172 Van Duzer Realty Corp., Respondent,v.Globe Alumni Student Assistance Association, Inc., et al., Appellants.BriefN.Y.November 19, 2014State of New York Court of Appeals REPLY BRIEF FOR DEFENDANTS-APPELLANTS DICK BAILEY SERVICE (212) 608-7666 (718) 522-4363 (516) 222-2470 (914) 682-0848 Fax: (718) 522-4024 1-800-531-2028 Supreme Court, New York County, Index No. 113137/2009 172 VAN DUZER REALTY CORP., Plaintiff-Respondent, -against- GLOBE ALUMNI STUDENT ASSISTANCE ASSOCIATION, INC. and GLOBE INSTITUTE OF TECHNOLOGY, INC., Defendants-Appellants. TO BE ARGUED BY: LINDA M. BROWN TIME REQUESTED: 15 MINUTES COURT OF APPEALS NO. APL-2013-00284 HERZFELD & RUBIN, P.C. Attorneys for Defendants-Appellants Globe Alumni Student Assistance Association, Inc. and Globe Institute of Technology, Inc. 125 Broad Street New York, New York 10004 (212) 471-8514 Fax: (212) 344-3333 lbrown@herzfeld-rubin.com OF COUNSEL: DAVID B. HAMM LINDA M. BROWN Date Completed: June 9, 2014 TABLE OF CONTENTS TABLE OF AUTHORITIES ...................................... .. PRELIMINARY STATEMENT...................................... .. POINT I THIS COURT SHOULD APPLY FIFTY STA TES AND HOLD THAT THE ACCELERATION CLAUSE IS UNENFORCEABLE BECAUSE PLAINTIFF TERMINATED THE LEASE AND OBTAINED A WARRANT OF EVICTION.............................. .. POINT II THE ACCELERATION CLAUSE SHOULD NOT BE ENFORCED, AS IT IS DISPROPORTIONATE TO PLAINTIFF’S PROBABLE LOSS AND CONSTITUTES AN IMPERl\/IISSIBLE PENALTY. . .. POINT III THIS COURT SHOULD HOLD THAT A RENT ACCELERATION CLAUSE IS UNENFORCEABLE WHERE THERE IS NO DUTY TO MITIGATE....... .. POINT IV PLAINTIFF’S CLAIMS ARE BARRED BY RES JUDICATA....................................... .. A. Plaintiff Does Not Dispute that Its Claim For Past Due Rent is Barred by Res Judicata .... .. B. Plaintiff’ s Claim for Accelerated Rent is Also Barred by Res Judicata ....................... .. CONCLUSION..................................................... . . 1 ............... ..1 .................. ..23 - ¢ u ¢ o e u : o e » » - - u - - - - -- .................... ..2 .................... ..8 ................. .. 32 .................. ..32 .................. ..33 36 TABLE OF AUTHORITIES Case Page 186—90 Joralemon Assocs. v. Dianzon, 161 A.D.3d 329 (lst Dept. 1990) ........ .. .6 Bates Advertising USA, Inc. v. 498 Seventh. LLC, 7 N.Y.3d 115 (2006) .............................................................. ..19 BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999) ................................. .. 20 Benderson v. Poss, 142 A.D.2d 937 (4th Dept. 1988) .............................. ..4, 5 Bingham v. New York City Transit Auth., 99 N.Y.2d 355 (2003) .................. .. 9 Cummings Properties. LLC V. National Communications Corg, 449 Mass. 490 (Mass. 2007) ..................................................... ..19 Dart Associates v. Ste-Con Corg, 66 A.D.2d 973 (3d Dept. 1978) ................ ..35 Edwards Andrews Group, Inc. v. Addressing Servs. Co., 2005 U.S. Dist. LEXIS 30125 (S.D.N.Y. 2005) ............................... ..4 European American Bank & Trust Co. v. Boyd, 131 A.D.2d 629 (2d Dept. 1987) ................................................ ..35 Fairfield Lease Corp. v. Marsi Dress Corg, 60 Misc.2d 363 (Civ. Ct., N.Y. County 1969) ..................................................... ..6 Fifty States Management Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573 (1979) ................................................... .. 2-5, 7-8 Frenchtown Square Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 2003 Ohio 3648, 791 N.E.2d 417 (Ohio 2003) ...................... ..29-30 Gannett Suburban Newspapers v. El-Kam Realty Co., 306 A.D.2d 312 (2d Dept. 2003) ................................................. ..8 Garrity v. Lyle Stuart, Inc., '40 N.Y.2d 354 (1976) .................................................... ..21-22, 28 ll Gotlieb v. Taco Bell Corg, 871 F. Supp. 147 (E.D.N.Y. 1994) ................. ..12 Hoag v. McGinnis, 22 Wend 163 (1839) ........................................... ..22 Holy Properties Limited, L.P., 87 N.Y.2d 130 (1995) ................ .. .6, 7, 15, 25 In re Winston Mills, Inc., 6 B.R. 587 (Bankr. S.D.N.Y. 1980) ................... ..13 International Pubs. v. Matchabelli, 260 N.Y. 451 (1933) .................... .. . 4, 6 JMD Holding Corp. v. Congress Financial Corg, 4 N.Y.3d 373 (2005)...10-12, 23 Kabro Associates of Woodbury v. Off-Campus of Woodbury, Inc., 1992 N.Y. Misc. LEXIS 698, 208 N.Y.L.J. 95 (App. Term, 9th and 10th Jud. Districts 1992) ................................. ..24 Licini v. Graceland Florist, Inc., 32 A.D.3d 825 (2d Dept. 2006) ............. ..33, 34 Matter of Hunter, 4 N.Y.3d 260 (2005) ........................................... ..32, 33 New 24 West 40*“ Street LLC v. XE Capital Management, LLC, 104 A.D.3d 513 (1S‘Dep1. 2013) ........................................ ..14-15,25 NPS, LLC v. Minihane, 451 Mass. 417 (Mass. 2008) ............................ ..19, 30 Olim Realty Corp. v. Big John’s Moving, Inc., 250 A.D.2d 744 (2d Dept. 1998) ................................................................. ..7-8 Parsons & Whittemore. Inc. v. 405 Lexington L.L.C., 299 A.D.2d 156 (lst Dept. 2002) .............................................. .. 7 Rand v. Conklin, 1994 N.Y. Misc. LEXIS 714, 211 N.Y.L.J. 5 (App. Term, 9* and 10“ Jud. Districts 1994) ............. .. 24 Ring v. Printmaking Workshop, Inc., 70 A.D.3d 480 (lst Dept. 2010) ............. .. 6 Ross Realty v. V&A Iron Fabricators, Inc., 5 Misc.3d 72 (App. Term, 2d Dept. 2004) ..................................................... ..24 111 Ross Realty v. V & A Fabricators, Inc., 42 A.D.3d 246 (2d Dept. 2007) .... ..33-34 Rye v. Public Serv. Mut. Ins. Co., 34 N.Y.2d 470 (1974) ......................... ..22 Schneiker v. Gordon, 732 P.2d 603 (Colo. 1987) ................................... ..26 Silberstein v. Begun, 232 N.Y. 319 (1921) ........................................... ..34 Silver V. Brody, 1993 N.Y. MISC. LEXIS 640, 209 N.Y.L..I. 77 (App. Term, 9th and 10th Jud. Districts 1993) ........................................ ..24 Slemish Corp, S.A. v. Morgenthau, 63 A.D.3d 418 (1S‘ Dept. 2009) ................................................. ..21 Stats, LLC v. Elevation, Inc., 2008 NY Slip Op 32449U, 2008 N.Y. Misc. LEXIS 9622 (Sup. Ct., N.Y. County 2008) ............... .. 6 Tenber Associates v. Bloomberg L.P., 51 A.D.3d 573 (1st Dept. 2008) .......... ..19 The Gallery at Fulton Street, LLC V. Wendnew LLC, 30 A.D.3d 221 (lst Dept. 2006) ................................................. ..6 Truck-Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420 (1977) ................................................. ..4, 15-19, 22 Vanguard Commercial Leasing Corp. v. Dayanzadeh, 147 A.D.2d 557 (261 Dept. 1989) ................................................. ..6 XCO International Inc. v. Pacific Scientific Co., 369 F.3d 998 (7“‘ cit. 2004) ...................................................... .21 STATUTES New York Civ. Ct. Act §204 ............................................................ ..33 1V OTHER AUTHORITIES Dawn R. Barker, Commercial Landlords’ Duty upon Tenants’ Abandonment — To Mitigate?, 20 Iowa J . Corp. L. 627 (Summer 1995) ................................................................... ..29 Jeremy K. Brown, Comment: A Landlord’s Duty to Mitigate in Arkansas: What it Was, What it is. and What it Should Be, 55 Ark. L. Rev. 123 (2002) ................................................. ..30-31 Saraj ane Love, Landlord’s Remedies When the Tenant Abandons: Property, Contract and Leases, 30 U. Kan. L. Rev. 533 (1981-2) ................. ..26, 29 Note, Why There Should be a Duty to Mitigate Liquidated Damages Clauses, 38 Hofstra L. Rev. 285 (2009) ........................................... .. 26, 30 Robert E. Parella, Survey: Real Property, 49 Syracuse L. Rev. 703 (1999) .................................................. ..5 Restatement (Second) of Contracts § 350 (1981) ................................... .. 22 Restatement (Second) of Property (Landlord Tenant) §12.1 comment k......... .. 13 David C. Skinner, Gambling With Remedies: Rent Acceleration and Mitigation OfDamages In Alabama, 45 Ala. L. Rev. 275 (1993) ............ ..3, 13, 26, 31 V COURT OF APPEALS STATE OF NEW YORK ___________________________________________________________X 172 VAN DUZER REALTY CORP., Plaintiff-Respondent, -against — GLOBE ALUMNI STUDENT ASSISTANCE ASSOCIATION, INC. and GLOBE INSTITUTE OF TECHNOLOGY, INC., Defendants-Appellants. _____________________________________________________________X REPLY BRIEF PRELIMINARY STATEMENT This Reply Brief is respectfully submitted on behalf of Defendants- Appellants Globe Alumni Student Assistance Association, Inc. (“the Association”) and Globe Institute of Technology, Inc. (“Globe”), in response to the Brief submitted by Plaintiff-Respondent, and in further support of Appellants’ appeal from the Order of the Appellate Division which affirmed the Order of Supreme Court, New York County granting plaintiff summary judgment on liability, and further affirmed the Judgment awarding plaintiff the amount of$l,488,604.66 (R5-R9; R16—R36).l ‘Numbers in parentheses preceded by the letter “R” refer to pages of the Record on Appeal. POINT I THIS COURT SHOULD APPLY FIFTYSTA TES AND HOLD THAT THE ACCELERATION CLAUSE IS UNENFORCEABLE BECAUSE PLAINTIFF TERMINATED THE LEASE AND OBTAINED A WARRANT OF EVICTION. Plaintiff argues that a ruling by this Court in favor ofAppellants would require this Court to “make radical changes to New York’s well- settled law of liquidated damages” (Resp. Br., p. 1). Plaintiff is simply wrong. This Court need make no “radical change” to New York law to find in favor ofAppellants here — all this Court need do is follow its own well- reasoned precedent in Fifty States Management Corp. v. Pioneer Auto Parks, In§_., 46 N.Y.2d 573 (1979) (“Fifty States”). As noted in the Main Brief, pursuant to Fifty States, the acceleration clause here is unenforceable, because plaintiff terminated the lease and obtained a judgment of possession and a warrant of eviction (R43-R44; R77-R78). In Fifty States, this Court repeatedly stated that, as a condition to the landlord’s enforcement of an acceleration clause, the tenant must be in possession of the premises or must be entitled to possession of the demised premises upon payment of the rent reserved for the balance of the lease term (see, e.g., 46 N.Y.2d at 575 [“As the tenant is entitled to possession of the demised premises upon payment of the rent reserved for the balance of the 2 lease term. . .the agreement of the parties must be enforced in accordance with its terms”]; 46 N.Y.2d at 578 [the acceleration clause constituted a “contractual option to receive the rental payments reserved for the remainder of the lease as a condition of defendant’s continued occupancy” (emphasis added)]; 46 N.Y.2d at 578 [enforcement of the acceleration clause “presumes. . .that the tenant would be entitled to possession upon payment” (citations omitted)]). This Court observed in Fifty States that an acceleration clause is a bargained-for contractual device by which the landlord is afforded the option, upon the tenant’s default in making rental payments, to receive the rental payments reserved for the remainder of the lease term “as a condition of defendant’s continued occupancy” (46 N.Y.2d 573 at 578; emphasis added). A so—called “rent acceleration clause” which, as here, purports to become applicable when the lease is terminated and the tenant is evicted, yet permits the landlord to obtain immediate payment of the entire balance of the rent for the remainder of the lease, is not a true rent acceleration clause within the purview of this Cou1t’s decision in Fifi States, but is rather an over-reaching penalty which should not be enforced. See, e.g., David C. Skinner, Gambling with Remedies: Rent Acceleration and Mitigation of Damages in Alabama, 45 Ala. L. Rev. 275, 276-280 (1993); see also, 3 Benderson v. Poss, 142 A.D.2d 937 (4th Dept. 1988) (plaintiffs election to terminate the lease upon defendant’s default resulted in forfeiture of plaintiff‘ s right to accelerated future rents); Edward Andrews Group, Inc. v. Addressing Servs. Co., 2005 U.S. Dist. LEXIS 30125, *21—22 (S.D.N.Y. 2005) (in lease disputes, a court will deem an acceleration clause to be a penalty where the breaching tenant must both tender the balance of rent installments and vacate the premises for the remainder of the lease term; in such cases, the tenant would unfairly have to pay for a space it will no longer occupy).2 Plaintiff tries to divert this Court from the plain holding ofFfi E, by burying discussion of that case in the back of its brief. But plaintiff cannot evade the plain import of this Court’s holding in Fifty States — a rent acceleration clause should not be enforced where, as here, the landlord has terminated the lease and the tenant is no longer in possession of the premises. 2 Plaintiff completely mischaracterizes Benderson, gpla, by asserting that “the Appellate Division refused to enforce an acceleration clause on the grounds that the parties could not contract for tenant’s liability post-termination” (Resp. Br., p. 31). That is not at all what Benderson states. While the Appellate Division recognized that that “a landlord and tenant may contract for the tenant’s continued liability after the termination of the landlord-tenant relationship” (142 A.D.2d at 938, citing International Publs. v. Matchabelli, 260 N.Y. 451, 453 [1 933]), it would not enforce the accelerated rent clause at issue because as a liquidated damages clause it was “grossly disproportionate to the probable loss”, citing Truck Rent-A-Center, Inc. v. Puritan Farms 2"d, Inc., 41 N.Y.2d 420, 425 (1977). The Court further held, consistent with Fifty States, that the accelerated rent clause would not be enforced because the defendant tenant was locked out of the leased premises and the lease terminated (142 A.D.2d at 938). 4 Plaintiff attempts to distinguish Fifty States upon the ground that in that case, the tenant had defaulted on the rent but the lease purportedly was not terminated and the tenant remained in possession. To the contrary, this Court made clear in Fif_ty States that enforcement of an acceleration clause “works no forfeiture” only where “the sum reserved for liquidated damages is no greater than the amount the tenant would have paid had it fully performed and that the tenant would be entitled to possession upon payment” (46 N.Y.2d at 578; citations omitted). Here, not only is the accelerated rent clause disproportionate to plaintiff’ s probable loss (see Point II irfiit), defendants would not be entitled to possession upon payment as plaintiff obtained a warrant of eviction. Fifty States has been consistently interpreted by legal commentators and the judiciary as requiring that the tenant remain in possession as a condition to enforcement of an acceleration clause. As noted by Professor Robert E. Parella of St. John’s University School of Law, in Fifty States, “[T]he tenant remained in possession and the Court built that fact into its holding.” Parella, Survey: Real Property, 49 Syracuse L. Rev. 703, 710 (1999). Professor Parella observes that “if rent acceleration clauses are to be enforced at all, their enforcement should be limited to cases in which the tenant remains in possession.” Ibid., at p. 711. See also, Benderson v. Poss, 5 supra, 142 A.D.2d 937; STATS, LLC v. Elevation, Inc., 2008 NY Slip Op 32449U, 2008 N.Y. Misc. LEXIS 9622 (Sup. Ct., N.Y. County 2008).3 While plaintiff agrees that “there is no liability for rent after lease termination”, it argues that a lease provision providing for a tenant’s liability for damages after termination of the lease will be enforced, citing, among others, Holy Properties Limited, L.P. v. Kenneth Cole Productions, Inc., 87 N.Y.2d 130 (1995); International Publications, Inc. v. Matchabelli, 260 N.Y. 451 (1933); Ring v. Printmaking Workshop, Inc., 70 A.D.3d 80 (lst Dept. 2010); The Gallery at Fulton Street, LLC v. Wendnew LLC, 30 A.D.3d 221 (lst Dept. 2006); and 186-90 Joralemon Associates v. Dianzon, 161 A.D.2d 329 (lst Dept. 1990) (Resp. Br., pp. 27-28). Plaintiff’ s reliance upon those cases is misplaced. Those cases, which do not involve enforcement of an acceleration clause, concern the landlord’s right to sue for recovery of rent deficiencies as they accrue pursuant to a survival clause in the lease, not any 3 Vanguard Cormnercial Leasing Corp_., 147 A.D.2d 557 (2d Dept. 1989); Fairfield Lease Corp. v. Marsi Dress Corp_., 60 Misc.2d 363 (Civ. Ct., N.Y. County 1969); and STATS, LLC v. Elevation, Inc., supra, 2008 N.Y. Misc. LEXIS 9622, cited in the Main Brief, hold, consistent with Fifty States, that a plaintiff may not terminate a lease and repossess the property while demanding all unearned, future fees or rents. While plaintiff attempts to disparage these cases by calling them “evolutionary ‘dead-ends’” (Resp. Br., p. 34), plaintiff does not claim that these cases were reversed, vacated, or overruled, or that they were ever criticized or questioned by this Court. 6 alleged right to accelerate damages so as to demand immediate payment of several firture years’ worth of rental payments.4 Olim Realty Corp. v. Big John’s Moving, Inc., 250 A.D.2d 744 (2d Dept. 1998), also cited by plaintiffi is, quite simply, incorrectly decided, as discussed in pp. 19-20 of the Main Brief. Among other frailties, Qlim cites to Holy Properties, supra, 87 N.Y.2d 130 as purported authority for its holding that an acceleration clause may be enforced despite the fact that the landlord locked the tenant out of the premises. As noted gpprg, Hily Properties did not involve an acceleration clause. This Court in Fifty States 4 Parsons & Whittemore, Inc. v. 405 Lexington L.L.C., 299 A.D.2d 156 (lst Dept. 2002), also cited by plaintiff, is similarly inapposite, as that case involves a tenant which held over after the expiration of the lease. Contrary to plaintiffs assertion, defendants at no time raised the “semantic” argument that the accelerated rent clause cannot be enforced because a tenant cannot be held liable for “rent” after lease tennination (Resp. Br., pp. 26-30; see also p. 9). Defendants merely pointed out that, because the lease was terminated and plaintiff repossessed the property, plaintiffs claim was in the nature of contract damages, not rent (Main Br., pp. 16-18, 25). Defendants further pointed out that pursuant to Fifty States and other authorities, plaintiffs demand for accelerated rent after termination and repossession of the property should be barred, whether the accelerated rent is characterized as “rent” or contract-based “damages” (Main Br., pp. 13-14, 17). 7 indicated that a tenant’s right ofpossession is necessary for application of an acceleration clause.5 Accordingly, this Court should reverse and vacate the Order of the Appellate Division which held that the acceleration clause is enforceable, and the Judgment should be vacated and the Complaint dismissed. POINT II THE ACCELERATION CLAUSE SHOULD NOT BE ENFORCED, AS IT IS DISPROPORTIONATE TO PLAINTIFF’S PROBABLE LOSS AND CONSTITUTES AN IMPERMISSIBLE PENALTY. In arguing that the acceleration clause should be enforced, plaintiff relies heavily upon an argument never raised below. Plaintiffs argument that defendants did not meet their alleged burden ofproving that the accelerated rent provision constitutes a penalty, by demonstrating that at the time of contract execution actual damages were readily ascertainable, or that the damages measure is conspicuously disproportionate to plaintiff’ s probable future losses, appears nowhere in the Record on Appeal submitted to this Court. Nor does it appear in the Brief which plaintiff submitted to the 5 Gannett Suburban Newspapers v. El-Kam Realty Co., 306 A.D.2d 312 (2d Dept. 2003), cited by plaintiff at p. 37 of its Brief, simply follows Ln; gpprg for the erroneous proposition that an accelerated rent provision may be enforced even though the defendant is not in possession of the property. As such a conclusion conflicts with Fifty States, neitherM nor Gannett are valid precedent. 8 Appellate Division. It is axiomatic that arguments not raised below will not be considered by this Court (see, e.g., Bingham v. New York City Trans. A_ut1_1,, 99 N.Y.2d 355, 359 [2003]). In any event, plaintiffs failure to raise any argument regarding defendants’ alleged failure to meet their burden ofproof, either at Supreme Court, New York County or at the Appellate Division, shows plaintiffs recognition that the acceleration clause provides for damages which are clearly disproportionate to plaintiff s probable losses. Among other things, plaintiff does not dispute that at the hearing ordered by the trial court to determine plaintiff s damages, the evidence showed that plaintiff had been able to at least partially re-rent the property from termination of the lease in 2008 through the time of the hearing in 2011 (see Main Br., pp. 11, 24; R34- R35). The parties stipulated to the amount to be entered as plaintiffs damages after deduction of the rental income plaintiff received after defendants vacated the premises, an amount lower than plaintiff had originally demanded (Main Br., pp. 11, 24; R16-R17; R44). VVhile plaintiff argues that the Student Dormitory Restrictive Declaration limited its ability to find tenants for the premises after defendants vacated, plaintiff does not dispute defendants’ showing that plaintiff was in fact able to re-rent the property after termination of the lease 9 (see Main Brief, pp. 11, 24). The Judgment for accelerated rent until 2016 is therefore clearly disproportionate to plaintiffs probable loss. Plaintiffs argument that “judicial inquiry into the reasonableness of a liquidated damages measure is restricted to one narrow time period: the period up to contract execution” (Resp. Br., p. 42), is demonstrably wrong, as shown by this Court’s decision in JMD Holding Corp. v. Congress Financial Corp., 4 N.Y.3d 373 (2005), a case heavily relied upon by plaintiff. There, the plaintiff JMD sought to recover $600,000 charged to its loan account by Congress Financial Corp. (“CFC”) for early termination of the parties’ $40 million commercial revolving loan agreement, arguing that the early termination fee was an unenforceable penalty. JMD argued that because, under the agreement, it had the right but not the obligation to take out loans, CFC had no entitlement to liquidated damages in lieu of interest lost in the 13 months between the Agreement’s early termination and the end of the contractual term (Id, at 381). JMD argued that CFC’s hypothetical prospective damages were zero, and therefore the early termination fee did not bear a reasonable proportion to the probable loss from the Agreement’s breach and early termination (151,). This Court disagreed and found that the liquidated damages clause was not an unenforceable penalty. The Court noted that JMD had not 10 provided any proof to show that the early termination fee was grossly disproportionate to the probable loss, i.e., JMD had proffered no proof to show that it was more likely that JMD intended to borrow amounts closer to nothing than to $40 million (_I[_cl., at 382, 385). This Court, however, observed that the result might have been different had JMD presented “evidence of the sums it actually borrowed from [CFC] before the Agreement was terminated and, more relevantly, whether or how much money it may have borrowed elsewhere for working capital in the 13 months between the Agreement’s early termination and the end of the contractual term. A wide disparity between the early termination fee and the interest that [CFC] earned or would have earned on these sums might support an inference that the estimate ofharm underlying the liquidation of damages was not reasonable” (4 N.Y.3d at 382, n. 6). Thus, this Court made clear in JMD that it is not only the period up to the contract execution which is relevant in determining the proportionality of the liquidated damages clause, and that evidence concerning events or transactions occurring post-breach may also be relevant in determining proportionality of liquidated damages or the lack thereof. Plaintiff distorts JMD by arguing that this Court purportedly held that the party seeking to avoid enforcement of a liquidated damages clause must demonstrate “that at the time of contract execution (a) actual damages were 1 1 ‘readily ascertainable’ or (b) the damages measure was ‘conspicuously disproportionate’ to the non-breaching party’s probable future losses” (Resp. Br., p. 14). Contrary to plaintiff s creative use of syntax and subheadings which appear nowhere in M, that case does not state that the disproportionality of the damages to the probable future losses is to be measured as of the time of contract execution. Rather, this Court held that JMD, as the party seeking to avoid enforcement of the clause, “must demonstrate either that damages flowing from a prospective early termination were readily ascertainable at the time [CFC] and JMD entered into their revolving loan agreement, or that the early termination fee is conspicuously disproportionate to these foreseeable losses” (4 N.Y.3d at 380). The “disproportionality” showing is therefore not limited to the period of contract execution. As discussed $151, M clearly indicates that disproportionality may be shown by evidence of events and transactions which occurred subsequent to the execution of the agreement (such as the re- renting of the premises by plaintiff here). See also, Gotlieb v. Taco Bell C__g_'g, 871 F. Supp. 147, 155 (E.D.N.Y. 1994) (liquidated damages clause for future rents was grossly disproportionate to plaintiffs’ probable loss, as plaintiffs were negotiating a new lease of the property at a higher rent than that contracted with the defendant). 12 What is more, plaintiff is utterly silent in response to defendants’ observation that the acceleration clause grants plaintiff a windfall, because the landlord’s purported right to immediate possession of all future rents ignores the time value ofmoney and is therefore disproportionate to what plaintiff would have obtained had defendants fully performed under the lease. See, e.g., , supra, 45 Ala. L. Rev. at 278 (“[R]ecovery under an acceleration provision is a payment in the present of that which is not due until the future. As such, this accelerated recovery represents a windfall which many argue the landlord does not deserve in any event” [footnotes omitted]). Nor does plaintiff have any response to defendants’ observation that, having terminated the lease, obtained possession of the property and having no contractual duty to mitigate, the landlord can “double-dip” by renting out the property at will to others, without having to make any accounting to defendants for the rent obtained (see Main Brief, p. 23). Plaintiff fails to address defendants’ argument in the Main Brief that Restatement (Second) of Property (Landlord Tenant) §12.1 comment k (1977) indicates that an acceleration provision without a discount for the present value ofmoney may be unconscionable. Nor does plaintiff address the case law cited by defendants which so holds (see Main Brief, pp. 26-27). For example, the Court in In re Winston Mills, Inc., 6 B.R. 587 (Bankr. 13 S.D.N.Y. 1980), held that the creditor’s claim for accelerated payment of rent pursuant to a lease had to be discounted to present value, and observed as follows: “A reduction of an award to present value is necessitated by the fact that money presently in hand is always more useful than staggered payments in the future. To allow a full recovery would, in effect, overcompensate the claimants by the interest earning power of the money in their hands now.” I_d. at 599-600 (citation omitted). Thus, plaintiff s argument that defendants purportedly “failed to demonstrate how damages in an amount no more than the amount of rental payments owing for the balance of the Lease term would be disproportionate to the probable loss that would result if the Association abandoned the Premises prior to lease expiration” (Resp. Br., p. 21), is clearly erroneous.6 6 Also erroneous is plaintiff s assertion that the argument concerning discount to present-day value appears in the part of Defendant’s Main Brief dealing with mitigation of damages (Point III of Main Brief) (Resp. Br., p. 27). It does not. The argument concerning discount to present-day value appropriately appears in Point II of the Main Brief, which deals with the disproportionality of the acceleration clause to plaintiffs probable loss. Plaintiff s reliance upon New 24 West 40”’ Street LLC v. XE Capital Management, LLC, 104 A.D.3d 513 (1” Dept. 2013) (“New 24”), is misplaced, as that case actually supports defendants’ position that the acceleration clause here is disproportionate to plaintiff s probable loss. In New 24, the Appellate Division held that the liquidated damages clause was not disproportionate to the landlord’s probable loss, because, among other things, a 4% discount rate was applied, and credits would be given to the defendant for rents, if any, received by the landlord upon a successful re-letting of the premises. Here, no such discount was given, nor was there any provision for credit to be given for future re-letting of the property. (footnote continued on next page) 14 Contrary to plaintiff s argument, this Court’s decision in Truck Rent- A-Center, Inc. v. Puritan Farms 2"“, Inc., 41 N.Y.2d 420 (1977), is fully compatible with defendants’ position that the acceleration clause constitutes an impermissible penalty. In Truck Rent-A-Center, the defendant Puritan leased a fleet of milk delivery trucks from plaintiff (41 N.Y.2d at 420-421). Pursuant to the lease, the plaintiff was to supply the trucks and make all necessary repairs (I_d.). The lease provided that if the agreement should terminate prior to the lease’s expiration as a result of the lessee’s breach, the lessor would be entitled to liquidated damages in the amount of one half of all rentals that would have become due had the agreement run its full course (Q). The lease also contained the following clause: “In arriving at said liquidated damages, the parties hereto have considered, among other factors, Lessor’s substantial ...investment in purchasing or reconditioning for Lessee’s service the demised motor vehicles, the uncertainty of Lessor’s ability to re-enter the said vehicles, the costs to Lessor during any period the vehicles may remain idle until re-rented, or if sold, the uncertainty of the sales price and its possible attendant loss. The parties have also considered, among other factors, in so liquidating the said damages, Lessor’s saving Further, in New 24, the defendant’s argument that plaintiff was not entitled to enforce the acceleration clause because defendant was “locked-out” of the premises, was not preserved. Plaintiff makes no such argument of lack of preservation here. Finally, the Appellate Division’s assertion in New 24 that a landlord has no duty to mitigate damages when it seeks to enforce an acceleration clause is premised upon Holy Properties, which did not involve an acceleration clause. 15 When Puritan attempted to terminate the lease, the Lessor commenced an action to After a non-jury trial at which the parties had the opportunity to adduce evidence, the trial court held that the provision for liquidated damages was reasonable and represented a fair estimate of actual damages (Id_. at 423) in expenditures for gasoline, oil and other service items” (I_c_l,). enforce the liquidated damages provision (L1,, at 422-423) The court observed that In affirrning the judgment, the Appellate Division, Second Department “The parties at the time the agreement was entered into, considered many factors affecting damages, namely: the uncertainty of the plaintiff s ability to re-rent the said vehicles; the plaintiff s investment in purchasing and reconditioning the vehicles to suit the defendant’s particular purpose; the number ofman hours not utilized in the non-service of the vehicles in the event of a breach; the uncertainty of reselling the vehicles in question; the uncertainty of the plaintiffs savings or expenditures for gasoline, oil or other service items, and the amount of fluctuating interest on the bank loan.” I_cl. emphasized that “The disputed paragraph for damages was not an unintended boiler-plate provision, but one deliberately inserted for the special circumstances of this transaction. The printed agreement contains several amendments and four typewritten endorsements, evincing a document which has in fact been studied and negotiated. Accordingly, the parties’ intentions should control and the 16 judgment, for the liquidated amount, should be affirmed” (51 A.D.2d 786, 788 [2d Dept. 1976]). In affirming the Appellate Division’s Order, this Court observed that a liquidated damages provision in a lease which requires, in the event of contractual breach, the payment of a sum of money grossly disproportionate to the amount of actual damages provides for a penalty and is unenforceable (41 N.Y.2d at 424). In holding that the liquidated damages clause related reasonably to the amount of probable actual harm and was not a penalty, the Court noted that in negotiating the liquidated damages clause, the parties took into consideration multiple factors, such as the fact that, after being used by the lessee, the vehicles would no longer be shiny new trucks, but would be used, possibly battered trucks Whose value would have declined appreciably (ILL, at 425-426). The parties also considered the fact that after the breach, plaintiffwould have to assume the cost of storing and maintaining the idled trucks (Id_., at 426). This Court further observed that the agreement had been fully negotiated and many provisions of the form had been amended (I_d., at 427). Indeed, a 50% discount was applied to the amount which would have been due had the lease run its course. In Truck-Rent-A-Center, the clause at issue clearly specified that the parties had knowingly entered into the liquidated damages clause after considering and Weighing the risks which might accrue to the Lessor upon 17 the Lessee’s default. In stark contrast, no such specification of the risks and factors considered by the parties appears in comrection with the acceleration clause involved here. The acceleration clause at issue is pure boilerplate, without evidence of any ability to negotiate on the part of the lessee. What is more, in Truck-Rent-A-Center, a trial was conducted on the enforceability of the liquidated damages clause at which the parties were given the opportunity to adduce evidence on the issue ofproportionality. Here, as noted by plaintiff in its brief, defendants requested, but were denied, the opportunity to conduct discovery in order to demonstrate the lack of proportionality of the accelerated rent clause to plaintiff s probable loss (Resp. Br., pp. 9, 22; R114; R122). The trial court, affirmed by the Appellate Division, held that the acceleration clause did not constitute an unenforceable penalty without giving defendants any opportunity to conduct discovery on proportionality, even though plaintiff filed its summary judgment motion before filing a Note of Issue and Certificate of Readiness. Thus, plaintiff s assertion that defendants purportedly failed to adduce evidence regarding disproportionality is not only untrue in light of the undisputed evidence ofplaintiffs re-renting of the property and the failure of the Judgment to discount the monies awarded to present value, it is grossly unfair, as defendants were deprived the opportunity to conduct 18 discovery to provide further proof of disproportionality. Contrary to plaintiff s self-serving assertions at pages 22-23 of its Brief, defendants were by no means afforded “a filll and fair opportunity” to present proof bearing on the issue of disproportionality. Nor would discovery with respect to proportionality be limited to the landlord’s efforts to mitigate damages, as argued by plaintiff. Defendants would also be entitled to conduct discovery with respect to plaintiff s knowledge and belief, at the time of execution of the lease, of the likelihood that it could re-rent the property upon early termination of the lease, including plaintiff s previous experience in renting the property“ Bates Advertising USA, Inc. v. 498 Seventh, LLC, 7 N.Y.3d 115 (2006); Cummings Properties, LLC v. National Communications Corry, 449 Mass. 490 (Mass. 2007); NPS, LLC v. Minihane, 451 Mass. 417 (Mass. 2008); and Tenber Associates v. Bloomberg L.P., 51 A.D.3d 573 (l” Dept. 2008), cited by plaintiff, are inapposite. In those cases, a trial was held 7 Plaintiff argues that instead of presenting proof with respect to disproportionality, defendants purportedly argued that “New York should abandon the case-by case analysis mandated under Truck-Rent-A-Center and instead adopt a rule that liquidated damages are deemed per se disproportionate to the landlord’s loss if there is not also a duty upon the landlord to mitigate damages. App. Br. Point II” (Resp. Br., p. 23). Defendants never argued that this Court should abandon Truck-Rent-A-Center, as shown by Point II of the Main Brief. To the contrary, as shown §p_p_1;a and in the Main Brief, defendants met the standard set forth in Truck-Rent-A-Center for establishing that the accelerated rent clause constitutes a penalty, by presenting proof that the acceleration clause was disproportionate to plaintiff s probable actual loss. 19 during which the parties had the opportunity to submit evidence, presumably obtained during discovery, which bore on the issue of whether the liquidated damages provision was disproportionate to probable actual damages. Further, in each of those cases, the party seeking to avoid enforcement of the clause failed to demonstrate that the clause was conspicuously disproportionate to the landlord’s probable losses. Here, in contrast, defendants were denied critical discovery on that issue. Nevertheless, as discussed §p_pr_a, defendants did in fact show that the acceleration clause was conspicuously disproportionate to plaintiff s probable loss. Instructive is BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999). There, the plaintiff brought a summary judgment motion, seeking to enforce the liquidated damages clause in the contract between the parties. Attempting to show that the liquidated damages clause was proportionate to its probable loss, plaintiff submitted an affidavit from its managing partner which averred that the amount of liquidated damages was tied to a commonly accepted way of valuing a client account of a professional services firm as an asset (93 N.Y.2d at 396). This Court, however, held that the averment in the affidavit “by no means conclusively demonstrates the absence of gross disproportionality” (IQ, at 397). The non-specific averment in the affidavit was the only record evidence supporting the 20 reasonableness of the liquidated damages clause. _Igl_. As the record was insufficiently developed to establish that the liquidated damages amount was not so excessive to actual damages as to constitute a penalty, this Court remitted the case for further development of the record. I_d. The same result should apply here, if this Court does not hold that the acceleration clause is unenforceable outright on the grounds that plaintiff terminated the lease and obtained a warrant of eviction, or that it is disproportionate to plaintiff s probable actual damages. See also, Slemish Corp., S.A. v. Morgenthau, 63 A.D.3d 418 (l” Dept. 2009) (affirming denial ofplaintiffs’ motion for summary judgment; summary judgment was inappropriate at pre-discovery juncture where plaintiffs appeared to have exclusive possession of many of the relevant facts, citing CPLR 32l2[fj). Relying primarily upon a Seventh Circuit case, XCO International Inc. v. Pacific Scientific Co., 369 F.3d 998 (7”’ Cir. 2004), plaintiff repeatedly trumpets that “freedom of contract” demands that “the entire concept of a prohibition against penalties” should be deemed an “anachronism” with respect to liquidated damages clauses (Resp. Br., pp. 15-16, 36, 38, 42-43, 51). Plaintiff would thereby have this Court uproot and nullify its long-established position that the “freedom to contract does not embrace the freedom to punish, even by contract.” Garrity v. Lyle 21 , 40 N.Y.2d 354, 360 (1976). This Court has refused to enforceStuart Inc contract provisions where they constitute a penalty (see, e.g., Hoag v. McGinnis, 22 Wend 163, 166 [I839]; Rye v. Public Serv. Mut. Ins. Co., 34 N.Y.2d 470 [1974]). The Restatement of the Law, Second, Contracts §356 (American Law Institute 1981) also states that parties to a contract are not free to provide for a penalty for its breach. This Court instructed in Truck-Rent-A-Center, supra that liquidated damages provisions “will not be enforced if it is against public policy to do so and public policy is firmly set against the imposition ofpenalties or forfeitures for which there is no statutory authority. It is plain that a provision which requires, in the event of contractual breach, the payment of a sum of money grossly disproportionate to the amount of actual damages provides for penalty and is unenforceable. A liquidated damage provision has its basis in the principle ofjust compensation for loss. A clause which provides for an amount plainly disproportionate to real damage is not intended to provide fair compensation but to secure performance by the compulsion of the very disproportion. . ..If. .. the amount fixed is plainly or grossly disproportionate to the probable loss, the provision calls for a penalty and will not be enforced.” (citations omitted; 41 N.Y.2d at 424- 425). This Court further noted in Truck-Rent-A-Center that “As was stated eloquently long ago, to permit parties, in their unbridled discretion, to utilize 22 penalties as damages, ‘would lead to the most terrible oppression in pecuniary dealings’. Hoag v McGinnis, 22 Wend 163, 166; see also, Matter of Associated Gen. C0nlrs., N.Y. State Ch. [Savin Bros.], 36 NY2d 957, 961-962 [dissenting opn].)” (41 N.Y.2d at 424-425). This Court in JMD similarly made clear that liquidated damages clauses will not be enforced where they disregard the principle ofjust compensation (4 N.Y.3d at 380-381). As the evidence shows that the acceleration clause here is plainly disproportionate to plaintiff s probable loss and violates the principle ofjust compensation, the Order of the Appellate Division which affirmed the Judgment should be reversed and vacated, the Judgment should be vacated, and the Complaint dismissed. POINT III THIS COURT SHOULD HOLD THAT A RENT ACCELERATION CLAUSE IS UNENFORCEABLE WHERE THERE IS NO DUTY TO MITIGATE. Plaintiff warns of the “chaos that would ensue if the people of this State were to awaken tomorrow and find out that commercial landlords are now required to demonstrate that they attempted to mitigate their damages” as a condition to enforcement of a rent acceleration clause (Resp. Br., p. 44). Plaintiff asserts that defendants “request a change in the law so extreme that it is irresponsible”, by purportedly requesting this Court to “reverse centuries 23 of the law of leases and liquidated damages” by requiring landlords to attempt to mitigate when they seek to enforce rent acceleration clauses (Resp. Br., p. 52). Plaintiff s argument depends on a gross distortion of defendants’ argument, as well as ofNew York law. Defendants need not require that all commercial landlords be required to mitigate damages, but rather that the confluence of an acceleration clause and the absence of a duty to mitigate creates a violation ofpublic policy. Contrary to plaintiffs argument, it would not be a rude shock to the residents ofNew York State should this Court hold that landlords have a duty to mitigate damages where acceleration clauses are sought to be enforced, as several New York courts have held that an acceleration clause in a commercial lease will not be enforced where the lease does not require the landlord to mitigate damages, as such an acceleration clause would constitute an unenforceable penalty. See, e.g., Ross Realty v. V&A Iron Fabricators, Inc., 5 Misc.3d 72, 787 N.Y.S.2d 602 (App. Term, 2d Dept. 2004); Rand v. Conklin, 1994 N.Y. Misc. LEXIS 714, 211 N.Y.L.J. 5 (App. Term, 9“ and 10*“ Jud. Districts 1994); Silver v. Brody, 1993 N.Y. Misc. LEXIS 640, 209 N.Y.L.J. 77 (App. Term, 9”’ and 10”’ Jud. Districts 1993); Kabro Associates of Woodbury v. 24 Off-Campus of Woodbury, Inc., 1992 N.Y. Misc. LEXIS 698, 208 N.Y.L.J. 95 (App. Term, 9“‘ and 10"‘ Jud. Districts 1992). Research has revealed no case from this Court which holds that there is no duty to mitigate where an accelerated rent clause or liquidated damages clause is involved. As noted supra, Holy Properties did not concern an acceleration clause. Nothing in Holy Properties states that there is no duty on the part of a commercial landlord to mitigate damages when an acceleration clause is sought to be enforced. The cases cited by plaintiff for the proposition that there is no duty to mitigate damages where there is a liquidated damages clause (Resp. Br., pp. 38-39), provide no discernible rationale for that holding, and point to no precedent from this Court which so states. Further, none of those cases involve rent acceleration clauses.” In the Main Brief, defendants cited to numerous law review articles and other authority which agree that imposing a duty to mitigate upon a commercial landlord seeking to enforce a rent acceleration clause serves 8 At page 37 of its Brief, plaintiff refers to a handful ofAppellate Division cases which purportedly rejected a duty to mitigate upon landlords who seek to enforce an acceleration clause. None of those cases made any such statement or holding. In New 24 West 40”’ Street LLC v. XE Capital Management, LLC, supra, 104 A.D.3d 513, also cited by plaintiff, the Appellate Division’s assertion that a cormnercial landlord has no duty to mitigate damages when it seeks to enforce an acceleration clause is premised upon Holy Properties, which did not involve an acceleration clause. 25 important policy interests of avoiding economic waste, preventing penalization of the breaching party by requiring payment greater than that which is required for compensation, and preventing the non-breaching party from obtaining windfall or double profits. See Skinner, supra, Gambling with Remedies: Rent Acceleration and Mitigation of Damages in Alabama, 45 Ala. L. Rev. 275; Professor Sarajane Love, Landlord’s Remedies \lVhen Tenant Abandons: Property, Contract, and Leases, 30 U. Kan. L. Rev. 533, 556 (1981-2); Note, Why There Should be a Duty to Mitigate Liquidated Damages Clauses, 38 Hofstra L. Rev. 285, 295- 317 (2009). As the Court noted in Schneiker v. Gordon, 732 P.2d 603, 610 (Colo. 1987): “[I]t is generally in the interests of society that property be put to practical use so far as is economically feasible. Usually, no economic value is obtained from property if a landlord allows it to remain idle. At the same time, the possibility ofphysical damage to the property through accident or vandalism is increased. The rules for awarding damages in the context of abandonment and breach by the tenant should discourage, rather than encourage, economical and physical waste” [citations omitted]).9 9 Plaintiff argues, wrongly, that defendants invoke “various foreign judicial decisions and law journal articles that are inconsistent with each other” and that defendants are “asking that the Court do an unspecified ‘something’ to relieve them of liability” (Resp. Br., p. 1). However, plaintiffs do not identify any inconsistency whatsoever in the numerous law journal articles and judicial decisions cited in defendants’ Main Brief which show that the acceleration provision should be deemed 26 In contrast, plaintiff cites to not a single legal or other authority to support its argument that permitting a commercial landlord to terminate the lease and sit back and demand accelerated rents, without requiring the landlord to attempt to mitigate damages, serves the public policy ofNew York State (see Resp. Br., pp. 51-52). Apparently, plaintiff could not find a single law review article or other New York legal authority which opines that an acceleration clause which is triggered upon termination of the lease and eviction of the tenant, and which does not require the landlord to attempt to mitigate, serves salutary social purposes. Plaintiff s argument at pages 51 and 52 of its Brief constitute the mere “say-so” of its counsel, with no legal or economic basis for any of the bald assertions made therein. There is not a scintilla of authority underlying plaintiff s bald allegations that requiring a landlord to attempt to mitigate damages when seeking to enforce an acceleration clause “could result in higher rents” or “refusal to rent property at all” (Resp. Br., p. 51). Nor is there any authority for plaintiff s bare allegation that requiring a landlord to mitigate could result in refirsal to rent to credit risks or tenants without unenforceable, and which support defendants’ request that this Court reverse and vacate the Order of the Appellate Division, vacate the Judgment and dismiss the Complaint. 27 guarantors, or could discourage landlords from agreeing to specialized use of their property (Resp. Br., p. 52).’0 In arguing that the landlord seeking to enforce an acceleration clause should have no duty to mitigate, plaintiff relies primarily upon “freedom of contract” (Resp. Br., pp. 51-52). But as discussed gprp, freedom of contract is not limitless and does not include the right to punish. Garrity v. Lyle Stuart supra, 40 N.Y.2d 354, 360.Inc In admitting that its demand for enforcement of the acceleration clause is in the nature of “contract damages” (Resp. Br., p. 28), plaintiff in effect admits that it wants to have its cake and eat it too. Plaintiff admits that what it is seeking under the acceleration clause is in the nature of contractual damages, yet argues inconsistently that the law of contract, including the duty to mitigate damages, should not be applicable to the transaction. As observed by Professor Dawn Barker Anderson: 1° Plaintiff s counsel again cites to no authority whatsoever to support his argument that “Under Appellants’ proposed system, damages can never be fully liquidated since it will always be necessary to present proof as to what the non-breaching party did or did not do subsequent to breach in order to prove mitigation or failure to mitigate damages” (Resp. Br., p. 41). In any event, defendants are not arguing that this Court should hold that there is a duty to mitigate in every situation where a liquidated damages clause is involved. This Court need not make so broad a holding. Defendants are arguing that, when a landlord seeks to enforce a rent acceleration clause in situations where the lease is terminated and the tenant is no longer in possession, the landlord should, at the least, have a duty to attempt to mitigate damages. 28 “[B]ecause a modern lease is essentially a contract and because under contract doctrine the nonbreaching party has a duty to mitigate damages, the modern commercial lessor should have a duty to mitigate damages when a tenant abandons the leased commercial premises.” (Dawn R. Barker, “Commercial Landlords’ Duty upon Tenants’ Abandomiient — To Mitigate?” 20 Iowa J . Corp. L. 627, 629, 643-644 [Summer 1995]; citations and footnotes omitted). As further observed by Professor Saraj ane Love: “The property remedy that permits the landlord to stand by and do nothing, suing for the full rent as or after it accrues, has no counterpart in contract law. Indeed, it is anomalous in the entire remedies field. Nowhere else is an injured party allowed to recover for harm suffered if he could have taken reasonable steps to prevent such harm. The avoidable consequences rule, often referred to as the duty to mitigate damages, has been steadily making inroads on the landlord’s remedial options.” Love, supra, Landlord’s Remedies When Tenant Abandons: Property, Contract, and Leases, 30 U. Kan. L. Rev. at 533, 550; footnotes omitted). Plaintiff does not dispute that the modern trend is eroding the common-law approach of treating leases strictly as conveyances of real property, and towards imposing a duty to mitigate upon both commercial and residential lessors (see Frenchtown Square Partnership v. Lemstone Inc , 99 Ohio St.3d 254, 257, 2003 Ohio 3648, 791 N.E.2d 417 [Ohio 2003] citing numerous cases). While plaintiff notes that some states such as 29 California and Illinois have imposed such a duty by statute (Resp. Br., p. 53), the majority of the states that have imposed a duty to mitigate have done so judicially, applying contract principles among other reasons (see cases cited in Frenchtown, &,r&1).” Plaintiffs argument that sophisticated corporate entities should be held to their agreements ignores the fact that not all commercial leases involve large or “sophisticated” corporations. Family-owned businesses such as Globe, “mom—and-pop” stores and local businesspersons must also enter into commercial leases. See generally, Jeremy K. Brown, Comment: A " Plaintiff quotes from NPS LLC v. Minihane, 451 Mass. 417, 886 N.E.2d 670 (Mass. 2008) (Resp. Br., p. 46), which held that mitigation is irrelevant in the case of a liquidated damages provision. However, in ILS, both parties had briefed the issue of mitigation on the assumption that there was such a duty. See Note, Why There Should be a Duty to Mitigate Liquidated Damages Clauses, supra, 38 Hofstra L. Rev. at 285. The Massachusetts Supreme Judicial Court nevertheless “held” that there was no duty to mitigate damages in the face of a liquidated damages clause, stating that it would simply “follow the rule in many other jurisdictions” (886 N.E.2d 675). As observed in the law review article noted gprgl, the ruling in Nfi is unfortunate in that “[A]s the duty to mitigate in the face of a liquidated damages clause was not argued or briefed by the parties, the court was not attuned to the repercussions and complications of issuing such a broad holding, nor the great injustice the holding would cause to the traditional understanding of mitigation doctrine. Rather, the court simply ’follow[ed] the rule in many other jurisdictions.’ As a result, the categorical rule dispensing with the duty to mitigate in the face of a liquidated damages clause is faulty and underdeveloped in light of the policies underlying the mitigation doctrine. These polices include promoting efficiency, avoiding double profits, and avoiding penalty to the defendant.” Note, Why There Should be a Duty to Mitigate Liquidated Damages Clauses, supra, 38 Hofstra L. Rev. at 286; footnotes omitted. 30 Landlord’s Duty to Mitigate in Arkansas: What it Was, What it is, and What it Should Be, 55 Ark. L. Rev. 123, 129 (2002). Plaintiff has no response to defendants’ observation that to force a struggling business which has defaulted on its rent to immediately pay the balance of the rent due under the entire term of the lease, while that tenant has been dispossessed from the building and the landlord claims it has no duty to mitigate, will in many cases simply result in forcing that business into bankruptcy, or at a minimum, the premises will be permitted to remain idle while draining funds from the evicted tenant. As noted by , supra, “Of course, few tenants have the means to pay the balance of a long term lease in a lump sum. The more likely result is that the tenant will default.” (Skimier, supra at 281). It is respectfully submitted that forced defaults and bankruptcies, combined with vacant and idled properties, serve no salutary public policy ofNew York State. This Court should accordingly reverse and vacate the Appellate Division’s Order, vacate the Judgment and dismiss the Complaint, or in the alternative, the case should be remanded with the instruction that defendants have the right to conduct discovery to show disproportionality and the ability ofplaintiff to mitigate damages. 3 1 POINT IV PLAINTIFF’S CLAIMS ARE BARRED BY RES JUDICATA. A. Plaintiff Does Not Dispute that Its Claim For Past Due Rent Is Barred by Res Judicata. Plaintiff does not dispute that its claim for past due rent is barred by the doctrine of res judicata, in light of the fact that the issue of past due rent was raised and determined in the Civil Court proceeding in which plaintiff obtained a judgment of possession and a money judgment of “$0.00” (see Main Brief, pp. 39-40; R77). Plaintiff concedes that the Civil Court had jurisdiction to determine claims for past due rent (see Resp. Br., p. 54). Thus, any claim for unpaid rent is barred by res judicata (see, e.g., Matter of , 4 N.Y.3d 260, 269 [2005]). Plaintiffs arguments to this Court are focused solely on its claim for post-lease termination contract damages (Resp. Br., p. 54). As plaintiff does not dispute that its claim for past rent due is barred by res judicata, the Appellate Division clearly erred in failing to vacate the Judgment insofar as it includes amounts for past due rent, and that part of the Judgment which reflects amounts for past rent due must be vacated. 32 B. Plaintiffs Claim for Accelerated Rent is Also Barred by Res Judicata. Plaintiff does not dispute that the doctrine of res judicata applies not only to claims actually litigated and decided in the prior action, but also to any claims arising out of the same transaction which could have been raised. See, e.g., Matter of Hunter, supra, 4 N.Y.3d 260, 269; Licini v. Graceland Florist, Inc., 32 A.D.3d 825 (2d Dept. 2006) (doctrine of res judicata “operates to preclude the renewal of issues actually litigated and resolved in a prior proceeding as well as claims for different relief which arise out of the same factual grouping or transaction and which should have or could have been resolved in the prior proceeding” [citation omitted]). Plaintiff has no response to defendants’ observation that plaintiff s failure to press for a money judgment encompassing its claim for liquidated damages does not alter the fact that plaintiff could have done so at the time it requested the warrant of eviction and money damages for past rent due (see Main Brief, p. 42). Plaintiff relies upon Ross Realty v. V & A Fabricators, Inc., 42 A.D.3d 246 (2d Dept. 2007) for the proposition that the Civil Court had no jurisdiction under section 204 of the New York City Civil Court Act to adjudicate plaintiff s claim for accelerated rent. The Second Department in Rpgp held that accelerated rent does not fall within the definition of “rent 33 due” pursuant to the statute conferring jurisdiction. This Court has never so held.” What is more, if accelerated rent does indeed constitute contractual damages rather than rent, as the Court held in Rpg, then plaintiff s failure to mitigate damages warrants reversal (see Point III of Main Brief). In any event, plaintiff s argument ignores the fact that plaintiff itself chose to litigate in a court of limited jurisdiction. The fact that plaintiff originally chose the Civil Court in which to litigate does not give it the right to sue for additional damages later in a different court. See e.g., Silberstein v. Begun, 232 N.Y. 319 (1921) (a party cannot split up an entire cause of action and maintain several actions, each for part of his demand; defendant who obtained a recovery of $1,000 [the jurisdictional limit of the Municipal Court] on his counterclaim for $3,155, could not later bring another action seeking the balance of the counterclaim); Licini v. Graceland Florist, Inc., gpjpp, 32 A.D.3d 825 (the fact that plaintiff had chosen and originally litigated in the Yonkers City Court, which had a jurisdictional limit of $15,000, did not give her the right to sue for additional damages later in the Westchester Supreme Court). 12 Plaintiff asserts that defendants purportedly “admitted that damages following lease termination could not have been awarded in the summary proceeding. R122’ (Resp. Br., p. 10). Page 122 of the Record on Appeal cited by plaintiff states no such thing, and defendants made no such admission. 34 Contrary to plaintiff s assertion, the doctrine of res judicata bars plaintiff s claims against both the Association and Globe. Since a guarantor “stands in the shoes” of the principal, it can avail itself of those defenses available to the principal (see, e.g., European American Bank & Trust Co. v. Boyd, 131 A.D.2d 629 [2d Dept. 1987]; Dart Associates v. Ste-Con Corp, 66 A.D.2d 973 [3d Dept. 1978]). The Civil Court determined that the Association is not liable for plaintiff s claims for unpaid rent under the lease What is more, the issue of whether liquidated damages are recoverable from the Association could have and should have been raised in that prior litigation, and is barred by res judicata. As there is no legal basis for plaintiff to collect damages from the Association, there is no basis for plaintiff to collect under the Guarantee. 35 CONCLUSION For the reasons set forth herein and in the Main Brief, this Court should reverse and vacate the Order of the Appellate Division, First Department entered January 22, 2013, vacate the Judgment entered June 20, 2011, and dismiss the Complaint, or, if such relief is not granted, remand for further proceedings including discovery, together with such other and further relief as this Court deems just and proper in the premises. Dated: June 9, 2014 Respectfully submitted, HERZFELD & RUBIN, P.C. Attorneys for Defendants-Appellants Globe Alumni Student Assistance Association, Inc. and Globe Institute ofTechnology, Inc. 125 Broad Street New York, New York 10004 (212) 471-8514 lbrown@herzfeld-rubin.com //7ee§r£0ttf%3‘ JLINDA M. BROWN DAVID B. HAMM LINDA M. BROWN Of Counsel 36
