Silverman v. 875 Tenant Corp.

Silverman v. 875 Tenant Corp. was a recent case in which the court required a co-op shareholder who had waged a losing battle with a co-op in a dispute over apartment alterations to reimburse the co-op for its legal expenses.

John and Isabelle Silverman were the owners of a unit at 875 Tenant Corp., a co-op at 875 Fifth Avenue in Manhattan. In the complaint, the Silvermans alleged that the co-op had breached its obligations under the proprietary lease, the co-op’s bylaws and an alteration agreement related to construction that the Silvermans wished to undertake. In addition, they maintained that the co-op constructively evicted them from their apartment and committed fraud. The co-op asserted counterclaims for breach of contract, fraud, and attorneys’ fees under the lease and alteration agreement. After several years of protracted litigation including the filing of two amended complaints, the appellate division of the Supreme Court upheld a lower court’s dismissal of the bulk of the Silvermans’ claims and dismissed the remaining causes of action.

In this motion, the co-op sought partial summary judgment on liability on its second counterclaim for attorneys’ fees. The terms of the proprietary lease provided that “if the [co-op] shall successfully defend any action or proceeding (or claim therein) commenced by [the Silvermans], [the Silvermans] will reimburse the [co-op] for all expenses (including but not limited to) attorneys’ fees and disbursements thereby incurred by the [co-op], so far as the same are reasonable in amount, and the [co-op] shall have the right to collect the same as additional rent.”

Thus, the quoted language unambiguously provided for an award of reasonable attorneys’ fees if two conditions were met: an action begun against the co-op by the Silvermans and the co-op’s successful defense of that action. Since both conditions were undeniably satisfied here, the court held that the co-op was entitled to summary judgment on its attorneys’ fees claim.

The Silvermans asserted that the co-op had to prove that a default on their part was baseless since the language of the provision did not contain any such requirement. In the court’s view, there was no merit to the Silvermans’ claim that the attorneys’ fees provision in the proprietary lease was unconscionable or against public policy. Although the quoted language could arguably cover any type of suit brought by the Silvermans against the co-op, there was no dispute that the action at issue involved matters clearly within the parties’ landlord-tenant relationship. Moreover, there were no overriding policy issues here which would insulate the Silvermans from their contractual obligations. In the court’s view, both of them were attorneys who freely entered into an arms-length real estate transaction and could be held to the terms of the contract they had agreed to.

Nor, said the court, was there any merit to the Silvermans’ contention that there was a factual issue as to who the prevailing party was. The court noted that the lease did not even use the term “prevailing party”; it mandated a fee award if the co-op successfully defended an action brought by the Silvermans. Even if the “prevailing party” analysis applied, there was no doubt that the co-op had prevailed. A prior case had held that, “In order to justify an award of contractual attorneys’ fees, the court need not adopt each claim raised in a lawsuit. Rather, the claimant must simply be the prevailing party on the central claims advanced, and receive substantial relief as a consequence.”

Here, the appellate division made clear that the co-op was the prevailing party in all respects when it gave the co-op the “substantial relief” of dismissing the second amended complaint in its entirety. The fact that the co-op had outstanding counterclaims that could eventually be dismissed did not prevent this court from determining that the co-op successfully defended the Silverman’s causes of action and thus was the prevailing party for purposes of this fee application. Likewise, the Silvermans’ contention that the co-op’s motion was premature and must await the outcome of the counterclaims was without merit. The question of whether the Silvermans themselves might be entitled to an award of attorneys’ fees under Real Property Law Section 234 could be addressed after the counterclaims were fully resolved and could not stand in the way of the co-op’s entitlement to summary judgment.

The court said that it would hold a trial on damages to determine the amount and reasonableness of the attorneys’ fees incurred by the co-op. Since its potential entitlement to attorneys’ fees could not be determined at this stage, the court said that it would not make any award relating to them. The Silvermans’ allegations that the co-op engaged in bad faith tactics of unduly delaying and protracting this litigation would be considered by the court in determining the reasonableness of the fees and whether all the fees sought were for appropriate services involved in the defense of the action.

The Silvermans cross-moved for summary judgment, dismissing the co-op’s third counterclaim alleging that the Silvermans fraudulently induced the co-op into entering the subject lease and alteration agreement. The co-op maintained that at the time the Silvermans entered into these contracts, they falsely represented that they would abide by the terms of the agreements concerning renovations to the apartment. The court decided that the fraudulent inducement claim should be dismissed as redundant, being similar to the first counterclaim alleging breach of contract.

Even if the cause of action were sufficiently stated, the court concluded that the Silvermans had submitted proof by affidavit that at the time they entered into the agreements, they did not intend to install a doorway between the two rooms and that that idea only came to them after they began renovations. Since the co-op had not submitted any evidence refuting this proof, it failed to meet its burden of showing that there was any issue of fact as to the Silvermans’ intent. The court was not swayed by the co-op’s argument that there existed circumstantial evidence showing that the Silvermans always had intended to construct the doorway. The fact that the large hole was made in the wall the day after the Silvermans signed the lease does not lead to the conclusion that they falsely misrepresented their intentions, particularly in light of the fact that the air conditioner installer had instructed the Silvermans to make a large opening to facilitate placement of the equipment.

The court rejected the co-op’s claim that the cross-motion was premature and concluded that additional discovery could lead to facts which would defeat the motion. The court stated that the case had been litigated both in the Supreme Court and on appeal for almost three years now and hundreds of thousands of dollars in attorneys’ fees had already been spent. The co-op’s claim that a receipt for lumber and the location of a missing carpenter might lead to proof showing the Silvermans’ fraud was entirely speculative. Finally, even if the co-op could establish fraud, the court found that it had failed to offer any proof showing that it had relied on the alleged misrepresentation when it entered into the lease. Accordingly, it was ordered that the co-op’s motion for summary judgment on liability on the second counterclaim for attorneys’ fees was granted, and the court would hold a trial on the amount and reasonableness of the attorneys’ fees.