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"Vouching-In": The Key to the Sublessor's Defense of a Sublessee's Warranty of Habitability Counterclaim

By: Edward D. Loughman, III*

A sublessor is faced with a dilemma when a sublessee defends a non-payment proceeding with a counterclaim alleging a violation of the warranty of habitability. If the claim has any validity, the responsibility may ultimately lie with the landlord. If it has no validity, the tenant/sub-lessor needs the landlord's testimony. Procedurally, his ability to involve the landlord or managing agent in the summary proceeding is limited. Politically, suing the managing agent or the landlord may not be the wisest. Withholding rent not only has political ramifications, but can result in eviction. Moreover, if the tenant is the owner of a co-operative apartment, it may result in cancellation of the stock and lease and foreclosure proceedings by the holder of the tenant co-op loan. Vouching-in the landlord may be the key.

"Vouching in" is the common law predecessor to modern impleader statutes2. Prior to the development of impleader, a defendant having a claim over against another responsible person had to defend and then, if unsuccessful, seek indemnification by suing the responsible party. Under the doctrine of vouching-in, the defendant gives the responsible party notice of the lawsuit and invites it to take over the defense. The responsible party can either choose to intervene and control the defense or be bound by the consequences. If there is a judgment adverse to the defendant and the third party has a duty to indemnify, the third party will be bound by the judgment. Unlike impleader, however, the third party is not immediately bound; a second lawsuit is needed but the third party is estopped from contesting the validity of the judgment against the defendant.

Although impleader makes the third party a party to the action obviating the need for a second action, it is not always available. Summary proceedings to evict are special proceedings so impleader is not available without court order. 2 Moreover, not only does the motion add time to the process but so does the impleader if leave is given. To a co-operative shareholder needing the rent to pay maintenance and the co-op loan, the delay could be fatal.

Especially if the co-op or managing agent has been trying to address the problem that is giving rise to the sub-tenant's claim of violation of the warranty of habitability, the tenant/sub-lessor may be reluctant to make the landlord an adversary by impleading it. Not only may this impede the cooperative's desire to resolve the problem quickly but it may come back to haunt the tenant when he or she later needs the approval of the co-op board to sell or sub-lease the apartment. 3

Unfortunately, what may work for the sub-tenant may not work for the tenant. Typically, tenants faced with warranty of habitability issues withhold rent. Indeed, that is likely the sub-tenant's rationale in our scenario. The co-operative tenant, however, does so at his or her peril. Not only does the co-operative tenant face cancellation of the leasehold and cancellation of his or her stock4, but faces the threat of foreclosure as well. Most lenders to the purchasers of co-op apartments require some sort of recognition agreement in which the co-op is obligated to give the lender notice when the borrower fails to pay maintenance. Not only is this failure a default under most notes and security agreements, but because the co-op's claim for maintenance has priority over the lender's lien5, the default is taken very seriously. Accordingly, this tack should not be taken without consideration of the consequences.

Finally, defending the counterclaim and then going after the landlord is dangerous. Not only does it mean litigating the warranty of habitability issue twice, but the results are not guaranteed to be identical. Absent vouching in or impleader, the landlord is not bound by the prior finding and is entitled to contest it. Even if the sub-tenant cooperates and testifies in the second action, his zeal may be lessened by his successful judgment against the tenant. The landlord's side is now likely to be vigorously defended. Indeed, the sub-tenant's earlier success may well have been helped by the landlord's less than eager assistance as witness. If vouched-in however, the landlord's lack of cooperation will preclude it from challenging the sub-tenant's claims later.

There is no formalized procedure to effect vouching-in, only that the defendant give the responsible parties notice of the proceeding and the opportunity to take over the defense. 6 Although the notice could be oral7, written notice is well advised. Notice should be accompanied by a copy of the counterclaim8 and the details of the status of the proceeding. Although in most warranty of habitability situations the landlord is likely to have already been contacted by the tenant or sub-tenant, when a warranty of habitability claim is expected, it is advisable to memorialize the notice even before the summary proceeding is commenced. Not only should affidavits of service of the notice be prepared but personal delivery or certified mail, return receipt requested is suggested.

If the landlord accepts the offer to take over the defense, the tenant must allow the landlord to control the litigation of the counterclaim (or intervene). Failure to allow the landlord control can undo the process and the landlord will not be bound by the first adjudication. 9 If the landlord takes control it is bound by the judgment and would be liable to the tenant/sublessor for any judgment or offset in favor of the subtenant.

If the landlord does not accept the offer, the landlord is estopped from challenging the resulting judgment. Although the tenant must still sue the landlord, the only issue is whether the landlord is bound to indemnify the tenant. The warranty of habitability is implied in every lease and cannot be waived. 10 If the premises were uninhabitable by the sub-tenant, they would be uninhabitable by the tenant. Even though there is caselaw to the effect that an out-of-possession tenant/sublessor can not raise the warranty of habitability as a defense to a non-payment proceeding11, that does not preclude a claim of implied indemnity by the tenant/sublessor against the landlord. Although the warranty exists between sublessor and subtenant, the primary duty is by the landlord. Having discharged the duty owed by the landlord, the tenant/sublessor is entitled to indemnity from the landlord. 12 Thus, unless the uninhabitability was caused by what the tenant did, rather than what the landlord did (or did not do) the second action may well be resolved by summary judgment.

CONCLUSION

Vouching-in protects the sublessor from inconsistent judgments and encourages cooperation from the landlord. If the landlord fails to cooperate in the defense of the sub-lessee's counterclaim for violation of the warranty of habitability, it does so at its peril because any victory by the sublessee binds the landlord.

© New York Bar Association reprinted with permission


* Member, Muldoon, Horgan & Loughman, New Rochelle, NY

1 D. Siegel, New York Practice '168; J. Wicks & M. Zweig, "Impleader Practice in New York: Does It Really Discourage Piecemeal Litigation", 71 N.Y.S.B.J. 44 (1999); see e.g., Hartford Accident Indemnity Co. v. First National Bank & Trust Co. of Hudson, 281 N.Y. 162 (1939). Despite the adoption of the impleader statutes, the doctrine survives. George Cohen Agency Inc. v Donald S. Perman Agency Inc. , 51 N.Y. 2d 358, 362, 434 N.Y.S. 2d 189, 191 (1980).

2 CPLR 401. Although impleader has been allowed to bring in the Department of Social Services when it has involved itself in the landlord tenant dispute, Rothbaum v. Ebel, 77 Misc. 2d 965, 354 N.Y.S. 2d 545 (Civil Ct. N.Y. Co. 1974); Sessa v. Blakney, 71 Misc. 2d 432, 336 N.Y.S. 149 (City Ct. Yonkers 1972); Blackman v. Walker, 65 Misc. 138, 316 N.Y.S. 2d 930 (Dist. Ct. Nassau 1970); impleader does not appear to be favored, Gorman v. Gorman, 77 Misc. 2d 687, 355 N.Y.S. 2d 902 (Civ. Ct. Kings 1974).

3 Although denying consent because of prior litigation, Smolinsky v 46 Rampasture Owners Corp, 230 A.D. 620, 646 N.Y.S. 2d 110 (1st Dep't 1996); or requiring discontinuation of litigation as a condition to consent is improper, Chemical Bank v 635 Park Avenue Corp, 155 Misc. 2d 433, 588 N.Y.S. 2d 257 (Sup. Ct. N.Y. Co 1992); the Board's rationale for denial or delay is not always obvious.

4 Although many, if not all, proprietary leases allow the co-op to cancel the stock and lease for non-payment and then bring a holdover proceeding, this use of the conditional limitation to avoid non-payment defenses such as the warranty of habitability is disfavored. McMillan v Park Towers Owners Corporation, 225 A.D. 2d 742, 640 N.Y.S. 2d 144 (2d Dep't 1996); Saada v Master Apartments Inc. , 152 Misc. 2d 861, 579 N.Y.S. 2d 536 (Sup. Ct. N.Y. Co. 1991). The co-op could still bring a non-payment proceeding to cancel the lease and then conduct a sale of the stock and lease. An out-of-possession tenant's resort to the warranty of habitability defense is suspect e.g. Halkedis v Two East End Avenue Apartment Corp. , 161 A.D. 2d 281, 555 N.Y.S. 2d 54 (1st Dep't), lv den. , 76 N.Y. 2d 711, 563 N.Y.S. 2d 767 (1990); 25 W. 13th Street Corp. v Gerevitz, 128 Misc. 2d 74, 488 N.Y.S. 2d 597 (Civ Ct. N.Y. Co. 1985); probably rendering the tenant/sublessor no choice but to pay maintenance to avoid eviction.

5 See ALH Properties Ten, Inc. v 306-100th Street Owners, 86 N.Y. 2d 643, 635 N.Y.S. 2d 161 (1995); Matter of Nadelson (Citibank) , N.Y.L.J., 2/4/94, p. 22 col. 3 (Sup. Ct. N.Y. Co.); Swartwood v 222 East 57th Street, N.Y.L.J., 1/31/91, p. 27, col. 1 (Sup. Ct. N.Y.Co.).

6 Hartford Accident & Indemnity Co. v First Nat'l Bank & Trust Co. of Hudson, 281 N.Y. 2d 162, 168-69 (1939); Carmody-Wait 2d, New York Practice '168.

7 Urbach v City of New York, 46 Misc. 2d 503, 259 N.Y.S. 2d 975 (Sup. Ct. Kings 1965); Bouleris v Cherry-Burrell Corporation, 45 Misc. 2d 318, 256 N.Y.S. 2d 537 (Sup. Ct. Rensselaer 1964).

8 Urbach v City of New York, 46 Misc. 2d 503, 259 N.Y.S. 2d 975 (Sup. Ct. Kings 1965) (failure to enclose pleading may preclude claim of offer to assume defense)

9 See L.B. Kaye & Associates, Ltd. v. Libou, 139 A.D. 2d 440, 527 N.Y.S. 2d 216 (1st Dep't 1988).

10 R.P.L. '235-b.

11 Helkedis v Two East End Apartment Corp. , 161 A.D. 2d 281, 555 N.Y.S. 2d 54 (1st Dep't) lv. den. , 76 N.Y. 2d 711,563 N.Y.S. 2d 767 (1990); 25 W. 13th Street Corp v Gerevitz, 128 Misc. 2d 74, 488 N.Y.S. 2d 597 (Civ. Ct. N.Y. Co. 1985).

12 Piccione v 1165 Park Avenue, Inc. , 177 Misc. 2d 1037, 677 N.Y.S. 2d 891 (Sup. Ct. N.Y. Co. 1988), aff'd, 258 A.D. 2d 357, 685 N.Y.S. 2d 242 (1st Dep't 1999); Brook v H.E. Swezey & Son Motor Transportation, Inc. , 137 N.Y.S. 2d 267 (Sup. Ct. Suffolk 1954), app. dism'd, 3 A.D. 2d 747, 159 N.Y.S. 2d 1015 (2d Dep't 1957), aff'd, 4 N.Y. 2d 821, 173 N.Y.S. 2d 619 (1958).

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