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651 4TH AVE LLC, Plaintiff, v. PARK SLOPE AUTO CENTER, INC., Ali Musa, and Jamil Kneifati-Hayek a/k/a Jimmy Hayek, XYZ Corp., ABC Inc., John Doe 1-10, Jane Doe 1-10, Defendants.
After considering the testimony and exhibits admitted at a hearing to determine the amount of an undertaking, and after considering the briefs, memorandum of law, proposed findings of fact and arguments of the parties, the Court hereby sets the amount of the undertaking at $500,000.00.
On November 16, 2018, plaintiff 651 4TH AVE LLC commenced the instant action for, inter alia, ejectment and trespass by filing a summons and complaint with the Kings County Clerk's office. The defendants interposed a joint answer dated February 8, 2019, which contained counterclaims asserted by Park Slope Auto Center, Inc. (hereinafter PSAC).
The complaint alleged the following salient facts. The plaintiff owns a property located at 651 4th Avenue, Brooklyn, New York (hereinafter the subject property) which it leased to PSAC. In 2013, PSAC's tenancy was terminated. After the termination of the tenancy PSAC refused to leave causing the plaintiff to sustain millions of dollars in damages by preventing it from developing the property. PSAC and its principals have since enjoyed free use of the property against the wishes of the plaintiff for nearly six years. Plaintiff seeks, inter alia, an order of ejectment and for damages arising from PSAC's wrongful squatting at the subject property for almost six years.
By order to show cause signed on January 29, 2019, the plaintiff moved for an order directing the defendants to pay the plaintiff use and occupancy during the pendency of the instant action.
By decision and order dated March 8, 2019, the Court granted plaintiff's motion for use and occupancy solely as to defendant PSAC in the amount of $7,500.00 a month retroactive to January 23, 2019.
By notice of motion filed under motion sequence number six, plaintiff moved for an order pursuant to CPLR 3212 granting summary judgment in its favor as asserted against all defendants. The motion was opposed by the defendants.
By decision and order dated November 1, 2019, and entered on November 15, 2019, the Court granted plaintiff's motion for summary judgment in its favor and ordered the parties to return on November 22, 2019, with proposals as to how the ejectment process could be effectuated peaceably.
On November 21, 2019, PSAC moved the Appellate Division Second Department for a temporary restraining order and preliminary injunction in connection with an appeal pending in a related case entitled Park Slope Auto Center, Inc. v. 651 4th Ave LLC, et al., Index No. 500990/2018 (hereinafter the adverse possession action). PSAC was appealing an order and judgment by Justice Jimenez-Salta dated October 25, 2018, dismissing its cause of action for adverse possession.
On November 21, 2019, the Appellate Division Second Department issued a temporary restraining order enjoining 651 4TH AVE LLC from taking any action to seek the removal, ejectment, and dispossession of PSAC, and its shareholders, officers, and employees from the subject property during the pendency of PSAC's appeal from the Order and Judgment order of Hon. Dawn Jimenez-Salta dated October 25, 2018.
On January 15, 2020, the Appellate Division issued an order conditionally granting PSAC a preliminary injunction (hereinafter the Conditional Stay Order) pending its appeal in the adverse possession action as follows:
ORDERED that the motion is granted to the extent that the respondent 651 4th Ave, LLC, or anyone acting on its behalf, is enjoined from taking any action to evict the appellant from the subject premises, located at 651 4th Avenue, Brooklyn, New York, pending hearing and determination of the appeal, on condition that the appellant [PSAC] posts an undertaking with corporate surety in the office of the Clerk of the Supreme Court, Kings County, in a sum to be fixed by the Supreme Court, Kings County, in terms that if the order appealed from, or any part of it, is affirmed, the surety will indemnify the respondents [Owner] if it is ultimately determined that the respondents [Owner] sustained a loss due to the injunction, and the motion is otherwise denied; and it is further,
ORDERED that the matter is remitted to the Supreme Court, Kings County, to fix the amount of the undertaking in accordance herewith; the appellant shall file the undertaking within 15 days after service upon it of a copy of the order of the Supreme Court, Kings County, fixing the amount thereof.
On January 24, 2020, the parties appeared and agreed that this Court would set the undertaking required by the Appellate Division's Conditional Stay Order.
By Order of this Court dated January 24, 2020, the parties were instructed to submit briefs as to the amount of the undertaking to be posted, and to appear on February 11, 2020 for further proceedings. The parties submitted briefs on February 5, 2020.
The Court then conducted a hearing to determine the appropriate amount of the undertaking on February 11, 2020, February 25, 2020, March 9, 2020, July 21, 2020, and August 11, 2020. The parties agreed that all testimony was complete. The Court directed the parties to submit proposed findings of fact, arguments, and their contentions as to the amount of the undertaking. The parties complied.
Plaintiff contends that while unable to use the subject property during the period of the injunction, it sustained a loss of its potential rental income. Plaintiff further contends that the Court should set the amount of the bond at $806,000.00 based on the evidence it adduced at the hearing.
PSAC contends that the plaintiff's suggested figure is unsupported by the evidence adduced at the hearing. PSAC suggests that the Court should fix the bond at $22,500.00, representing three months of use and occupancy, and should direct PSAC to continue with the payment of such sum pending the determination of PSAC's appeal by the Appellate Division.
FINDINGS OF FACT
Plaintiff is the owner of the property located at and known as 651 4th Ave., Brooklyn, New York. The subject property is a 5,487-square foot parcel of land located at the northeasterly corner of 20th Street and Fourth Avenue in the Park Slope and Greenwood Heights section of Brooklyn, with dimensions of 100 feet by 54.87 feet. The property is improved with a one-story, masonry garage building containing a gross building area of 1,550 square feet. The subject property consists mostly of vacant land enclosed by chain-link perimeter fencing. By Termination Notice dated February 20, 2013, owner's predecessor-in-interest terminated defendants' occupancy at the subject property.
The Conditional Stay Order was conditioned on PSAC posting an undertaking with corporate surety in terms that if the order appealed from, or any part of it, were affirmed, the surety would indemnify the plaintiff if it were ultimately determined that the plaintiff sustained a loss due to the injunction.
The plaintiff offered the testimony of Daniel Sciannameo (hereinafter Sciannameo), an expert in real estate valuation, to offer an opinion as to the market value and rental value of the property. Sciannameo opined that the loss rental income of the property could be determined based on the underlying highest and best use fee simple value of the property, multiplied by a capitalization rate, namely the rate of return on capital. Once the value of the property and the capitalization rate are calculated, those two variables are used in the equation to solve for the final variable, the rental income.
After determining the per diem rental income for the property, that amount is multiplied by the number of days the injunction will likely remain in place, beginning from the date of valuation of the property. The date Sciannameo used for the valuation was November 21, 2019. Sciannameo further opined that the highest and best use fee simple value of the property was $12.4 million and that the property's highest and best use was as a development site for a new mixed-use residential and commercial building.
Sciannameo went on to explain the process by which he made these determinations. To determine the highest and best use, he considered four factors, namely, what was legally permissible; what was physically possible; what was financially feasible; and what was maximally productive. To determine what was legally permissible, he considered permitted zoning uses and deed restrictions. To determine what was physically possible he looked at what the subject property could accommodate given its location, shape, and size. To determine what was financially feasible he examined market conditions. To determine what was maximally productive he considering what usage would bring the highest value to the property. By applying those four factors, he determined that the highest and best use of the subject property was as a new mixed-use residential/commercial building to the full density.
Sciannameo then did an analysis of comparable properties to determine the value of the subject property. Based on taking the average of comparable sales, he determined that the sale price per square foot for the subject property was $350.00. He then multiplied $350.00 by the property's buildable area of 35,666 square feet, to arrive at a value of $12,482,925.00. He further determined that, as with the comparable on which structures existed, a demolition adjustment was necessary to account for the destruction of the existing 1,550 square foot structure on the premises. He then deducted the demolition adjustment of $38,750.00 from the base property value of $12,482,925.00, bringing the final appraised value of the subject property to $12,444,174.00, which he then rounded down to $12,400,000.00.
Sciannameo went on to explain how he determined the capitalization rate. He considered the alternate investments available to a landowner, and ground leases, which typically set forth a specific capitalization or rental rate, for subsequent rental periods. He opined that real estate typically has a higher rate of return, or capitalization rate, than alternate financial investments, such as, stocks, bonds, or treasuries. Based on an Economic Indicators Report from November 2019, he determined that the highest rate of return for an alternate investment was 3.94% for Corporate Bonds rated (Baa), and the average prime rate was 4.75%. He also considered the capitalization rate derived from ground leases to determine whether that rate of return was higher than the rate of return for an alternate investment. He determined that the average of the rate of return, as set forth in multiple ground leases that contained rent reset rates, was 6.5%. He then concluded that the appropriate capitalization rate for the subject property was 6.5%. He then took $12,400,000.00 and multiplied it by the 6.5% capitalization rate to yield an annual rental income of $806,000.00 or a per diem rental rate of $2,208.00.
The plaintiff contends that to determine the appropriate bond in this case, it was reasonable to set the undertaking with the expectation that the injunction will be in place for at least one year. Consequently, plaintiff proposes that the undertaking be set at $806,000.00.
PSAC contends that the plaintiff failed to substantiate its proposed figure based on a number of reasons. PSAC pointed to a purported admission by Sciannameo, that he did not provide data or evidence to substantiate the proposed capitalization rate of 6.5%.
PSAC contends that Sciannameo's opinion and conclusion is based on speculation. PSAC also contends that the $12,400,00.00 which he determined he determined was the market value of the subject property conflicted with the $8,533,161.00 market value that the plaintiff had asserted in its complaint.
PSAC pointed to the fact that Sciannameo did not conduct an environmental assessment of the subject property although he admitted that contamination of the subject property could reduce its value. PSAC contended that prior to 1987, the subject property was previously used as a gas station and was contaminated as a result of leaks from gas tanks on the site. PSAC has also claimed that the subject property has remained unsold although it has been on the market for sale to the general public since December 2019. PSAC argues that this fact standing alone demonstrates that the value of the subject property is not $12,400,000.00. PSAC also contends that the Court should find that the monthly use and occupancy of $7,500.00 paid by the PSA each month pursuant to the prior order of this Court dated March 8, 2019, represents the actual fair monthly rental value of the subject property. PSAC avers that it has paid the amount of $7,500.00 to the plaintiff each month and has fully complied with this Court's order. PSAC contends that the plaintiff has not suffered any damage as a result of the Appellate Division's injunction and that a bond of $22,500.00, representing three (3) months of use and occupancy payments, should be the amount of the undertaking.
LAW AND APPLICATION
The main purpose of an award for use and occupancy and for an undertaking are quite different. The award of use and occupancy during the pendency of an action or proceeding is meant to accommodate the competing interests of the parties in affording necessary and fair protection to both (255 Butler Assocs., LLC v. 255 Butler, LLC, 173 AD3d 651, 653—54 [2nd Dept 2019]; MMB Assoc. v. Dayan, 169 AD2d 422, 422 [1st Dept 1991]). An occupant's duty to pay the landlord for its use and occupancy of the premises is predicated upon the theory of quantum meruit and is imposed by law for the purpose of bringing about justice without reference to the intention of the parties. The award of use and occupancy is only pendente lite, and the remedy for any over or underpayment is a speedy trial (Mushlam, Inc. v. Nazor, 104 AD3d 483 [1st Dept 2013]).
CPLR 6312 (b) unequivocally mandates that the plaintiff furnish an undertaking prior to the granting of a preliminary injunction. This requirement cannot be waived by the court (Confidential Brokerage Servs., Inc. v. Confidential Planning Corp., 85 AD3d 1268, 1271 [3rd Dept 2011]). Upon a final determination that a preliminary injunction or temporary restraining order was erroneously granted, the defendant is entitled to compensatory damage, which are recoverable from the undertaking, if any, posted by the plaintiff. The purpose of the undertaking is to compensate the defendant for damages incurred by reason of an injunction in the event it is determined that the plaintiff was not entitled to the injunction (91—54 Gold Rd., LLC v. Cross—Deegan Realty Corp., 93 AD3d 649, 650 [2nd Dept 2012]). The amount of the undertaking must not be based upon speculation and must be rationally related to the amount of potential damage which the defendant might suffer if it is later determined that the injunction was unwarranted (Hofstra Univ. v. Nassau Cty., New York, 166 AD3d 863, 865 [2nd Dept 2015]).
The Court finds that the plaintiff's evidence regarding the rental value of the subject property was not unreasonable. However, the Court finds that its conclusion of the amount of damage it would likely sustain in the space of a year is premised on overly optimistic set of assumptions. On the other hand, PSAC's conclusion that an undertaking in an amount of no more than an additional three months of use and occupancy is not reasonable. Furthermore, the fact that the Court set a use an occupancy figure of $7,500.00 month does not inform the Court as to the amount of an appropriate undertaking. After considering all the evidence and arguments of the parties, the Court finds that an undertaking in the amount of $500,000.00 is appropriate.
Within thirty days of notice of entry of the instant decision and order, PSAC must post an undertaking with corporate surety in the office of the Clerk of the Supreme Court, Kings County, in the sum of $500,000.00, in terms that if the order appealed from, or any part of it, is affirmed, the surety will indemnify the plaintiff if it is ultimately determined that the plaintiff sustained a loss due to the injunction.
The foregoing constitutes the decision and order of this Court.
Francois A. Rivera, J.
Response sent, thank you
Docket No: 523225/2018
Decided: December 23, 2020
Court: Supreme Court, Kings County, New York.
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