Ruling in Manhattan landlord-tenant dispute may have broader implications for serving LLCs with lawsuits, attorney says

A landlord seeking over $186,000 in unpaid rent from a Manhattan Indian restaurant will have to find a different way to serve his tenant with a lawsuit if he wants to recover the funds, a judge said in a ruling that could have implications for how limited liability corporations in the state can be sued.

New York Civil Court Judge Allison Greenfield dismissed a suit filed by landlords UNG 3 Realty and 36 East 20th Street Realty’s against Indian restaurant Passerine LLC, finding that, because the restaurant is registered as an LLC, the landlords improperly served it by simply dropping off service papers to a person on the primesis, rather than a manager or stakeholding member of the business.

Under the state’s Real Property Actions and Proceedings Law § 735, which dictates how entities can be served, simply dropping service papers off at a business to any employee is a permissible way to serve corporations, joint-stocks or other unincorporated associations.

Since LLCs aren’t specifically included in that more relaxed statute, Greenfield said the landlord would need to personally serve a member or manager of the LLC or serve it through the Secretary of State, in accordance with Civil Practice Law and Rules §311-a, a statute developed specifically with instructions for serving LLCs.

Mitchell Zingman, a partner at Braverman Greenspun who isn’t involved in this case but frequently represents both tenants and landlords in rent nonpayment cases, said he found the ruling notable and out of the norm. According to him, many LLCs have been served by landlords simply dropping service papers off at their place of business. Additionally, he said attorneys and judges have not historically argued or ruled that LLCs need to be served differently than other entities, despite the technical differences in law.

“I’ve been doing this for over 40 years and I have never seen anybody raise this as a defense… There are plenty of limited liability companies who’ve been respondents in these cases, and nobody has ever tossed it out,” Zingman said. “The judge herself only found one other similar case when she was looking…in Staten Island, and that judge [ruled] the other way. So, her case is a semi-first impression [on the matter].”

He said if Greenfield’s decision is accepted as precedent, landlords should take note and serve their LLC tenants accordingly, in order to ensure their filings go through and they’re able to file rent nonpayment cases efficiently.

“If it were to be accepted [as precedent], and if it goes beyond New York County, landlords have to start thinking, for planning purposes, when they’re leasing space, that they really know who managers or members are of the limited liability company and where they’re going to be,” Zingman said. “Or…insist that [tenants] appoint an agent to accept service or process who you know you can get to.”

On the tenant side, Zingman said the ruling may make it easier for LLCs and their attorneys to fight rent nonpayment claims on a technicality and give more credence to other tenant attorneys who want to use the same argument against landlords if LLCs receive service papers that are just dropped off at their storefront.

“I represent both landlords and tenants,” he said. “It’s not like I favor one over the other. This makes it considerably more difficult [for landlords] to serve, and a lot of people are going to get caught on this…From the tenant point of view, it’s more of an opportunity to defend against summary proceedings.”

Greenfield’s reasoning for her ruling was that it must be up to the legislature to make clear whether LLCs and other business entities should be served differently. She acknowledged that LLCs not being included in the RPAPL 735 statute was “likely an oversight,” as LLCs were created decades after that statute was written, but that it wasn’t within the court’s power to modify or expand the rules of existing legislation.

Due to that, Zingman said he believed the legislature should modify the RPAPL 735 statute in order to include LLCs, as there was “no public policy reason” why they should be treated differently.

“If I were the legislature, I would just simply add limited liability company to that statute to cure it,” he said. “It’s not really changing anything [because it’s] the way people have been doing summary proceedings for decades…The whole purpose of a summary proceeding has always been to provide an expedited resolution on the issue of possession more so than anything else. There’s no reason to treat one type of entity tenant differently than another.”

For now, in this case between Passerine and its landlords, the landlord’s attorneys could choose to reserve the restaurant according to Greenfield’s ruling by personally giving the papers to a member of the LLC or through the Secretary of State, or appeal the decision.