Opinion
Index No. LT-303448-22/NY
11-21-2022
195 B OWNER LLC, Petitioner (Landlord), v. ANTHROPOLOGIE, INC., Respondent(s)-Tenant(s)
For Petitioner: Mitofsky, Shapiro, Neville & Hazen, LLP, 152 Madison Ave, 3rd floor, New York, NY 10016 For Respondent: FAEGRE DRINKER BIDDLE & REATH LLP, 1177 Avenue of the Americas, 41st floor, New York, NY 10036
For Petitioner: Mitofsky, Shapiro, Neville & Hazen, LLP, 152 Madison Ave, 3rd floor, New York, NY 10016
For Respondent: FAEGRE DRINKER BIDDLE & REATH LLP, 1177 Avenue of the Americas, 41st floor, New York, NY 10036
Ilana J. Marcus, J. Petitioner 195 B Owner LLC commenced this commercial nonpayment proceeding seeking to recover possession of the premises located at 195 Broadway, portion of the ground floor and a portion of the basement, New York, New York 10007 ("subject premises"), based upon the allegation that respondent Anthropologie, Inc. ("respondent") failed to pay rent charges for the months of April 2020 through June 2020. The petition seeks possession of the subject premises with issuance of a warrant to remove respondent therefrom, a money judgment against respondent, and attorneys’ fees. The petition is dated March 14, 2022.
Petitioner's petition also alleged that respondent failed to pay rent due for February 2022 and various additional rent charges under the lease agreement; however, since the filing of the instant action, respondent tendered payment for such rent/additional rent due (McClary Aff, ¶4).
In motion sequence 002, petitioner moves to dismiss respondent's affirmative defenses and for summary judgment. In support of the motion, petitioner submits the affidavit of Robert McClary, vice president of petitioner's managing agent, and various exhibits. Respondent opposes petitioner's motion, to which petitioner submits reply.
In motion sequence 003, respondent cross moves for dismissal of petitioner's petition and for summary judgment on its counterclaim, attorneys’ fees and a money judgment in the amount of $96,021.51. Respondent submits the affidavit of Thomas Yaegel, director of real estate finance for defendant, and attached exhibits. Petitioner opposes respondent's cross motion, to which respondent submits reply.
The facts of this matter are not in dispute. Petitioner is the owner and landlord of the subject premises (NYSCEF Doc. No. 1). Respondent is an American apparel and lifestyle company selling women's clothing, accessories, and home goods (Yaegel Aff, ¶3). In June 2015, respondent entered into a lease agreement with petitioner's predecessor in interest, as landlord, for possession of the subject premises (NYSCEF Doc. No. 22). The lease was thereafter assigned to petitioner as landlord on November 1, 2019 (NYSCEF Doc. Nos. 20, 21).
The lease agreement called for monthly base rent of $195,833.33 for the months of March 2020, April 2020, May 2020, and June 2020 (NYSCEF Doc. No. 22). On or about February 26, 2020, respondent paid rent for the month of March 2020 in full (Yaegel Aff, ¶10). On March 20, 2020, former Governor Cuomo issued Executive Order 202.8, requiring all non-essential businesses to shut down their in-person business activities no later than March 22, 2020, due to the state of emergency caused by the COVID-19 pandemic (NYSCEF Doc. No. 38).
As per Executive Order 202.8, respondent ceased all in-person operations at the subject premises as of March 22, 2020 (Yaegel Aff, ¶11). On or about May 15, 2020, respondent made a payment to petitioner of $97,916.67, which it stated represented "half of the rent for the first month our store is able to open to the public" (id. , ¶12). The subject premises were permitted to open back up to the public on June 22, 2020 (id. , ¶11). However, petitioner allocated the $97,916.67 payment to rent it argues was due for April 2020 (NYSCEF Doc. No. 23). Consequently, petitioner argues that respondent continues to owe an additional $97,916.67 for April 2020 rent, and $195,833.33 each for May and June 2020, for a total of $489,583.33 (McClary Aff, ¶23). Respondent concedes that it did not make any rent payments for April 2020, May 2020, or half of June 2020 (see Yaegel Aff).
Both parties agree that the sole issue in dispute is a question of law regarding the interpretation of Article 20 of the parties’ lease agreement. Article 20, titled "TAKING," states:
(a) If any portion(s) of the Leased Space is taken or condemned for a public or quasi-public use by any lawful power or authority, or if Tenant is denied access to or egress from the Leased Space by any action or decree of any lawful power or authority, or if Tenant is denied or deprived of either the use, occupancy and/or enjoyment of the Leased Space and/or the ability to operate its business thereon or therefrom by action or decree of any lawful power
or authority, or by any written agreement between Landlord or any such power or authority (individually, and collectively, a "taking "), and the taking is not deemed "temporary" (as that term is hereinafter defined), this Lease shall, as to the part which is subject to the taking, terminate as of the date Tenant is denied or deprived of such possession, use, occupancy, enjoyment and/or operation of or on
the Leased Space, and the Rent due hereunder shall be reduced proportionately by the square footage of the Leased Space which is so affected
(b) A taking, whether partial or total, shall be deemed "temporary " hereunder if, as of the date on which such taking commenced, Tenant has the expectation that, within one hundred fifty (150) days after the taking, Tenant's access and egress to and from the Leased Space, and/or Tenant's possession, use, occupancy, enjoyment and operation of or on the Leased Space, as the case may be, shall be restored to the satisfaction of Tenant. In the event of a temporary taking, Rent shall be reduced as aforesaid, and Tenant's other obligations under this Lease shall be suspended, for the duration thereof....
(NYSCEF Doc. No. 22).
Petitioner argues that the Executive Orders issued by former Governor Cuomo do not constitute a "taking" as intended by Article 20 of the lease agreement, and therefore, respondent is obligated to pay the rent claimed to be due for April, May and June 2020. Respondent argues the plain language of Article 20 relieves it of its obligation to pay rent from March 22, 2022 through June 22, 2022 (a conceded "temporary" taking) due to the COVID-19 Executive Order decrees which deprived respondent of its use of the subject premises and its ability to operate its business thereon or therefrom during that time. Respondent's counterclaims allege petitioner breached the lease by demanding rent not owed, failing to reimburse respondent for rent charges paid in advance before the COVID-19 pandemic shut down its operations, and applying an advance payment respondent made to petitioner in anticipation of re-opening to rental arrears it did not owe.
The movant on a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence to eliminate any material issues of fact from the case (see Winegrad v. New York Univ. Med. Ctr. , 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 [1985] ; Zuckerman v. City of New York , 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ). CPLR 3212(b) provides that a summary judgment motion must be supported by an affidavit of a person with knowledge of the facts, as well as other admissible evidence (see JMD Holding Corp. v. Congress Fin. Corp. , 4 N.Y.3d 373, 384-85, 795 N.Y.S.2d 502, 828 N.E.2d 604 [2005] ). Once such a showing is made, "the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" ( Alvarez v. Prospect Hosp. , 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986], citing Zuckerman v. City of New York, 49 N.Y.2d at 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 ). To meet this burden, the opposing party must "lay bare his proofs and make an evidentiary showing that there exists genuine, triable issues of fact" ( Oates v. Marino , 106 A.D.2d 289, 291, 482 N.Y.S.2d 738 [1st Dept. 1984] ).
"Interpreting a contract is the process of determining from the words and other objective manifestations of the parties what must be done or forborne by the respective parties in order to confirm to the terms of their agreements. The best evidence of what parties to a written agreement intend is what they say in their writing. Under longstanding rules of contract interpretation, where the terms of a contract are clear and unambiguous, the intent of the parties must be found within the four corners of the contract, giving a practical interpretation to the language employed and reading the contract as a whole" ( Tomhannock, LLC v. Roustabout Res., LLC , 33 N.Y.3d 1080, 1082, 104 N.Y.S.3d 596, 128 N.E.3d 674 [2019] [internal citations omitted]). "[A]greements negotiated at arm's length by sophisticated, counseled parties are generally enforced according to their plain language pursuant to [New York's] strong public policy favoring freedom of contract" ( 159 MP Corp. v. Redbridge Bedford, LLC , 33 N.Y.3d 353, 104 N.Y.S.3d 1, 128 N.E.3d 128 [2019] ).
The plain language of Article 20 clearly and unambiguously defines a "taking" as, inter alia : "Tenant is denied or deprived of either the use, occupancy and/or enjoyment of the Leased Space and/or the ability to operate its business thereon or therefrom by action or decree of any lawful power or authority" [emphasis added]. Respondent's business, as defined in the lease, is "the operation of a high-quality retail store selling (and displaying) apparel, shoes, accessories, gifts, cards, furniture, home furnishings, housewares, pre-packaged food and food stuffs for off-premises consumption (in accordance with the Operating Standard, as defined below), plants, fresh and dried flowers, pots, containers and stands for plants or flowers" (NYSCEF Doc. No. 22, p.II, § R). Respondent was forced to shut down all in-store selling of retail merchandise by Executive Order on March 22, 2020. By virtue of the Executive Order, respondent was denied or deprived of its ability to operate its business of selling retail merchandise at or from the entirety of the subject premises from March 22, 2020 to June 22, 2020. Therefore, under the lease's own definition of a "taking," respondent was relieved of its obligation to pay rent from March 22, 2020 through June 22, 2020.
Petitioner argues that the COVID-19 pandemic and the resultant Executive Orders issued by New York City and New York State do not constitute a government "taking" as contemplated by Article 20 of the lease agreement. While petitioner may be correct in arguing that such circumstances did not rise to the level of a regulatory taking, the plain language of the parties’ lease agreement expands the definition of a "taking" beyond that of the commonly understood constitutional government taking (see Condor Cap. Corp. v. CALS Invs., LLC , 179 A.D.3d 592, 118 N.Y.S.3d 29 [1st Dept. 2020] ). Article 20 of the lease unambiguously includes respondent's deprivation of its ability to operate its business on or from the subject premises by action or decree of any lawful power or authority, which is exactly what happened on March 22, 2020, as a result of Executive Order 202.8.
The court is not persuaded by petitioner's argument that respondent could have changed it's business model to sell "pre-packaged food and food stuffs for off-premises consumption" at the subject premises, and therefore, respondent would not be deprived of its use of the leased space or its business operation. Respondent's business is not as a restaurant, deli, or grocery store. Respondent is a retail store in the business of selling apparel, accessories, and home goods.
Furthermore, contrary to petitioner's argument, the force majeure clause contained within the parties’ contract does not require a different finding. Article 38 of the lease states:
If either Landlord or Tenant shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, martial law, restrictive Laws, riots, insurrection, acts of terrorism, war or other
reasons of a like nature not the fault of, or under the reasonable control of, the party delayed
in performing work or doing acts required under the terms, covenants, conditions or provisions of this Lease ("Force Majeure Causes"), then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay; provided, however, that the foregoing provisions of this Section [38] shall not apply to (a) Landlord's obligation to pay Tenant any monies due under this Lease, (b) Tenant's obligation to pay Rent (except in those instances under this Lease which specifically provided for a reduction or abatement thereof, as in Sections [19] and [20] relating to fire, casualty and taking ) [emphasis added].
The force majeure clause excuses respondent's obligation to pay rent when a "taking" has occurred pursuant to Section 20 of the lease. As this court finds that a "taking" occurred, as defined in Section 20 of the lease, as a result of the New York State Executive Orders/decrees, Article 38 relieves respondent from its obligation to pay rent from March 22, 2020 through June 22, 2020. No other provisions of the lease, including Article 10 [Affirmative Agreements of Tenant], sections (q) and (s), necessitate a different conclusion.
Were it the case that respondent argued that their obligation to pay rent throughout the pendency of the COVID-19 pandemic was extinguished based on the contractual doctrines of frustration of purpose or impossibility, then petitioner would be successful at summary judgment (see Knickerbocker Retail LLC v. Bruckner Forever Young Social Adult Day Care Inc., 204 A.D.3d 536, 167 N.Y.S.3d 462 [1st Dept. 2022] ; Valentino USA., Inc. v. 693 Fifth Owner LLC , 203 A.D.3d 480, 160 N.Y.S.3d 858 [1st Dept. 2022] ). Here, however, respondent does not rely upon these doctrines, but instead, points to a specific contractual provision found within their lease agreement (cf. Gap, Inc. v. 170 Broadway Retail Owner, LLC , 195 A.D.3d 575, 151 N.Y.S.3d 37 [1st Dept. 2021] [the subject lease's casualty provision did not contemplate loss of use due to the COVID-19 pandemic]). For all these reasons, petitioner's motion for summary judgment is denied.
Having decided that respondent did not breach the lease when it did not pay rent for the months April 2020, May 2020 and a portion of June 2020, the branch of respondent's cross motion to dismiss the petition is granted (see CPLR 3211[a][1], [a][7] ; Silvester v. Time-Warner, Inc. , 14 A.D.3d 430, 787 N.Y.S.2d 870 [1st Dept. 2005] ).
Turing to the branch of respondent's cross motion for summary judgment on its counterclaim for breach of contract, it has long been held that demand for performance when none is owed constitutes a breach of contract (see Nelson v. Hatch , 70 A.D. 206, 210, 75 N.Y.S. 389 [1st Dept. 1902] [observing that breach occurred when defendants wrongfully claimed plaintiff was in default and demanded payment not due under the contract]). Moreover, petitioner also breached the lease by charging and then failing to reimburse respondent for rent payments never owed (see Tantallon Austin Hotel, LLC v. Wilmington Tr., Nat'l Ass'n , 209 A.D.3d 513, 177 N.Y.S.3d 6, 2022 N.Y. Slip Op. 05778 [1st Dept., Oct 13, 2022] ). Consequently, respondent is entitled to summary judgment on its counterclaim for breach of contract and is awarded a money judgment in the amount of $96,021.51, which represents the pro rata portion of rent paid by respondent attributable to March 23, 2020 to March 31, 2020 ($56,854.84) and the May 15, 2020 advance payment ($97,916.67), less the rent owed for June 2020 following the retail store's reopening on June 22, 2020 ($58,750). As for respondent's second counterclaim seeking attorneys’ fees, Article 40 of the lease provides for the prevailing party to recover reasonable attorneys’ fees in any legal action instituted by either party "relating to any of the terms, covenants, conditions or provisions of this Lease." By successfully defending against all claims in petitioner's lawsuit, respondent is the prevailing party in the instant action, and thus, they are entitled to recover reasonable attorneys’ fees from petitioner (see 25 E. 83 Corp. v. 83rd St. Assocs., 213 A.D.2d 269, 624 N.Y.S.2d 125 [1st Dept. 1995] ).
Accordingly, it is
ORDERED that petitioner's motion for summary judgment is denied; it is further
ORDERED that respondent's cross motion is granted, petitioner's petition is dismissed, summary judgment is granted in respondent's favor, respondent is awarded a money judgment in the amount of $96,021.51, plus statutory interest from June 22, 2020, and cost and disbursements; it is further
ORDERED, respondent's request for attorneys’ fees is granted to the extent that that a hearing shall be held on December 19, 2022, at 2:30 pm , before Judge Ilana J. Marcus, Part 124; and it is further
ORDERED, that the Clerk of the Court is directed to enter judgment as written.
This constitutes the decision and order of this court.