Graham Court Owner's Corp., Appellant,v.Kyle Taylor, Respondent.BriefN.Y.January 14, 2015To be Argued by: NATIV WINIARSKY, ESQ. (Time Requested: 30 Minutes) Court of Appeals of the State of New York O GRAHAM COURT OWNER’S CORP., Petitioner-Landlord-Appellant, – against – KYLE TAYLOR, Respondent-Tenant-Respondent. BRIEF FOR PETITIONER-LANDLORD-APPELLANT KUCKER & BRUH, LLP Attorneys for Petitioner-Landlord-Appellant 747 Third Avenue, 12th Floor New York, New York 10017 Tel: (212) 869-5030 Fax: (212) 944-5818 NWiniarsky@KBLLP.com Dated: May 8, 2014 Civil Court, New York County Clerk’s Index No.: L&T 70520/2007 New York County Clerk’s Index No.: 570661/2010 APPELLATE INNOVATIONS (914) 948-2240 8302 Court of Appeals No. 2014-00055 STATEMENT PURSUANT TO CPLR 5531 Court of Appeals of the State of New York O GRAHAM COURT OWNER’S CORP., Petitioner-Landlord-Appellant, – against – KYLE TAYLOR, Respondent-Tenant-Respondent. 1. The New York County Clerk index number of this proceeding is 570661/10. The index number in the Civil Court, New York County is L&T 70520/07. 2. The full names of the original parties to this proceeding are as follows: Petitioner-Landlord-Respondent: Graham Court Owners Corp. Respondent-Tenant-Appellant: Kyle Taylor. 3. The underlying proceeding was commenced in Civil Court, New York, County, Housing Part. 4. The underlying proceeding was commenced on or about May 14, 2007, by Petitioner-Landlord-Respondent ("Petitioner") filing a Notice of Petition and Petition. The answer was filed on or about June 5, 2007. 5. The underlying proceeding was brought by Petitioner with the objective of recovering possession of Respondent-Tenant-Appellant's ("Respondent") apartment. 6. Respondent appeals from an Order of the Supreme Court of the State of New York, Appellate Term, First Department, entered in the Office of the Clerk of New York County on March 1, 2012. Leave to appeal to the Appellate Division, First Department was granted by Order of the Appellate Division Dated August 14, 2012. The grounds for seeking reversal of the Order of the Appellate Term in this appeal are that the court below erred a) in modifying the Order of the Civil Court by deleting the award of attorneys' fees, and effectively determining that in cases of retaliatory eviction or where the proceeding is otherwise shown to have been brought maliciously or to harass the litigant, attorneys' fees are not recoverable either under case law or under Real Property Law §223-b, and b) affirming the trial court's determination that attorneys' fees were and were not recoverable under the lease between the parties and Real Property Law §234. The Appellate Term misapplied and/or misconstrued the lease, the applicable statute, the applicable public policy and legislative history and case law authority, and erroneously characterized and improperly interpreted the lease between the parties. The order of the Civil Court awarding attorneys' fees as damages or compensation for Petitioner's retaliatory proceeding should have been affirmed in all respects except that the Appellate Term should have reversed the Civil Court's Order denying attorneys' fees under Real Property Law §234 determined that attorneys' fees and costs were also recoverable under the lease and Real Property Law §234. 7. The appendix method of appeal is not being used. This appeal is being prosecuted on the filing of a fully reproduced Record on Appeal. NEW YORK STATE COURT OF APPEALS GRAHAM COURT OWNER'S CORP., Court of Appeals No. 2014-00055 KYLE TAYLOR, Petitioner-Landlord-Appellant, -against- Respondent-Tenant-Respondent. New York County Clerk's Index Nos.: 70520/2007 & 57066112010 CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.l(f) of the New York State Court of Appeals, Graham Court Owner's Corp. provides the following disclosure, it has no parents, subsidiaries and/or affiliates and none exists. Dated: May 6, 2014 /'/ / ~i/ .~/] l/· /~ 1/(/ ~ //1 / {/ '· PATRICI<.UNiON, ESQ. KueKER & BRUH, LLP Attorneys for Petitioner-Landlord- Appellant 747 Third Avenue, 12'h Floor New York, New York 10017 Tel: (212) 869-5030 Fax: (212) 944-5818 PMunson@KBLLP .com NWiniarsky@KBLLP.com i TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................................................................... iii JURISDICTION OF THE COURT ........................................................................... 1 STATEMENT OF QUESTIONS RAISED ............................................................... 2 STATEMENT OF FACTS AND PROCEDURAL HISTORY ................................ 3 ARGUMENT: POINT I THE LEASE IN THIS MATTER DOES NOT PROVIDE FOR AN AWARD OF ATTORNEYS’ FEES TO THE PETITIONER AND IT WAS ERROR FOR THE APPELLATE DIVISION TO FIND THAT THE RECIPROCAL PROVISIONS OF REAL PROPERTY LAW § 234 REQUIRED THE AWARD OF ATTORNEYS’ FEES TO THE RESPONDENT ................................................................................... 8 POINT II THE LEASE DOES NOT PROVIDE THAT THE RESPONDENT SHOULD PAY ADDITIONAL RENT TO COVER THE PETITIONER’S LEGAL FEES ............................................... 20 POINT III ACCORDING TO ESTABLISHED PRECEDENT A STATUTE WHICH PROVIDES FOR ATTORNEYS’ FEES IN A MANNER CONTRARY TO THE AMERICAN RULE SHOULD BE STRICTLY CONSTRUED ........................................... 25 ii POINT IV EVEN IF THE RPL § 234 DOES APPLY THE RESPONDENT WOULD NOT BE ENTITLED TO AN AWARD OF ATTORNEYS’ FEES DUE TO HIS SUBSTANTIAL BREACH OF LEASE .......................................................... 32 CONCLUSION ........................................................................................................ 40 iii TABLE OF AUTHORITIES Page Cases: 303 E 37th Sponsors Corp v Goldstein, 29 Misc3d 131A, 918 NYS2d 400 (AT 1st Dept, 2010) .................................. 29 350 East 62nd Street Associates v. Vecilla, 182 Misc2d 68 at 70, 696 N.Y.S.2d 792 (Civ Ct NY, 1999) ............................ 38 433 Sutton Corp v Broder, ___NY3d---___, 2014 NY Slip Op 2218, 2014 N.Y. LEXIS 584 (2014), rev’g 107 AD3d 623, 968 NYS2d 71 (1st Dept, 2013) rev’g 2012 NY Misc LEXIS 6162, 2012 Slip Op 33210(U) ............................................... 34, 38 930 Fifth Corp. v King, 42 NY2d 886, 366 NE2d 875, 397 NYS2d 788 (1977) .................................... 15 Ariel Associates LLC v Brown, NYLJ April 14, 1999, p. 26, c.2 [AT 1st Dept] ................................................ 38 Bunny Realty v Mendez, 180 AD2d 460, 579 NYS2d 952 (1st Dept, 1992) ...................................... 26, 27 Bunny Realty v Miller, 180 AD2d 460, 579 N.Y.S.2d 952 [1992] ........................................................ 30 Casamento v Juaregui, 88 AD3d 345, 929 NYS2d 286 (2nd Dept, 2011) ...................................... 16, 30 Duell v Condon, 647 NY2d 773, 647 NE2d 96, 622 NYS2d 891 (1995) ................................ 9, 25 Eastern Consolidated Properties v Adelaide Realty Corp, 95 NY2d 785, 710 NYS2d 840 (2000) ............................................................. 30 First Avenue Village Corp v Harrison, 17 Misc3d 20, 844 NYS2d 544 (AT 1st Dept, 2007) ....................................... 39 iv Freehold Investments v. Richstone, 4 NY2d 612 (1974) reinstating 72 Misc2d 624 (AT 1st Dept. 1973) .......................................................................................... 37 Gannett Suburban Newspapers v El-Kam Realty Co, 06 AD2d 312, 760 NYS2d 553 (2nd Dept, 2003) ...................................... 29, 30 Giddings v. Waterside Development Co., NYLJ June 30, 1998, p. 26, c. 1 [AT 1st Dept] ................................................ 38 Giddings v Waterside Redevelopment Co., NYLJ, 6/30/98, p 26, col. 1 (AT 1st Dept) ....................................................... 39 Gordon v Eshaghoff, 60 AD3d 807, 876 NYS2d 433 (2nd Dept, 2009) ............................................ 12 Gottlieb v Kenneth D Laub & Co, Inc, 82 NY2d 457, 626 NE2d 29, 605 NYS2d 213 (1993) .................... 19, 26, 27, 28 Graham Court Owners Corp v New York State Division of Housing and Community Renewal, 71 AD3d 515, 899 NYS2d 7 (1st Dept, 2010) .................................................... 4 Haberman v Hawkins, 170 Ad2d 377, 566 NYS2d 279 (1st Dept, 1991) ............................................. 37 Hamilton v Menalon Realty, LLC, 14 Misc 3d 13, 829 NYS2d 400 (AT 2d and 11th Jud Dists, 2006) ................. 30 Holy Props v Cole Prods, 87 NY2d 130, 661 NE2d 694, 637 NS2d 964 (1995) ....................................... 12 Hooper Assoc v AGS Computers, 74 NY2d 487, 548 NE2d 903, 549 NYS2d 365 (2002) .................................... 25 Madison-68 Corp. v Malpass, 65 AD3d 445, 884 NYS2d 401 (1st Dept, 2009) ......................28, 29, 30, 31, 32 v Matter of Stepping Stones Associates v Seymour, 48 AD3d 581, 853 NYS2d 562 (2nd Dept, 2008) ............................................ 39 Mighty Midgets v Centennial Ins. Co., 47 NY2d 12 ....................................................................................................... 19 Nestor v McDowell, 181 NY2d 410, 599 NYS2d 507 ....................................................................... 33 Oxford Towers Co v Wagner, 58 AD3d 422, 872 NYS2d 431 (1st Dept, 2009) ......................28, 29, 30, 31, 32 People v Hobson, 39 NY2d 479 ..................................................................................................... 30 Ram I, LLC v. Stuart, 248 AD2d 255, 668 N.Y.S.2d 888 (1st Dept, 1998) ......................................... 38 Rios v Carrillo, 53 AD3d 111, 861 NYS2d 129 (2nd Dept, 2008) ............................................ 12 Rumiche Corp. v. Eisenreich, 40 NY2d 174 (1976) ......................................................................................... 37 Underhill v Collins, 132 NY 269, 30 NE 576 (1892) ........................................................................ 13 Whitehouse Estates v Post, 173 Misc2d 558, 662 NYS2d 982 (AT 1st Dept, 1997) ................................... 12 vi Rules, Laws and Statutes: 24 NY Jur. 2d, Costs in Civil Actions, § 158 .......................................................... 19 CPLR § 5501 .................................................................................................. 3, 32, 34 CPLR § 5602(b)[2](i)................................................................................................. 1 Labor Law § 198 ...................................................................................................... 19 McKinney’s Cons Laws of NY, Book 1, Statutes § 301 [a] ............................. 19, 27 McKinney’s Cons Laws of NY, Book 1, Statutes § 301 [b] ............................. 20, 27 McKinney’s Cons Laws of NY, section 321, Book 1 ............................................. 27 Real Property Actions and Proceedings Law (RPAPL) § 753[4] ........................... 18 Real Property Law (RPL) § 223(b) .................................................................... 5, 6, 7 Real Property Law (RPL) § 234 ...................................................................... Passim Real Property Law (RPL) § 243 .............................................................................. 20 Rent Stabilization Code (RSC) § 2520.11(r) ............................................................. 3 Rent Stabilization Code (RSC) § 2522.4(a)(1) & (4) ................................................ 3 1 COURT OF APPEALS --------------------------------------------------------------------X GRAHAM COURT OWNERS CORP., APL-2014-00055 Petitioner-Landlord-Appellant, New York Co. Index -against- L&T 70520/07 KYLE TAYLOR, Respondent-Tenant-Respondent. --------------------------------------------------------------------X JURISDICTION OF THE COURT The January 21, 2014 decision and judgment of the Appellate Division for the First Department is a final determination subject to review by this Court. (Record on Appeal [R]: 556-580) The action originated in Civil Court of the City of New York and therefore permission to appeal from the Appellate Division pursuant to CPLR § 5602(b)[2](i) was required. By Order dated March 11, 2014 the Appellate Division granted the Petitioner permission to appeal to this Court. (R: 581) 2 STATEMENT OF QUESTIONS RAISED Question of Law: Whether the Appellate Division erred as a matter of law in interpreting Real Property Law (RPL) § 234 to provide for an award of attorneys’ fees to the Respondent-tenant Kyle Taylor (hereafter Respondent) based upon language in the residential lease executed with the Petitioner-landlord Graham Court Owners Corp. (hereafter Petitioner)? The Appellate Division found that the reciprocal attorneys’ fees provisions of RPL § 234 were triggered by the mitigation clause in the parties’ lease. The clause provides that in the event the Respondent was evicted the Petitioner may relet the apartment for the unexpired term of the lease. The clause further provides that in the event Petitioner does relet, the rent paid by the next tenant would be considered mitigation of the rent still owed by the Respondent, except that such mitigation would be reduced by any expenses incurred by Petitioner, including legal fees, to obtain the Respondent’s eviction. Question of Fact: Whether the Appellate Division erred in finding that the Respondent was the “prevailing party” in the Civil Court action entitled to an award of attorneys’ fees? The Appellate Division in its decision made a finding of fact, not made by either the Civil Court or the Appellate Term, that the Respondent was entitled to an 3 award of attorneys’ fees as the “prevailing party” in the Civil Court action. That finding of fact is subject to review by this Court pursuant to CPLR § 5501. STATEMENT OF FACTS AND PROCEDURAL HISTORY The Respondent originally took occupancy of the subject apartment, located near the intersection of 116th Street and 7th Avenue in Manhattan, pursuant to a residential lease commencing May 15, 2004. (R: 427-428) Prior to the Respondent’s occupancy the apartment had been renovated by the Petitioner. The Petitioner believed that the cost of the renovation was sufficient under the Rent Stabilization Law (RSL) and Code (RSC) to raise the rent above $2,000 per month and therefore remove the apartment from rent regulation.1 Sixteen (16) months after he took occupancy, on October 17, 2005, the Respondent filed a rent overcharge complaint with the DHCR claiming that the cost of the renovations done by Petitioner were insufficient to raise the rent over $2,000 per month. By its determination dated January 17, 2008 the DHCR agreed, reduced the legal rent, and found that the apartment therefore remained subject to 1. Rent Stabilization Code (RSC) § 2522.4(a)(1) & (4) provides that an owner can raise the rent by 1/40th the cost of the renovation. RSC § 2520.11(r) provides that apartment with a legal rent over $2,000 per month is exempt from rent regulation. 4 rent regulation. The Petitioner was unsuccessful in challenging the DHCR’s determination by administrative appeal and in court.2 During the course of the DHCR’s proceeding the Petitioner learned that the Respondent had made illegal and unauthorized alterations in the subject apartment. In an affidavit he submitted to the DHCR the Respondent had admitted that he had installed a new electrical system in the kitchen including new wiring, switches, outlets, a distribution panel, ceiling fixtures, and under counter lighting. (R: 421- 422) By making such alterations without obtaining the Petitioner’s prior written consent the Respondent had violated paragraph 7 of the lease which explicitly prohibited alterations by Respondent.3 The Respondent’s violation of the lease justified the termination of his tenancy. By Notice of Petition Holdover and Petition Holdover dated May 14, 2007, the Petitioner-Appellant (“Petitioner”) commenced the instant proceeding in 2. See, Graham Court Owners Corp v New York State Division of Housing and Community Renewal, NY Co Index No. 108432/08 (NY Co Sup Ct, Hon Lewis Stone, 2008) aff’d 71 AD3d 515, 899 NYS2d 7 (1st Dept, 2010). 3. Paragraph 7 of the lease provides: Alteration. Tenant must obtain Landlord’s prior written consent to install any paneling, flooring, “built in” decorations, partitions, railings, make alterations to or wallpaper the Apartment. Tenant must not change the plumbing, ventilation, air-conditioning, electric or heating systems. (R: 427) 5 Civil Court of the City of New York, seeking possession of the subject premises. (R: 20-22, 23-26) In the Verified Petition the Petitioner asserted, inter alia, that the Respondent had violated the lease by installing “an entire new electrical system in the kitchen, including wiring, switches, outlets, a distribution panel, ceiling fixtures and under counter lighting . . . without the permission of the landlord.” (R: 23-24) The Respondent filed an Answer and Counterclaims dated June 5, 2007. (R: 29-38) As relevant to this Appeal, the Respondent alleged as affirmative defenses (1) that the Petitioner had violated RPL § 223-b by commencing the court proceeding in retaliation for Respondent’s complaint to the DHCR; and (2) that Petitioner had given the Respondent oral consent to make the alterations and therefore should be “estopped from objecting to the alleged work, or recovering possession of the subject apartment on any grounds relating thereto.” (R: 34) As for his counter-claims the Respondent requested (1) compensation for his damages under RPL § 223-b and (2) an award of attorneys’ fees “pursuant to Section 234 of the Real Property Law.” (R: 36) Trial on the matter was held before the Civil Court (Hon Jean T. Schneider) on September 10 and 30, 2009, October 14, 2009, and April 14, 2010. (R: 39-78, 79-276, 277-338, and 481-555) In his testimony the Respondent alleged that he was given oral permission to make alterations in the apartment by the 6 Respondent’s agent (R: 122) on the same day the lease was executed.4 The Respondent submitted no evidence in support of his claim. The Petitioner’s principal, Josh Frankel, testified that no such permission was given. (R: 45-46) On July 26, 2010 the Civil Court issued its decision denying the Petition. The Civil Court found that the Petitioner’s agents “specifically authorized respondent to make all of the alterations he made in his apartment . . . .” Citing RPL § 223-b, the Civil Court also found that “petitioner commenced this proceeding in retaliation for respondent’s successful [DHCR] rent overcharge claim.” The Civil Court awarded the Respondent “attorneys’ fees as part of his damages for retaliatory eviction.” Finally, the Civil Court denied the Respondent’s claim for an award of attorneys’ fees pursuant to RPL § 234 holding that: 4. According to the Respondent’s trial testimony: Q. So as far as you knew you needed written consent to do the electrical work in the apartment but never obtained that written consent correct? A. I never under - - I never read that portion of this lease. You know, I’m not claiming - - I’m not claiming whatever because basically it all happened all within one sitting. The application and the lease. And the - - and the approval to do the work. (R: 153) In its decision the Civil Court did not address the Petitioner’s contention that the parol evidence rule prohibited the Court from entertaining an argument that there was an oral alteration to the lease on the same day it was executed. 7 “Petitioner correctly points out that the attorneys’ fees clause in the lease between these parties is not enforceable under current case law . . . .” (R: 16-19) Both the Petitioner and the Respondent appealed the Civil Court’s decision to the Appellate Term. In its decision dated March 1, 2012 the Appellate Term partially granted the Petitioner’s appeal and wholly denied the Respondent’s cross- appeal. With respect to Respondent’s claim of retaliation, the Appellate Term found that Respondent had failed to provide a “competent showing” that he had “sustained compensable damages as a result of landlord’s unsuccessful prosecution of its possessory claim . . . .” The Appellate Term reversed the Civil Court’s award of attorneys’ fees as “damages” stating that RPL § 223-b “does not meet the requirement that a statute expressly authorize an award of attorneys’ fees.” The Appellate Term affirmed the Civil Court’s finding that the Respondent was not entitled to an award of attorneys’ fees under RPL § 234. (R: 5-7) Thereafter the Appellate Term denied the Respondent’s motion for leave to appeal to the Appellate Division. However, the Appellate Division granted the Respondent’s separate motion for leave made directly to that Court. (R: 9) By decision dated January 21, 2014 the Appellate Division, with two dissents, reversed the decision of the Appellate Term solely with respect to the application of RPL § 234. According to the Appellate Division decision, under 8 RPL § 234, as applied to the parties’ lease, the Respondent was entitled to an award of attorneys’ fees. (R: 556-580) By Order dated March 14, 2014 the Appellate Division granted the Petitioner’s motion for leave to appeal to this Court. (R: 581) ARGUMENT Point I THE LEASE IN THIS MATTER DOES NOT PROVIDE FOR AN AWARD OF ATTORNEYS’ FEES TO THE PETITIONER AND IT WAS ERROR FOR THE APPELLATE DIVISION TO FIND THAT THE RECIPROCAL PROVISIONS OF REAL PROPERTY LAW § 234 REQUIRED THE AWARD OF ATTORNEYS’ FEES TO THE RESPONDENT This appeal concerns the application of Real Property Law (RPL) § 234. That statute provides that the tenant, successful in litigation, is entitled to an award of attorneys’ fees where the lease provides for an award of attorneys’ fees to the landlord “in any action or summary proceeding” or where the tenant was required to pay such fees as additional rent. RPL § 234 provides: Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as 9 the result of the failure of the tenant to perform any covenant or agreement contained in such lease, or that amounts paid by the landlord therefor shall be paid by the tenant as additional rent, there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys’ fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease, and an agreement that such fees and expenses may be recovered as provided by law in an action commenced against the landlord or by way of a counterclaim in any action or summary proceeding commenced by the landlord against the tenant. Any waiver of this section shall be void as against public policy. In previously interpreting RPL § 234 this Court stated: The overriding purpose of Real Property Law § 234 was to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense. The statute thus grants to the tenant the same benefit the lease imposes in favor of the landlord. (emphasis added) See, Duell v Condon, 647 NY2d 773, 647 NE2d 96, 622 NYS2d 891 (1995). In the instant matter, the decision of the Appellate Division does not “level the playing field” or “creat[e] a mutual obligation” between the Petitioner and the Respondent. Because of the particular nature of the lease clause involved, as a result of the decision, the Respondent will always be entitled to an award of attorneys’ fees, if successful in litigation, whereas the Petitioner will never be 10 entitled to such award. As stated by Justice Leland G. DeGrasse in his dissent below, the ruling of the Appellate Division essentially results in “a ‘heads, I win; tails, you still don’t win’ coin toss” in favor of the Respondent (R: 579). As stated above RPL § 234 provides that the tenant is entitled to an award of attorneys’ fees only if the lease provides for such award to the landlord “in any action or summary proceeding” or if the lease provides that such fees can be collected from the tenant as “additional rent.” In this matter the parties’ lease must contain language sufficient to trigger the provisions of RPL § 234. In its decision the Appellate Division, with two dissents, found that paragraph 15 of the lease, and specifically subsection D, contains the necessary language. (R:556-580) The Petitioner strongly disagrees with that finding. Paragraph 15 of the lease, labeled “Tenant’s default”, details the consequences in the event the Respondent violates of the terms of the lease. In the opening paragraphs it lists the circumstances of default and the necessary notice and cure provisions. Of course if there is a cure then no further action is required. Subparagraph D of paragraph 15 only applies if the lease is actually cancelled and the Petitioner recovers possession of the apartment. That clause provides: If this Lease is cancelled, or Landlord takes back the Apartment, the following takes place: 11 (1) Rent and added rent for the unexpired Term is due and payable. (2) Landlord may relet the Apartment and anything in it. The reletting may be for any term. Landlord may, at Tenant’s expense, do any work Landlord reasonably feels needed to put the Apartment in good repair and prepare it for renting. Tenant stays liable and is not released except as provided by law. (3) Any rent received by Landlord for the re-renting shall be used first to pay Landlord’s expenses and second to pay any amounts Tenant owes under the Lease. Landlord’s expenses include the costs of getting possession and re-renting the Apartment, including, but not only reasonable legal fees, brokers fees, cleaning and repairing costs, decorating costs and advertising costs. (R: 428) Clause 15[D](3) is the only clause in the lease which mentions “legal fees” in any manner and it does so solely in the context of potential mitigation which may occur in the event the Petitioner elects to relet the apartment. The clause clearly does not provide that the Petitioner can obtain an award of attorneys’ fees “in any action or summary proceeding.” The clause is only operational after the lease is cancelled and the Respondent has vacated and only as an offset of mitigation if the Petitioner elects to relet the apartment. The purpose and meaning of clause 15[D](3) of the lease can only be understood when it is read in the context of the two clauses proceeding it, 15[D](1) and 15[D](2). 12 Clause 15[D](1) provides that if the lease is cancelled prior to the full term of the lease, the Respondent remains liable for the “[r]ent and added rent for the unexpired Term ….” (R: 428) This clause ensures that if the lease is cancelled the Respondent will remain liable for any rent due for the full term of the lease. Clause 15[D](2) provides that if the lease is cancelled prior to the full term of the lease, the Petitioner “may relet” the subject premises for the unexpired term of the lease. This paragraph states that the Petitioner may but is not required to relet the apartment. (R: 428) Clause 15[D[(2) is in accordance with prevailing law. It is well established that a landlord is not required to relet an apartment to mitigate damages. See, Holy Props v Cole Prods, 87 NY2d 130, 661 NE2d 694, 637 NS2d 964 (1995) [“Once the lease is executed, the lessee’s obligation to pay rent is fixed according to its terms and a landlord is under no obligation or duty to the tenant to relet ….”]; Rios v Carrillo, 53 AD3d 111, 861 NYS2d 129 (2nd Dept, 2008); Gordon v Eshaghoff, 60 AD3d 807, 876 NYS2d 433 (2nd Dept, 2009) [“residential landlord was under no duty to mitigate damages caused by the defendants’ breach of the parties’ lease”]; and Whitehouse Estates v Post, 173 Misc2d 558, 662 NYS2d 982 (AT, 1st Dept, 1997). Thus, under the law and the lease, the Petitioner has no obligation to relet the apartment if the tenant vacates or is evicted prior to the full term of the lease. 13 The Petitioner can elect not to relet and instead collect the full rent due from the Respondent. If the Petitioner does elect to relet under clause 15[D](2), the mitigation benefits of clause 15[D](3) come into play. That clause provides that if the Petitioner elects to relet then some of the rent the Respondent still owed, under clause 15[D](1), would be considered offset or mitigated by rent paid by the next tenant. As Justice DeGrasse stated in his dissent below, clause 15[D](3) does not allow the Petitioner to recover an award of attorneys’ fees in “any action or proceeding” as required for RPL § 234 to be triggered. (R: 576) The clause provides only that in the event that Petitioner elects to relet then the Respondent may be relieved of the obligation to pay some or all of the rent owed for the unexpired term of the lease. It is solely a damages mitigation clause. This is important because, as stated above, under the law and the lease the Petitioner is fully entitled to elect not to relet the apartment, maintain the status quo, and look to the Respondent to pay all of the rent owed for the unexpired term of the lease. Clause 15[D](3) modifies that harsh result to an extent by providing Respondent with limited mitigation. As stated by this Court under similar circumstances in Underhill v Collins, 132 NY 269, 30 NE 576 (1892): The plaintiff, in reletting the premises, did only that which he had promised and had the right to do. He could 14 have left the premises vacant during the unexpired term of the lease, and required the tenant to pay the rent as it matured. The reletting of the premises for the benefit of the tenant relieves him in part of the burden that he otherwise would have had to bear. He is, therefore, a gainer rather than a loser by reason of such reletting. [emphasis added] As stated above, RPL § 234 is intended to be reciprocal, available whenever the lease provides for attorneys’ fees award to the landlord. Absent any such provision in the lease herein, the Appellate Division has instead relied upon this mitigation clause, paragraph 15[D](3), which is clearly intended and does benefit only the Respondent, as the basis for providing to the Respondent the additional benefit of an award of attorneys’ fees under RPL § 234. In its decision the Appellate Division erroneously found that clause 15[D](3) allowed Petitioner to recover its “legal fees” by reletting the apartment following the Respondent’s eviction. According to the Appellate Division: We interpret the remedial scheme of Paragraph 15 to permit the landlord, in the event of a lease default by the tenant, to cancel the lease and regain possession of the premises via the means of a summary proceeding, and then recoup the attorneys’ fee incurred in the litigation by re-renting the premises. Any new rent received by the landlord after re-renting the apartment would be used first to pay the “Landlord’s expenses,” including “reasonable legal fees.” Paragraph 15, thus, literally fits within the language of Real Property Law § 234, since it does “provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to 15 perform any covenant or agreement contained in such lease” [citation omitted] Contrary to the finding of the Appellate Division, however, clause 15[D](3) clearly does not provide that the Petitioner can obtain its attorneys’ fees “in any action or summary proceeding.” Again, the clause provides only that the Petitioner can reduce any mitigation by the amount of its expenses, including “legal fees”, if it elects to relet the apartment after the Respondent has been evicted. Thus, even such offset only occurs after the “action or summary proceeding” has been completed. The clause does not fit within the express language of RPL § 234 because it does not provide that the Petitioner can recover its attorneys’ fees “in any action or summary proceeding.” 5 The decision of the Appellate Division fails to take into account the fact that the language utilized in clause 15[D](3) actually represents a legal fiction. The rent paid by the next tenant is not actually taken and applied towards the payment of the remaining rent owed by Respondent or towards the payment of the Petitioner’s expenses, including legal fees. The funds received from the next tenant upon relet 5. The fact that the Petitioner is limited solely to a reduction of mitigation if it elects to relet also prevents it from collecting attorneys’ fees in a separate court action against the Respondent. Once the Respondent was evicted, the summary proceeding finished and the apartment relet, the Petitioner would have no right to commence a new court action to collect its legal fees. As stated by this Court in 930 Fifth Corp. v King, 42 NY2d 886, 366 NE2d 875, 397 NYS2d 788 (1977): “Failure to make a claim for attorneys’ fees in the initial summary proceeding results in the splitting of a cause of action which is prohibited.” 16 must, of course, be wholly applied towards the next tenant’s own rent obligation under his or her own lease. The legal fiction of clause 13[D](3) is that for the purpose of mitigation only the rent paid by the next tenant will be considered an offset of the Respondent’s remaining rent obligation for the unexpired term of his lease. Depending on the rent received upon relet, the amount of the Petitioner’s expenses, the Respondent’s own rent obligation will be either wholly or partially mitigated. The Respondent will complain that offsetting the Petitioner’s expenses, including legal fees, from the mitigation amount will decrease the amount of mitigation he will receive. The answer is that under the lease and the law, as explained above, the Respondent is entitled to no mitigation. He cannot complain that he receives only partial mitigation when he is entitled to none. The Appellate Division in its decision states that RPL § 234 should be applied where the landlord utilizes “artful draftsmanship” in a lease to circumvent to reciprocal provisions of the statute. However, in the instant matter if clause 15[D](3) is an example of “artful draftsmanship” to circumvent RPL § 234 it does not serve the Petitioner well.6 6. According to the Appellate Division, quoting from decision of the Second Department in Casamento v Juaregui, 88 AD3d 345, 929 NYS2d 286 (2nd Dept, 2011): “To deny the tenant’s motion pursuant to [Real Property Law] 234 simply because [Paragraph 15] does not include a more direct 17 Firstly, clause 15[D](3) does not allow Petitioner to obtain an award of attorneys’ fees “in any action or proceeding.” Further, it does not permit the Petitioner to add its legal fees to the Respondent’s rent. If the Petitioner intended to obtain an award of attorneys’ fees it would have done, as many landlords have done, put in a clause in the lease expressly authorizing such award. Clause 15[D](3) does not do that. The clause is only available when Petitioner provides the benefit of mitigation to the Respondent. Further, as a purely practical matter, as an example of “artful draftsmanship” clause 15[D](3) is poorly conceived. In the first place, the clause can only be utilized if there is an opportunity to relet. Rent Controlled tenants do not have leases and there is no opportunity to relet. Rent Stabilized tenants can only have one or two year leases and the opportunity to relet will be minimal at best. Indeed, an experienced tenant’s attorney will easily be able to extend any litigation beyond the expiration of the lease thereby denying the landlord the opportunity to take advantage of the relet provisions of clause 15[D](2).7 method for the landlord’s recovery of his attorneys’ fees would be only to reward ‘artful draftsmanship’ and undermine the salutary purpose of section 234” [citation omitted]. 7. In the instant holdover matter the Respondent, a rent stabilized tenant, was served with a ten day notice terminating his lease for non-payment in April, 2007 (R: 27-28) and the housing court proceeding was commenced the following month. (R: 20-26) However, the housing Court’s decision was not rendered until April 27, 2009 (R: 16-19), long after the expiration of the lease in effect when the matter was commenced. Thus, the Appellate Division’s discussion regarding 18 Secondly, clause 15[D](3) is not available if the Respondent elects to cure under the provisions of Real Property Actions and Proceedings Law (RPAPL) § 753[4]. That statute provides that all tenants will have the opportunity to cure and remain in occupancy even where it is undisputed that there was a violation of the lease. An “artful draftsman” would not have included an attorneys’ fees provision in a lease mitigation clause which could easily be avoided by the tenant merely by exercising the statutory right to cure. Thirdly, because clause 15[D](3) only concerns the relet of the apartment for the unexpired term of the lease, even the reduction of the mitigation amount is limited by whatever lease term remains, if any. In the instant matter, where the Respondent has claimed hundreds of thousands of attorneys’ fees, the Petitioner would have a difficult time reducing the mitigation by a similar amount even if there were several months left on the lease because the rent is less than $2,000 per month. The “artful draftsman” would be fairly unartful to include an attorneys’ fees provision in a lease clause which would drastically limit such award. The decision of the Appellate Division essentially states that RPL § 234 will apply whenever there is any reference to “legal fees” in a lease no matter how obscure or no matter for what purpose. The decision takes a lease clause which was Petitioner’s own use of clause 15[D](3) herein to obtain an award of attorneys’ fees was wholly academic as there would have been no opportunity to relet had the Petitioner been successful. 19 solely designed to provide a mitigation benefit to the Respondent, if the Petitioner elects to relet, and contorts it into a provision that somehow allows the Petitioner to obtain an award of attorneys’ fees. Only by contorting clause 15[D](3) of the lease can the Appellate next find that the reciprocal provisions of RPL § 234 apply require a similar award of attorneys’ fees to the Respondent. As further rationale for its decision the Appellate Division states that: “As a remedial statute, Real Property Law § 234 should be accorded its broadest protective meaning consistent with legislative intent.” However, the Legislature could not have intended that the language of a lease should be taken out of context and interpreted in a manner contrary to its plain meaning. Moreover, as noted by Justice DeGrasse in his dissent, this Court in Gottlieb v Kenneth D Laub & Co, Inc, 82 NY2d 457, 626 NE2d 29, 605 NYS2d 213 (1993) stated in applying a “narrow construction” to an attorneys’ fees provision in Labor Law § 198: New York has traditionally followed the common-law rule disfavoring any award of attorneys’ fees to the prevailing party in a litigation (see, Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21-22; see also, 24 NY Jur 2d, Costs in Civil Actions, § 158). Therefore, the appropriate canon of statutory construction to be applied in this case favors a narrow interpretation (see, McKinney’s Cons Laws of NY, Book 1, Statutes § 301 [a]). Or, put another way: “The common law is never abrogated by implication, but on the contrary it must be held no further changed than 20 the clear import of the language used in a statute requires” (id., § 301 [b]) If the parties had intended to provide the Petitioner with a means of recovering an award of attorney’s fees they would have expressly so stated in the lease. However, nowhere in the lease does it state that the Petitioner would be entitled to attorneys’ fees “in any action or summary proceeding” brought against the Respondent (RPL § 243). Clause 15[D](3) is worded the way it is not because it was intended to provide the Petitioner with a means of recovering its legal fees, but rather to provide the Respondent with the benefit of mitigation. It is respectfully submitted that the Appellate Division’s finding is erroneous. Clause 15[D](3) of the lease clearly does not provide the Petitioner with a means of attaining an award of attorneys’ fees “in any action or summary proceeding.” Therefore the reciprocal provisions of the RPL § 234 should not have been applied in this matter. Point II THE LEASE DOES NOT PROVIDE THAT THE RESPONDENT SHOULD PAY ADDITIONAL RENT TO COVER THE PETITIONER’S LEGAL FEES As noted above, RPL § 234 provides two bases for triggering the tenant’s reciprocal right to an award of attorneys’ fees. The first is where the lease expressly provides that the landlord has a right to such an award “in any action or 21 summary proceeding.” This is the sole basis cited by the Appellate Division in its decision and was addressed by Petitioner above. The second basis under RPL § 234 for triggering the tenant’s right to an award of attorneys’ fees is where the lease provides that the landlord can recover its attorneys’ fees by including such fees “as additional rent” owed by the tenant. For good reason the Appellate Division in its decision did not rely upon this basis in finding that the reciprocal provisions of RPL § 234 had been triggered herein. It is clear that any claim by the Respondent that the lease required him to pay Petitioner’s attorneys’ fees “as additional rent” would fail for lack of merit. As stated in the discussion above, legal fees are only referenced in clause 15[D](3) of the lease. That clause provides for mitigation in the event that the Petitioner (1) elects to relet the apartment and (2) the lease is cancelled or the tenant is evicted prior to the termination of the full lease term. The clause provides that the rent collected by the next tenant upon relet would be considered as mitigation of the rent still owed by Petitioner on the unexpired term of the lease. The clause also provides that such mitigation amount will be reduced by any expenses incurred by Petitioner in obtaining the Respondent’s eviction, including legal fees. Significantly, clause 15[D](3) does not add to the rent owed by the Respondent. The clause provides only for mitigation of damages. If there is no 22 mitigation, the Respondent will still be required to pay no more than the rent amount he agreed to pay in his lease. Specifically, the clause does not provide that in addition to the rent Respondent agreed to pay under his lease the Respondent will also be responsible for paying for Petitioner’s expenses, including legal fees. For example, Petitioner spends $5,000 on legal fees in evicting Respondent with ten months left on the lease term. The rent is $1,000 per month. Upon eviction Respondent will only owe $10,000 in rent (10 months X $1,000). If 15[D](3) was an attorneys’ fees clause, then the Petitioner could add its expenses, including legal fees, and upon eviction Respondent would owe $15,000 in rent. But 15[D](3) is not an attorneys’ fees provision and it does not allow Petitioner to add $5,000 to Respondent’s rent owed upon eviction. Before the Appellate Division the Respondent argued that paragraph 3 of the lease allowed the Petitioner to include as “added rent” the legal fees referred to in clause 15[D](3). This is clearly incorrect. Paragraph 3 of the lease provides: 3. Rent, added rent. The rent payment for each month must be paid on the first day of the month at Landlord’s address. Landlord shall not give notice to pay the rent. Rent must be paid in full without deductions. The first month’s rent is to be paid when Tenant signs this lease. Tenant may be required to pay other charges to Landlord under the terms of his Lease. They are called “added rent.” This added rent will be billed and be payable as rent together with the next monthly rent due. If Tenant fails to pay the added rent on time, Landlord shall have the same rights against Tenant as if Tenant failed to pay rent. If a check from Tenant to Landlord bounces Tenant 23 shall be charged $25 for processing costs as added rent. If rent or added is not received within 5 days of the due date, Landlord may charge the Tenant a late fee of $25.00. [emphasis added] (R: 427) As is seen from the plain language, paragraph 3 of the lease only refers to “other charges” under the lease becoming “added rent.” Under clause 15[D](3) of the lease the Petitioner’s expenses are not listed as “other charges” owed by Respondent. Under clause 15[D](3) the Petitioner’s expenses, including legal fees, are only mentioned as reductions of the mitigation provided by that paragraph. If there is no mitigation there can be no offset. The expenses are not added to the rent. Moreover, clause 15[D](3) makes clear that the rent and added rent owed by the Respondent under the lease are separate and apart and do not include the Petitoiner’s expenses. For the Court’s reference clause 15[D](3) provides: (3) Any rent received by Landlord for re-renting shall be used first to pay Landlord’s expenses and second to pay any amounts Tenant owes under this Lease. Landlord’s expenses include the costs of getting possession, and re- renting, the Apartment, including, but not only reasonable legal fees, broker fees, cleaning and repairing costs, decorating costs and advertising. [emphasis added] (R: 428) Again, the Respondent will argue that he will get less mitigation as a result of the fact that clause 15[D](3) allows the Petitioner to reduce the mitigation 24 amount by its expenses. However, less mitigation is not “additional rent.” Any mitigation, even reduced mitigation, will result in the Respondent paying less rent than the amount he had agreed to pay in the lease. Clause 15[D](3) does not allow the Petitioner to collect anything more than the rent the Respondent agreed to pay under the lease. If there is mitigation due to a relet the Petitioner will collect less rent than the Respondent agreed to pay under the lease. If by deducting Petitioner’s expenses from the mitigation amount there is less or no mitigation Respondent will still only be responsible for paying no more the rent he agreed to pay in the lease. There is no provision or vehicle for adding on to that rent amount the Petitioner’s legal fees. The Respondent can always choose not to avail himself of mitigation afforded by clause 15[D](3) simply by paying the full amount of rent due as he agreed to do pursuant to his lease. It is within Respondent’s power to fully avoid all the provisions of 15[D](3) altogether merely by paying the full rent due under his lease. There is nothing requiring the Respondent to accept mitigation (or more correctly to assert it as an affirmative defense to full rent payment). If the Respondent believes that clause 15[D](3) is a secrete way for the Petitioner to obtain its attorneys’ fees, the Respondent can remedy that merely by choosing not to assert the affirmative defense of mitigation. 25 Returning again to Duell v Condon, supra, where this Court stated that “[t]he overriding purpose of Real Property Law § 234 was to level the playing field between landlords and residential tenants ….” It is not a level playing field where the successful tenant will always obtain an award of attorneys’ fees but the landlord will never be able to collect anything more than the rent the tenant agreed to pay in the lease. Finally, opposite the effect of discouraging litigation, cited by the Appellate Division, the decision of the Appellate Division will encourage to tenants to litigate to the end knowing that they will always obtain the full award of attorneys’ fees if successful where the landlord will have no opportunity to do so. This was clearly not the intent of the Legislature in passing RPL § 234. Point III ACCORDING TO ESTABLISHED PRECEDENT A STATUTE WHICH PROVIDES FOR ATTORNEYS’ FEES IN A MANNER CONTRARY TO THE AMERICAN RULE SHOULD BE STRICTLY CONSTRUED Real Property Law (RPL) § 234 provides for an award of attorneys’ fees to the successful litigant contrary to the general or “American” Rule. As stated by this Court in Hooper Assoc v AGS Computers, 74 NY2d 487, 548 NE2d 903, 549 NYS2d 365 (2002): 26 Under the general rule, attorneys’ fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule. The attorneys’ fees provision of RPL § 234 has been interpreted differently over the years. With respect to the language in the lease clause in issue herein, the Appellate Division, First Department, has twice ruled that the RPL § 234 did not provide for an award of attorneys’ fees (for either party). Sandwiched between those two decisions the First Department has twice held that such language did support a finding of attorneys’ fees under RPL §234, at least with respect to the tenant. The Second Department has also held that such language did not support an award of attorneys’ fees and once held that it did support such award. This Court has never ruled on the issue although the language in lease in issue is still commonly in use. In 1992 in Bunny Realty v Mendez, 180 AD2d 460, 579 NYS2d 952 (1st Dept, 1992), which concerned a lease clause identical to that in issue herein, the Appellate Division, First Department, held that pursuant to the provisions of RPL § 234 the tenant was entitled to an award of attorneys’ fees. The Court stated that the RPL § 234 should be broadly interpreted. However, following the Appellate Division decision in Bunny this Court in Gottlieb v Kenneth D. Laub & Co., Inc., 82 NY2d 457, 626 NE2d 29, 605 NYS2d 213 (1993) held that statutes awarding attorneys’ fees in contravention of the 27 American rule should be narrowly interpreted. As stated by Justice DeGrasse in his dissent in the instant matter: After Bunny Realty was handed down, the Court of Appeals decided Gottlieb v Kenneth D. Laub & Co. (82 NY2d 457 [1993]) where it held that a statute providing for an award of attorneys’ fees should be narrowly construed in light of New York’s adherence to the common-law rule disfavoring any award of attorneys’ fees to a prevailing party in litigation (id. At 464-465, citing McKinney’s Cons Laws of NY, Book 1, Statutes § 301[a]). “‘The common law is never abrogated by implication, but on the contrary it must be held no further changed than the clear import of the language used in a statute absolutely requires’” (Gottlieb, 82 NY2d at 465, quoting McKinney’s Cons Laws of NY, Book 1, Statutes § 301[b]). Because the lease in question does not provide for an award of attorneys’ fees, I submit that the majority’s interpretation of Real Property Law 234 as well as our decision in Bunny Realty cannot be reconciled with the strict construction standard articulated by the Court in Gottlieb. (R:578) In his dissent Justice DeGrasse also cites McKinney’s Cons Laws of NY, section 321, Book 1, Statutes, which provides that whereas a remedial statute is generally given liberal construction it is not so: Where remedial statutes create liability not otherwise existing, or increase common law liability, the rule of liberal construction does not apply, but on the contrary 28 the statute must be followed with strictness. In such case, the courts will not extend or enlarge liability by construction, nor will they go beyond the fairly expressed provision of the act. * * * Similarly, where remedial statutes modify the rules of common law they must receive a strict construction as to the scope of that modification. Following this Court’s decision in Gottlieb the Appellate Division did not again interpret the provisions of RPL § 234 until 2009 when two decisions were rendered. In the first matter, Oxford Towers Co v Wagner, 58 AD3d 422, 872 NYS2d 431 (1st Dept, 2009), involving a lease clause identical to that in Bunny and in the instant matter, the Appellate Division stated that: The motion court properly denied defendants' request for attorneys' fees. Paragraph 23(D)(3) of the lease, on which defendants rely, provides that in the event the lease is cancelled, the landlord may re-rent the apartment, and any such new rent received "shall be used first to pay Landlord's expenses … [which] expenses include the costs of getting possession and re-renting the Apartment, including … reasonable legal fees." This is not the type of provision covered by Real Property Law § 234. [emphasis added] The Appellate Division’s holding in Oxford was subsequently applied by that Court in another unanimous decision in Madison-68 Corp v Malpass, 65 AD3d 445, 884 NYS2d 401 (1st Dept, 2009) where the Court stated that: it was error for the J.H.O. to determine that defendants were entitled to an award of attorneys’ fees. In Oxford Towers Co., LLC v Wagner (58 AD3d 422, 872 NYS2d 29 431 [2009]), this Court held that an identical lease provision was not covered by Real Property Law § 234.”8 The decisions of the Appellate Division, First Department in Oxford and Madison-68 were also in line with the 2006 decision of the Appellate Division, Second Department, in Gannett Suburban Newspapers v El-Kam Realty Co, 306 AD2d 312, 760 NYS2d 553 (2nd Dept, 2003). In Gannett the Second Department had held that: There is no contractual obligation under the lease for reimbursement of an attorney’s fee [citation omitted]. We note that section 27.01 of the lease, on which El-Kam relies, only permits El-Kam to deduct its attorney’s fee when calculating any credit to which Gannett would be entitled if El-Kam relets the premises. Nothwithstanding the forgoing, the lease expressly provides that El-Kam is not obligated to mitigate damages by reletting [citation omitted]. For several years the lower courts in both the First Department and Second Department followed Gannett, Oxford and Madison-68. For example, in 303 E 37th Sponsors Corp v Goldstein, 29 Misc3d 131A, 918 NYS2d 400 (AT, 1st Dept, 2010) the Appellate Term held: As Civil Court correctly concluded, the attorneys’ fees provision in the subject initial written lease agreement did not trigger the reciprocal right to attorneys’ fees pursuant to Real Property Law § 234 (see Oxford Towers Co., LLC v Wagner, 58 AD3d 422, 872 N.Y.S.2d 431 8. Current Court of Appeals Judge Sheila Abdus-Salaam was a member of the Appellate Division panel which decided Madison-68. 30 [2009]; Madison-68 Corp. v Malpass, 65 AD3d 445, 884 N.Y.S.2d 401 [2009]. To the extent Bunny Realty v Miller (180 AD2d 460, 579 N.Y.S.2d 952 [1992]) suggests a contrary conclusion, we decline to apply it. See also, Hamilton v Menalon Realty, LLC, 14 Misc 3d 13, 829 NYS2d 400 (App Term, 2d and 11th Jud Dists, 2006). By its 3-2 decision in the instant matter the Appellate Division, First Department, reversed course and now states, contrary to its position in Oxford and Madison-68, that the language in the lease in issue here does trigger the reciprocal provisions of RPL § 234.9 It is well established that abandoning prior precedent should not be taken lightly. As succinctly stated by former Chief Judge Kaye in concurrence in Eastern Consolidated Properties v Adelaide Realty Corp, 95 NY2d 785, 710 NYS2d 840 (2000): Continuity and predictability are important values for a Court. We should adhere to precedent unless it is clear that a prior decision has produced an unjust or unworkable rule. As Chief Judge Breitel observed in People v Hobson (39 NY2d 479, 488), the root of stare decisis is the “humbling assumption, often true, that no particular court as it is then constituted possesses a wisdom surpassing that of its predecessors. “Stare decisis should be most stringently applied in cases involving contract and property rights. 9. The Appellate Division, Second Department, in Casamento v Juaregui, 88 AD3d 345, 929 NYS2d 286 (2nd Dept, 2011), also reversed its prior precedent in Gannett, supra. 31 In the decision below the Appellate Division completely abandoned its precedent in Oxford and Madison-68. As to Oxford the Appellate Division states that the decision is “distinguishable” because in Oxford the Court had stated that the “action arises out of the 1995 agreement, not the lease ….” However, in its decision in Oxford the first basis the Court gave for not awarding attorneys’ fees was that the language in the parties’ lease did not support such award. As seen from the decision, the first basis given by the Appellate Division in Oxford was: the attorneys’ fees provision in the subject initial written lease agreement did not trigger the reciprocal right to attorneys’ fees pursuant to Real Property Law § 234. It is odd, at least to Petitioner, that the Appellate Division now considers this finding in Oxford to be merely “dicta” without precedential importance and instead finds that the second basis provided in Oxford was controlling in that decision. In any event, there is no dispute that in Madison-68 the action did clearly arise out of the lease and there is absolutely no distinction between the facts in Madison-68 and the instant matter. Even if Oxford could be distinguished on the basis that the facts the decision in Madison-68 cannot be distinguished on that basis. Lacking a basis to distinguish Madison-68 from the instant matter, the Appellate Division in its decision below merely states that: to the extent Madison-68 relies exclusively upon the aforementioned dicta in Oxford Towers, this Court’s holding in Madison-68 has limited precedential value. 32 (R: 573) The Petitioner understands that precedent is not always binding even in real estate matters and that there may be reasons to review the rationale of a prior decision. However, the Appellate Division’s decisions in Oxford and Madison-68 are not as easily dismissed as that Court states in its decision below. For years the lower courts, including the trial court and the Appellate Term in the instant matter, followed that precedent. Moreover, although this Court is obviously not required to follow Appellate Division precedent, it is important to note that there has not been uniformity in the courts below as to the application of RPL § 234 to leases such as the one herein. The fact that the Appellate Division decision herein had two dissents clearly shows that there are legitimate points of view on either side of the argument. Petitioner respectfully submits that thee dissent was correct in its reasoning which concluded that RPL § 234 did not apply to the lease clause at issue herein. Point IV EVEN IF THE RPL § 234 DOES APPLY THE RESPONDENT WOULD NOT BE ENTITLED TO AN AWARD OF ATTORNEYS’ FEES DUE TO HIS SUBSTANTIAL BREACH OF LEASE Although this Court does not usually review questions of fact, it is required to do so under some circumstances. CPLR § 5501 provides that this Court shall: 33 review questions of fact where the appellate division, on reversing or modifying a final or interlocutory judgment, has expressly or impliedly found new facts and a final judgment pursuant thereto is entered. Both the Civil Court and the Appellate Term expressly found that RPL § 234 did not apply in this matter. Accordingly, neither Court had the occasion to determine whether the Respondent was entitled to an award of attorneys’ fees pursuant to that statute. The Appellate Division in its decision below for the first time found that RPL § 234 did apply. Such finding necessarily brings up a second issue. Before an award of attorneys’ fees can be made under the provisions of RPL § 234, the court must determine which party in the litigation was the “prevailing party.” As stated by this Court in Nestor v McDowell, 81 NY2d 410, 599 NYS2d 507: “Ordinarily, only a prevailing party is entitled to attorney’s fees [citation omitted].” Once the Appellate Division determined that RPL § 234 did apply in the instant matter it could have remanded the matter to the lower courts for a determination of prevailing party status. As stated above, as both the Civil Court and the Appellate Term found that RL § 234 did not apply neither Court had the opportunity to determine “prevailing party” status. The Appellate Division did not remand the proceeding to the Civil Court or Appellate Term, however. Instead, the Appellate Division made its own, entirely 34 new, factual determination that the Respondent was the “prevailing party” entitled to an award of attorneys’ fees. As stated by the Appellate Division in its decision: Accordingly, the order of the Appellate Term, First Department, entered March 1, 2012, . . . should be modified, on the law, to grant respondent’s claim for attorneys’ fees pursuant to Real Property Law § 234, the matter remanded to Civil Court for a hearing to determine the amount of the fees …. By granting the Respondent’s claim for attorneys’ fees, the Appellate Division made the implicit factual finding that the Respondent had attained “prevailing party” status and was therefore entitled to an award of attorneys’ fees. This was clearly a finding of fact made for the first time by the Appellate Division. Pursuant to CPLR § 5501, the Petitioner respectfully seeks a review of the finding of fact made by the Appellate Division regarding the “prevailing party” status of the Respondent. The Petitioner contends that the Respondent cannot be held to be the “prevailing party” in this landlord/tenant litigation due to the Respondent’s admitted violation of the parties’ lease. It has been repeatedly held, including recently by this Court, that a tenant who has violated her or his lease cannot be considered to be the “prevailing party” in litigation commenced by the landlord even where the matter is ultimately dismissed. See, 433 Sutton Corp v Broder, ___NY3d___, 2014 NY Slip Op 2218, 2014 N.Y. LEXIS 584 (2014), rev’g 107 AD3d 623, 968 NYS2d 71 (1st Dept, 2013) rev’g 2012 NY Misc LEXIS 6162, 2012 Slip Op 33210(U). 35 In the instant matter there is no dispute that the Respondent violated paragraph 7 of the parties’ lease which provides: Alteration. Tenant must obtain Landlord’s prior written consent to install any paneling, flooring, “built in” decorations, partitions, railings, make alterations to, or, wallpaper the Apartment. Tenant must not change the plumbing, ventilation, air-conditioning, electric or heating systems. (R: 427) It was established during the course of the trial below that the Respondent caused to be done major renovations in the subject apartment without obtaining the Petitioner’s “prior written consent” as required by the lease. In an affidavit he had submitted to the New York State Division of Housing and Community Renewal (DHCR) dated January 23, 2006 the Respondent stated: “When I moved in . . . at my own expense . . . I installed an entire new electrical system in the kitchen, including wiring, switches, outlets, a distribution panel, ceiling fixtures, and under- counter lighting.” 10 (R: 422) At the trial the Respondent confirmed that his January 23, 2006 affidavit submitted to the DHCR was accurate and truthful: 10. The electrician the Respondent had retained to do the work, Fernando Siguencia, testified at the trial that he had: replaced the main electric box which contained all fuses to a new electrical panel that contained electrical breakers, circuit breakers, and add some receptacles for air conditioning and add a switch in the kitchen, and also, he had some lights underneath the counter, the cabinets. 36 Question: And you also set forth within that affidavit the work that you performed correct? Answer: Yes. (R: 158) During the trial the Respondent also admitted that he never received the Petitioner’s written consent to do such alterations: Question: Did you obtain the owner's written consent prior to your performing the electrical work in the kitchen? Answer: No I didn't because he gave it to me— Q: [Interposing] I just asked you whether you obtained— THE COURT: [Interposing] Just answer - - . A: No I did not. (R: 152) Despite the Respondent’s admitted substantial breach of the lease, the holdover proceeding against him was dismissed on the basis that the Petitioner’s agents had given the Respondent oral permission to make the alterations. In its decision the Appellate Term, relying upon the trial record, held that the Petitioner was “estopped” from enforcing the “no alterations” provision of the lease (R: 6) (R: 254-255) 37 citing as authority the decision of Haberman v Hawkins, 170 Ad2d 377, 566 NYS2d 279 (1st Dept, 1991) wherein it was held: Paragraph 5 of the parties’ lease agreement prohibits alterations by the tenant without the landlord’s prior written consent. * * * Tenants concede that they did not have written consent.. The violation of an express covenant not to make any alterations without the landlord’s permission is a violation of a “substantial obligation” of the tenancy. Rumiche Corp. v. Eisenreich, 40 NY2d 174, 178 (1976); Freehold Investments v. Richstone, 34 NY2d 612 (1974) [reinstating 72 Misc2d 624, 625-626 (Appellate Term, 1st Dept. 1973)]. Nevertheless, we find that the tenant presented sufficient evidence to support the affirmative defense of estoppel and waiver based upon the landlord’s having given his prior consent to the replacement of the windows. Thus, there can be no dispute that in making alterations in the apartment without obtaining the Petitioner’s prior written consent the Respondent violated the parties’ lease and that such violation was substantial. As stated by the Appellate Division in Haberman, supra, “The violation of an express covenant not to make any alterations without the landlord’s permission is a violation of a ‘substantial obligation’ of the tenancy.” The only reason the Petitioner was not successful in its holdover proceeding against the Respondent was because the Petitioner was estopped from enforcing the no alteration provisions of the lease. The Appellate Term’s reliance on estoppel confirms that Court’s finding that the Respondent 38 breached the lease as there would be no reason to estop the Petitioner from enforcing the terms of the lease otherwise. As stated above, in 433 Sutton this Court recently held that a tenant is not entitled to an award of attorneys’ fees where it is shown that a breach of the lease occurred, even where the tenant obtains a dismissal of the summary proceeding. In 433 Sutton this Court reversed the Appellate Division and reinstated the order of the Supreme Court. In its decision, reinstated by this Court, the Supreme Court in 433 Sutton denied the tenant an award of attorneys’ fees stating: It has been found appropriate to deny counsel fees where tenants breached the lease, even where the landlord’s action has been dismissed. (See, Ram I, LLC v. Stuart, 248 AD2d 255, 668 N.Y.S.2d 888 [1st Dept., 1998], Giddings v. Waterside Development Co., NYLJ June 30, 1998, p. 26, c. 1 [AT 1st Dept], Ariel Associates LLC v Brown, NYLJ April 14, 1999, p. 26, c.2 [AT 1st Dept.]) “In each of these cases neither the tenants nor the landlords were found to have prevailing party status; thus, no party was awarded attorneys’ fees. In each of these cases, the appellate courts framed the denial of attorneys’ fees to the tenants in terms of equitable considerations.” 350 East 62nd Street Associates v. Vecilla, 182 Misc2d 68 at 70, 696 N.Y.S.2d 792 (Civ Ct NY, 1999). The decision of this Court in 433 Sutton was similar to a long line of lower court decisions on the issue. For example, in Ram I, LLC v Stuart, 248 AD2d 255, 668 NYS2d 888 (1st Dept, 1998), in a matter similar to the instant matter, the landlord was unsuccessful on its holdover proceeding based upon the tenant’s 39 unauthorized alterations since, according to the Court, the “tenant’s replacement of a 27-year old stove with a new stove was merely a technical violation of the ‘no alterations’ clause of the parties’ leases . . .” Notwithstanding the dismissal of the action, the Court denied the tenant’s request for attorneys’ fees stating: “denial of tenants’ application for counsel fees where tenant’s breach of the lease, albeit minor, was established, was also appropriate.” See also, First Avenue Village Corp v Harrison, 17 Misc3d 20, 844 NYS2d 544 (AT 1st Dept, 2007); Matter of Stepping Stones Associates v Seymour, 48 AD3d 581, 853 NYS2d 562 (2nd Dept, 2008); and Giddings v Waterside Redevelopment Co., NYLJ, 6/30/98, p 26, col 1 (AT 1st Dept). The Petitioner commenced the Civil Court action based upon the Respondent’s violation of the lease, making alterations without obtaining the Petitioner’s prior written consent. The lower court proceedings made clear that the Respondent did violate the no alterations portion of the lease although the Petitioner was estopped from enforcing the lease clause. In the event this Court determines that RPL § 234 does apply, it is respectfully submitted that the Appellate Division’s finding of fact that the Respondent was the prevailing party entitled to an award of attorneys’ fees should be reversed. Given that the Respondent violated the no alterations clause of the lease, under prevailing case law neither party should be considered to be the "prevailing party" entitled to an award of attorneys' fees in this matter. CONCLUSION The lease language m issue in the instant matter does not provide the Petitioner with an award of attorneys' fees. The clause does not allow the Petitioner to obtain such award "in any action or summary proceeding" and does not allow Petitioner to collect such award as "additional rent," the only two bases provided under RPL § 234. Accordingly, the reciprocal provisions of the statute should not be applied to award the Respondent attorneys' fees. Even ifRPL § 234 did apply in this matter this Court should find that the Respondent was not the "prevailing party" due to Respondent's substantial breach of the lease. Dated: New York, New York May 7, 2014 Respectfully submitted, KUCKER & BRUH, LLP For Petitioner-Appellant 747 Third Avenue New York, New York 10017 (2·1··~~···~ .. 30 f.• .e/ r/ ·ir· ~· / . . ' _;! (/ ' / 40