Opinion
Index No. 806643/2021
12-08-2021
AMHERST II UE LLC, Plaintiff, v. FITNESS INTERNATIONAL, LLC, Defendant.
ROSENBERG & ESTIS, P.C., Deborah Riegel, Esq., Of Counsel, Attorneys for Plaintiff MAGAVERN MAGAVERN GRIMM LLP, Richard A. Grimm, III, Esq., Of Counsel, Attorneys for Defendant
ROSENBERG & ESTIS, P.C., Deborah Riegel, Esq., Of Counsel, Attorneys for Plaintiff
MAGAVERN MAGAVERN GRIMM LLP, Richard A. Grimm, III, Esq., Of Counsel, Attorneys for Defendant
Timothy J. Walker, J.
Plaintiff has applied for an order (Motion 1; Doc. 19) granting summary judgment. Defendant has cross-applied for the same relief (Motion 2; Doc. 36).
BACKGROUND
Plaintiff owns the real property located at 3040 Sheridan Drive, Town of Amherst, New York, which consists of approximately 42,800 square feet of floor area ("Premises") (Doc. 1, ¶6; Doc. 27, § 1.02).
Plaintiff leases the Premises to Defendant, pursuant to a lease agreement, dated April 25, 2013 ("Lease") (Doc. 27), and on August 31, 2017, the parties entered into a First Amendment to Lease (Doc. 28) . Defendant's sole business is the operation of health clubs and fitness facilities, and Defendant operates the Premises as an indoor health club and fitness facility ("Health Club").
The Lease is comprehensive, consisting of 86 pages and 12 exhibits, identified as "A" through "L." (Doc. 46). The First Amendment to Lease consists of less than four (4) full pages and very narrowly amends several provisions of the Lease that do not apply to the pending motions (Id. ).
Defendant spent millions of dollars constructing the Health Club at the Premises (Doc. 45, ¶8; Doc. 27, Ex. D).
From January 6, 2015 through February 28, 2020, Defendant paid in excess of $3,000,000 in rent to Plaintiff for a period covering approximately sixty-two (62) months (Doc. 29; Doc. 45, ¶¶17-18). Defendant also paid rent in March 2020, despite that on March 7, 2020, the former Governor issued Executive Order 202, declaring "that a disaster is impending in New York State," in response to COVID-19 ("Pandemic") (Doc. 45, ¶19; Doc. 42). Shortly thereafter, the former Governor issued Executive Order 202.3, which, inter alia , ordered the closure, as of 8:00 p.m. on March 16, 2020, of all gyms and fitness centers in New York State, which included the Health Club (Doc. 41) (Executive Orders 202 and 202.3 are collectively referred to as "Closure Orders").
For two (2) separate periods, from March 17, 2020 through August 23, 2020 and November 20, 2020 through December 15, 2020 (collectively, "Closure Period"), the Closure Orders made it illegal for Defendant to use the Premises for its primary use as the Health Club. When Defendant was legally permitted to reopen the Health Club in late August 2020, the former Governor imposed further material restrictions, including, inter alia , precluding the use of critical amenities (such as the Premises' basketball court), and capping occupancy at thirty-three percent (33%) ("On-Going Restrictions"). On December 16, 2020, the On-Going Restrictions were modified to permit twenty-five percent (25%) occupancy, and later increased to fifty percent (50%) on May 14, 2021, which remained in effect until May 19, 2021 (Doc. 45, ¶16).
Defendant has timely paid rent in full since it was legally permitted to reopen the Health Club in August 2020.
Plaintiff contends that Defendant has been in default in the payment of, inter alia , its rental obligations under the Lease since April 2020, but continues to remain in full possession of the Premises. Accordingly, Plaintiff seeks an order, inter alia , granting summary judgment on the single cause of action for breach of lease and for the past rents, together with pre-judgment interest; and dismissing Defendant's Affirmative Defenses and Counterclaims.
Specifically, for the months of April 2020, May 2020, June 2020, July 2020, August 2020, and December 2020, Plaintiff seeks $327,777.45 in rental arrears, consisting of $54,926.67 per month, totaling $329,560.02, of which $327,777.45 remains unpaid; $30,663.40 in outstanding common area charges, consisting of $7,009.87 per month, totaling $42,059.22 , of which $30,663.40 remains unpaid; and $5,614.90 in late charges. The aggregate of Plaintiff's claim is $364,055.75 (Doc. 1, ¶¶24-27).
$7,009.87 x 6 months = $42,059.22. The reference to $43,059.22 in Plaintiff's Complaint appears to be a typographical error (Doc. 1, ¶25).
Defendant's cross-motion for summary judgment seeks, inter alia , a judgment in the amount of $54,019.07, representing the amount Defendant paid in rent and common area charges during the periods March 17, 2020 through March 30, 2020 and November 20, 2020 through November 30, 2020 (while the Health Club was closed in accordance with the Closure Orders), plus interest and attorneys' fees; an order dismissing the Complaint; and a declaration that no rent is owed to Plaintiff during the Closure Period (Doc. 36).
DISCUSSION
General Rules of Construction
Determination of the parties' competing motions requires a detailed analysis of the Lease. In doing so, the court must consider the Lease as "subject to the rules of construction applicable to any other agreement" ( George Backer Mgt. Corp. v Acme Quilting Co. , 46 NY2d 211 [1978] ). The Court of Appeals succinctly stated the rules applicable to interpreting commercial leases in Vermont Teddy Bear Co. v 538 Madison Realty Co. (1 NY3d 470, 475 [2004] ):
We have also emphasized this rule's special import ‘in the context of real property transactions, where commercial certainty is a paramount concern, and where ... the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length.’ In such circumstances, ‘courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.’ Hence, ‘courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing’ (internal citations omitted)
Similarly, "the parties' intention is to be ascertained from the language employed and, absent ambiguity, interpretation is a matter of law to be determined solely by the court" ( New York Overnight Partners, L.P. v Gordon , 217 AD2d 20, 24-25 [1st Dept 1995], affd 88 NY2d 716 [1996] ). In the context of real estate transactions "negotiated at arm's length between sophisticated, counseled business people with full knowledge of the consent requirement and its potential risks," parties must be bound to the terms of the agreement ( CPS Operating Company LLC v Pathmark Stores, Inc. , 76 AD3d 1, 5 [1st Dept 2010] ).
It is undisputed that Defendant is a highly sophisticated operator of fitness clubs in the United States and Canada with over 12,000 employees and over 700 locations (Doc. 34, p. 8).
Elements of Breach of a Lease
Plaintiff's sole cause of action seeks money damages based upon Defendant's alleged breach of the Lease. As such, Plaintiff must prove the existence of a valid and binding lease; Defendant's failure to pay rent; damages; and that Plaintiff performed thereunder ( Thor Gallery at S. Dekalb, LLC v Reliance Mediaworks (USA) Inc. , 143 AD3d 498, 498 [1st Dept 2016] [summary judgment granted to landlord, where "[landlord] established prima facie the existence of the lease ... the tenant's failure to pay the rent ... and the calculation of the amounts due under the lease"]).
It is undisputed that the Lease is valid, and that Defendant failed to pay rent, common area charges, and late charges from April 1, 2020 through August 31, 2020 and the month of December 2020, resulting in damage to Plaintiff. Defendant, however, contends that during the time of the Closure Period, Plaintiff failed to provide sufficient consideration for the Lease by having breached the covenants providing (i) Defendant with exclusive control and use of the Premises; (ii) Defendant with the right throughout the term of the Lease to operate the Premises as a Health Club; and (iii) Defendant with the unfettered right to quietly enjoy the Premises for the term of the Lease, without interruption or disturbance. (Doc. 27, §§ 3.05, 9.01, 19.28, and Article XV).
The Pandemic resulting in the Closure Orders and Ongoing Restrictions caused Defendant to temporarily close down and later temporarily restrict capacity at the Premises. While significant, the closures and restrictions were temporary, lasting approximately thirteen (13) of the months Defendant has been operating the Health Club since January 2015.
Defendant's failure of consideration defense was flatly rejected in CAB Bedford LLC v. Equinox Bedford, Inc. , (2020 WL 7629593, *6 [Sup Ct, NY Co. 2020] ), where the court stated the following:
The Court rejects defendants' argument that there was a failure of consideration. Defendants entered into a lease and guarantee in 2016, operated a gym for a few years before a temporary shut down and now are permitted to run the gym again. This is not a case where they are forbidden from running a gym ever again at the premises.
...
The Court is well aware of the unfortunate situation presented here. The Tenant ran an upscale gym for a couple of years before the pandemic hit and forced them to temporarily shut down. Certainly, no one could have predicted that gyms would be shut down for months although the closure of these establishments inevitably meant that most, if not all, would be unable to pay rent.
But the role of this Court on these papers is not to devise solutions. It can only analyze the facts before it and here defendants signed a valid lease and guaranty and stopped paying rent. To permit the doctrines of impossibility or frustration of purpose to apply to commercial tenants who stopped paying due to the pandemic would raise countless questions. Would it apply to every commercial tenant and, if not, what is the criteria to qualify for such relief? What about commercial tenants that were permitted to operate during the pandemic but still lost business?
And because this is a widespread issue, there is a risk that considering tenants' claims on a case-by-case basis would yield wildly inconsistent and unfair results. In other words, this is clearly the role of the other branches of government: to address this difficult problem, craft a solution and consider the many second and third order effects. While this Court might empathize with defendants' plight, it cannot ignore the lease or the fact that plaintiff has obligations (such as property taxes and the cost to run the building) that it must meet despite having a tenant not pay anything.
While this court also empathizes with Defendant herein, it fully agrees with the position stated above by the Hon. Arlene P. Bluth, J.S.C., in CAB Bedford LLC .
Defendant relies on Benderson Dev. Co., Inc. v. Commenco Corp. (44 AD2d 889 [4th Dept 1974] ), which held that a tenant was permitted to cancel a lease, because the tenant was unable to obtain a required permit until certain public sewer work was completed, which had been inordinately delayed. Commenco Corp . is distinguishable from the instant matter, because the tenant in Commenco Corp . cancelled the lease in its entirety before constructing the contemplated restaurant on the premises. In contrast, Defendant herein took possession of the Premises, constructed the Health Club thereon, operated it for several years, and did not seek to cancel the Lease at any time.
In light of the foregoing, the court finds that Plaintiff satisfied the elements enunciated in Thor Gallery at S. Dekalb, LLC, regarding its cause of action for breach of the Lease, and has demonstrated prima facie entitlement to the relief requested. Thus, the burden shifted to Defendant to produce evidentiary proof sufficient to establish the existence of genuine issues of material fact ( Ferluck AJ v. Goldman Sachs & Co., 12 NY3d 316, 320 [2009] )
Force Majeure
Section 5.07(b) of the Lease provides that, with certain exceptions that do not apply herein, rent "shall be paid without notice, demand, counterclaim, offset, deduction, defense, or abatement" (Doc. 27).
Defendant contends that § 5.07(b) is not enforceable, because it does not state that Defendant's obligation to pay rent is "absolute and unconditional." However, Defendant does not cite to a single case where such language was required in a commercial property lease. Rather, and as Defendant concedes, such language is typically limited to equipment leases and financial arrangements (see e.g., Wells Fargo Bank, N.A. v. BrooksAmerica Mortg. Corp. , 419 F3d 107 (2d Cir 2005) [breach of contract suit brought by assignee against equipment lessee to recover rental payments]).
Section 5.07(b) is clear on its face, and the court rejects Defendant's contention that it is not enforceable.
The Lease contains a force majeure clause at § 2.03 (Doc. 27), which provides, as follows:
The term ‘Force Majeure’ means any of the following events: Acts of God; strikes, lock-outs, or labor difficulty; explosion, sabotage, accident, riot or civil commotion; terrorism; inclement weather; act of war; fire or other casualty; legal requirements; delays caused by the other party; any causes beyond the reasonable control of a party (except that the inability to obtain funds shall not be deemed to be a Force Majeure). Notwithstanding anything herein contained, the provisions of this Section shall not be applicable to ... Tenant's obligations to pay Rent (as defined in Section 5.07(a)) or any other sums or charges payable by Tenant hereunder after the Rent Commencement Date (emphasis added).
A plain reading of § 2.03 shows that the parties explicitly contemplated and foresaw the possibility of a total or significant business interruption due to "any causes" beyond their reasonable control, including "legal requirements," which would include the temporary Closure Orders and Ongoing Restrictions issued during the Pandemic. The parties also specifically agreed that any such event would not affect Defendant's obligation to pay rent, as required by § 5.07(b) of the Lease "without notice, demand, counterclaim, offset, deduction, defense, or abatement."
Defendant explicitly agreed that an event of force majeure "shall jot be applicable to [its] obligation to pay Rent" (Doc. 27, § 2.03). Plaintiff need not have included a reference in the force majeure clause to the then unknown Pandemic (see, e.g., Valentino U.S.A., Inc. v 693 Fifth Owner LLC , 70 Misc 3d 1218(A) [Sup Ct, NY Co 2021] [tenant's complaint dismissed, because the parties expressly allocated the risk that tenant would not be able to operate its business and explained that tenant "is therefore not forgiven from its performance, including its obligation to pay rent by virtue of a state law" notwithstanding the lease's failure to specifically reference the Pandemic]; Victoria's Secret Stores, LLC v Herald Square Owner LLC , 70 Misc 3d 1206(A), *2 [Sup Ct, NY Co 2021] ["It is of no moment that the specific cause for the government law was not enumerated by the parties because the Lease as drafted is broad and encompasses what happened here - a state law that temporarily caused a closure of the tenant's business. The parties agreed that this would not relieve the tenant's obligation to pay rent"]).
Frustration of Purpose
The doctrine of frustration of purpose has been "limited to instances where a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party" ( United States v Gen. Douglas MacArthur Senior Vill., Inc. , 508 F2d 377, 381 [2d Cir 1974], citing Alfred Marks Realty Co. v Hotel Hermitage Co. , 170 AD 484, 485 [2d Dept 1915] ; see also, Center for Specialty Care, Inc. v CSC Acquisition I, LLC , 185 AD3d 34, 42 [1st Dept 2020] ["In order to invoke the doctrine of frustration of purpose, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense"] [internal citations omitted]).
Defendant cannot meet this extremely high standard, because the Pandemic did not render the Lease "valueless." The Closure Orders and Ongoing Restrictions were temporary, Defendant occupied the Premises for in excess of six (6) years prior to the Pandemic, and Defendant is currently operating at full capacity. For the reasons aptly stated by the court in 35 East 75th Street Corp. v Christian Louboutin LLC (2020 NY Slip Op 34063(U) [Sup Ct, NY Co 2020] ), the effects of the Pandemic may not be used to invoke the doctrine of frustration of purpose:
This is not a case where the retail space defendant leased no longer exists, nor is it even prohibited from selling its products. Instead, defendant's business model of attracting street traffic is no longer profitable because there are dramatically fewer people walking around due to the pandemic. But market changes happen all the time. Sometimes businesses become more desirable (such as the stores near the newly-completed Second Avenue subway stops) and other times less so (such as the value of taxi medallions with the rise of ride-share apps). But unforeseen economic forces, even the horrendous effects of a deadly virus, do not automatically permit the Court to simply rip up a contract signed between two sophisticated parties.
While the parties may not have specifically anticipated the Pandemic, the force majeure clause does contemplate "legal requirements" that are "beyond the reasonable control of the parties" (Doc. 27, § 2.03).
Impossibility and Impracticality
The defenses of impossibility of performance and impracticality of performance are one in the same (Lantino v. Clay LLC , 2020 WL2239957 [SDNY 2020] [applying New York law]), and, like frustration of purpose, require an extremely high showing ( Kel Kim Corp. v Central Mkts. , 70 NY2d 900, 902 [1987] ["Impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible"]).
"[T]he excuse of impossibility of performance is limited to the destruction of the means of performance by an act of God, vis major , or by law" ( 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp. , 23 NY2d 275, 281 [1968] ). "Thus, where impossibility or difficulty of performance is occasioned only by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy, performance of a contract is not excused" (Id. ).
"Vis major" means "superior force"; used similarly as the term, "act of God" (The Law.com Dictionary; https://dictionary.thelaw.com/vis-major/).
As previously shown, Defendant's performance under the Lease has not been rendered completely impossible or impracticable. At all times relevant herein, the Premises remained intact, and Defendant exclusively used it for extended periods of time both before and after the Closure Orders and Ongoing Restrictions were issued and later rescinded.
Defendant's Counterclaims
Defendant's First and Second Counterclaims allege, in relevant part, that (i) Plaintiff breached the Lease by failing to provide a credit to it for rent paid while the Health Club was closed during the Closure Period (or while capacity was reduced as a result of the Ongoing Restrictions); and (ii) Defendant breached certain representations, warranties and covenants in the Lease, which provide that Defendant shall have the right to use and operate its business from the Premises, have exclusive use and control of the Premises, and have peaceful and quiet use and enjoyment of the Premises (Doc. 12).
Defendant's Third Counterclaim alleges that Plaintiff was unjustly enriched at its expense as a result of the Closure Orders and On-Going Restrictions (Id. ).
Defendant's Fourth Counterclaim seeks a judgment declaring entitlement to the relief pled in the First and Second Counterclaims (Id. ).
All of the Counterclaims are based on the same legal theories as the Affirmative Defenses, such as, inter alia , frustration of purpose, impossibility of performance, and commercial impracticability. Accordingly, and for the reasons previously stated, the Counterclaims have no merit.
Moreover, the court finds that Plaintiff has not breached any of the Lease's terms.
Defendant's remaining contentions are without merit.
In light of the foregoing, it is hereby
ORDERED , that Plaintiff's application is granted, and Plaintiff is hereby awarded a judgment against Defendant in the amount of $364,055.75, plus pre-judgment interest at the statutory rate ( CPLR §§ 5001 and 5004 ); and it is further
ORDERED , that Defendant's cross-application is denied, as moot.
This constitutes the Decision and Order of this Court. Submission of an order by the parties is not necessary. The delivery of a copy of this Decision and Order by this Court shall not constitute notice of entry.