Interesting stuff is happening at the Appellate Division (First Department) these days, particularly when it comes to awarding a "prevailing party" legal fees, costs and disbursements.
It has long been the "American rule," that in the absence of some regulation, contractual arrangement, or statutory entitlement to recover one's fees and costs within the context of litigation, each side bears its own costs.
While lease provisions authorizing the recovery of attorneys' fees have long been honored,* in Horwitz v. 1025 Fifth Ave., Inc., the Appellate Division, First Department, suggests there may now be a new twist when it comes to the enforcement of such provisions. In that case, the appellate court refused to award fees even in the face of an agreement authorizing the recovery of such charges.
The operative language in the parties' lease was as follows:
"[I]f the lessee shall at any time be in default hereinunder, or if the lessor shall institute an action ... against the lessee based upon such default, the lessee will reimburse the lessor for the expense of attorneys' fees ...."
That wording reads pretty clearly and unambiguously to us. Yet, the AD suggested that its refusal to award the landlord fees was based on a "public policy" disfavoring the grant of such relief.
Huh?
Here's the court's take on the current state of the governing law:
It is settled that the interpretation of the provisions of a lease is governed by the same rules of construction applicable to other agreements ... and in those instances where the intent of the parties is clear and unambiguous from the language employed on the face of the agreement, the interpretation of the document is a matter of law solely for the court ... Further, New York public policy disfavors any award of attorneys' fees to the prevailing party in a litigation ... and a provision in an agreement allowing the recovery of attorneys' fees that are "incidents of litigation" should be strictly construed ....
It had always been our impression that, within summary proceedings and other real-estate litigation, a "prevailing party" could seek to recover its fees and costs.
In this particular instance, although the landlord -- a cooperative -- had alleged a breach of the governing lease (triggered by the tenant's refusal to remove a 30-foot awning anchored to the exterior of the building), legal fees could not be recovered since the co-op's predicate notices were defective and there was never a judicial finding of a "default."**
Yet, where in the agreement does it require that there be a "judicial finding" of a default in order for fees to issue? All that was required was that a default occur.
Straining to avoid awarding relief in the cooperative's favor, here's what the appellate court concluded:
Plaintiffs, however, have never been found in default of the lease by either this Court or Supreme Court. Indeed, Supreme Court's June 19, 2003 decision and order specifically found that plaintiffs were not in default of the lease, and that the cooperative board, as of the time of that order, had not formally acted to find plaintiffs in default. This Court's subsequent decision and order dated May 27, 2004 ..., left unaffected that part of the order of Supreme Court which found that the notices to cure and terminate were facially defective, and issued a declaration "in favor of defendant that it is entitled to enforce its house rules with respect to the removal of awnings." Such declaration, however, contrary to Supreme Court's finding, does not equate to a judicial finding of default.
We are unable to embrace this logic.
If the cooperative had the power to direct the awning's removal, why isn't the tenant's resistance to comply with that directive a default?
What happened to the fundamental contract-law precept -- recited by the court in its own decision -- of enforcing terms of an agreement, as written? That end result does not appear to have happened here.
For a copy of the Appellate Division's decision Horwitz v 1025 Fifth Ave., Inc., please click on the following link:
http://www.nycourts.gov/reporter/3dseries/2006/2006_08050.htm
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*Under New York State law, Real Property Law section 234, when a residential lease provides that a landlord may recover its fees and costs incurred during the course of a lawsuit, a tenant will also entitled to seek such reimbursement -- should it prevail on its claims or defenses -- even when the wording of the parties' agreement is silent as the tenant's right to recoup such charges. This reciprocality often serves to deter landlords from commencing frivolous or baseless suits against tenants.
**Interestingly, some two years earlier, the AD concluded the cooperative could enforce its house rules and had the authority to direct the awning's removal. For a copy of that earlier decision, please click on the following link: http://www.nycourts.gov/reporter/3dseries/2004/2004_04235.htm