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Dabriel, Inc., et al v. the First Paradise Theaters Corp

October 11, 2012


Dabriel, Inc. v First Paradise Theaters Corp.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on October 11, 2012

Mazzarelli, J.P., Andrias, Moskowitz, Acosta, Abdus-Salaam, JJ.

Order, Supreme Court, Bronx County (Sharon A.M. Aarons, J.), entered September 28, 2011, which denied defendant's motion to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), unanimously modified, on the law, to grant the motion as to the first six causes of action in the complaint, and otherwise affirmed, without costs.

Defendant is the owner of the former Loew's Paradise Movie Theater in the Bronx. Plaintiff Dabriel, Inc., is the current tenant of the theater. Plaintiff Gabriel Boter is Dabriel's principal. In or about 2003, an entity controlled by Boter, Paradise Theater Productions (Productions), entered into a lease with defendant for the premises commencing on March 1, 2004 (the 2003 lease). The 2003 lease provided that defendant would perform certain work at the premises, including, but not limited to, improvements to the theater's lighting, sound system, stage, and marquee (the Landlord's Work), and that Productions would pay $1,050,000 for the Landlord's Work in the form of additional rent.

Notwithstanding Productions' position that defendant never completed the Landlord's Work, Productions paid defendant over $525,000 in rent, and, on October 28, 2005, Boter signed an agreement formally accepting delivery of the premises "in the condition required by the lease, including but not limited to completion" of the Landlord's Work. Ultimately, however, Productions experienced financial difficulties in operating the theater, and negotiated an assignment of the 2003 lease to nonparty Mossberg Credit Services, Inc. (Mossberg). Defendant consented to the assignment of the lease, which took effect on February 12, 2007.

In April 2008, Mossberg commenced an action in Supreme Court, New York County, against defendant, Boter, and Productions. Mossberg claimed, inter alia, that the Landlord's Work had never been performed. After Mossberg stopped paying rent, defendant commenced a nonpayment proceeding against Mossberg in Civil Court, Bronx County. On or about July 28, 2009, Boter, Productions, defendant and Mossberg entered into a global settlement agreement whereby they exchanged general releases of all claims against one another, and the premises were returned to the possession of defendant.

On September 16, 2009, Boter, through Dabriel, a separate entity from Productions, entered into a new lease agreement for the theater (2009 lease). The 2009 lease provided, in pertinent part: "No Representations by Owner: 20. Neither [defendant] nor [defendant]'s agent have made any representations with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation, or any other matter or thing affecting or related to the demised premises, except as expressly set forth..." The 2009 lease also provided that Dabriel would execute two promissory notes, pursuant to which they promised to pay defendant $1,464,582.20 over two overlapping repayment periods. Boter personally guaranteed the notes. The guarantees identified the loans as having been made "to assist [Dabriel] in the leasing of the premises."

By November of 2010, plaintiffs were $25,600 in arrears on their rent under the 2009 lease. The parties reached another agreement, the First Amendment of the lease, pursuant to which defendant agreed to waive the rent arrears and defer monthly payments on the promissory notes in exchange for an increase in rent and additional guarantees of the lease.

Nonetheless, plaintiffs commenced this action in an effort to, inter alia, set aside the promissory notes and Boter's personal guarantees of the notes (collectively, the notes) and to compel defendant to perform the Landlord's Work delineated in the 2003 lease. In the first cause of action, plaintiffs seek a declaration that the notes are unconscionable and void as against public policy. In support of that claim, plaintiffs allege that, at the meeting at which Boter executed the 2009 lease and the notes, the attorney who attended on defendant's behalf had represented Productions in connection with the assignment to Mossberg. Plaintiffs further assert that Boter was undergoing chemotherapy treatment for cancer at the time of the meeting. In addition, plaintiffs allege that during the meeting, defendant represented to Boter that it would perform all of the Landlord's Work outlined in the 2003 lease, that the rent could be renegotiated if it became too onerous, that the ancillary documents "were only letters executed to ensure that [d]efendant would avoid the litigation it encountered with Mossberg," and that defendant would offer Boter's son a job.

The second cause of action seeks a declaration that the notes are void because the aforementioned representations amounted to fraud in the inducement. The third cause of action, for fraud in the execution, alleges that the notes were not supported by consideration, did not indicate why they were being given, and differed from the draft notes that were "intended for execution." The fourth cause of action seeks reformation of the 2009 lease to include the representations allegedly made by defendant at the September 2009 meeting regarding the Landlord's Work.

In the fifth cause of action, plaintiffs seek damages in connection with defendant's breach of its promise to perform the Landlord's Work. In the sixth cause of action, seeking damages for tortious interference with prospective business relations, plaintiffs allege that defendant demanded access to the premises for purposes of showing the space to a party interested in using the theater, notwithstanding that plaintiff was negotiating with the same prospective client. Finally, plaintiffs claim in the seventh cause of action that defendant surreptitiously connected plaintiffs' Con Edison meter to the adjacent property, also owned by defendant, causing plaintiffs to be billed $86,000 for electricity they did not use.

Defendant moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7). It argued that plaintiffs waived any unconscionability claim by failing to disaffirm the notes in a timely fashion. It further argued that plaintiffs' claim that they were fraudulently induced to enter into the notes by defendant's alleged promise to perform the Landlord's Work is barred by the general releases executed at the end of the Mossberg litigation. Defendant similarly relied on those releases in arguing that plaintiffs could not insist that the 2009 lease should be reformed to include a requirement that defendant completed the Landlord's Work. Defendant also argued that the fraud in the execution claim fails because the leasehold interest was sufficient consideration, and the complaint fails to allege how the executed documents varied from the drafts which plaintiffs maintain were "intended for execution." As for the cause of action for tortious interference, defendant asserted that it had a contractual right to request entry to the premises, and that, in any event, the claim was not supported by the requisite allegation that plaintiffs' failure to consummate a transaction with the unspecified client was a direct result of ...

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