Opinion
11-21-2000
ALISON ROSE, Respondent, v. MONTT ASSETS, INC., et al., Appellants.
Kossoff, Alper & Unger, New York City (Dawn R. Myers and Sally E. Unger of counsel), for respondent.
David A. Kaminsky, P.C., New York City, for appellants. Kossoff, Alper & Unger, New York City (Dawn R. Myers and Sally E. Unger of counsel), for respondent. DAVIS and GANGEL-JACOB, JJ., concur; McCOOE, J. P., dissents in a separate memorandum.
OPINION OF THE COURT
Per Curiam. Order entered February 10, 1999 affirmed, with $10 costs. After surrendering the subject rent-stabilized apartment premises in September 1995, plaintiff commenced this plenary action in February 1996 to recover for alleged rent overcharges for the period January 1987 through September 1995. The claim was based upon defendant landlord's failure to comply with an extant order of harassment and its failure to serve an initial rent registration when the apartment became subject to rent stabilization. Ultimately, the trial court (Stallman, J.) dismissed the complaint in its entirety pursuant to the Rent Regulation Reform Act of 1997, finding that plaintiff had failed to challenge the amount of rent set forth in annual rent registration statements and that inquiry into the rental history prior to the four-year period preceding the filing of the complaint was precluded (see, Rent Stabilization Law of 1969 [Administrative Code of City of NY] § 26-516 [a]). Defendant subsequently moved for attorneys' fees as the prevailing party in the litigation, relying upon a provision in the parties' (prior) lease requiring reimbursement of legal fees "for legal actions or proceedings brought by owner against you because of a leased default by you or for defending lawsuits brought against Owner because of your actions" (emphasis added). Civil Court erred in its conclusion that this provision applies only to actions brought by third parties against the landlord as a result of the tenant's actions. This construction is unduly narrow, as the language of the reimbursement clause does not limit recompense to lawsuits commenced by third parties. There is no valid reason to decline to enforce the attorneys' fees clause in circumstances where a tenant's own actions in prosecuting a claim cause the landlord to incur legal expenses (see generally, Breed, Abbott & Morgan v Hulko, 139 AD2d 71, 74-75, affd 74 NY2d 686). Notwithstanding the above, we affirm the result reached by Civil Court upon an alternate ground. The Rent Regulation Reform Act, enacted during the pendency of this case, was made applicable to actions or proceedings pending in any court (Zafra v Pilkes, 245 AD2d 218). As stated by the trial court in its bench decision dismissing the underlying complaint, this statute "completely altered the landscape of the law of rent overcharge in this State." The court further noted that "assumptions of the parties when the litigation began were revocably [sic] altered by a change in the law." In this posture, where plaintiff's action was properly commenced under existing law, but was dismissed because of a change in the law affecting pending rent overcharge cases, we deem it appropriate that each side bear its own legal costs (Wells v East 10th St. Assocs., 205 AD2d 431). While the dissent is correct in its analysis that entitlement to attorneys' fees under a lease clause is a matter of contractual right, a court's authority to withhold fees in a particular case is not so closely confined and may turn upon equitable factors or other considerations fact specific to the litigation (see, e.g., Solow v Bradley, 273 AD2d 75, revg NYLJ, Aug. 10, 1999, at 22, col 1, for the reasons stated in the dissenting opn of Freedman, J.; RAM I v Stuart, 248 AD2d 255; Walentas v Johnes, 257 AD2d 352). McCOOE, J. P. (dissenting). I respectfully dissent and would reverse the order and grant attorneys' fees to the defendant as the prevailing party. The majority denied attorneys' fees to the defendant as the prevailing party in reliance on Wells v East 10th St. Assocs. (205 AD2d 431 [1st Dept 1994]) where the Appellate Division reversed the Appellate Term based upon a change in the law and denied attorneys' fees. The law had changed after a final judgment in the Civil Court and an affirmance by the Appellate Term. The Appellate Division held that it would be "manifestly unfair" to grant attorneys' fees under these circumstances and denied the prevailing party attorneys' fees as a matter of discretion. The law in this case changed at the trial level and before final judgment. The controlling statute was amended which changed the law and the plaintiff did not discontinue. Thereafter the attorney for the defendant wrote to the attorney for the plaintiff giving her the opportunity to discontinue the proceeding based upon Zafra v Pilkes (245 AD2d 218 [1st Dept 1997]) but she refused. Continuing the proceeding after the statutory and decisional law had changed, particularly where the plaintiff had the opportunity to discontinue, makes the plaintiff liable for attorneys' fees. The language of the Appellate Division in Wells v East 10th St. Assocs. (205 AD2d 431, supra), indicating that it applies to the law existing at the time the action was commenced, should not be read literally since the Court was not presented with this fact pattern. The law in this case changed when the case was still at the trial level. The law in Wells changed after final judgment and the nonprevailing party could not be charged with knowledge of a change in the law and did not have the opportunity to discontinue. The prevailing party is contractually entitled to attorneys' fees. There is no showing that it would be "manifestly unfair" when the date of the change in the law took place and the opportunity to discontinue are considered. (245 Realty Assocs. v Sussis, 243 AD2d 29, 35 [1st Dept 1998].) The appended chronology showing the relevant dates illustrates this point. While I am bound by precedent to follow Wells v East 10th St. Assocs. (205 AD2d 431, supra), I have the right in a proper case to set forth the basis for my disagreement in the hope "that precedent should be overturned." (People v James, 111 AD2d 254, 256, affd 67 NY2d 662 [1986].) The legal basis for my disagreement is that a prevailing party is contractually entitled to attorneys' fees unless the attorney fee lease clause is voided on a legal contractual defense. Discretion should not play a role in the denial. This issue is distinct from the determination as to who is the prevailing party and the amount of the fee. Attorneys' fees to a prevailing party are recoverable only by agreement of the parties or by statute or court rule. (Matter of A. G. Ship Maintenance Corp. v Lezak, 69 NY2d 1, 5 [1986].) Two of the most common examples of statutes authorizing attorneys' fees are Domestic Relations Law § 237 in matrimonial proceedings and CPLR 8601 which authorizes attorneys' fees in certain actions against the State of New York. Both statutes vest discretion in the court to deny attorneys' fees. CPLR 8601 (a) specifically provides for denial where "special circumstances make an award unjust." A lease is a contract, and unless fraud, collusion, mistake, accident or unconscionability is shown, the lease provisions should be enforced as agreed to. Nevertheless, some courts have searched for a standard in exercising discretion to deny a prevailing party attorneys' fees without advancing a rationale consistent with contract law. The two relevant cases cited in Wells (supra) are examples of this. In Nesbitt v New York City Conciliation & Appeals Bd. (121 Misc 2d 336, 340) the court disagreed with Thomas Loft Tenants Assn. v Sylvan Lawrence Co. (117 Misc 2d 360) where that court had "exercised its discretion to deny counsel fees using a standard of good faith." The court adopted the standard that "[a] court should invoke its discretion to deny fees * * * where bad faith is established on the part of the successful party or where unfairness is manifest." (Supra, at 340.) Feierstein v Moser (124 Misc 2d 369) similarly rejected the good-faith standard for denying the prevailing party attorneys' fees. Wells v East 10th St. Assocs. (supra, at 432), which is the precedential authority, has adopted a "manifestly unfair" standard and found that "it was not an abuse of discretion" to deny attorneys' fees to the prevailing party. The law is that absent a "showing of unjust enrichment, unconscionability, mutual mistake or violation of public policy" the clear and unequivocal provisions of a lease should be adhered to. (Meyers Parking Sys. v 475 Park Ave. So. Co., 186 AD2d 92 [1st Dept 1992].) The lease clearly provides for attorneys' fees which the plaintiff requested in its complaint. Wells (supra) invalidated the attorneys' fee provision, which is a term of the contract of leasing, upon the ground of an equitable standard not previously recognized as a defense to a contract or term thereof contrary to its prior holding in Meyers Parking Sys. v 475 Park Ave. So. Co. (186 AD2d 92, supra). The law is being changed to add a new defense to a contract because the result in one case appears unfair. Real Property Law § 235-c entitled "Unconscionable lease or clause" provides that if a court finds a lease or clause in a lease to be unconscionable at the time it was made, it may refuse to enforce the lease or only the unconscionable term. The Wells standard of "manifestly unfair" is a different standard than unconscionability and it does not address the requirement that the manifest unfairness exist at the time of the entry into the lease or that the prevailing party was in any way at fault as in the traditional defenses. The Legislature has set the standard which according to recognized rules of statutory interpretation excludes other standards. It could have provided the courts with discretion to deny attorneys' fees to the prevailing party by including language similar to that in CPLR 8601 when it enacted Real Property Law § 234 or that the unconscionability of a lease or term thereof could be raised as a defense at any time when it enacted Real Property Law § 235-c. Similarly, the Legislature granted the successful party costs unless "the court determines that to so allow * * * would not be equitable, under all of the circumstances." (CPLR 8101.) The inherent power of the courts to supervise attorneys' fees is not implicated since this case involves substantive contract law and the Legislature could have addressed this issue and did not. (Alvarez v Snyder, 264 AD2d 27, 40 [1st Dept 2000] [Saxe, J., concurring].) Furthermore, even if there was such inherent power, this issue should be determined by statute or by "plenary rule rather than by ad hoc judicial decisions." (Matter of A. G. Ship Maintenance Corp. v Lezak, supra, at 6; Premo v Breslin, 89 NY2d 995 [1997].) Reliance on traditional contract defenses promotes uniformity of result. It eliminates judicial determinations on an ad hoc basis depending upon each Judge's discretionary view of the correctness of the result in the underlying case. This discretionary view can deny attorneys' fees to the prevailing party contrary to the contractual agreement, traditional contract defenses and any legislative authorization. Furthermore, consistency would require that this equitable defense of "manifestly unfair" be applicable to all commercial transactions having attorney fee provisions including automobile leases, mortgages and loans. Apart from any disagreement with Wells (supra) on a legal basis, there is a more important pragmatic basis. Attorneys' fees are becoming the tail wagging the dog in landlord and tenant proceedings. Litigating the issue as to who is the prevailing party and the amount of the fee remains after a simple main action is determined and becomes the focus of further litigation. Manifest unfairness adds a third issue for litigation where the entitlement should be definite absent a traditional legal defense. The cases cited in the last sentence of the majority opinion are not applicable because they consider the issue of who is the prevailing party. This case considers the issue of once the prevailing party is determined, can attorney fees be denied to it? The order should be reversed, attorneys' fees directed for the defendant and remanded to the Civil Court for an assessment of attorneys' fees.