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On May 6, 2015, the Suffolk County Planning Commission (“Planning Commission”) approved a Model Commercial Solar Code (“Model Code”), which will go into effect in each town, only if adopted by each..  The Model Code is the product of a Utility Solar Model Code Working Group of the Planning Commission (“Working Group”). Participants included representatives from Suffolk County, the Towns of Brookhaven and Riverhead, PSEG-LI, solar installers, and community and environmental groups, among others.  The complete text is available on the website of the Suffolk County Planning Commission:  http://www.suffolkcountyny.gov/Departments/Planning/Boards/SuffolkCountyPlanningCommission.aspx.

The genesis of the Working Group was the approval last fall of a 9.8 MW commercial solar facility to be built on a 60 acre parcel along Route 25A in Shoreham, now occupied by the Delalio Sod Farm.  The sod farm is adjacent to residentially zoned property.  The 50,000 solar panels that will be installed cover virtually all of the 60 acres, eliminating completely the former open space, scenic vistas, and agricultural use.  A community group represented by the author, prior to merging his practice into CMM, challenged the approval, and the case is waiting for a decision of the Court.

There are many excellent details within the Model Solar Code, but the two most important by far are the following limitations on the manner in which solar panels and related equipment are to be laid out  [Model Code Special Permit Requirements B. and D.1.]:

1. Maximum Lot Coverage
2. The total coverage of a lot with freestanding solar panels cannot exceed sixty (60%) percent lot coverage. Lot coverage shall be defined as the area measured from the outer edge(s) of the arrays, inverters, batteries, storage cells and all other  mechanical equipment used to create solar energy, exclusive of fencing and roadways.

and

1. Buffer and Setback Restrictions:
2. A minimum thirty-five (35%) percent shall be preserved as natural and undisturbed open space. Site plans shall be developed that provide for the preservation of natural vegetation in large unbroken blocks that also allow contiguous open spaces to be established when adjacent parcels are developed.

If adopted, these provisions will require developers of utility scale solar facilities to preserve open space, and preclude them from arguing, as was done successfully in the Shoreham case, that the area between rows of solar panels should not be included in the calculation of lot coverage.

The Towns of Brookhaven, Riverhead, and Smithtown, where many recent industrial scale solar facilities have been proposed, are urged to quickly consider and adopt the Model Solar Code, with perhaps some changes.  For example, the Model Code properly seems to allow approval of a special permit by the Planning Board of utility scale solar facilities only within Industrially Zoned areas, subject to the special permit requirements of the Model Code.  However, rather than preclude altogether development of such facilities within environmentally sensitive areas, the Model Code would allow industrial scale solar facilities in such areas if approved by the Town Board subject to special permit conditions.

Developers opposed adoption of the Model Code because it will require them to either reduce the size of their projects, or acquire additional land.  For so many reasons, well beyond the scope of this article, the developers are wrong.  The question that should be asked is not whether it is proper to restrict the size of industrial scale solar projects in Suffolk County, but whether it makes any sense to allow them at all.  The reader is urged to review previous blogs by the author arguing that commercial solar projects should not be permitted in Suffolk County (links to which are found on the CMM website at Eisenbud’s Environmental Law Blog, and the newest blog on the subject by the author:  “Tiger Salamanders and Industrial Scale Solar Facilities in Suffolk County.”

I have previously written blogs that have questioned LIPA’s focus on industrial scale solar projects in Suffolk County.[1]  Dyed-in-the-wool environmentalists find this blasphemous, and feel particularly betrayed by the author, who has focused his practice on environmental law and litigation for more than thirty years.  The rationale for their unquestioned fealty to solar regardless of how it is obtained appears to be the need to immediately address the impacts from global warming, particularly rising tides, regardless of cost or other impacts, because there is an urgent need to reduce our carbon footprint.

Let me be absolutely clear from the outset: I think solar energy is a critical segment of the battle against global warming.  The reason I believe industrial scale solar facilities in Suffolk County make no sense is that the cost and adverse impact on precious open space and agricultural lands, scenic vistas, and community character caused by these projects can be avoided altogether by focusing on distributed, rooftop solar units.  Rooftop solar avoids the adverse impacts of industrial scale solar, provides peak energy to LIPA at virtually no or little cost, and has all the benefits of renewable energy.^[2]  In addition, profits generated by these commercial scale solar facilities largely go to out-of-state companies, while the money saved by owners of rooftop systems whose energy bills are slashed spend that savings locally. Because PSEG-LI has acknowledged that LIPA has sufficient energy today to maintain the efficiency of its distribution system for the next ten years,[3] there is simply no good reason for LIPA to lock itself into 20-year fixed cost contracts at rates for power that are more than double the cost of purchasing power on the open market.[4]  Thus, LIPA has ample time to adopt policies that will encourage the development of distributed rooftop systems, and it should stop its ill-conceived efforts to lock itself into purchasing commercial solar power.[5]

Real estate developers love the expression “location, location, location” when describing the most important factors to consider for a project.  The same should be true when considering the best location for industrial scale solar projects.  A recent study by Lawrence Berkeley National Laboratory of the cost of solar power in the United States[6] found the average cost of commercial solar energy from facilities in the southwestern United States in 2013 – 2014 to be $50/MWh, or just $0.05/kWh.  By contrast, eleven commercial power projects LIPA approved for negotiation of 20-year Power Purchase Agreements on December 17, 2014, based on competitive bidding, will require LIPA to pay approximately $0.17/kWh for every kWh of solar energy generated for 20 years, more than three times the cost for the same power in the southwest.

Unquestionably, the major difference in cost between the southwest United States and Suffolk County is the cost of open space, and that differential is about to get much larger.  Developers of commercial solar projects in Suffolk County have taken the position that it is okay to cover virtually all the property they buy or lease with solar panels, despite limitations on maximum lot coverage, because the rows between the mounted solar panels should not be included in the calculation of lot coverage.  On May 6, 2015, the Suffolk County Planning Commission approved a Model Commercial Solar Code (“Model Code”) which will go into effect in those Towns that adopt the Model Code.  The Model Code defines lot coverage as “the area measured from the outer edge(s) of the arrays, inverters, batteries, storage cells and all other mechanical equipment used to create solar energy, exclusive of fencing and roadways.”    In addition, the Model Code declares that “A minimum thirty-five (35%) percent shall be preserved as natural and undisturbed open space. Site plans shall be developed that provide for the preservation of natural vegetation in large unbroken blocks that also allow contiguous open spaces to be established when adjacent parcels are developed.”[7]

If adopted by the Towns of Brookhaven and Riverhead, the impact on the cost of commercial solar projects will be immediate. Without the Model Code, developers of commercial solar projects required between five and six acres per MW of solar power.  In order to meet the requirements of the Model Code, developers will have to significantly reduce the size of their projects, or purchase significantly more open space.  Both Towns had representatives on the Utility Solar Model Code Working Group of the Planning Commission that crafted the Model Code, so presumably, these Towns will look favorably upon the Model Code.  They should adopt the Model Code as quickly as possible so LIPA and developers of commercial solar projects will know what will be required. More importantly, they should adopt the Model Code so the wholesale destruction of open space, scenic vistas, and community character caused by these projects will end.

Even without the Model Code, it appears that the cost per kWh contemplated by LIPA on December 17, 2014 when it authorized the negotiation of eleven 20-year Power Purchase Agreements (“PPAs”) for a total of 122.1 MW of commercial solar power in Suffolk, approximately $0.17, will not be sufficient to persuade many of the developers selected to sign the PPAs.  As recently reported by Newsday, the cost of upgrading transmission lines and substations required for many of the anticipated commercial solar projects in Suffolk County is causing a significant number of developers to withdraw their proposals.[8]  A number of these are projects previously approved by LIPA pursuant to a Request for Proposal for a Feed-In Tariff which guaranteed developers of commercial solar power a fixed price of $0.22 per kWh for 20 years.[9]

This brings me to the title of this blog.  Tiger salamanders are not an endangered or threatened species under federal law or regulation, but New York State lists them as a threatened species.  This can wreak havoc for builders who encounter a tiger salamander on the site of their project.  A friend with a PhD in zoology assures me that from Virginia on south, tiger salamanders not only are not threatened, they are a common source of bait for fishermen.  The only reason their existence is threatened in New York is that they somehow migrated beyond their natural habitat.  Does it really make sense to protect tiger salamanders in New York?  And does it really make sense to encourage commercial solar facilities in Suffolk County, where open space is scarce, expensive, and important to preserve?  Open space in the southwestern United States is not a threatened species, and that is where commercial solar projects belong.

PSEG-LI, LIPA’s agent, responded to the withdrawals of commercial solar projects in Newsday’s April 29, 2015 article by stating that “PSEG…will contact competing developers whose projects were initially rejected to see if they want to re-apply.”[10]  It is time that LIPA and PSEG-LI stop such knee-jerk statements, and explain why it makes sense to guarantee developers of commercial solar projects in Suffolk County a fixed, very high price for the energy they generate for the next twenty years.

In 2012, LIPA made it very clear why it prefers to pay commercial solar generators for the power they generate at rates more than twice as high as power available on the open market rather than receive power from rooftop solar systems at little or no cost.  Owners of rooftop systems who have net meters do not pay for the kWhs they use to the extent they are offset by power generated by their rooftop solar systems.  LIPA views this as a loss of revenue.  By contrast, because it can sell all of the commercially generated solar power it purchases back to its rate payers at full price (somewhere between $0.21 and $0.22 per kWh), it views its 20-year fixed cost Power Purchase Agreements with commercial solar generators to be a means of maintaining its revenues.[11]

LIPA’s rationale made little sense in 2012, and makes less sense today.  Presumably, the average charge to LIPA rate payers, approximately $0.215 per kWh, is intended to cover not only the cost of purchasing electricity on the open market (approximately $0.075 per kWh), but all of LIPA’s other costs, including maintenance of the transmission system, interest and principal due for the Shoreham Nuclear Plant, and the inflated cost of all the Power Purchase Agreements LIPA has entered into with electrical generators to maintain the reliability of its system when the power was not needed.  If LIPA buys power on the open market for $0.075 per kWh, it requires $0.14 per KWh to cover all of its expenses other than the cost of acquiring power.  If LIPA pays $0.17 per kWh for commercial solar power, and then sells the electricity it obtains at $0.215 per kWh, it will only have $0.045 per kWh to pay expenses totaling $0.14 per kWh.  The difference, $0.095 per kWh, represents a loss of revenue which LIPA must make up from its rate payers to cover its costs.

Is there a loss of revenue to LIPA when its rate payers put solar systems on the roof of their house and business?  Of course.  LIPA does not receive the $0.215 per kWh it normally would receive from customers who have installed solar systems on their rooftops.  With the exception of a fixed daily charge of $0.36, which every residential rate payer must pay even if they generate more solar power than they use in a given month, all other charges on LIPA’s residential bills are based on net kWhs used each billing period.  Because LIPA does not pay for the electricity generated by owners of rooftop solar systems (because it stopped providing incentive payments and any incentives are now paid by NYSERDA[12]), the avoided cost of purchasing an equivalent amount of power on the open market, $0.075 per kWh, must be subtracted when calculating lost revenue, as must the $0.36 per day collected from everyone, including owners of rooftop solar systems.  On its face, then, it could be argued that distributed rooftop solar has a greater adverse impact on LIPA revenues than do commercial solar facilities (a shortfall to cover LIPA’s overall expenses of roughly $0.13 per kWh for the former, and $0.095 per kWh for the latter).

That is not the complete story, however.  Both commercial solar facilities and distributed rooftop solar systems have the benefit of providing energy to the LIPA distribution system precisely when it is needed most – during peak usage summer hours.  Because utilities are required to maintain sufficient power in excess of their anticipated highest peak usage during the year to maintain the reliability of the system, both commercial power and distributed rooftop solar reduce the amount of power LIPA must have available, or must purchase on the open market at a time when the cost is at its highest.  Because commercial solar power is concentrated, however, and often must be transported a great distance to substations, there can be a substantial loss of energy from the point of generation to the point of connection with the substation.  Distributed rooftop solar power can, by contrast, be absorbed into the distribution network at or near the point of generation, with little loss of power.

The withdrawal of bids by commercial solar providers due to the high cost of transporting the solar power to substations, and to upgrade the substations in order to be able to receive the solar power, provides an additional basis for questioning whether LIPA will really experience less revenue loss by contracting with commercial solar generators than it will if power is received from distributed rooftop solar systems.  LIPA’s Requests for Proposals for renewable energy projects have a proviso that the bidder must pay for all costs of upgrading transmission lines and substations required to receive the solar power.  Rest assured that all rate payers must pay for these additional costs.  The average cost of the responses to the renewable energy RFP, $0.17 per kWh, was the result of estimates by bidders that this price would allow them to make a profit even if they must upgrade transmission lines and substations.  The December 17, 2014 LIPA resolution that selected eleven commercial solar bidders for negotiation of Power Purchase Agreements totaling 122 MW also authorized LIPA staff to prepare another Request for Proposal for an additional 160 MW of renewable energy.  In light of the withdrawal of so many bidders from contract negotiations due to unanticipated costs associated with transmission line and substation upgrades, future bids necessarily will be higher than $0.17 per kWh.  As a result, even less money received by LIPA when it sells the power generated to its customers at approximately $0.215 per kWh (for residential) will be available to cover LIPA’s expenses.  Will the impact on LIPA’s revenues from distributed rooftop solar systems then be less than the impact of 20-year fixed price Power Purchase Agreements at prices way above market?

The cost-benefit analysis between commercial solar projects and distributed rooftop solar must also take into account other economic factors.  One is that the acquisition of large tracts of open space by out-of-state commercial solar projects not only reduces the amount of open space available for such things as affordable housing, but also creates upward pressure on the cost of remaining open space.  Distributed rooftop solar has no impact on the availability of open space, or the cost of acquiring such land.  Likewise, because most of the developers of commercial solar power are out-of-state companies, profits will go out-of-state, and will not benefit our local community.  Contrast that with the fact that owners of distributed rooftop solar systems who benefit from dramatically reduced bills for electricity will spend the money saved in their local communities.

Another potentially huge benefit of distributed rooftop solar systems over large commercial solar projects is that distributed systems have the potential in the long term to actually help reduce the cost of electricity for rate payers, while the Power Purchase Agreements for large scale commercial solar electrical generating stations do not.  The more power that is obtained from renewable sources like solar, be it from commercial electrical generating facilities or distributed rooftop systems, the greater the likelihood that the old, inefficient, highly polluting power plants such as those in Port Jefferson and Northport can be closed.  The power from these plants no longer will be needed.  Whether LIPA will still have to pay for the potential power from these closed plants will turn on the terms of the Power Purchase Agreements that currently are in place.  Even if the plants can be closed without payments having to be made to the owners, however, LIPA will still be locked into 20-year fixed high cost Power Purchase Agreements with the owners of commercial solar electrical generating facilities, who will receive higher than market payments for the power they generate for the duration of their contracts – even if the power no longer is needed.  By contrast, LIPA does not have to pay anything to the owners of distributed rooftop solar systems to receive the power they generate.[13]

Even if LIPA could somehow show that there is an economic benefit to its contracting with commercial solar electrical generating facilities for all their power at a fixed higher than market cost for twenty years, there is another economic reality that LIPA must deal with.  As the cost of rooftop solar keeps coming down, people will continue in ever greater numbers to understand the benefit of installing solar, and will add solar systems to their houses or places of business.  In addition, as more people invest in appliances and lighting that are more energy efficient than what they already have, and as smart meters are installed that allow consumers to educate themselves as to their usage in real time and thus act to minimize their electrical usage to the extent practicable, LIPA’s revenues will continue to drop.  At the same time LIPA will have to continue to pay for its fixed costs, such as those associated with its transmission system, Shoreham debt, and all the long term fixed cost Power Purchase Agreements it has entered into with providers.

On March 26, 2015, the LIPA Trustees addressed this problem head-on by approving a so-called “Revenue Decoupling Mechanism.”[14]  Commencing April 1, 2015, actual revenues for Delivery Services will be compared to revenues approved for the annual budget for Delivery Services for the remainder of 2015.   The refund or surcharge percentage that is due to each participating service classification thereafter will be calculated and applied to the Delivery Service charges for a six-month period.  Theoretically, this will result in either a credit or surcharge to ratepayers.  As explained in the resolution approved by the Trustees, “the revenue decoupling mechanism is a PSC-approved policy tool for the regulated investor-owned electric utilities in New York that will help to achieve financial stability without the conflicting pressures that are created by the pursuit of aggressive and societally justified programs for energy efficiency and renewable resources.”  In plain speak, this means that LIPA will recover any revenue shortfall caused by energy efficiency or from renewable energy from sources such as distributed rooftop solar systems.

One benefit of this revenue decoupling mechanism for purposes of discussing whether commercial solar electrical energy facilities make any sense is that it eliminates the rationale provided by LIPA in 2012 for entering into 20-year fixed cost Power Purchase Agreements with such energy providers.  Any lost revenues from renewable energy will be recovered by LIPA.  Thus, because of all the adverse impacts on the environment and economy arising from commercial solar electrical generating facilities, there is no reason not to forego such contracts, and to focus instead on finding ways to encourage more distributed rooftop solar systems.

The scope of the current Public Service Commission hearings on LIPA’s proposed rate increase was amended on March 30, 2015 by two administrative law judges to “include effects of three programs: Utility 2.0, revenue decoupling and a cost-recovery mechanism for energy efficiency programs.”[15]  This is a very good thing indeed.  Keep in mind that the revenue decoupling mechanism compares actual revenues for Delivery Services to the amount budgeted by LIPA for the year.  One important question LIPA should have to answer is whether the budgeted amount for Delivery Services includes revenue needed to pay all of the many 20-year Power Purchase Agreements LIPA has entered into at inflated rates.  If it does, then there is yet another reason to oppose such agreements with commercial solar electrical generating facilities.  Rather than lock in inflated rates for twenty years which rate payers will have to pay regardless of whether the power is needed or can be obtained by means of distributed rooftop solar systems for far less, LIPA’s focus should be on expanding the availability of distributed solar power.  As noted in earlier blogs, because PSEG-LI has confirmed that no new power sources are needed by LIPA for ten years to maintain the reliability of the system, it should stop rushing into Power Purchase Agreements at inflated prices with commercial solar electrical generators, study the alternatives, and make a rationale decision supported by real facts and data.

Tiger salamanders should not be protected in areas where they have wandered beyond their natural habitat, and industrial scale solar facilities should not be subsidized to go where they do not belong.

[1]“All Solar Power Is Not Created Equal (So Slow Down PSEG-LI And LIPA And Get It Right)” (Frederick Eisenbud, January 7, 2015); “The Emperor Has No Clothes (Why The Push For Commercial Solar Makes No Sense)” (Frederick Eisenbud, February 26, 2015).

[2] I contracted to have a solar system installed on my house in August 2013, which has been generating more electricity on an annual basis than my family consumes.  My return on investment is more than 15%.  I rave about the benefits of distributed rooftop solar to anyone who will listen.

[3] August 6, 2014 Memo to LIPA Trustees from John McMahon, LIPA CEO, re “Approval of Revised Governing Policy for Power Supply Hedging Program”, found at http://www.lipower.org/pdfs/company/papers/board/080614-Consideration-GoverningPolicyPowerSupplyHedgingProgram.pdf

[4] Proposal submitted to and approved by the LIPA Trustees by LIPA COO John McMahon on June 28, 2012, found at http://www.lipower.org/pdfs/company/tariff/proposal_feedin.pdf.  On page 3 of 4, the proposal acknowledges that the cost of power on the open market was approximately $0.075 per kWh.

[5] Frederick Eisenbud Blog, January 7, 2015, “All Solar Power Is Not Created Equal (So Slow Down PSEG-LI And LIPA And Get It Right).”

[6] “New Studies Find Significant Declines in Price of Rooftop and Utility-Scale Solar Onerous Local Regulatory Processes Can Impact System Prices,” Allan Chen (September 17, 2014 Press Release) (http://newscenter.lbl.gov/2014/09/17/new-studies-find-significant-declines-in-price-of-rooftop-and-utility-scale-solar/ ).

[7]The complete text of the Model Code is available on the website of the Suffolk County Planning Commission:  http://www.suffolkcountyny.gov/Departments/Planning/Boards/SuffolkCountyPlanningCommission.aspx.

[8] Mark Harrington, “Developers withdrawing a number of proposed solar projects”, Newsday (Aprtil 29, 2015).

[9] See proposal submitted to and approved by the LIPA Trustees on June 28, 2012, found at http://www.lipower.org/pdfs/company/tariff/proposal_feedin.pdf .

[10] Newsday, April 29, 2015, fn 6, above.

[11] See proposal submitted to and approved by the LIPA Trustees on June 28, 2012, found at http://www.lipower.org/pdfs/company/tariff/proposal_feedin.pdf (page 2 of 4).

[12] NYSERDA stands for the New York State Energy Research and Development Agency. For information on the incentives available for residential solar, go to http://ny-sun.ny.gov/For-Installers/Megawatt-Block-Incentive-Structure.

[13] LIPA no longer pays incentives to those who install rooftop solar systems.  All the electrical power generated by these rooftop solar systems runs into LIPA’s transmission system, first passing through net meters that run backwards when the solar electricity generated is greater than the electricity used by the building occupant.

[14] See Minutes of the LIPA Trustees meeting of March 26, 2015 at pp. 8-12, available at http://www.lipower.org/pdfs/company/papers/board/032615-minutes.pdf .

[15] Newsday, March 31, 2015, “PSEG Long Island power supply charge drops again.”

Generally speaking, the two ways a party can recover attorneys’ fees if it is successful in litigation are: (1) by statute based on the claims asserted; or (2) by contract if the parties include a provision entitling the successful party to recover attorneys’ fees.  While parties often believe this entitles them to a dollar for dollar reimbursement for attorneys’ fees, Courts will award only “reasonable” attorneys’ fees.  Courts are often looked upon to analyze the reasonableness of attorneys’ fees.  A recent decision from the Commercial Division in Kings County provided a thorough analysis of the factors Courts look at in determining the reasonableness of attorneys’ fees.

In PNL Phoenix, LLC v. Janton Industries, Inc., et al. (J. Demarest), plaintiff PNL Phoenix, LLC had acquired a $1.2 million loan from Sovereign Bank as well as a $750,000 line of credit loan.  The borrowers were Janton Industries, Inc. and Designcore, Ltd. (as well as other guarantor defendants), were in default at the time plaintiff acquired the loans. After the defendants defaulted again under a subsequent forbearance agreement, plaintiff commenced two separate lawsuits – one seeking an order of seizure to recover collateral that secured the line of credit loan, and the other to foreclose on the $1.2 million loan.  Defendants claimed they had been making payments on both loans and had paid the balances down considerably. Ultimately, the defendants refinanced and paid off both loans.  However, one issue remained – plaintiff’s attorneys’ fees.

Under the loan documents, plaintiff was entitled to recover its reasonable attorneys’ fees and costs for having to enforce or effectuate any of the terms of the agreement and other loan documents.  As a result, plaintiff sought to recover $90,969.75 in attorneys’ fees and expenses (plus another $9,498.40 in connection with the settlement and application for attorneys’ fees).  Along with its application for attorneys’ fees, plaintiff’s counsel submitted an affirmation with his qualifications and experience, attached a document list of all papers filed in both actions, and provided contemporaneous time records showing the time billed by the firm.  Plaintiff’s counsel also noted that, while his hourly rate is normally $620/hour, he provided plaintiff with a 20% discount on his hourly rate.  Other attorneys who worked on the files for plaintiff also discounted their hourly rates by 20%.

In reviewing plaintiff’s attorneys’ fees, the Court noted that the attorneys’ fees must be “reasonable and warranted for the services actually rendered.” Kamco Supply Corp. v. Annex Contracting, Inc., 261 A.D.2d 363, 365 (2d Dep’t 1999). The Court must consider the following factors: “time and labor required, the difficulty of the questions involved, and the skilled to handle the problems presented; the lawyer’s experience, ability and reputation; the amount involved and benefit resulting to the client from the services; the customary fee charged by the Bar for similar services; the contingency or certainty of compensation; the results obtained; and the responsibility involved.” Matter of Freeman, 34 N.Y.2d 1, 9 (1974).

The defendants argued that plaintiff’s attorneys’ fees were unreasonable and inflated and that plaintiff engaged in unnecessary and frivolous litigation. As an initial matter, the Court found that plaintiff did not commence frivolous litigation.  Even if defendants were paying down the loans, they were still in default, plaintiff was permitted to accelerate the loans under the loan documents, and they even acknowledged their default in the forbearance agreement.

As far as defendants’ argument that certain filings by plaintiff (an unauthorized reply to an order to show cause) were unreasonable, the Court agreed because the Commercial Division Rules prohibit submission of a reply to an order to show cause absent prior approval of the Court. As a result, the Court struck 6.35 hours from plaintiff’s billings for the reply.  The Court, however, did not agree with defendants regarding a reply to an ex parte application, which is not prohibited.  The Court also found that the summary judgment motions filed in both cases were not duplicative of one another as defendants contended.

Next, the defendants argued that plaintiff’s invoices were not reliable because the time entries were commingled amongst the two actions and that plaintiff artificially separated the entries after the fact.  The Court did not have an issue with this and found that, due to the similarities between the two actions, the parties, and the loan documents, the fact that entries were commingled was to be expected.  The fact that the time entries were later separated was done merely as a convenience to the Court.

Defendants also argued that the discounted hourly rate of $496 was also unreasonable, far in excess of customary hourly rates in Kings County, and that the work was not so complex to require the time spent by a senior partner.  On these issues, the Court held that the hourly rate was reasonable but did find that some of the work, such as basic research and filing tasks, should have been performed by a less expensive attorney at the firm.  As a result, the Court reduced the plaintiff’s billings by 5%.  The Court also found some of the time performed by the senior partner to be excessive and knocked off an additional 10% from the total billings, and also reduced additional billings in connection with the application for attorneys’ fees.

In total, although plaintiff incurred approximately $100,000 in attorneys’ fees and costs, it only recovered $72,799.95 – an approximate 30% reduction in plaintiff’s attorneys’ fees.  Unfortunately, this type of reduction is not an uncommon occurrence.  Courts will often significantly reduce the total attorneys’ fees that can be recovered in a case because the Court believes the fees are unreasonable, even if the time spent was necessary.  The lesson to be learned for litigants is that important decisions, such as how or whether to proceed with litigation, should not be based on the possibility of recovering attorneys’ fees at the end of a case.

May 13, 2015

Featuring Gail L. Trugman-Nikol, President of Unique Business Solutions

Lost Knowledge: What is the Cost?

What would you do if you could see your processes and vulnerabilities more clearly?  Do you know what they are?  If you document your procedures before selling your company or key employees leave, the documentation ensures that employees follow best practices, no matter who does the task. The cost savings are tremendous!

Come discuss how to manage risk in your business currently and in the future. Learn about a solution that has a long term positive impact on your business.

EVENT DETAILS

Breakfast & Registration:  8:30am – 9:00am
Presenting Speaker: 9:00am – 9:45am
Q&A and Discussion 9:45am – 10:00am

REGISTRATION: All events are FREE but registration is required.
Complimentary breakfast will be served.

LOCATION: Meetings are held at the CMM Ronkonkoma location.

RSVP to vtringone@cmmllp.com

By Patrick McCormick

Three recent decisions, two from the Supreme Court, Appellate Term, First Department and the third from Supreme Court, Queens County (Ritholtz, J.) are instructive to landlord/tenant practitioners.  The first involves an application by a tenant for a Yellowstone injunction; the second involves a tenant’s renewal option contained in a commercial lease; and, the third involves enforcement of a settlement agreement.

A Yellowstone injunction is a procedural mechanism used by tenants to maintain the status quo and to toll the running of a cure period so that a commercial tenant confronted by threat of termination of its lease may protect its investment in the leasehold.[1] The party requesting Yellowstone relief needs to demonstrate: (1) it holds a commercial lease; (2) it received from the landlord either a notice of default, a notice to cure, or a threat of termination of the lease; (3) it requested injunctive relief prior to the termination of the lease; and, (4) it is ready, willing and able to cure the alleged default by any means short of vacating the premises.[2]

In NY Great Stone, Inc. v. Two Fulton Square LLC, [3] the tenant received a ten (10) day notice to cure dated November 21, 2014.  The cure notice alleged the tenant defaulted under the terms of the lease by failing to conduct a hydrostatic pressure test on a sprinkler system in the premises and failed to obtain comprehensive general liability insurance required by the lease.  The lease at issue obligated the tenant to obtain and maintain general liability insurance for the term of the lease naming the landlord as an additional insured.  This type of insurance clause is common in commercial leases. The tenant, in its application for a Yellowstone injunction, provided the Court with a certificate of liability insurance dated December 2, 2014 evidencing coverage effective April 7, 2014 to April 7, 2015, and indicating the landlord as an additional insured. Based on the documentation provided to the Court, the Court denied the application for a Yellowstone injunction. The Court, correctly in my view, noted that the tenant’s failure to maintain proper insurance is a material default under the terms of the lease and that such a default is not curable because a prospective insurance policy does not necessarily protect a landlord against unknown claims that might arise during the period in which no coverage exists. Thus, existence of current coverage did not cure the default for failing to maintain (or perhaps not prove) the existence of coverage from the inception of the lease. The tenant argued that the default notice directed it to obtain general public liability insurance, but the Court was not persuaded that the default was cured by tenant’s claim that it obtained a current policy of general liability insurance as demanded by the cure notice. Accordingly, Yellowstone relief was denied as the tenant could not establish that it was ready, willing and able to cure the default.

The next case, 315 West 48^th Street Realty Corp. v. Maria’s Mont Blanc Restaurant Corp,[4] involved a commercial lease in which the tenant operated a restaurant under two separate lease agreements that expired, at the expiration of a five (5) year renewal term, on August 31, 2010. The landlord commenced a holdover proceeding and tenant defended alleging that its predecessor validly exercised a second renewal option for both leases to extend the term through August 31, 2015. The Court noted that the tenant’s claim was not properly raised at trial but, nevertheless, should have been rejected because the tenant did not establish that the second renewal option was properly exercised.  The tenant apparently claimed, but no evidence was produced at the trial, that the prior tenant gave notice to the landlord of its intent to exercise the renewal option. The Court also rejected the tenant’s claim that the second renewal option was exercised when its predecessor exercised the first renewal option. The Court noted that the leases did not authorize the tenant simultaneously to exercise the renewal options for both renewal terms and, based upon the renewal language in the leases, the court concluded that the parties intended that the second renewal option could be exercised only during the first renewal term. The Court therefore found that notice of the exercise of the second renewal term claimed by tenant was not timely given and therefore was ineffective.  While Courts may, in an exercise of equity, relieve a tenant from its failure to timely exercise a renewal option if no prejudice is demonstrated, it appears in this instance that the tenant did not provide the Court with any evidence or basis to grant such relief.

Finally, 567 West 125^th Street Realty, LLC v. VJRJ Restaurants, LLC[5] involved enforcement of a settlement agreement entered into between landlord and tenant.  The facts of this matter are straight forward. In a commercial non-payment summary proceeding the landlord and tenant settled the matter by entering into a settlement agreement awarding a judgment of possession and judgment for rent arrears.  The stipulation itself recited that it was “the product of ‘extensive negotiations’ between the parties, provided for the warrant of eviction to issue ‘forthwith,’ with execution of the warrant stayed on the condition that the corporate tenant complied with the specific ‘time of the essence’ payment schedule.”  Upon a default by tenant under the stipulation, landlord was obligated to serve a three day cure notice. The tenant failed to make several payments due under the stipulation and the landlord served the requisite three day cure notice. The lower court granted tenant’s application to stay the execution of the warrant, entered on condition that the tenant pay the arrears. The Appellate Term reversed. The Court, in reversing, instructed that “strict enforcement of the parties’ stipulation…is warranted based upon the principle that parties to a civil dispute are free to chart their own litigation course” (citation omitted). The Court noted that the tenant did not provide a valid excuse for its failure to comply with the time of the essence payment requirements of the stipulation, the tenant entered into the stipulation upon the advice of counsel and the tenant’s excuse that it was in the process of selling certain business equipment was not good cause under RPAPL 749(3) to justify staying the execution on the warrant of the eviction. It appears that the specific language of this particular settlement agreement that recited that it was the product of extensive negotiations; that payments were required “time of the essence” and that it was entered into on the advice of counsel are all significant factors in the Court’s determination. From a landlord’s prospective, these provisions should be included, where appropriate, in all settlement stipulations.

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[1] Graubard, Mollen, Horowitz, Pomeranz & Shapiro v. 600 Third Avenue Associates, 93 N.Y.2d 508, 514, 693 N.Y.S.2d 91, 94 (1999).
[2] Id.
[3] 17762/2014, NYLJ 1202722119287, at *1 (Sup., QU, Decided March 24, 2015).
[4] 2015 WL 1133988, 2015 N.Y. Slip Op. 25077 (App. Term, 1^st Dep’t 2015).
[5] 46 Misc.3d 150(A)(App. Term, 1^st Dep’t 2015).

By Christine Malafi

Business interruption insurance is designed to protect your business if your business premises is physically damaged and there is a suspension or halt of business activity at that location. It is not typically a “free-standing” insurance policy—rather, it is an additional coverage that can be added to a property damage insurance policy (i.e., fire policy) as an endorsement or a rider (for an additional fee, or course). In other words, if you don’t ask for it, you don’t have the protection it offers.  This type of additional insurance protects against your inability to continue business operations because of events  outside of your control, such as severe flooding or another catastrophic events, and is intended to place your business in the same position had the event causing the suspension of business activity not occurred. For example, if you have to move your business from one location to another, even temporarily, there will be expenses to do so, or you may not be able to conduct business at all and lose profits. Business interruption insurance can protect against these events.

Insurers usually offer two different types of business interruption coverage: a valued policy and an open policy.  In a valued policy, the insurer and insured agree upon a fixed amount, in advance, to be paid in the event of a business interruption.  An open policy covers any provable loss resulting from an interruption and requires the insured offer verifiable, competent proof of the damages in order to collect the proceeds. The burden of proof for reimbursement varies according to specific policy language.  For example, under a sole cause standard, the insured must prove that physical damage claimed under the other portion of the policy was the only (sole) reason for the halt of business operations.  Some coverages will allow the insured to relocate when severe physical damage has occurred, and, so long as the insured attempts to mitigate the damages, the insurer will typically authorize payment for reimbursement of costs.

Business interruption coverage protects businesses more fully than a fire or property loss insurance policy alone.  In recent years, we have seen some horrible storms, including Hurricanes Katrina and Sandy.  Business interruption coverage is designed to help businesses that are negatively affected from these types of storms and other catastrophic events and may be considered a necessary business expense.

CMM Attorney Vincent Costa Speaking on Alumni Panel: Successfully Transition from College to Career

 This panel discussion seeks to educate graduating seniors and recent alumni on how to make a successful transition from college to the workplace.

Monday, April 27, 2015
6 PM – 7:30 PM
Stony Brook University Campus
Charles B. Wang Center
Room 201

Making the transition from student to professional can be difficult and confusing.  Learn how to gain a better understanding of what it takes to be successful during the “unique first-year” in a new organization after graduation. Professionals representing various careers will answer questions about how to navigate company culture and manage relationships, and will provide tips on how to set yourself up for career success.

Alumni Panelists:

• Caitlin Harley ’09: Research Manager, Entertainment
• Vincent Costa ’09: Associate, Law
• Ahmed Belazi ’09: Director of Planning & Staff Development, Education
• Kaitlyn Pickford ’08: Outreach Coordinator and Town & Village Courts   Liaison, Government

Join us after the panel for networking with alumni panelists and career professionals!

Questions?  Please contact Nikki Barnett at nikki.barnett@stonybrook.edu.

This event is brought to you by the Stony Brook University Career Center and Alumni Career Services.