLR 3025 [b]) as a matter of discretion in the absence of prejudice or surprise (Cafe Lughnasa Inc. v A & R Kalimian LLC, 176 A.D.3d 523 [1st Dept 2019]). However leave will be denied where the proposed amendment lacks merit or would serve no purpose other than to "needlessly complicate and/or delay discovery and trial" (id). The decision to grant or deny leave to amend is committed to the sound discretion of the IAS court (Valerie Reuling v Consol. Edison Co. of New York, Inc., 138 A.D.3d 439, 440 [1st Dept 2016]). "Where there has been an extended delay in moving to amend, the party seeking leave to amend must establish a reasonable excuse for the delay" (Heller...
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