Landlord & Tenant

No Retroactive Effect to Yellowstone Injunction

166 Enterprises Corp. v. I G Second Generation Partners, L.P.

NYLJ 2/15/11

AppDiv, First Dept.

(Richter, J.)

In an action by commercial tenant for a declaration that it had not breached a lease provision requiring it to provide liability insurance, tenant appealed from a Supreme Court judgment declaring it in breach, while landlord cross-appealed from Supreme Court's determination that the Yellowstone injunction and cure period remained in effect until a copy of the judgment and notice of entry was served on tenant's attorney. The Appellate Division modified to hold that the Yellowstone injunction and cure period had expired years earlier, because Supreme Court was not entitled to give retroactive effect to a Yellowstone injunction.

On Sept. 10, 2002, landlord served a 15-day notice to cure, alleging that tenant had failed to pay rent and failed to procure the liability insurance required by the lease.

On Sept. 24, one day before the cure period, tenant brought an action seeking declaratory relief, and sought a Yellowstone injunction. On Jan. 8, 2003, Supreme Court denied the Yellowstone injunction on the ground that tenant had failed to show that it was ready and able to cure its default with respect to liability insurance. On Jan. 15, landlord served a notice of termination, effective Jan. 20, 2003. The next day, tenant moved to re-argue and renew its application for a Yellowstone injunction, conceding that its earlier papers had failed to address tenant's ability to cure. Supreme Court granted the motion, and the declaratory judgment action proceeded to trial. On Oct. 21, 2008, more than five years later, Supreme Court found that tenant had breached the insurance provision, but concluded that tenant still had one day to cure ' because tenant had one day left in the cure period when, six years earlier, tenant had originally sought the Yellowstone injunction. When tenant failed to cure, landlord served another notice of termination effective Dec. 31, 2008, and then commenced an ejectment action. On Jan. 20, 2010, Supreme Court awarded landlord possession. Tenant appealed, and landlord cross-appealed.

In modifying, the Appellate Division first held that Supreme Court had correctly found tenant in breach, because even if tenant had been able to prove that its subtenant was carrying sufficient liability insurance, the defect would not have been cured because landlord was not obligated to accept subtenant's performance in lieu of tenant's performance. The court then held that Supreme Court had improperly concluded that tenant retained the right to cure past Jan. 9, 2003. The Appellate Division emphasized that the initial denial of the Yellowstone injunction was proper, and tenant's failure to ensure that the cure period did not lapse was entirely tenant's fault. As a result, landlord's notice of termination was valid, and the tenancy terminated on Jan. 20, 2003. Supreme Court should not have given retroactive effect to a Yellowstone injunction issued after the cure period had expired and the lease had been terminated. No subsequent notice of termination should have been necessary.

COMMENT

Where a lease's curative period expires because of the tenant's own error, courts will not grant a Yellowstone injunction once the period has expired. For example, in T.W. Dress Corp. v. Kaufman, 143 A.D.2d 900, the tenant moved for a Yellowstone injunction and obtained a TRO tolling the curative period pending a hearing on motion. 143 A.D.2d at 900. On the return date of the motion, however, tenant's counsel failed to appear and obtain an extension of the TRO; consequently, the curative period expired. Id. The tenant again moved for Yellowstone relief, arguing that the lapse of the TRO was a mere technicality. Id. The appellate division disagreed, holding that the lapse “divested the court of its power to grant a Yellowstone injunction.” Id.; see also Norlee Wholesale Corp. v. 4111 Hempstead Tpk. Corp., 138 A.D.2d 466 (refusing to toll expired curative period retroactively on tenant's second application for Yellowstone injunction, where first application, although timely, was correctly denied because tenant improperly served order to show cause).

By contrast, courts will grant a Yellowstone injunction retroactively if the curative period expired because of judicial error. In Mann Theatres Corp. v. Mid-Island Shopping Plaza Co., 94 A.D.2d 466 affd 62 N.Y.2d 930, for example, the tenant timely moved for a Yellowstone injunction and obtained a TRO staying the curative period pending a hearing on the motion. Id. at 469. On the date of the hearing, the tenant moved for a continuation of the TRO, but the court erroneously or inadvertently failed to continue it; the curative period then lapsed before the court issued the injunction. Id. at 476. When the tenant was subsequently found to have violated the lease provisions, the Second Department held that the tenant still had time to cure. Id. at 476-77. Because “the Yellowstone rule is equitable in nature” ' and equity dictates that the court's own error “should not result in the forfeiture of a leasehold” ' the court retroactively revived the curative period even after it had expired. Id. The Court of Appeals affirmed for the reasons stated by the Second Department.

Similarly, where a landlord interferes with a tenant's effort to cure within the curative period, a tenant can obtain Yellowstone relief even after the curative period has expired. In Long Island Gynecological Servs., P.C. v. 1103 Stewart Ave. Assocs., 224 A.D.2d 591, for example, the tenant promptly attempted to cure its default within the 30-day curative period, but the landlord impeded the tenant's efforts by requiring itemized estimates and managerial “direct supervision” and “final written approval” of all work done. 224 A.D.2d at 594. When the tenant sought a Yellowstone injunction nine days after the curative period had expired, the court granted Yellowstone relief, holding that “under the particular circumstances of [the] case,” the tenant was entitled to more than 30 days to cure, and the motion was therefore timely. Id.; see also Commerce Bank v. Dworman, 2007 N.Y. Slip Op. 32457(U) (Sup. Ct. N.Y. Cty.) (granting Yellowstone injunction after expiration of curative period where landlord conditioned tenant's cure on landlord's approval, but failed to respond to tenant's proposal before period expired).

Punitive Damages Upheld on Discrimination Claim

Matter of New York State Division of Human Rights v. Caprarella

NYLJ 3/8/11, p. 36, col. 1

AppDiv, Second Dept.

(memorandum opinion)

The State Division of Human Rights brought a proceeding to enforce its determination that landlord had discriminated on the basis of race in violation of Executive Law ' 296(5). The Appellate Division confirmed the determination, upholding the award of punitive damages and an attorney's fee.

Landlord refused to rent the subject apartment to complainant, an African-American who was qualified to rent the apartment, and subsequently rented it to a white couple. Both the complainant and an African-American tester testified that landlord had represented that the apartment had been rented while, at the same time, landlord informed white testers that the apartment was available. On these facts, tenants made out a prima facie case of discrimination, and landlord's reason for refusing to rent was, in the view of the Human Rights Commissioner, not credible, a determination the Appellate Division held was supported by the record.

On these facts, the court held that a $7,500 award for mental anguish, a $10,000 award for punitive damages, and a $28,932.50 award for an attorney's fee were all justified, and would not be disturbed.

High Income Deregulation Upheld

Follin v. New York State Division of Housing and
Community Renewal (DHCR)

NYLJ 3/9/11, Supreme Court, N.Y. Cty.

(Huff, J.)

In a hybrid article 78 proceeding and declaratory judgment action, tenants sought to overturn DHCR's order denying its appeal of a ruling ordering high income rent deregulation of their apartment. The court denied the petition, holding that equitable claims do not provide a ground for departing from a clear statutory directive.

In 2008, landlord filed a petition for high income deregulation of tenants' apartment, which rented for more than $2,000 per month. Tenants filed information to verify their income, and, in 2010, DHCR issued an order of deregulation, finding that tenants' combined income in both 2006 and 2007 exceeded $175,000. Tenants filed a petition for administrative review (PAR), relying on recession-induced hardship which caused their income in 2009 to drop to less than $50,000. DHCR denied the PAR, and tenants brought this article 78 proceeding.

In dismissing the proceeding, the court noted that the statutory provision of high-income deregulation provides a specific formula, with a single verification of income binding on all parties. Tenants in this case did not show that the Department of Taxation and Finance made an error in determining their income during the relevant years. As a result, DHCR properly deregulated the apartment. Equitable claims advanced for 2009 ' two years after the relevant measuring period ' do not provide a ground for challenging DHCR's determination.

No Retroactive Effect to Yellowstone Injunction

166 Enterprises Corp. v. I G Second Generation Partners, L.P.

NYLJ 2/15/11

AppDiv, First Dept.

(Richter, J.)

In an action by commercial tenant for a declaration that it had not breached a lease provision requiring it to provide liability insurance, tenant appealed from a Supreme Court judgment declaring it in breach, while landlord cross-appealed from Supreme Court's determination that the Yellowstone injunction and cure period remained in effect until a copy of the judgment and notice of entry was served on tenant's attorney. The Appellate Division modified to hold that the Yellowstone injunction and cure period had expired years earlier, because Supreme Court was not entitled to give retroactive effect to a Yellowstone injunction.

On Sept. 10, 2002, landlord served a 15-day notice to cure, alleging that tenant had failed to pay rent and failed to procure the liability insurance required by the lease.

On Sept. 24, one day before the cure period, tenant brought an action seeking declaratory relief, and sought a Yellowstone injunction. On Jan. 8, 2003, Supreme Court denied the Yellowstone injunction on the ground that tenant had failed to show that it was ready and able to cure its default with respect to liability insurance. On Jan. 15, landlord served a notice of termination, effective Jan. 20, 2003. The next day, tenant moved to re-argue and renew its application for a Yellowstone injunction, conceding that its earlier papers had failed to address tenant's ability to cure. Supreme Court granted the motion, and the declaratory judgment action proceeded to trial. On Oct. 21, 2008, more than five years later, Supreme Court found that tenant had breached the insurance provision, but concluded that tenant still had one day to cure ' because tenant had one day left in the cure period when, six years earlier, tenant had originally sought the Yellowstone injunction. When tenant failed to cure, landlord served another notice of termination effective Dec. 31, 2008, and then commenced an ejectment action. On Jan. 20, 2010, Supreme Court awarded landlord possession. Tenant appealed, and landlord cross-appealed.

In modifying, the Appellate Division first held that Supreme Court had correctly found tenant in breach, because even if tenant had been able to prove that its subtenant was carrying sufficient liability insurance, the defect would not have been cured because landlord was not obligated to accept subtenant's performance in lieu of tenant's performance. The court then held that Supreme Court had improperly concluded that tenant retained the right to cure past Jan. 9, 2003. The Appellate Division emphasized that the initial denial of the Yellowstone injunction was proper, and tenant's failure to ensure that the cure period did not lapse was entirely tenant's fault. As a result, landlord's notice of termination was valid, and the tenancy terminated on Jan. 20, 2003. Supreme Court should not have given retroactive effect to a Yellowstone injunction issued after the cure period had expired and the lease had been terminated. No subsequent notice of termination should have been necessary.

COMMENT

Where a lease's curative period expires because of the tenant's own error, courts will not grant a Yellowstone injunction once the period has expired. For example, in T.W. Dress Corp. v. Kaufman, 143 A.D.2d 900, the tenant moved for a Yellowstone injunction and obtained a TRO tolling the curative period pending a hearing on motion. 143 A.D.2d at 900. On the return date of the motion, however, tenant's counsel failed to appear and obtain an extension of the TRO; consequently, the curative period expired. Id. The tenant again moved for Yellowstone relief, arguing that the lapse of the TRO was a mere technicality. Id. The appellate division disagreed, holding that the lapse “divested the court of its power to grant a Yellowstone injunction.” Id.; see also Norlee Wholesale Corp. v. 4111 Hempstead Tpk. Corp., 138 A.D.2d 466 (refusing to toll expired curative period retroactively on tenant's second application for Yellowstone injunction, where first application, although timely, was correctly denied because tenant improperly served order to show cause).

By contrast, courts will grant a Yellowstone injunction retroactively if the curative period expired because of judicial error. In Mann Theatres Corp. v. Mid-Island Shopping Plaza Co., 94 A.D.2d 466 affd 62 N.Y.2d 930, for example, the tenant timely moved for a Yellowstone injunction and obtained a TRO staying the curative period pending a hearing on the motion. Id. at 469. On the date of the hearing, the tenant moved for a continuation of the TRO, but the court erroneously or inadvertently failed to continue it; the curative period then lapsed before the court issued the injunction. Id. at 476. When the tenant was subsequently found to have violated the lease provisions, the Second Department held that the tenant still had time to cure. Id. at 476-77. Because “the Yellowstone rule is equitable in nature” ' and equity dictates that the court's own error “should not result in the forfeiture of a leasehold” ' the court retroactively revived the curative period even after it had expired. Id. The Court of Appeals affirmed for the reasons stated by the Second Department.

Similarly, where a landlord interferes with a tenant's effort to cure within the curative period, a tenant can obtain Yellowstone relief even after the curative period has expired. In Long Island Gynecological Servs., P.C. v. 1103 Stewart Ave. Assocs., 224 A.D.2d 591, for example, the tenant promptly attempted to cure its default within the 30-day curative period, but the landlord impeded the tenant's efforts by requiring itemized estimates and managerial “direct supervision” and “final written approval” of all work done. 224 A.D.2d at 594. When the tenant sought a Yellowstone injunction nine days after the curative period had expired, the court granted Yellowstone relief, holding that “under the particular circumstances of [the] case,” the tenant was entitled to more than 30 days to cure, and the motion was therefore timely. Id.; see also Commerce Bank v. Dworman, 2007 N.Y. Slip Op. 32457(U) (Sup. Ct. N.Y. Cty.) (granting Yellowstone injunction after expiration of curative period where landlord conditioned tenant's cure on landlord's approval, but failed to respond to tenant's proposal before period expired).

Punitive Damages Upheld on Discrimination Claim

Matter of New York State Division of Human Rights v. Caprarella

NYLJ 3/8/11, p. 36, col. 1

AppDiv, Second Dept.

(memorandum opinion)

The State Division of Human Rights brought a proceeding to enforce its determination that landlord had discriminated on the basis of race in violation of Executive Law ' 296(5). The Appellate Division confirmed the determination, upholding the award of punitive damages and an attorney's fee.

Landlord refused to rent the subject apartment to complainant, an African-American who was qualified to rent the apartment, and subsequently rented it to a white couple. Both the complainant and an African-American tester testified that landlord had represented that the apartment had been rented while, at the same time, landlord informed white testers that the apartment was available. On these facts, tenants made out a prima facie case of discrimination, and landlord's reason for refusing to rent was, in the view of the Human Rights Commissioner, not credible, a determination the Appellate Division held was supported by the record.

On these facts, the court held that a $7,500 award for mental anguish, a $10,000 award for punitive damages, and a $28,932.50 award for an attorney's fee were all justified, and would not be disturbed.

High Income Deregulation Upheld

Follin v. New York State Division of Housing and
Community Renewal (DHCR)

NYLJ 3/9/11, Supreme Court, N.Y. Cty.

(Huff, J.)

In a hybrid article 78 proceeding and declaratory judgment action, tenants sought to overturn DHCR's order denying its appeal of a ruling ordering high income rent deregulation of their apartment. The court denied the petition, holding that equitable claims do not provide a ground for departing from a clear statutory directive.

In 2008, landlord filed a petition for high income deregulation of tenants' apartment, which rented for more than $2,000 per month. Tenants filed information to verify their income, and, in 2010, DHCR issued an order of deregulation, finding that tenants' combined income in both 2006 and 2007 exceeded $175,000. Tenants filed a petition for administrative review (PAR), relying on recession-induced hardship which caused their income in 2009 to drop to less than $50,000. DHCR denied the PAR, and tenants brought this article 78 proceeding.

In dismissing the proceeding, the court noted that the statutory provision of high-income deregulation provides a specific formula, with a single verification of income binding on all parties. Tenants in this case did not show that the Department of Taxation and Finance made an error in determining their income during the relevant years. As a result, DHCR properly deregulated the apartment. Equitable claims advanced for 2009 ' two years after the relevant measuring period ' do not provide a ground for challenging DHCR's determination.