67-25 DARTMOUTH STREET CORP. v. SYLLMAN

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Docket Number

2005-05274.

Attorney(S)

Richard Creditor, LLC, Forest Hills, N.Y., for appellant-respondent. Vernon Ginsburg, LLP, New York, N.Y. (Yoram Silagy and Mel Ginsburg of counsel), for respondent-appellant.

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Smart Summary

Factual and Procedural Background

The plaintiff, 67-25 Dartmouth Street Corp., a cooperative apartment corporation, sought to recover attorneys' fees allegedly owed under a proprietary lease with the defendant, Jonathan Syllman, a shareholder in the cooperative. The lease provision at issue required the lessee to pay the lessor's expenses, including reasonable attorneys' fees, incurred in defending or asserting counterclaims in any action brought by the lessee. The cooperative sought fees for defending a prior action initiated by the shareholder, which alleged breach of a duty to exercise good faith regarding subletting rights. The prior action was dismissed because the shareholder failed to prove damages from the cooperative’s alleged bad faith. The cooperative did not assert any counterclaims for attorneys' fees in that prior proceeding.

The cooperative moved for summary judgment to recover attorneys' fees, but the Supreme Court, Queens County, denied that motion and granted the shareholder’s cross-motion for summary judgment dismissing the complaint. The cooperative appealed the denial of its motion, and the shareholder cross-appealed from the same order.

Legal Issues Presented

Whether the cooperative is entitled to recover attorneys' fees incurred in defending a prior action brought by the shareholder under the proprietary lease provision.
Whether the cooperative's failure to assert a counterclaim for attorneys' fees in the prior action bars its current claim due to splitting of a cause of action.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Columbia Corrugated Container Corp. v. Skyway Container Corp., 37 AD2d 845, affd 32 NY2d 818	Prohibition against splitting a cause of action.	Supported dismissal of the cooperative’s claim because it failed to assert attorneys' fees as a counterclaim in the prior action.
930 Fifth Corp. v. King, 42 NY2d 886	Reinforces the prohibition against splitting causes of action.	Used to affirm the dismissal of the cooperative’s claim for attorneys' fees due to failure to include it previously.
Henry Modell Co. v. Minister, Elders Deacons of Ref. Prot. Dutch Church of City of N.Y., 68 NY2d 456 (1986)	Permissive counterclaim rule and limits on bringing subsequent actions based on preexisting claims.	Clarified that although counterclaims are permissive, a party cannot remain silent in the first action and later bring a second action that impairs interests established in the first.
Syllman v. 67-25 Dartmouth St. Corp., 305 AD2d 580	Prior dismissal of shareholder’s damages claim for failure to establish damages.	Established that the prior action was dismissed due to lack of damages, meaning the court did not decide whether any duty was violated.

Court's Reasoning and Analysis

The court analyzed the cooperative’s claim for attorneys' fees in light of the prior litigation between the parties. The proprietary lease provision allowed recovery of fees if the lessee defaulted and the lessor incurred expenses defending or asserting counterclaims in actions brought by the lessee. The cooperative had not asserted attorneys' fees as a counterclaim in the prior action initiated by the shareholder.

The court emphasized New York’s permissive counterclaim rule, noting it does not allow a party to withhold a claim in the first action and later bring a separate action on the same preexisting claim if doing so would impair the rights or interests established in the first action. The cooperative’s claim for attorneys' fees would require reexamining issues from the prior action, including whether the shareholder was in default, which would impair the shareholder’s rights and waste judicial resources.

Accordingly, the court concluded that the cooperative’s failure to assert the attorneys' fees counterclaim in the prior action constituted an impermissible splitting of a cause of action, warranting dismissal of the current claim.

Holding and Implications

The court affirmed the order denying the cooperative’s motion for summary judgment and granting the shareholder’s motion to dismiss the complaint for attorneys' fees. The cooperative’s cross-appeal was dismissed as abandoned.

The direct effect of this decision is that the cooperative cannot recover attorneys' fees in a separate action after failing to assert them as a counterclaim in the prior litigation. No new precedent was established beyond the application of existing principles prohibiting splitting causes of action and limiting the use of permissive counterclaims to prevent impairment of rights determined in earlier actions.

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67-25 DARTMOUTH STREET CORP., Appellant-Respondent, v. JONATHAN SYLLMAN, Respondent-Appellant.

Ordered that the cross appeal is dismissed as abandoned ( see 22 NYCRR 670.8 [e] [1]; and it is further,

Ordered that the order is affirmed insofar as appealed from; and it is further,

Ordered that one bill of costs is awarded to the defendant.

The plaintiff, a cooperative apartment corporation (hereinafter the cooperative), seeks to recover attorneys' fees allegedly due pursuant to a proprietary lease between it and the defendant, a shareholder in the cooperative (hereinafter the shareholder). Paragraph 28 of the propriety lease provides, in pertinent part that "[i]f the Lessee shall at any time be in default hereinunder and the Lessor shall incur any expense (whether paid or not) in . . . defending, or asserting a counterclaim in, any action or proceeding brought by the Lessee, the expense thereof to the Lessor, including reasonable attorneys' fees and disbursements, shall be paid by the Lessee to the Lessor, on demand, as additional rent." The cooperative alleges that it is entitled to recover legal fees incurred in defending a prior action brought by the shareholder against it, inter alia, to recover damages for breach of a duty to exercise good faith with respect to the shareholder's rights to sublet his apartment.

The cooperative asserted no counterclaims in the prior action. This Court, in affirming the dismissal of the prior action, found that the shareholder failed to establish any damages incurred from the cooperative's purported failure to act in good faith ( see Syllman v. 67-25 Dartmouth St. Corp., 305 AD2d 580). Since no damages were established, the question of whether either party violated any duty to the other was not decided.

The Supreme Court granted that branch of the shareholder's cross motion which was for summary judgment dismissing the complaint for attorneys' fees on the ground that the cooperative's failure to counterclaim for attorneys' fees in the prior action resulted in "the splitting of a cause of action which is prohibited" ( Columbia Corrugated Container Corp. v. Skyway Container Corp., 37 AD2d 845, affd 32 NY2d 818; see 930 Fifth Corp. v. King, 42 NY2d 886).

In New York there are no compulsory counterclaims. "Our permissive counterclaim rule may save from the bar of res judicata those claims for separate or different relief that could have been but were not interposed in the parties' prior action . . . [but] does not . . . permit a party to remain silent in the first action and then bring a second one on the basis of a preexisting claim for relief that would impair the rights or interests established in the first action" ( Henry Modell Co. v. Minister, Elders Deacons of Ref. Prot. Dutch Church of City of N.Y., 68 NY2d 456, 462 n 2 [1986]).

In the instant case, consideration of the cooperative's claim for attorneys' fees would require the reconsideration of the issues raised in the prior action to determine, inter alia, whether the shareholder was in default, impairing the rights or interests of the shareholder as well as constituting a waste of judicial resources.

In view of the foregoing, the cooperative's complaint was properly dismissed.