‘SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ULSTER CATSKILL MOUNTAIN RAILROAD COMPANY, INC., Plaintiff, DECISION/ORDER Index No, 13-2352 -against- RJ.L. No, 55-13-1263 Richard Mott, J.5.C, COUNTY OF ULSTER, Defendant. Motions Return Date: October 19, 2015 APPEARANCES: Plaintiff: Allta J. Giuda, Esq, Mark J. Wagner, J ‘The West Firm 677 Broadway, 8% Floor Albany, NY 12207-2996 Esq. Defendants: Beatrice Havranek, Esq, Ulster County Attorney 240 Fair Street Kingston, NY 12402 Mott J. Plaintiff moves for summary judgment, inter alia, declaring alleged commercial lease defaults! 1, 2, 3, 4,6 and 9 to be unenforceable and 7 and 8 to be moot, as cured? Defendant opposes and cross-moves for partial summary judgment on its First and Second counterclaims, declaring valid the Notice of Default and Demand to Cure (hereinafter, +1 (Rehabilitation of Track); 2 (Maintenance of Track to Class 1 Standard); 3 (Maintenance of Track): 4 (Property Guaranty); 6 (Percentage of Rent); and 9 (Right of Entry). ? Plaintiffs refer to alleged Defaults 7 (Failure to Provide Documentation) and 8 (Insurance), as cured and therefore moot, thus sustaining Plaintiff's ninth and tenth causes of action.“Notice’), finding Plaintiff in material breach and dismissing Plaintiff's twelfth cause of action alleging a breach of Defendant's duty of fair dealing, Plaintiff opposes. CPLR §§3001, 3212. Background Plaintiff leased a 38-mile railroad right of way (hereinafter “ROW"), from the Defendant for a 25 year term ending May 31, 2016, The lease authorizes, inter alia, operation of a tourist train ride and passenger and freight service. It provides for rent to be determined annually based upon Plaintiff's gross revenues from these activities. In exchange Plaintiff must rehabilitate 25 miles of rail track (at least one mile per year ata ‘minimum cost of $25,000.00) to Class 1 standards and maintain the rehabilitated track at that standard, Italso requires that the entire 38-mile ROW be maintained free from brush and trash. Plaintiff is further required to keep proper records of its revenues and to permit their inspection by Defendant at all reasonable times. On July 9, 2013, Plaintiff filed a timely application for a Yellowstone Injunction which was granted, Korova Milk Bar of White Plains, Inc. v PRE Properties, LLC, 70 AD3d 646 [2d Dept. 2010] staying the lease cure period and any consequent action by Defendant to terminate the leasehold, pending litigation of the alleged defaults. Summary Judgment “To prevail on a motion for summary judgment, the moving party must establish prima facie entitlement to judgment as a matter of law by adducing sufficient competent evidence to show that there are no issues of material fact.” Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]. The evidence must be viewed “in the light most favorable to the arty opposing the motion, giving that party the benefit of every reasonable inference”Suffolk Co. Dept. of Soc. Servs. v. James M., 83 NY2d 178, 182 (1994), and "[o]nly when the movant bears this burden and the nonmoving party fails to demonstrate the existence of any material issue of fact will the motion be properly granted.” Staunton v Brooks, 129 AD3d 1371 [3d Dept. 2015], citing Lacasse v Sorbello, 121 AD3d 1241, 1241 [3d Dept. 2014]; Zuckerman v. City of New York, 49 N.Y.2d 557, 562 (1980). The proof sustaining such a grant must be in admissible form “sufficient to warrant the court, as a matter of law, in directing judgment in its favor.” Winegrad v. New York Univ. Med. Ctr,, 64 NY2d 851 (1985). Plaintiff's Motion for Summary Judgment Notice and Demand to Cure Plaintiff asserts the Notice invalid due to its failure to apprise Plaintiff of the default with sufficient particularity to give notice of the required cure, Specifically, it alleges the Notice does not state the amount of unpaid rent, the period to which it refers or the location of the rail rehabilitation defaults or detail as to denial of public access. It further claims that the rent calculation default is void for failure to comply with the condition precedent of obtaining the services of an independent accountant. In opposition, the Defendant contends that the defaults are sufficiently specific given that they reference the lease obligations violated and that Defendant's own statements, in Part, concede their shortcomings in compliance, thus demonstrating their knowledge of the required cure. Asa threshold matter, the appropriate test for adequacy of the default notice “is one of reasonableness in view of the attendant circumstances.” Hughes v Lenox Hill Hosp., 226 AD2d 4, 18 [1st Dept. 1996]; Pinehurst Const. Corp. v Schlesinger, 38 AD3d 474 [1st Dept.2007}, where its purpose “Is to specifically apprise the tenant of claimed defaults in its obligations under the lease and of the forfeiture and termination of the lease if the claimed default is not cured within a set period of time,” PS Food Corp. v Granville Payne Retail, LLC, 45 Misc. 3d 1216(A) [Sup Ct 2014], and cases cited. The June 12, 2015 Notice cites the lease’s 30-day cure period and the threat of termination should Plaintiff fail to cure. Alleged Defaults 1-4 Defaults 1 (rehabilitation of a minimum of one mile of track to Class 1 standard per year), 2 (maintenance of rehabilitated track at Class 1) and 3 (maintenance of entire 38- mile ROW free from brush, paper and trash) are sufficient to apprise the Plaintiff of the alleged breach and required curative actions, despite the parties’ dispute as to the. appropriate measure of compliance, given that they are framed in the clear language of Plaintif’s ongoing obligations under the lease.* Cf, Wilf, LLC v United Realty Mgt. Corp., 82 AD3d 1616, 1618 [4th Dept. 2011] (sufficient notice where it referred to defendant's general ineptitude in compliance) with Chinatown Apartments, Inc. v Chu Cho Lam, 51 NY2d 786, 788 [1980] (notice deficient where it fails to cite any specific lease provision that was violated), However, Default 4 (prompt repair or replacement of property damaged or destroyed incident to CMRR’s privileges as to the ROW), is fatally insufficiently because it fails to incorporate certain factual predicates including Plaintiff's affirmative acts in damaging or destroying drainage facilities, structures and embankments or any reference to repairs meeting the “satisfaction of the Commissioner of Public Works after consultation 4 See discussion of Defendant's summary judgment motion below. 4with the Railroad Advisory Council.” Because this alleged default fails to refer to the contingencies of this “property guaranty" clause, as opposed to the rehabilitation and maintenances clauses, it fails to adequately apprise Plaintiff of the required cure. Default 6 - Calculation of Rent Nevertheless, Default 6 is clear in its complaint that Plaintiff has “improperly deducted its operating expenses in calculating its gross revenue,” resulting in faulty calculations of the rent due, and it is disingenuous for Plaintiff to posit that specific amounts due or periods of incompliance must be stated where the basis for the calculation is wholly within its control and it admittedly failed to produce financial records when Tequested.* Their subsequent production during discovery does not obviate the issues of fact presented concerning the propriety of Plaintiff's deductions from gross revenues or the adequacy ofits records, Indeed, Plaintiff presents detailed factual arguments defending its deductions, while affidavit testimony of an individual who inspected the produced records claims they are incomplete, inconsistent or contradictory, demonstrating a pattern of conduct obfuscating Defendant's ability to verify gross revenues. Default 9 Public Access By contrast, Default 9,5 asserting a violation of the lease obligation to allow public use of the ROW, lacks necessary detail as it fails to distinguish it from Plaintiff's other obligations concerning maintenance and repair or to reference any affirmative act that ‘ Deductions from gross revenues, as defined in the lease, are permitted only for capital investments. Defendants allege that Plaintiff has improperly deducted the costs of litigation from its gross revenues. § Default 9 states "The Lease requires CMRR [Catskill Mountain Rail Road} to ‘allow the public to use the right ‘of way for walking, cross country skiing and fishing provided such activity does notinterfere with its ‘operations. CMRR is not allowing the public to use the corridor for these purpases,” and is thus in default in complying with the lease provision for “Right of Entry". (Affirmation of Beatrice Havrenak, Esq, dated October 13, 2015, Exhibit 2, pg. 3). 5disallowed public use of same, Further, Defendant's insistence that the ROW is inhospitable for fishing or hiking due to Plaintiff's failure to maintain the ROW as promised, {ails to apprise Plaintiff how itis alleged to have affirmatively disallowed such use, thus rendering the allegation unreasonably vague. Hughes v Lenox Hill. Hosp., 226 AD2d 4. Default 7 - Record Keeping and Inspection In determining whether a breach has been cured, § the sole “point of reference for defining the rights of the parties is not the court order [instituting a Yellowstone injunction but... the lease itself.” Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc, 93 NY2d 508, 515 [1999]. Further, the injunction “stays only the landlord's termination of a leasehold while the propriety of the underlying default is litigated,” but “does not nullify the remedies to which a landlord is otherwise entitled under the parties’ contract.” Id at 514-15, Here Default 7 asserts that Plaintiff both has failed to “keep full, ‘complete and proper books, records and accounts of its gross revenues” or to provide access to such documentation.” Plaintiff asserts it cured any purported breach in failing to permit inspection of its financial records by production of same during discovery. Even if this were to cure, the default asserts the additional requirement to keep proper records of gross revenues, Here, the parties have submitted conflicting evidence as to the ‘completeness and propriety of these records, thus creating issues of fact that preclude summary judgment. Gaddani v. Dormitory Auth, of State of N.Y., 43 A.D.3d 1218, 1219 (3d Dept. 2007). 6 The lease provides fora 30-day cure period 7 The lease provides thatthe Lessor determine the annual rent within 90 days of May 31+ for each year, ‘based upon its examination ofthe records, books, papers and operations ofthe Lessee. While Plaintiff asserts that Defendant had never previously exercised tis rightof inspection, the lease clearly states that any failures in requiring strict performance do not waive or relinquish said rights 6Default 8 - Insurance Coverage Plaintiff concedes it failed to maintain workers’ compens. :n insurance for an approximately 3 month period in 2009, but maintains it is not a material breach, This Court agrees, where said breach is limited, remot: time, Defendant has not stated any palpable Prejudice and there is thus, no “unknown universe of any [workers’ compensation] claims.” Khatari v Shami, 35 Misc 3d 1211(A) [Sup Ct 2012]. Nevertheless, there is an issue of fact. as to whether the Plaintiff's ire to obtain Owner Liability Protection Insurance coverage constitutes a material breach of the lease, where enforcement was waived by Defendant from April, 1991, to January, 2014, but the parties now dispute the availability of the described insurance coverage and/or its applicability.® Given the issues of fact raised Tegarding the Owner Liablity Protection Insurance, summary judgment is inappropriate. See, eg,, Cont. Ins. Co. v RL Ins. Co., 161 AD2d 385, 387 [Ist Dept. 1990]. Defendant's Cross Motion for Partial Summary Judgment Background and Party Submissions Defendant seeks declarations of Plaintiff's material breach of the 25-mile track rehabilitation/maintenance obligation and of the separate obligation to maintain the ROW. free from brush, paper and trash, The former concerns the 25 miles of track from Kingston to Phoenicia and the second, the entirety of the 38-mile ROW. In support, Defendant offers the affidavits of two of its employees and that ofa railway engineer who inspected the ROW in 2014 and/or 2015, and Plaintiff's annual reports and statements citing brush and debris issues and conceding incompliance with the Plaintiff misconstrues its obligation, which is to "provide" the stated insurances. This is so regardless ofthe independent obligation to produce the policies upan a lease renewal, which logically refers to the annual policy renewals referred to therein. 7rail rehabilitation requirement as far back as 2012, concluding that Plaintiff has only rehabilitated 6.23 miles of track to Class 1 Standards and that the extent of growth, which includes trees inside the track, demonstrates longstanding neglect of its obligation to maintain the entire ROW free from brush. Plaintiff concedes it is incompliant with its rail rehabilitation and general maintenance obligations, but contends it has rehabilitated 24 miles of track to Class 1 standard and maintained at least 17 miles of that track at that standard It further disputes the measure of compliance, claiming it was always understood that the Defendant ‘would maintain the structures supporting the rail (eg, bridges and trestles), and that their repair has been prevented by Defendant’s wrongful conduct in refusing to guarantee a NY DOT grant application or to expend FEMA funds obtained for that purpose, Further, Plaintiff claims that any track not free from brush and trash has either been waived, or is a temporary condition, thus not constituting a material breach. Defendant replies that the lease neither provides for it to repair bridge and trestle infrastructure nor obligates it to obtain funding to do so, thus precluding any assertion of estoppel and that the breaches in rehabilitation and maintenance are material, as they are extensive and constitute the core of Plaintiff's obligations. Materiality of Breaches Plaintiff has conceded the breach of its obligations to rehabilitate track and to maintain it to Class 1 standard and to maintain the track free of brush and debris, However, questions of fact exist concerning the materiality of the breach, given the dispute * Plaintiff's argument that the exemption for tourist trains applies 49 CFR 213.3(2) is inapposite as the lease's reference to USDOT Class 1 Standards is purely for definitional purposes and does not exclude Plaintiff from the lease’s specific requirement to comply therewith. 8concerning the measure of compliance, see, e.g., 49 CFR 213.37, Cont. Ins. Co. v RLI Ins. Co.. 161 AD2d 385, thus precluding summary judgment. Nonetheless, no genuine triable issue of fact is demonstrated with respect to Plaintifi’s failure to maintain the ROW brush-free given the demonstrated extent of advanced vegetation growth in portions of the 38-mile track, Breach of Implied Duty of Fair Dealing ‘The purpose of equitable estoppel is to prevent someone from enforcing rights that would work injustice where the individual against whom enforcement is sought has justifiably relied on the opposing party's actions, and thus been misled into a detrimental change of position.” 757 3rd Ave, Assoc, LLC v Patel, 117 AD3d 451, 453-54 [1st Dept. 2014] citing Matter of Shondel . v Mark D., 7 NY3d 320, 326 [2006]. Nevertheless, a party cannot import an obligation into a contract that does not otherwise exist, so that “while an obligation of good faith and fair dealing is implied in every contract, that obligation cannot bbe construed so broadly as to effectively nullify the other express terms of the contract. Delta Properties Inc. v Fobare Enterprises Inc, 251 AD2d 960, 962 {3d Dept. 1998}. Further, this implied obligation may only be found when it is “in aid and furtherance of other terms of the agreement of the parties,” and so must be based upon the breach of its lease obligations. Hixon v 12-14 &. 64th Owners Corp, 107 AD3d 546, 547 [1st Dept. 2013] lv to appeal denied, 22 NY3d 862 [2014]; Trump on Ocean, LLC v State, 79 AD3d 1325, 1326 [3d Dept. 2010]. Here, the lease nowhere obliges Defendant to repair track supporting structures in the ROW, to obtain federal funds or to help Plaintiff obtain grants for that purpose, Indeed, Plaintiff fails to cite any portion of the lease that Defendant has allegedly breached, merely asserting that it has refused to expend FEMA funds it obtained for thatPurpose, thus excusing Plaintiff from performance of it covenants under the lease. Given the lack of any factual basis for this claim, Defendant is entitled to summary judgment on this, Plaintiff's twelfth cause of action, Accordingly, Plaintiffs motion for declaratory judgment declaring Defaults 4 and 9 unenforceable is granted and as to the remainder of the Notice’s defaults denied, Defendant's motion for summary judgment is granted as t second and Plaintiff's twelfth cause of action and is otherwise denied, The parties’ remaining contentions have been reviewed and rendered academic in light of this determination or determined to lack merit. This constitutes the Decision and Order of this Court. The Court is forwarding the original Decision and Order directly to Plaintiff who is required to comply with the provisions of CPLR §2220 with regard to filing and entry thereof, A photocopy of the Decision and Order is being forwarded to all other parties who appeared in the action. All original motion papers are being delivered by the Court to the Supreme Court Clerk for transmission to the County Clerk. Dated: Hudson, New York December 21,2015 ENTER RICHARD MOTT, J.S.C * Noteworthy is the fact that the FEMA funds were not sought until ater Hurricane Irene in 2011, by which time Plaintiff was to have rehabilitated 20 miles of track to Class 1, where here it concedes that only 17 miles are in compliance, Defendant asserts only 6.43 miles are in compliance and only six miles has ever been utilized for the tourist passenger service. 4 Plaintiff's contention that it was prejudiced by its inability to respond to Defendant's late filing ofits Response to Plaintif's Statement of Material Facts is unfounded, as no new facts were introduced or new Issues raised therein and the parties’ substantial submissions on both the motion and cross motion demonstrates they had a full and fair opportunity to reciprocally respond, 10Papers Considered: Plaintiff's Motion for Summary Judgment 1, Notice of Motion, Affirmation, Memorandum of Law and Statement of Material Facts of Alita J. Giuda, Esq, dated September 25, 2015 with Exhibits 1-4C; Affidavits of Peter Aubanel Fluchere, dated September 25, 2015 with Exhibits A-] and Harry G. Jameson, Ill, dated September 22, 2015 with Exhibits 1-7; 2. Opposition Affirmation of Beatrice Habranek, Esq., dated October 13, 2015 with Exhibits 1-19, Affidavits of Amanda LaValle, dated October 9, 2015 with Exhibits 1- 3, and Lisa Cutten, dated October 13, 2015 with Exhibits 1-2, Defendant's Opposition Memorandum of Law of Marisa J, Hansen, Esq, dated October 13, 2015; 3. Reply Affirmation of Mark J. Wagner, Jr, Esq., with Exhibits 1-6, and Reply Memorandum of Law of Thomas S, West, Esq, dated October 19, 2015, Reply Affidavits of Peter Aubanel Fluchere, dated October 19, 2015 and Harry G. Jameson, Ill, dated October 15, 2015; 4. Defendant's Response to Plaintifi’s Statement of Material Facts, dated October 20, 2015. Defendant's Cross Motion for Partial Summary Judgment 5. Notice of Cross Motion, Affirmation, Memorandum of Law and Statement of Material Facts of Marisa J. Hansen, Esq., dated September 22, 2015 with Exhibits 1-25, Affidavits of Aaron Bennett, dated September 18, 2015 with Exhibits A-P, Owen Smith, dated September 22, 2015 with Exhibits A-B, Christopher A. White, dated September 22, 2015 with Exhibits A-O; 6. Opposition Affirmation and Response to Defendant's Statement of Material Facts in Dispute of Mark J. Wagner, Jr, Esq, with Exhibits 1-8 and Opposition Memorandum of Law of Thomas S. West, Esq,, dated October 12, 2015, Affidavits of Earl Pardini, October 9, 2015 with Exhibits 1-3, Ernest E. Hunt, dated October 13, 2015 with Exhibits 7. Reply Affirmation and Statement of Material Facts in Dispute of Beatrice Havranek, Esgq,, with Exhibits 1-12, Reply Memorandum of Law of Marisa J. Hansen, Esq., and Affidavits of Christopher A.White with Exhibits 1-6 and Owen Smith with Exhibits 1-2, dated October 16, 2015. 1t