KASOWITZ BENSON TORRES FRIEDMAN LLP v. Fletcher International, Ltd., et al., Intervenor–Respondents. (2025)

Judgment, Supreme Court, New York County (Lewis J. Lubell, J.), entered November 8, 2021, declaring that the lien of The Dakota, Inc. is prior to that of JPMorgan Chase Bank, N.A., unanimously reversed, on the law, without costs, the judgment vacated, and Chase's lien declared superior to The Dakota's.  Appeal from order, same court and Justice, entered on or about August 4, 2021, which granted The Dakota's summary judgment motion and denied Chase's summary judgment motion, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.

At issue on remand from the Court of Appeals (Matter of Kasowitz, Benson, Torres & Friedman, LLP v. JPMorgan Chase Bank, N.A., ––– N.Y.3d ––––, ––– N.Y.S.3d ––––, ––– N.E.3d ––––, 2024 N.Y. Slip Op 05876 [2024], revg 209 A.D.3d 529, 177 N.Y.S.3d 23 [1st Dept. 2022]) is Chase's challenge to the award of attorneys’ fees to The Dakota in prior litigation initiated by its former shareholder-tenant Alphonse Fletcher, Jr.

The proprietary lease between The Dakota and Fletcher states that The Dakota would be entitled to attorneys’ fees “[i]f the Lessee shall at any time be in default hereunder, and the Lessor shall take any action against the Lessee based upon such default, or if the Lessor shall defend any action or proceeding (or claim therein) commenced by the Lessee.”  This provision makes clear that attorneys’ fees are to be awarded under two circumstances:  first, when the lessee is in default;  second, whenever a lessee sues The Dakota, even if The Dakota is in default.

Because the lease provides for attorneys’ fees regardless of default or merit, in a dispute between a residential co-op and a shareholder tenant, we find this provision to be unenforceable as unconscionable (compare Matter of Krodel v. Amalgamated Dwellings Inc., 166 A.D.3d 412, 413–414, 88 N.Y.S.3d 31 [1st Dept. 2018] [finding similar provision unconscionable in a dispute between those types of parties], lv denied 33 N.Y.3d 910, 2019 WL 2626409 [2019], with Glaze Teriyaki LLC v. MacArthur Props. I LLC, 206 A.D.3d 513, 513, 168 N.Y.S.3d 687 [1st Dept. 2022] [finding attorneys’ fee provision enforceable in dispute with commercial tenant “(i)n light of the fact that the parties to the lease are sophisticated entities that negotiated the lease terms through counsel”]).  The lease is not “silent as to whether such right is contingent upon the merits of plaintiff's action” (Firemen's Assn. of the State of N.Y. v. 99 Washington, LLC, 73 A.D.3d 1320, 1322, 901 N.Y.S.2d 739 [3d Dept. 2010]), but explicitly provides for attorneys’ fees whenever the tenant sues The Dakota.  This interpretation is not changed by the description of the fees as “reasonable” (see Krodel, 166 A.D.3d at 412, 88 N.Y.S.3d 31 [interpreting a provision that provided for “reasonable legal fees”]).  “Bearing in mind that agreements providing for payment of attorneys’ fees should be construed strictly” (Andrews 44 Coffee Shops Inc. v. TST/TMW 405 Lexington, L.P., 40 A.D.3d 544, 545, 837 N.Y.S.2d 634 [1st Dept. 2007]), we will not rewrite the parties’ agreement simply because The Dakota prevailed in the underlying litigation (see Krodel, 166 A.D.3d at 412–413, 88 N.Y.S.3d 31 [affirming dismissal of counterclaim for attorneys’ fees prior to resolution of the merits]).  “To enforce such a provision would produce an unjust result because it would dissuade aggrieved parties from pursuing litigation and preclude tenant-shareholders from making meaningful decisions about how to vindicate their rights in legitimate instances of landlord default” (Krodel, 166 A.D.3d at 414, 88 N.Y.S.3d 31).