Motion for Summary Judgment; Collateral Estoppel; Res Judicata; Termination of Lease through Bankruptcy; Landlord-Tenant Dispute; RPAPL §601; Misappropriation; Unfair Competition.
By Keith Olsen
Defendant, landlord, leased commercial properties to a corporation, tenant, which subleased those properties to Plaintiffs. The lease and sublease contracts included a clause that stated that if the lease is terminated by the lessee, then all personal property on the premises is considered abandoned. The lessor may then store or discard such property, without notice to lessee, and at lessee’s cost. Plaintiffs expended roughly a million dollars on capital improvements of these locations.
A few years later, Tenant filed for chapter 11 bankruptcy. The Bankruptcy Court entered an order rejecting the lease between Tenant and Defendant, thereby terminating all subleases with Plaintiffs. Subsequently, the Bankruptcy Court issued another order mandating Plaintiffs to vacate the properties.
Defendant filed a suit against Plaintiffs for ejectment, use and occupancy, and other claims, and sought warrants of eviction, monetary damages, and a declaratory judgment. Plaintiffs alleged counterclaims for tortious interference with contract and unfair competition based upon their capital expenditures used to improve the properties. Additionally, Plaintiffs sought to reduce any damages related to their use and occupancy of the property after termination of the lease pursuant to RPAPL §601, which provides that damages can be decreased by the value of capital improvements performed on property by lessee during course of lease.
In that case, the Court issued summary judgment in favor of Defendant. The Plaintiffs alleged that Defendant’s motion to eject Plaintiffs from these properties was tortious interference with the sublease agreement that Plaintiffs had with Tenant. The Court stated that the sublease had been terminated by order of the Bankruptcy Court, which meant that there was no contract with which Defendant could have interfered. Additionally, Plaintiffs asserted that the motion for ejectment was a form of unfair competition because Plaintiffs had improved the properties, and ejectment amounted to an appropriation of those capital expenditures. The Court declared that Plaintiffs had not alleged that Defendant had acted in bad faith, which is an integral element of the unfair competition cause of action. Finally, with regard to the RPAPL §601 claim, the Court noted that the improvements were performed by non-parties in connection with the sole shareholder of the Plaintiffs. As these non-parties had no other relationship to the non-parties which performed the work, contractual or otherwise, the Court stated that RPAPL §601 did not apply.
Following the resolution of that suit, Plaintiffs then commenced this action against Defendant seeking monetary damages for breach of contract, conversion of property, unjust enrichment, and unfair competition. All of these claims arose out of the same terminated lease as the first case, and were attempts to regain the value of the capital improvements performed on the properties. Defendant moved for summary judgment against Plaintiffs’ claims.
Defendant’s motion for summary judgment was granted. The Court began its analysis by explaining that a claim is barred if the decision of an earlier suit “necessarily implies” the result of the current suit, even if the particular claim at issue was never directly raised previously. Additionally, the Court relied upon the transactional analysis test put forth by the New York Court of Appeals, which states that claims are precluded if the actions and legal theories deal with the same gravamen, or underlying dispute, as a previous case.
Here, the Court stated that the Plaintiffs’ causes of action all arose from the same Landlord/Tenant relationship and revolved around the capital improvements performed on the properties. The Plaintiffs’ attempted to receive a setoff from the amount of damage they owed Defendant by attempting to use RPAPL §601 which dealt directly with the issue of the capital improvements. Therefore, Plaintiffs’ claims are precluded because the issue of whether Defendant owed Plaintiffs compensation for the capital improvements was necessarily implied in the determination that RPAPL §601 was not applicable. The Court concluded by stating that Plaintiffs should have raised the current claims in the prior action.
1224 Route 22 LLC. v. Getty Properties Corp., 401313/2013, 1/25/2016 (Singh, J.).