789 Ninth & 414 East 74th Associates LLC v. Hundalani

Background

789 Ninth & 414 East 74th Associates LLC, the landlord, sued Prakash Hundalani and Bina Hundalani to enforce a written “good guy” guaranty connected to a commercial lease between the landlord and Sheridin Fast Food Inc. The guaranty required the defendants to guarantee Sheridin’s lease obligations and stated that it was an absolute and unconditional guaranty of payment and performance. It also required at least nine months’ written notice before the tenant vacated and surrendered the premises, along with payment of specified obligations, including rent, concessions, brokerage commissions, and other charges.

Sheridin vacated the premises on or about October 21, 2019. The landlord alleged that Sheridin had not fulfilled its lease obligations when it vacated, and that the defendants therefore remained liable under the guaranty. The defendants challenged the guaranty’s validity, arguing that the parties had agreed to a three-month rather than a nine-month notice period, that they were not represented by counsel when they signed it, and that Mitchell Rothken, the landlord’s managing agent, had engaged in unauthorized legal practice. They also disputed the landlord’s damages calculations.

Court’s analysis

The court held that the guaranty was clear, absolute, and unconditional. Under New York law, the court explained, an unconditional guaranty generally prevents guarantors from asserting affirmative defenses other than payment and lack of consideration. The court separately concluded that the defendants’ fraud theory did not create a genuine factual dispute: their evidence did not show a material misrepresentation or an intent to deceive, and the evidence concerning what their attorney allegedly said was inadmissible hearsay. The court also found that the defendants had effectively ratified the nine-month notice provision by giving nine months’ notice of the planned vacatur without objecting to that provision.

The court found no dispute that Sheridin owed an underlying debt and that the defendants had not paid it. It therefore concluded that the landlord could enforce the guaranty. On Count One, the court granted summary judgment for $19,419.83 in fixed rent and additional rent due at vacatur. On Count Two, it granted summary judgment for $21,750 in repayment of the rent credit. On Count Three, seeking $6,666.70 for a brokerage commission, it denied summary judgment because the lease did not impose that repayment obligation on the tenant, creating a factual dispute about the defendants’ liability under the related documents.

On Count Four, the court granted summary judgment as to the defendants’ liability for rent and additional rent covering the unexpired lease period, but denied summary judgment as to the amount of damages. The court identified inconsistencies in the landlord’s calculations, including the rent amount under a later lease, treatment of additional rent and present-value discounts, the lease’s expiration date, and an arithmetic error. On Count Five, the court granted summary judgment as to liability for contractual attorneys’ fees but denied it as to damages because the amount of fees could not be determined before the action’s ultimate outcome.

Jury demand and order

The court granted the landlord’s motion to strike the defendants’ jury demand. It found that the guaranty’s jury-waiver provision was knowingly and voluntarily agreed to because the defendants were represented by counsel during negotiations, the provision was sufficiently noticeable, the bargaining-power difference did not make it unenforceable, and the defendants had sufficient business experience.

Judge Victor Marrero ordered that the summary-judgment motion was granted on Counts One, Two, Four in part, and Five in part, and denied on Counts Three, Four in part, and Five in part. The motion to strike the jury demand was granted. The parties were ordered to submit proposed dates and an estimated trial length for a bench trial after October 2023 on the remaining counts.