Two separate orders to show cause filed under separate index numbers will be decided in the decision herein.

The motion by Banana Kelly Community Improvement Association Inc., (hereinafter "Banana Kelly") by order to show cause for an order enjoining Schur Management Company, Ltd., (hereinafter "Schur Management") from collecting and converting rental monies from Banana Kelly's tenants and superintendents of properties owned by Banana Kelly, directing Schur Management to tender immediately to Banana Kelly any rents or other building fees that [*2]Schur Management may have collected, directing Schur Management to provide an immediate accounting for all rents and building fees collected, including access to all financial books and records concerning Schur Management's property management of the properties owned by Banana Kelly and enjoining Schur Management from directing or advising the tenants and building superintendents of the Banana Kelly properties that Schur Management remains the property manager and that rents and other building fees should be delivered to Schur Management and not Banana Kelly, is granted solely to the extent that Schur Management is enjoined from serving as plaintiffs' property manager, enjoined from further collecting rents from the subject properties and enjoined from directing or advising the tenants and building superintendents of Banana Kelly's properties that it remains the property manager and that rents and other fees should be delivered to Schur Management.

The motion by Schur Management for an order enjoining Banana Kelly, et al., from terminating Schur Management as managing agent for the properties that are the subject of both actions, is denied.

Banana Kelly asserts that it is the sponsor and the controlling member of its ten co-plaintiffs (hereinafter "Banana Kelly HDFCs") and was incorporated by residents in 1978 for the purpose of revitalizing and preserving their Hunts Point and Longwood neighborhoods by building, renovating and maintaining affordable housing, providing its neighborhoods' residents access to educational programs, vocational training and employment and business opportunities. Banana Kelly contends that more than eighty-five percent (85%) of its staff and over forty percent (40%) of Banana Kelly's Board of Directors live in the community.

In support of the motion, Banana Kelly and its HDFCs submit the affidavit of Harold DeRienzo, Banana Kelly's President. In his affidavit, Mr. DeRienzo asserts that in or about June 2004, Banana Kelly, as the sponsor and controlling member of the Banana Kelly HDFCs, retained Schur Management to provide property management and maintenance services at various buildings Banana Kelly and the Banana Kelly HDFCs own in the Longwood-Hunts Point sections of the Bronx. Banana Kelly asserts that pursuant to its contract with Schur Management, Schur Management's obligations and duties included: renting apartments at the various properties; collecting rents; providing administrative support for governmental rental subsidy programs; maintaining the properties; maintaining a detailed and comprehensive revenue and expense records. According to Mr. DeRienzo, Schur Management's compensation for performing its duties was to be a fixed percentage of the actual gross rent collected at the properties reduced by the amount of the properties' operating deficits. (DeRienzo Affidavit, para. 14-15).

Banana Kelly and its HDFCs allege, in the affidavit of Mr. DeRienzo, that Schur Management breached its contractual and fiduciary duties to them by, "failing to properly maintain the properties causing loss of eligibility for government rent subsidies; failing to maintain accurate books and records; commencing baseless eviction proceedings based on incorrect records maintained by Schur; causing Banana Kelly to lose rent subsidy payments as a [*3]result of Schur's improper administration; failing to send lease renewals as mandated by law; charging and collecting lower rents than were approved by Banana Kelly resulting in significant financial losses; improperly and inadequately supervising its employees by permitting them to act abusively to tenants." (DeRienzo Affidavit, para. 16-30).

Additionally, Banana Kelly and its HDFCs allege that Schur Management retained fees based on the gross rent it certified or claimed for the apartments at the properties as opposed to the amounts collected. Schur Management also inflated its fees by failing to take into account off-setting property operating deficits. Banana Kelly and its HDFCs further allege that upon their request, Schur Management was unable to provide timely, complete and accurate records by which Banana Kelly could conduct an audit. Moreover, Schur Management's incomplete, inaccurate and conflicting records made it impossible for Banana Kelly and its HDFCs to perform a complete audit. Banana Kelly and its HDFCs further allege that Schur Management's employees made material misrepresentations to Banana Kelly in order to hide discrepancies between rents actually charged and collected versus rent amounts that Schur Management had previously certified.

Banana Kelly and its HDFCs contend that on or about October 31, 2011, Banana Kelly served upon defendant a Notice of Default. Said notice required Schur Management to cure the default within ten (10) days. Banana Kelly asserts that Schur Management failed to cure the default and on or about November 16, 2011, Banana Kelly served a Notice of Termination upon Schur Management. Within a week after Schur Management was terminated, Banana Kelly and its HDFCs allege that Schur Management's employees impermissibly entered the subject properties and delivered notices to the tenants advising them to ignore notices form Banana Kelly and alleging that Schur Management was still the managing agent of their buildings. Additionally, Schur Management's employees tore down notices that Banana Kelly had posted in the buildings advising tenants that Schur Management was no longer the property manager. In support of said allegations, Banana Kelly submits affidavits from the superintendent of one of the buildings as well as two (2) tenants residing at the subject buildings, who are also employees of Banana Kelly.

Banana Kelly and its HDFCs now seek to enjoin Schur Management from continuing to interfere with Banana Kelly's rent collections by falsely representing to the tenants that Schur Management is entitled to continue to collect rents and seeks to have this court direct Schur Management to return the rents wrongfully collected as well as provide an accounting. Banana Kelly and its HDFCs argue that they are entitled to injunctive relief because they are likely to prevail on the merits of the action, they will suffer irreparable injury in the absence of a preliminary injunction and they can show a balancing of the equities in their favor.

Specifically, Banana Kelly and its HDFCs contend that they will succeed on the merits because they are the owners of the subject properties and have the exclusive right to the rents collected from the tenants therein. Schur Management's rights to collect the rents ended when Banana Kelly terminated its contract on November 16, 2011. Schur Management's actions of [*4]collecting the rents post-termination, interfere with Banana Kelly's rent collections and are unsupportable at law or equity. Banana Kelly and its HDFCs also argue that they will suffer irreparable injury if a preliminary injunction is not granted in that the rent monies Schur Management continues to collect are not merely "fungible cash, but an identifiable, measurable, distinctive res consisting of specific rents due from specific tenants." (Memorandum of Law, p. 8, para. B). Banana Kelly cites to case law from the appellate Division, First Department and asserts that even though its lawsuit seeks money damages relief, injunctive relief is appropriate to remedy the conversion of identifiable proceeds sought in the underlying action. Amity Loans, Inc. v. Sterling National Bank & Trust Co. of New York, 177 AD2d 277 (1st Dept. 1991). Banana Kelly alleges that the rent monies in the case at bar are specific and identifiable pertaining to each subject apartment and there is no question that defendant had an obligation to turn those monies over to Banana Kelly pursuant to their contract.

Banana Kelly and its HDFCs further argue that the balance of the equities favor them in that without a preliminary injunction, Schur Management will continue its illegal conversion of rents due to Banana Kelly during the crucial early month rent collection period. They contend that the notices sent by Schur Management after Banana Kelly posted its notices advising tenants that Schur Management was no longer the managing agent, caused confusion in the buildings and that each payment diverted to Schur Management rather than to Banana Kelly creates an additional obstacle for Banana Kelly and its HDFCs. Banana Kelly and its HDFCs cannot expect a tenant to pay rent a second time and Banana Kelly and its HDFCs depend upon the rent monies to maintain tenant services. However, Schur Management has, at most, an action for breach of contract for which money damages will suffice. As a result of the foregoing, this court should grant Banana Kelly's motion for a preliminary injunction.

Schur Management opposes the motion and separately filed its own order to show cause, which is referenced above, seeking to enjoin Banana Kelly and its HDFCs from terminating it as managing agent for the subject properties. That order to show cause was filed prior to the order to show cause herein. In its opposition to the instant motion and in support of its order to show cause, Schur Management submits an affidavit from William Schur, Schur Management's Vice-President. Schur Management argues that Banana Kelly and its HDFCs have not demonstrated that they are entitled to a preliminary injunction. Specifically, Schur Management asserts that it and not Banana Kelly, has demonstrated a likelihood of success on the merits. Additionally, Banana Kelly and its HDFCs have failed to show irreparable harm in that the only possible harm they allege is monetary and, as such, equitable relief in the form of a preliminary injunction is not warranted.

With respect to the balancing of the equities, Schur Management asserts that one who seeks equity must do equity himself and must come to court with clean hands. Schur Management alleges that Banana Kelly and its HDFCs have failed to come to this court in good faith, honestly or with clean hands. Specifically, Schur Management asserts that Banana Kelly and its HDFCs failed to attach as an exhibit to their motion, a copy of the property management agreement between the parties, failed to attach as an exhibit to their motion, Schur Management's [*5]letter dated November 17, 2011 explaining that there were no defaults on Schur Management's behalf and failed to inform this court that Schur Management had filed an action before Honorable Kibbie F. Payne, signed on November 25, 2011, which was prior to Banana Kelly and its HDFCs filing their own cause of action.

Schur Management argues that it was improper for Banana Kelly and its HDFCs to pick certain quotes from the property management agreement without including a copy with their motion. Schur Management alleges that for Banana Kelly to "hide" the agreement from the court was intentional and calls their motives and methods into question. (Altschul Aff., para. 10). Additionally, the failure to include William Schur's letter dated November 17, 2011 with their motion in which Schur Management demonstrated that there were no defaults, shows a lack of good faith and shows that Banana Kelly and its HDFCs were trying to "obfuscate" the truth. Schur Management alleges that Banana Kelly and its HDFCs have an agenda which they are pursuing in bad faith against Schur Management and since they have not done equity in these proceedings or in their dealings with Schur Management, their application for a preliminary injunction should be denied.

In his affidavit, Mr. Schur contends that Fernando Ferrer suggested to Banana Kelly that Schur Management be approached by a representative of Banana Kelly in early 2004 to explore the possibility of Schur Management managing the subject properties. On June 1, 2004, after some negotiation, Banana Kelly entered into a property management agreement with Schur Management. The property management agreement, which was prepared by Harold DeRienzo, was omitted from Banana Kelly's moving papers but is annexed to Schur Management's moving papers and opposition papers. When Schur Management took over management of the subject properties, Mr. Schur asserts that there were "various problems and challenges which required significant effort on the part of Schur Management Co., Ltd., to resolve in order for the properties to function smoothly and to provide the tenants habitable housing." (Schur Affidavit, para. 36). In particular, Mr. Schur asserts that Schur Management was required to coordinate with on-going rehabilitation of the properties, construction, organizing records, coordinating tenant subsidies, relocating tenants and working closely with Banana Kelly.

Mr. Schur further asserts that when Schur Management became the property manager, Banana Kelly and its HDFCs were trying to "extract themselves from their prior managing agent, SEBCO. In order to do this, the plaintiffs needed a cash infusion. Schur Management provided the plaintiffs with a loan on June 1, 2004." (Schur Affidavit, para. 37). Mr Schur contends that the loan is still outstanding but it ensured that Banana Kelly and its HDFCs would continue to succeed for the benefit of the tenants. Said loan also helped the properties avert "a disastrous insolvency or bankruptcy." (Schur Affidavit, para. 37). Schur Management argues that because of the "superior job" it was doing, the property management agreement was renewed by Banana Kelly in 2009. The parties worked closely over the years and had a good relationship which resulted in Schur Management being awarded a Certificate of Appreciation by Banana Kelly in 2008. Schur Management also submits a copy of an e-mail sent by Harold DeRienzo dated May 20, 2010, to Mr. Schur, praising Schur Management's work at the subject properties. [*6]

Schur Management further submits a copy of a second e-mail that was sent by Mr. DeRienzo to Mr. Schur on December 31, 2010, expressing his appreciation for the work Schur Management was performing. In that e-mail, Mr. DeRienzo expresses an interest in working with Schur Management as a co-developer if Banana Kelly is designated a "TPT" building. Mr. Schur goes on to explain in a footnote that, "TPT is Third Party Transfer' which are programs by the NYC Department of Housing Preservation and Development in which distressed multiple dwellings properties can be transferred to the private sector for redevelopment." (Schur Affidavit, FN 3). Mr. Schur contends that after the foregoing, it was a surprise to him to receive the Notice of Default from Banana Kelly dated October 31, 2011, alleging eight (8) incidents of default by Schur Management. Mr. Schur then wrote a letter to Harold DeRienzo dated November 7, 2011 advising him that Schur Management was investigating Banana Kelly's claims. Mr. Schur avers that he could not respond to the Notice of Default immediately due to Mr. DeRienzo's "long-winded ramblings" in the letter and, as provided in the property management agreement of 2004, paragraph 27(d), if a default is incapable of cure within the cure period, Schur Management would have a reasonable time in which to cure the default.

After Mr. Schur investigated the matter, he asserts that he wrote a letter to Mr. DeRienzo dated November 17, 2011 to advise him that Schur Management reviewed the matter and Schur Management was not in default of the property management agreement. Mr. Schur received a letter from Mr. DeRienzo dated November 16, 2011 sent via U.S. Post Office Express Mail purporting to terminate Schur Management as the manager of the subject properties. Mr. Schur avers that pursuant to the property management agreement, notices may only be sent by personal delivery or by U.S. certified mail, return receipt requested. No other method of transmission is considered acceptable. As such, Schur Management argues that Banana Kelly and its HDFCs have failed to properly notice Schur Management of its termination and this court should deem that alleged termination a nullity.

Schur Management further asserts that it became aware from tenants that notices were received from Banana Kelly advising them that Schur Management had been terminated. Thus, due to Banana Kelly's lack of good faith and the short time presented, Schur Management brought an application by order to show cause for a preliminary injunction.

Schur Management, in its opposition to Banana Kelly's motion, addresses each allegation of default presented by Banana Kelly with details and specificity. Additionally, Mr. Schur argues that many of Banana Kelly's allegations of default on Schur Management's part are broad and do not sufficiently prove that Schur Management has, in fact, defaulted pursuant to its property management agreement with Banana Kelly. He contends that since there has been no default, there was no ground to terminate Schur Management as the property manager. He further asserts that Schur Management is ready, willing and able to continue as Banana Kelly's managing agent in accordance with the property management agreement until its term expires on May 31, 2014. Schur Management argues that Banana Kelly's actions were wrongful and unjustified and since there was no proper termination, there was no improper conversion of funds or trespass on Schur Management's part. As such, Banana Kelly has not demonstrated its likelihood of success on the [*7]merits and Schur Management has, instead, demonstrated a likelihood of success on the merits.

Schur Management also argues that there was a lack of good faith on Banana Kelly's part because the property management agreement between the parties, at paragraph 27(d) gave Schur Management the opportunity to review and cure any alleged default within ten (10) days but if the default cannot be cured within that ten (10) day period, then Schur Management would have additional time, as may be necessary, to cure the default. Schur Management argues that it advised Banana Kelly on November 7, 2011, that it was gathering answers to the allegations of default but Banana Kelly did not wait for its formal response which was sent on November 17, 2011 which addressed all of Banana Kelly's alleged defaults. Instead, Banana Kelly sent a termination letter on November 16, 2011 in a form that was not agreed upon as an acceptable method of delivery pursuant to the terms of the contract. Moreover, Banana Kelly showed a lack of good faith by failing to provide this court with a copy of the management agreement as well as the letter from Schur Management dated November 17, 2011 addressing each of the alleged defaults claimed by Banana Kelly. Finally, it was improper for Banana Kelly to fail to disclose to this court when it filed its order to show cause, that Schur Management had previously filed an order to show cause that was before Judge Kibbie F. Payne.

Schur Management further contends that the balance of the equities do not favor Banana Kelly and its HDFCs because Banana Kelly's lack of good faith and failure to come to court with clean hands shows that it has an ulterior motive for its termination of Schur Management. Schur Management has been a diligent manager of the subject properties and Banana Kelly has waived many, if not all, of the defects it claims on the part of Schur Management. Schur Management contends that Banana Kelly and its HDFCs are guilty of laches in waiting more than seven (7) years to make some of the objections they raised in their default letter to Schur Management. Therefore, the balance of the equities favor Schur Management and not Banana Kelly.

In opposition to Schur Management's order to show cause, Banana Kelly asserts that when it commenced its action against Schur Management, it was unaware that Schur Management had commenced an action against it as Schur Management's order to show cause was not served upon Banana Kelly until December 5, 2011, though it was electronically filed on November 25, 2011. In the interim, on December 1, 2011, Banana Kelly and its HDFCs filed their order to show cause.

Additionally, Banana Kelly reiterates its arguments that it has demonstrated its entitlement to a preliminary injunction and asserts that letters from the New York City Department of Housing Preservation and Development as well as Banana Kelly's lender, Community Preservation Corporation, support the replacement of Schur Management as property manager and approve Wavecrest as the new management company selected by Banana Kelly to manage its properties. Banana Kelly also contends that its solvency is threatened if Schur Management does not turn over the rents it has collected and does not release books and records to Banana Kelly. Banana Kelly estimates that Schur Management has improperly collected approximately $400,000.00 in rent payments since it was terminated. [*8]

In reply, Schur Management asserts that the combined applications herein are, in effect, motions for summary judgment. Schur Management contends that Banana Kelly has failed to set forth specific examples of any failure on Schur Management's part and Schur Management has provided a detailed analysis of each incident alleged by Banana Kelly demonstrating its compliance with the property management agreement. Thus, Banana Kelly has not shown that it is entitled to summary judgment or that a preliminary injunction should be granted in its favor. Moreover, Mr. Schur, in his affidavit, avers that at present, approximately $470,000.00 is due to Schur Management in management fees.

At the outset, this court notes that in Schur Management's order to show cause, that was before Judge Payne, Judge Payne crossed out Schur Management's request for a temporary restraining order (TRO). Banana Kelly's application by order to show cause was before Judge Betty Owen Stinson and she granted Banana Kelly's application for a TRO. After oral arguments before this court on December 19, 2011, this court continued the TRO which is still in effect.

C.P.L.R. §6301 states that, "A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do...an act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual..." Courts have held that, "The decision to grant or deny such a request lies within the sound discretion of the trial court." After Six, Inc. v. 201 East 66th Street Assoc., 87 AD2d 153 (1st Dept. 1982). A party who seeks to obtain a preliminary injunction must demonstrate, "(1) the likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the injunction is not issued; and (3) a balance of the equities in the movant's favor..." (citations omitted). Housing Works, Inc. v. City of New York, 255 AD2d 209 (1st Dept. 1998).

The parties each point out that they are entitled to a preliminary injunction. Banana Kelly argues that Schur Management has been poorly managing the properties at issue in these matters. However, Schur Management has addressed each allegation of default raised by Banana Kelly and its HDFCs. At most, the parties have raised numerous issues for a fact finder to determine at a later date. Additionally, there is an issue as to whether Schur Management was properly terminated as the property manager pursuant to the terms of the property management agreement.

It has been established that, "A preliminary injunction is a provisional remedy. Its function is not to determine the ultimate rights of the parties, but to maintain the status quo until there can be a full hearing on the merits..." (citations omitted). Residential Board of Managers of the Columbia Condominium v. Alden, 178 AD2d 121 (1st Dept. 1991). Courts have held that, "...the mere fact that there indeed may be questions of fact for trial does not preclude a court from exercising its discretion in granting an injunction..." (citations omitted). Egan v. New York Care Plus Ins. Co., 266 AD2d 600 (3rd Dept. 1999). Although the court in Residential Board of Managers of the Columbia Condominium v. Alden, 178 AD2d 121 at 123, held that, "...where conflicting affidavits raise sharp issues of fact, injunctive relief should be denied..." (citations omitted), this court finds that injunctive relief should partially be granted herein notwithstanding the submission of conflicting affidavits. [*9]

Schur Management has expressed a desire to continue serving as property manager for Banana Kelly's properties. However, the fact that these lawsuits have been filed and will continue to be litigated and in view of the allegations made by the parties and the now strained relationship between them, it is apparent to this court that Schur Management cannot continue to serve as property manager for Banana Kelly. Accordingly, the application for a preliminary injunction filed by Banana Kelly, is granted solely to the extent that Schur Management is enjoined from continuing to act as Banana Kelly's property manager and is enjoined from further collecting rents and other fees from the subject properties. Schur Management is also enjoined from directing or advising the tenants and building superintendents of Banana Kelly's properties that it remains the property manager.

Any of the rents and other fees collected by Schur management from the date it is alleged to have been terminated as the property manager, November 16, 2011, through and including December 5, 2011, the date Judge Stinson granted the TRO, shall be placed in an interest bearing escrow account. Said sum shall be turned over to the party which the trier of fact ultimately determines is entitled to it. Financial books and records and other documents shall be turned over by the parties upon commencement of discovery in the two (2) actions.

Additionally, C.P.L.R. §6312(b) provides that, "...prior to the granting of a preliminary injunction, the plaintiff shall give an undertaking in an amount to be fixed by the court, that the plaintiff, if it is finally determined that he or she was not entitled to an injunction, will pay to the defendant all damages and costs which may be sustained by reason of the injunction..."

The parties are hereby ordered to provide this court with documentation as to what the amount of the undertaking shall be and Banana Kelly will be required to give an undertaking in the amount ultimately determined by this court after review of the submitted documentation.

This constitutes the decision and order of the court.

Dated: January 6, 2012

J.S.C.