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MTS, INC. v. 200 EAST 87TH ST. ASSOCS.

September 18, 1995

MTS, INC., Plaintiff, against 200 EAST 87TH STREET ASSOCIATES, Defendant.

ROBERT W. SWEET, U.S.D.J.


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D.J.

 Plaintiff MTS, Inc. ("Tower") has moved for summary judgment pursuant to Rule 56, Fed. R. Civ. P. to compel the arbitration sought in the third claim of its complaint and to dismiss the first counterclaim of defendant 200 East 87th Street Associates, Inc. ("Associates") seeking attorneys' fees. Associated has moved under the same Rule to dismiss Tower's first claim for rent reimbursement and for an order awarding Associates $ 237,330.58 on its first counterclaim for attorneys' fees. The claims are alleged to arise out of the lease between the parties dated March 17, 1989 (the "Lease") for retail space at the building at 200 East 87th Street, New York, New York (the "Building").

 Upon the following findings and conclusions and all the prior proceedings, the motions of Tower will be granted, and those of Associates denied.

 Prior Proceedings

 This action arises as a sequel to the prior litigation between the parties, 200 East 87th Street Associates v. MTS, Inc., 793 F. Supp. 1237 (S.D.N.Y.), aff'd mem., 978 F.2d 706 (2d Cir. 1992) ("Prior Litigation") in which the positions of the parties were reversed. There Tower counterclaimed that whether or not the Lease had been properly terminated for failure of Associates to satisfy a condition subsequent, Associates had anticipatorily breached the Lease by, among other things, constructing the building in such a way as to make it impossible to deliver to Tower the required amount of floor space on the second floor of the Building.

 Associates replied Tower was estopped to claim that breach because it had gone forward knowing that Associates could not deliver the required amount of second floor space and that pursuant to the arbitration clause in the Lease any deficiency in floor space must be dealt with by an appropriate rent abatement to be awarded in arbitration.

 The Prior Litigation was the subject of an opinion of this Court rendered on July 21, 1992 (the "Opinion") which was appealed to the Second Circuit which affirmed without opinion on September 23, 1992.

 This subsequent action was commenced on December 19, 1994. The instant motion was filed on May 11, 1995, argument was heard on August 2, additional papers were submitted and on August 11 the motion was considered fully submitted.

 The Facts

 The findings of fact determined in the Prior Litigation have not been contravened by any submission on this motion and are therefore adopted as previously found, some of which are repeated below for the sake of clarity.

 The parties entered into the Lease as of March 17, 1989 for retail space on the sub-basement, basement, first, and second floors of the Building. The Lease provided at P 59(A) that either side could terminate the Lease if Associates did not construct the Building and obtain a Temporary Certificate of Occupancy ("TCO") by March 17, 1992. Associates did not obtain a TCO by that date, and Tower sent a notice on April 7, 1992, exercising its option under P 59(A) to terminate the Lease.

 Associates then initiated the Prior Litigation seeking,

 
a declaration that the Landlord is not in violation of any of the provisions of the Lease based upon the failure to obtain a TCO for the Building by March 17, 1992, that the notice terminating the Lease is void, that the Landlord be afforded a reasonable opportunity to cure its breach and that Tower be enjoined and restrained from terminating the Lease . . . .

 Id. at 1239.

 Tower asserted counterclaims that Associates had anticipatorily breached the Lease by making it impossible to comply with two elements of "Owner's Work" specified in P 46 of the Lease: Associates had built the Building in a manner that made it impossible to satisfy both P 46(4)'s requirement of thirteen foot ceiling heights, and P 46(3)'s requirement of 11,850 square feet, plus or minus 5%, of second floor space, as well as certain other provisions of the Lease, including an obligation of quiet enjoyment of the premises promises in P 22 of the Lease.

 Tower's counterclaim in the Prior Litigation alleged that "the square footage of the second floor is less than that required under P 46(3) of the Lease." Id. at 1239-40. Paragraph 46(3) of the Lease required Associates to deliver to Tower "'approximately 11,850 square feet of second level store space, all +- 5%.'" Id. at 1254 and the Court found that, "the actual amount of space allocated to Tower on the second floor is now 10,600 square feet, which is 10.5% less than that called for in P 46(3)." Id. at 1254.

 The Opinion in the Prior Litigation held that Associates had not breached the Lease, that "the parties intended the Landlord to have a right to cure its failure to obtain a TCO by March 17, 1992, within a reasonable period," that Associates had done so, and that Tower therefore "may not terminate the Lease" based on the failure to obtain a TCO. 200 East 87th Street Associates v. MTS, Inc., 793 F. Supp. at 1250. On the issue of second-floor space, the Opinion stated that P 61(B) of the Lease "precludes Tower from litigating the square footage issue." Id. at 1254. "The shortfall in square footage [on the second floor] would not constitute an anticipatory repudiation of the Lease . . . Paragraph 61(B) specifically provides that the remedy for such an occurrence is a rent-reduction proportionate to the difference between the actual and projected square footage." Id. at 1256.

 The Opinion also stated as follows:

 
Tower argues that P 61(B) applies to disputes over the overall square footage of the Tower space and not to disputes, such as this one, over the square footage of individual floors. However, P 61(B) provides no basis for such an interpretation. The term "square footage of store space" is defined in that paragraph to include "square footage on ground floor, second floor, basement and sub-basement levels." Were Tower's interpretation of this paragraph to be accepted, one would have to rewrite that definition to state "square footage of store space means the total of the square footage on the ground floor, second floor, basement and sub-basement levels."

 Id. at 1255 n.6.

 Paragraph 59(C) of the Lease provided that Tower's monthly rent obligation of $ 87,347.75 "shall commence on the date which is seven (7) months after delivery of possession of the demised premises in accordance with Paragraph B hereof..." Paragraph 59(B) stated that Tower "shall receive possession of the demised premises for the purpose of construction of Tenant's Work upon substantial completion of Owner's Work set forth in Article 46."

 Associates sent Tower a letter on January 22, 1992 which stated that "the premises ... will be substantially complete and possession thereof shall be delivered to you as of Thursday, January 30, 1992." By letter of January 30, 1992, Tower sent notice to Associates that they were rejecting the notice of substantial completion based on the following:

 
1. The Owner's continued failure to demonstrate that the demised premises are zoned for retail use ...

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