United States District Court, Southern District of New York
February 21, 2002
BROAD FINANCIAL CENTER LLC, PLAINTIFF,
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., DEFENDANT.
The opinion of the court was delivered by: Michael B. Mukasey, District Judge.
OPINION AND ORDER
Defendant National Association of Securities Dealers, Inc. ("NASD") is
the lessee of several floors at 33 Whitehall Street, in Manhattan. By
order entered October 30, 2001, this Court condemned three of those
floors for use by the government to meet emergency needs created by
devastation resulting from the September 11, 2001 attack on this
country. Plaintiff is the lessor of the subject space. Because the
condemned space constituted more than 25% of the NASD's leased space in
the building, the NASD took the position that it was permitted to
terminate the lease, and gave notice to that effect. The NASD moved out
of the building as of January 2002. A principal underlying issue in the
instant case is whether the NASD was entitled to terminate the lease, or
whether it remains liable for rent on the demised premises.
Plaintiff Broad Financial Center LLC ("Broad Financial"), the lessor,
is now in negotiation with the Equal Employment Opportunity Commission
("EEOC") to lease certain of the floors vacated by the NASD, and has
served a notice of termination of the lease for non-payment of rent.
Broad Financial takes the position that it must terminate the NASD lease
so that it can lease the vacant space to the EEOC, and argues that such a
lease can only help the NASD by mitigating the NASD's potential damages
for rent on space it is not, in any event, using.
The case is now before the court on the NASD's application for what is
referred to in New York landlord/tenant parlance as a Yellowstone
injunction to stay the tolling
of the cure period under the lease, and to
block the effectiveness of Broad Financial's termination notice.
Thus, the parties are in the following anomalous position: Broad
Financial opposes the NASD's claim that it properly terminated the lease
as the result of the condemnation, but seeks to terminate the lease now
for non-payment of rent. The NASD takes the position that it properly
terminated the lease as the result of the condemnation, but opposes Broad
Financial's attempt to terminate the lease now for non-payment of rent.
The NASD concedes that it has vacated the space and that it is
impractical for the NASD to move back in if it loses the underlying
litigation. Although the NASD asserts that it could sublet the space in
that event, or find other uses for it, the underlying lease runs only
until February 28, 2003. Obviously, what has happened is that the
condemnation set off negotiation between the parties, and maneuvering for
position, of which the current motion is a part.
A Yellowstone injunction, the eponymous fruit of First National
Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630,
290 N.Y.S.2d 721 (1968), is an equitable device made available under New
York law to prevent the cure period in a commercial real estate lease
from expiring before the tenant can litigate its rights. The effect of
such an injunction, which must be applied for before the cure period
expires, is to stay the running of the cure period until the merits can
be resolved in court. See Post v. 120 East End Ave. Corp., 62 N.Y.2d 19,
24-26, 475 N.Y.S.2d 821, 823 (1984). To obtain a Yellowstone injunction,
a tenant must show that:
(1) it holds a commercial lease; (2) it received from the
landlord either a notice of default, a notice to cure, or
a threat of termination of the lease; (3) it requested
injunctive relief prior to the termination of the lease;
and (4) it is prepared and maintains the ability to cure
the alleged default by any means short of vacating the
Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave.,
93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 94 (1999) (quoting 225 E. 36th St.
Garage Corp. v. 221 E. 36th Owners Corp., 211 A.D.2d 420, 421,
621 N.Y.S.2d 302, 303-4 (1st Dep't 1995)) (internal quotation marks
omitted). A clue to the goal and the equitable nature of a Yellowstone
injunction may be found in the fourth requirement listed above —
that the tenant has the ability to cure the default by any means short of
vacating the premises. The prejudice to the tenant that the Yellowstone
injunction is designed to avoid is forfeiture and eviction. As described
in Post, under the regime of Yellowstone,
tenants developed the practice of obtaining a stay of the
cure period before it expired to preserve the lease until
the merits of the dispute could be settled in court. The
alternative for the tenant was to stand on his rights
without correcting the violation, wait for the landlord
to start summary proceedings in Civil Court and then
defend against the landlord's claim in that court. If he
won, well and good; if he lost he forfeited everything
because the lease had terminated. The remedy for this
all or nothing result was to obtain a stay to toll the
running of the cure period and the expiration of the
Post, 62 N.Y.2d at 25, 475 N.Y.S.2d at 823. As a result, courts have
granted Yellowstone injunctions
routinely to avoid forfeiture of the tenant's interest
and in doing so they accepted far less than the normal
showing required for preliminary injunctive relief. An
applicant rarely has been required
to demonstrate a
likelihood of success, irreparable injury, and that the
equities favored preliminary relief as those terms are
Id. The reason courts "rarely" required a showing of irreparable injury
or an equitable balance in the tenant's favor was not that the prospect
of irreparable injury and a compelling equitable case for the tenant was
not necessary, but rather that they could be presumed if a commercial
tenant was about to lose its lease. At a minimum, a tenant has a
"substantial property interest" in its lease. Ameurasia Int'l. Corp. v.
Finch Realty Co., 90 A.D.2d 760
, 455 N.Y.S.2d 900 (1st Dep't 1982).
However, avoidance of potentially harmful forfeiture is not the purpose
for which the NASD seeks a Yellowstone injunction here. Rather, the
principal effect of granting such an injunction here would be to permit
the NASD to play dog in the manger, see Shoney's, Inc. v. Schoenbaum,
894 F.2d 92
, 99 n. 3 (4th Cir. 1990) (elucidating the fable of the dog in
the manger), preventing Broad Financial from leasing space that the NASD
cannot and does not wish to use, to the EEOC, and thereby to strengthen
its negotiating position with Broad Financial. The NASD counters that not
granting the injunction would strengthen Broad Financial's negotiating
position, and so it would, but not in a way that would offend Yellowstone
and its progeny, or the rationale — avoidance of forfeiture and its
consequences — for granting such injunctions.
For the above reasons, the NASD's application for a Yellowstone
injunction is denied.
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