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Landlord & Tenant

By ljnstaff
August 01, 2017

Assignee Wrongdoing Might Justify Piercing Corporate Veil BP 399 Park Avenue LLC, v. Pret 399 Park, Inc. NYLJ 5/18/17, p. 23, col. 6 AppDiv, First Dept. (memorandum opinion)

In an action for rent brought by landlord against tenant's assignee, landlord appealed from Supreme Court's grant of summary judgment dismissing several causes of action against assignee. The Appellate Division modified to deny assignee's motion, and to grant landlord's cross-motion dismissing several affirmative defenses, holding that the alleged wrongdoing by assignee might be sufficient to pierce its corporate veil.

Citibank leased the subject property to Pret 399, a wholly owned subsidiary of Pret A Manger, Ltd., (Pret Parent). Pret Parent, not Pret 299, operated a café on the premises and paid the rent. Subsequently, Pret Parent surrendered the premises. Current landlord, Citibank's successor, then brought this action seeking rent for the period after the surrender of possession. Supreme Court awarded summary judgment to Pret Parent, concluding that, as an assignee, Pret Parent's liability for rent did not extend past the date of surrender, and holding that Pret Parent's corporate veil could not be pierced in the absence of a showing of fraud. Landlord appealed.

In modifying, the Appellate Division first held that Pret Parent's decision that Pret Parent would stop paying rent and breach the lease constituted wrongdoing sufficient to pierce Pret Parent's corporate veil. As a result, the court dismissed Pret Parent's affirmative defense that the damages were caused only by the acts and omissions of Pret 399. The court also dismissed the affirmative defense that a letter of credit provided landlord's sole remedy, noting that the lease reserved to landlord “the right to invoke any other remedy allowed by law or in equity.”

The Appellate Division also held, however, that Supreme Court had correctly denied landlord's summary judgment motion, noting that Pret Parent had raised a triable issue of fact about whether Citibank knew it was contracting with an assetless entity (Pret 399), and should therefore be precluded from recovering against Pret Parent. The court also concluded that Pret Parent's affidavit had raised a triable issue of fact as to whether Citibank received a larger than usual security deposit in return for entering into a lease with an assetless entity — thus stopping landlord from seeking relief against Pret Parent.

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