Axginc Corporation v. Plaza Automall, Ltd.
ORDER ADOPTING REPORT AND RECOMMENDATIONS with one minor exception. Plaintiff's motion for damages 62 is granted in part and denied in part. Plaintiff is awarded damages of $2,609,337.99, plus $762.60 per day from May 27, 2017, through the date of entry of judgment, against defendant. Ordered by Judge Allyne R. Ross on 11/9/2017. (Wasserman, Matthew)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
AXGINC CORPORATION, f/k/a AXIS GROUP, INC.,
Opinion and Order
— against —
Not for electronic or print
PLAZA AUTOMALL, LTD.
ROSS, United States District Judge:
After granting summary judgment to plaintiff Axginc Corporation (“Axginc”) in this
matter, I referred the calculation of damages to the Honorable Vera M. Scanlon, United States
Magistrate Judge. Defendant Plaza Automall, Ltd. (“Plaza”) now objects to Judge Scanlon’s
Report & Recommendation (“R & R”) calculating damages. For the following reasons, I adopt
Judge Scanlon’s well-reasoned R & R as the opinion of this Court, with one minor exception.
In the interest of brevity and judicial economy, I will not repeat the discussion of the factual
background from my opinion granting summary judgment to Axginc. See Op. & Order, ECF No.
61, at 1–6 (“SJ Op.”). The terms and abbreviations used in that opinion will also be used here.
I review the portions of the R & R to which a party objects de novo. Fed. R. Civ. P. 72(b)(3).
I review the portions of the R & R to which there was no timely objection, however, only for clear
error. Wilds v. United Parcel Serv., Inc., 262 F. Supp. 2d 163, 169 (S.D.N.Y. 2003).
Here, plaintiff Axginc raises no objection to the R & R. Defendant Plaza raises three
arguments in its objections, which I will address in turn below. I will also address one issue from
the R & R regarding the date of accrual of interest, to which neither party specifically objected. In
short, Plaza argues (a) that that it is not liable for rent underpayments because the terms of the
Sublease were modified by the rent invoices sent to it by the plaintiff, and (b) that it is not liable
for late fees and interest because it paid the amounts requested on the invoices and payment on the
remainder was not due until the full rent set out by the Sublease was demanded by its landlord.
These arguments, however, are barred by the plain language of the Sublease and were already
rejected on summary judgment; Plaza cannot use the damages calculation to re-litigate these
issues. Defendant also argues (c) that its rent should be offset because a large portion of the space
it leased was unusable. While I referred this question to Judge Scanlon rather than deciding it on
summary judgment, she is correct that this argument is also foreclosed by the terms of the Sublease.
First, Plaza argues that the terms of Sublease were modified from April 2012 to September
2013, and thus it is not liable for the increased rent required by the Sublease, but instead only for
the lesser amount due under the previous lease. See Def’s Objs. to the Hon. Vera M. Scanlon’s
Report & Recommendation Dated October 24, 2017, ECF No. 69, at 2–6 (“Def’s Objs.”). The
Sublease—adopted November 14, 2012, but retroactive to April 16, 2012—increased the monthly
rent from $92,030 to $134,382, but Axginc continued to bill Plaza for only $92,030 per month
until September 2013. Plaza argues that it is not liable for the difference between $92,030 and
$134,381.62 for the months between April 2012 and November 2013—amounting to
$741,153.17— because the invoices and course of dealing reflect that the parties modified the
terms of the lease. Id. at 2–5. However, this argument was already rejected on summary judgement,
see SJ Op. at 10–14, and therefore is not a valid basis to dispute damages. Indeed, Plaza admits
that this issue has already been adjudicated, arguing that “the SJ decision (and the R & R’s reliance
thereon) incorrectly determined that the parties could not, and did not waive these clear terms by
modification.” Def’s Objs. at 5. While I will not address the issue at great length here, I adhere to
my prior decision “that the plain language of the Sublease bars interpretation of Axginc’s
acceptance of partial rent as modification of the contract.” SJ Op. at 11. Axginc should therefore
be awarded $741,153.17 in back rent for the period from April 2012 to September 2013.
Second, Plaza argues that it is not liable for any late charges for the rent underpayment
from April 2012 to September 2013 because it timely paid the full amount it was invoiced, and
that any interest due on the rent underpayment should only be calculated from May 8, 2014—when
it claims that Axginc first demanded this money. See Def’s Objs. at 6–11. Again, this issue was
already decided adversely to Plaza on summary judgment. See SJ Op. at 22. Certainly, it is a harsh
result that Plaza is liable for late fees and interest even though they timely paid the full amount
billed on their rent invoices. Nonetheless, this is the result required by the terms of the Sublease,
which state: “If any installment of rent . . . due from Tenant is not received by Landlord . . . within
ten (10) days after such amount is due, Tenant shall pay to Landlord a late charge equal to five
percent (5%) of such overdue amount . . . plus interest.” Sublease § 27.03. Since Plaza negotiated
for and signed this lease, with the assistance of counsel, it is bound by its terms. See, e.g., Ursa
Minor Ltd. V. Aon Fin. Prods., Inc., No. 00CIV-2474, 2000 WL 1010278, at * 6 (S.D.N.Y. July
21, 2000) (“Under New York law, which applies here, the Court will not disturb the contractual
relationship where . . . a contract has been negotiated by sophisticated parties and its terms are
clear and unambiguous.”). Plaza owes damages for late charges and interest because it “knew or
should have known what its monthly base rent obligations were under the Sublease and should
have paid those amounts when due, regardless of the invoiced amounts.” R & R at 6.
Further, upon reviewing the issue of the amount of interest due, I find that Judge Scanlon
erred in Plaza’s favor when calculating the date of accrual. According to the Sublease, interest is
due on any installment of rent that is not timely received “from the due date until paid.” Sublease
§ 27.03. And, although there is a ten-day grace period for making a payment, id., rent installments
are “due on the 1 [first] day of each month." Id. § 3.01(A). Yet Judge Scanlon found that “[i]nterest
is due from the tenth day of the month in which the monthly installment of base rent was due until
the date of entry of judgment.” R & R at 10–11. This was incorrect because the Sublease specifies
that interest starts to accrue “from the due date,” not on the date that the grace period elapses.
Accordingly, Plaza in fact owes interest on back rent from the first day of the month in which the
monthly rent was due until the date of entry of judgment. The amount of interest due therefore
comes to $1,053,781.10 as of May 27, 2017, not $1,046,155.01. And, as Judge Scanlon found, it
continues to accrue at a daily rate of $762.60. My calculations are set out in the chart below.
Due date Unpaid rent
Interest due as of May
Interest per day delinquent
Finally, Plaza argues that Judge Scanlon erred in denying it a rent offset to compensate for
part of the leased space being unusable after Hurricane Sandy, as well as Plaza’s inability to obtain
insurance for cars stored in the leased space after Sandy. See Def’s Objs. at 11–14. The plain
language of the Sublease, however, forbids offsets. Article 21, which is titled “NO OFFSETS,”
states: “All amounts payable by Tenant to Landlord hereunder shall be paid by Tenant . . . without
any set-off . . . or reduction of any kind or for any reason.” Sublease § 21. I agree with Judge
Scanlon that under the “inflexible” terms of the Sublease, Plaza “is not entitled to an offset even
though a portion of the leased space was apparently unusable.” R & R at 14. I further note that the
parties entered into this agreement on November 14, 2012, two weeks after Hurricane Sandy hit
New York City. The damage caused by Sandy was thus foreseeable at the time the Sublease was
signed—and the risk of the space being unusable was implicitly allocated to Plaza. Plaza is
therefore liable for the entirety of the rent that it did not pay from January to June 2014.
I also note that, in arguing for a rent offset, Plaza’s counsel misconstrues my summary
judgment opinion—and then criticizes Judge Scanlon for failing to comply with what it claims I
said. I referred the question of whether Plaza was due a rent offset for Judge Scanlon to determine
in the first instance because “[t]his argument was not substantially addressed in the parties’
briefing of this motion.” SJ Op. at 24 n.8. I noted that “[a]t first blush, the Sublease appears to bar
any claim for offset,” id. (emphasis added), but nonetheless allowed Plaza to raise the argument
“before Judge Scanlon at the calculation of damages stage” that “it is entitled to a rent offset
because a portion of its leased space was unusable for part of the rent period.” Id. In its objections,
counsel for Plaza spins this footnote in the following manner: “In the SJ decision, Judge Ross
specifically allowed for a rent offset for a portion of the leased space being unusable should
Magistrate Judge Scanlon find that any unusability existed.” Def’s Objs. at 14 (emphasis in
original); see also id. at 12 (“Judge Ross’ referral to Magistrate Judge Scanlon was not to determine
whether or not the Amended lease allowed for such an offset, but rather whether or not the
Premises, or a portion thereof, were, at any time, unusable, and, if so, to calculate the amount of
such an offset.”). Counsel’s interpretation of my opinion is not only wrong, but entirely at odds
with the plain language of the text; it is only facially plausible if one excises the entire middle part
of the footnote—as counsel did when quoting the opinion. See id. at 12. But, in fact, rather than
“specifically allow[ing] for a rent offset,” not only did I refer the question of whether Plaza was
entitled to a rent offset to Judge Scanlon, in so doing I also expressed skepticism as to whether a
rent offset was allowed under the terms of the Sublease.
In the absence of objection, I adopt Judge Scanlon’s R & R as to all remaining issues.
For the foregoing reasons, Plaintiff is awarded the sum of $2,609,337.99, which includes:
(1) $1,547,442.89 in unpaid base rent;
(2) $77,372.14 in late fees; and
(3) $1,053,781.10 in interest, plus $762.60 per day from May 27, 2017, through the date
of entry of judgment;
(4) Less the security deposit of $69,258.15.
Allyne R. Ross
United States District Judge
November 9, 2017
Brooklyn, New York
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