Scott E. Mollen

Commercial Landlord-Tenant—RPAPL Amendments—Landlord's Oral Request for Use and Occupancy (U&O) in Commercial Non-Payment Proceeding Denied—Courts May No Longer Strike Pleadings Based on Failure To Pay U&O—Immediate Trial is the New Remedy for Failure To Pay U&O—U&O No Longer Available From the Date of the Petition—Available Only From the Date of the Court's Order

A landlord commenced a commercial non-payment proceeding against its tenant for unpaid rent on July 25, 2019. The tenant filed an answer on Sept. 20, 2019. The tenant alleged a "lack of personal jurisdiction defense." The case was scheduled to be heard for the first time, on Oct. 1, 2019. The landlord and the tenant appeared. The tenant requested an adjournment to Nov. 4, 2019 for the purpose of hiring an attorney. The landlord consented only to an adjournment to Oct. 21, 2019, 20 days later. The court granted the tenant's request and adjourned the case for a traverse hearing to Nov. 4, 2019, over the landlord's objection. Based on the adjournment, the landlord made an oral motion to the court requesting U&O pursuant to Real Property Actions and Proceeding Law (RPAPL). It requested U&O from the date of the petition. The court denied the landlord's motion.

The court explained that the landlord had "erroneously relied on the prior iteration of the RPAPL in its present application for use and occupancy." Here, the landlord had only made an oral application for U&O when RPAPL §745(2)(a) "now requires that requests for (U&O) be made 'upon a motion on notice made by petitioner.'" Thus, the court held that the landlord's motion was "not properly before the court."

The court noted that RPAPL §745(2)(a)(vii) also provides that "[t]he court shall not order deposit or payment of (U&O) where the respondent can establish, to the satisfaction of the court, that respondent has properly interposed one of the following defenses or established the following grounds: the court lacks personal jurisdiction over the respondent." Since the tenant had asserted a lack of personal jurisdiction defense, the court held that the landlord's application for U&O was "not available."

The court further stated that even assuming arguendo that the court waived the motion on notice requirement and found that the tenant's personal jurisdiction defense was not substantiated, RPAPL §745(2)(a) provides that "the court may, upon consideration of the equities, direct the respondent, upon a motion on notice made by the petitioner, deposit with the court sums of rent or (U&O) that shall accrue subsequent to the date of the court's order…." Therefore, the court held that the landlord's request for (U&O) from the date of the petition "is no longer possible under the RPAPL."

The landlord contended that if the tenant failed to pay (U&O) as ordered, since the landlord had believed the RPAPL required it be granted the relief it requested, the landlord could move to strike the tenant's answer. The court rejected such position and explained that RPAPL §745(2)(d)(i), (ii) provides that: "[i]n the event that the respondent fails to deposit with the court or pay, as the case may be, upon the due date, all rent or (U&O) which may become due subsequent to the issuance of the court's deposit order, the court upon an application of the petitioner may order an immediate trial of the issues raised in the respondent's answer. An 'immediate trial' shall mean that no further adjournments of the proceeding upon respondent's sole request shall be granted, the case shall be assigned by the administrative judge to a trial ready part and such trial shall commence as soon as practicable and continue day to day until completed. The court may extend anytime provided for such deposit under this subdivision for good cause shown." The court noted that the "ability to strike pleadings due to a failure to pay (U&O) has been removed and immediate trial is a new remedy for failures to pay (U&O)."

Accordingly, the court denied the landlord's oral motion for (U&O) and rejected the landlord's arguments as to the "mandatory nature of such relief without prejudice."

151 Realty LLC v. Alava, Civil Court, Bronx Co., Case No. 901015/19, decided October 7, 2019, Soto, J.

Commercial Landlord-Tenant—Landlord Sought To Pierce the Corporate Veil –Corporate Defendant Liable For Breach—Summary Judgment Denied Against the Individual Defendant

A landlord commenced a breach of contract action, seeking to recover unpaid rent pursuant to a lease agreement against a corporate tenant ("A") and "A's" president. The defendants moved for summary judgment, seeking to dismiss all claims against the president individually. The landlord opposed the defendants' motion and cross moved for summary judgment against both defendants, asserting a "piercing the corporate veil" claim against the president. The court denied the defendants' motions. The court granted the landlord's cross motion with respect to "A."

The president had signed the lease as "President of 'A.'" No personal guarantee had been signed. Thereafter, the president signed a lease extension as "President of the corporation." Thereafter, "A" was dissolved and the assets were sold for $75,000. Approximately two months later, "'A' stopped paying rent and abandoned the premises, several months prior to the expiration of the lease term."

The court found that the landlord had established the alleged breach of contract claim and lack of any defenses by "A." The defendants had conceded that "A" breached the lease and vacated premises before expiration of the lease and had left an unpaid balance. "A's" opposition to the landlord's cross motion consisted only of an attorney's affirmation. The attorney lacked personal knowledge of the underlying facts. The court held that his affirmation lacked "probative value or evidentiary significance."

However, the court found that the landlord's motion papers failed to establish the "precise nature and amount of damages." Although the complaint sought "no less than $93,796.43" in damages, the motion papers did not delineate the exact amount of "unpaid rent, unpaid additional rent and/or any other category of damages." Thus, the court held that the amount of damages had to be established at a trial or inquest.

The court then held that neither party had established entitlement to summary judgment with respect to the liability of the president. The court explained that "[o]rdinarily, a corporation exists independently of its owners, as a separate legal entity, and its owners are not liable for the action of the corporation." In order to pierce the corporate veil, a plaintiff must demonstrate that the "owners exercised complete domination of the corporation in respect to the transaction attacked," and that "such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury."

Additionally, the court noted that "undercapitalization of a corporation and the corporation's owner's personal use of corporate funds, which results in the corporation's being unable to pay a judgment, constitute wrongdoing and injury sufficient to satisfy" the proof necessary to pierce a corporate veil. However, a "simple breach of contract, without more, does not constitute a fraud or wrong warranting the piercing of the corporate veil." Moreover, "since a fact-specific analysis is necessary when determining whether to pierce the corporate veil, summary judgment is generally not appropriate."

The president argued that he was "never a party to the lease and did not personally guarantee the lease." However, the landlord was not alleging that the president was a party to the lease or had signed a personal guarantee. A deposition of the president established "that the corporation was formed solely by (the president), (the president) was the sole shareholder of the corporation, the corporation had no corporate officers or board of directors, the corporation never made corporate resolutions for any of its acts, including the ultimate sale of assets and distribution of sale proceeds, and… (the president) unilaterally decided to vacate the premises and 'stop paying rent.'"

Deposition testimony further indicated that the president "exercised complete dominion over the corporation." The landlord's managing agent testified in deposition that she had "all communications and transactions with the corporate tenant… through (president) only." She also explained that although "A" had other employees, she was not "allowed to discuss anything without (the president)." She also testified that notices were sent to the president personally "at home and not to the corporation."

The court found that the evidence demonstrated that the president "exercised complete dominion over the corporation." However, the court held that it fell "short of establishing as a matter of law that such domination was used to commit a fraud or wrong against the plaintiff warranting piercing of the corporate veil." Although the landlord claimed that the corporation was undercapitalized and that the president had fraudulently transferred its assets, the landlord had provided "nothing more than (president's) testimony that the proceeds of the sale of the corporate assets were used to pay other unspecified existing debts."

The court also noted that although the president's attorney had "limited further inquiry on that issue, the (landlord) had a full opportunity to seek discovery and represented… that all discovery was, in fact, complete." The landlord had not shown that the president's "decision to breach a lease constituted the type of fraud or wrongful act necessary to pierce the corporate veil. Indeed,… a mere breach of contract, without more, does not constitute a fraud or wrong warranting application of that principle."

Accordingly, the court held that there were triable issues as to "whether by undercapitalization, fraud or other wrong, (president) caused injury to the plaintiff such that he may be liable for the corporation's breach of contract and,… what damages are owed to the plaintiff."

Milltex Distrib. LLC v. Cameron Stewart Inc., Supreme Court, New York Co., Case No. 650260/2017, decided October 10, 2019, Bannon, J.

Foreclosures—Defendant Failed To Demonstrate Reasonable Excuse For Default and Meritorious Defense—CPLR 317 Does Not Require Showing a Reasonable Excuse For Default and Was Inapplicable—Failure To Receive Notice of Summons and Complaint Served on Secretary of State Pursuant to Limited Liability Company Law §303 is Not Reasonable Excuse Given Defendant's Failure To Maintain Current Address On File With Secretary of State For at Least Five Years—Defendant Failed To Prove that the Sales Price Was Unconscionable

A trial court had denied a defendant property owner's motion to vacate a judgment of foreclosure and sale. The Appellate Division, First Department (court) affirmed. A proposed intervenor's cross motion to intervene which had been denied, was held to be moot and therefore dismissed as "academic."

The defendant "failed to demonstrate a reasonable excuse for its default of a meritorious defense to this foreclosure action…." The court explained that CPLR 317, does not require "the showing of a reasonable excuse for default" and was inapplicable to the subject action. See Admin. Code of City of NY §11-340.

The defendant owner of the foreclosed property argued that it had never received notice of the summons and complaint which was served on the Secretary of State pursuant to Limited Liability Company Law §303. The court held that the defendant's excuse was not a reasonable excuse, since the defendant had failed "to keep a current address on file with the Secretary of State for at least five years…."

The court further held that the defendant owner's "proposed answer and its principal's affidavit contain only conclusory assertions, which do not establish a meritorious defense…." It noted that the defendant's "claimed willingness to pay the tax lien well after the property was sold at auction is not a defense…" and the defendant did not provide "any support for its contention that the sales price was unconscionable…."

Finally, the court held that the proposed intervenor, "as the subsequent purchaser of the property, should have been permitted to intervene." However, since the court had affirmed, the issue was "academic."

Comment: Jeffrey Metz, a partner at Adam Leitman Bailey, P.C. and counsel for 598 Eagle LLC, the foreclosure purchaser/proposed intervenor, stated: "This is an important case that protects the rights of innocent foreclosure purchasers because it confirms that failure to update a business's address will not negate service on the Secretary of State, that CPLR 317 does not apply in New York City tax foreclosures, and that a property owner cannot overturn a foreclosure sale by offering to pay the amount due after the auction is complete."

NYCTL 1998-2 Trust v. Alanis Realty LLC, App. Div., 1st Dept., Case No. 260269/14, decided Oct. 10, 2019, Renwick, J.P., Gische, Kapnick, Gesmer, Moulton, JJ., All concur.

Scott E. Mollen is a partner at Herrick, Feinstein.