Opinion
92 Civ. 1652 CSH).
April 7, 2006
APPEARANCES OTTERBOURG, STEINDLER, HOUSTON ROSEN, P.C. New York, NY.
GOLDBERG, KOHN, BELL, BLACK, ROSENBLOOM MORTIZ, LTD. Chicago, Ill.
Kurt J. Wolf, Esq., David M. Schrier, Esq., Of Counsel Attorneys for Plaintiff.
CARL GOLDEN, ESQ. New York, NY, Attorney for Defendants.
MEMORANDUM OPINION AND ORDER
In this diversity action involving the lease of office space, plaintiff tenant seeks declaratory judgment declaring the termination date of the lease. Defendant landlords argue for a later termination date. Plaintiff now moves for summary judgment under Rule 56, Fed.R.Civ.P. While defendants have not made a formal motion under the rule, they argue in the briefs for summary judgment in their favor.
Background
7 Hanover Square (the "building") is an office building located in this district. Defendant Seven Hanover Associates, a New York general partnership, owns the building. Defendants Paul Milstein and Robert H. Arnow are general partners of Seven Hanover Associates. I will collectively refer to the defendants as the "Landlord."
The Landlord employed as its managing agent Swig, Weiler Arnow Management Co., Inc. ("SWA"). Gerald G. Wall, the vice-president of leasing for SWA, was in charge of the building's affairs.
On March 16, 1983, the Landlord entered into a written lease with E.F. Hutton Company, Inc. ("Hutton"), a non-party, for the 15th and 16th floors of the building. On July 2, 1984, the Landlord and Hutton as tenant of those floors entered into a first amendment of that lease. The lease term was to expire on November 30, 1993.
On March 19, 1987, the Landlord and Hutton entered into a "Surrender Agreement" pursuant to which Hutton surrendered to the Landlord the 16th floor of the building.
On the same date Hutton and CRT Government Securities, Inc. ("CRT, Inc."), an Illinois corporation, entered into a separate written agreement, referred to as an Assignment and Assumption Agreement, pursuant to which CRT, Inc. assumed Hutton's lease for the building's 15th floor. The Landlord consented to that assignment, as required by Article 10 of the Hutton lease.
CRT, Inc. thereupon succeeded to all of Hutton's rights and liabilities under the Hutton lease.
Also on or about March 19, 1987, the Landlord and CRT, Inc. entered into an amendment of the lease of the 15th floor of the building which extended its term from November 30, 1993 to November 30, 1998, subject to the terms of paragraph 7 of the amendment. Paragraph 7 of the amendment provided:
Landlord's agreement to extend the term of the Lease for the Extension Period [to noon on November 30, 1998] is subject to the option of Johnson Higgins, pursuant to lease dated September 29, 1981 (the `Johnson Higgins Lease'), to lease the Demised Premises for the period commencing December 1, 1993. This Amendment shall be of no further force or effect, and the term of the Lease shall expire as of November 30, 1993, unless earlier terminated pursuant to the provisions of the Lease, if Johnson Higgins shall exercise the foregoing option to lease the Demised Premises from and after December 1, 1993. Landlord has advised Tenant that the terms of the Johnson Higgins Lease require the tenant thereunder to exercise the foregoing described option by delivering written notice of such exercise to Landlord not later than 12 months prior to December 1, 1993; provided, however, Landlord shall have no liability if Johnson Higgins shall be found in legal proceedings to have legally exercised the foregoing option other than in compliance with the foregoing requirements.
Notwithstanding anything to the contrary, if Johnson Higgins shall not have unconditionally waived in writing the foregoing option with respect to the Demised Premises prior to November 30, 1991, Tenant, by notice to Landlord delivered not later than December 31, 1991, as to which date time shall be of the essence, may terminate this Amendment, in which event this Amendment will be of no further force and effect. Upon written request of Tenant, Landlord shall advise Tenant whether Johnson Higgins has exercised or delivered a waiver of the foregoing described option."
On June 30, 1987, CRT, Inc. entered into an Assignment and Assumption Agreement with CRT Government Securities, Ltd. ("CRT, Ltd."), pursuant to which CRT, Ltd. assumed CRT, Inc.'s lease for the 15th floor of the building. A duplicate original of the June 30, 1987 assignment was sent to the Landlord.
On September 11, 1987, CRT, Ltd. and CRT Services, Inc. ("CRT Services"), the plaintiff herein, entered into an Assignment and Assumption Agreement pursuant to which CRT Services assumed CRT, Ltd.s' lease for the 15th floor of the building. CRT, Inc. forwarded duplicate originals of that assumption agreement to the Landlord in care of SWA as enclosures to a letter dated September 14, 1987. That letter began by stating:
In response to its expanding range of business activities, effective June 30, 1987, Chicago Research Trading Group, now Chicago Research Trading Group, Ltd., the sole stockholder of the Tenant and the principal operating member of the CRT group ("CRT") made certain structural changes in its organization.
The letter goes on to state:
Pursuant to Section 10.05 of the Lease, Landlord is hereby given notice and advised of the following assignments:
1. In accordance with Section 10.02(D) (i), on June 30, 1987, Tenant assigned the Lease to CRT government Securities, Ltd., and Illinois limited partnership ("GSL"), in connection with the purchase by GSL of all of the assets of Tenant and the assumption by GSL of all the Tenant's liabilities under the Lease.
2. In accordance with 10.02(D) (ii), on September 14, 1987, GSL assigned the Lease to CRT Services, Inc., an Illinois corporation ("Services"), an affiliate of GSL, and Services assumed all of GSL's liabilities under the Lease.
Hence, CRT Services, Inc. shall hereafter be the Tenant under the Lease.
For your information and files, enclosed are duplicate originals of the instruments of assignment evidencing the above-referenced transactions.
Discovery by interrogatory and the exchange of affidavits on this motion reveal that on June 30, 1987, Chicago Research Trading Group, an Illinois general partnership, amended its partnership agreement to qualify as a limited partnership, Chicago Research Trading Group, Ltd., and continued its business in that form. It further appears from the motion papers that Chicago Research Trading Group, a general partnership prior to June 30, 1987 and a limited partnership thereafter, controlled the several CRT entities.
The recitation in the September 14, 1987 letter that Chicago Research Trading had turned itself from a "Group" into a "Group, Ltd." evoked no interest and prompted no inquiry from the Landlord or its agent. That is not surprising, since the Group, although parent of the CRT entities which the Landlord accepted as tenants or assignees, was not a party to the lease, and had not guaranteed the obligations of the CRT entities. Instead, the Landlord accepted the monthly payments of rent which, subsequent to September 11, 1987, were paid by plaintiff CRT Services.
Plaintiff CRT Services had in mind that provision in paragraph 7 of the March 19, 1987 lease amendment, quoted supra, dealing with the Johnson Higgins option. In a letter dated December 5, 1991, plaintiff wrote to Landlord in care of SWA:
In accordance with Paragraph 7 of the Amendment, Landlord is hereby requested to promptly advise Tenant as to whether Johnson Higgins has exercised or delivered a waiver of its option to lease the Demised Premises (as described in the Amendment) and, if so, the date such exercise or waiver occurred. Tenant also requests a copy of any such exercise or waiver.
Having received no response, plaintiff wrote again to the Landlord in care of SWA on December 19, 1991 as follows:
In accordance with Paragraph 7 of the Amendment, Tenant hereby exercises its right to terminate the Amendment.
In this action, plaintiff CRT Services seeks a declaration that the lease has been terminated and its term will expire on November 30, 1993. The Landlord professes to perceive a defect in the chain of assignments leading to CRT Services, and challenges that plaintiff's standing to terminate the lease or seek relief. I treat the papers as cross-motions for summary judgment.
Although Rule 56 does not specifically address the point, it is well established that in appropriate circumstances the Court may dispense with the formality of a cross-motion and award summary judgment to the non-moving party. See 6 Moore's Federal Practice (2d Ed. 1991) ¶ 56.12 at 56-162.
Discussion
Rule 56(c) provides that summary judgment:
shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
Rule 56(e) provides in part:
Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. . . . When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.
In considering a summary judgment motion, "the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932 (1987).
Although the movant initially bears the burden of showing that there are no genuine issues of material fact, once such a showing is made, the party opposing a properly supported motion must "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, (1986). Summary judgment is warranted where, "after adequate time for discovery . . . [the nonmoving party] fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). To establish a genuine issue of fact, the party opposing summary judgment must "do more than simply show that there is some metaphysical doubt as to the material facts"; it must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Electric Industry Corp., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Rule 56(e); emphasis is the Court's). Absent such a showing, summary judgment is appropriate since "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp., 477 U.S. at 323. The standard for granting summary judgment "mirrors the standard for a directed verdict under Federal Rule of Civil Procedures 50(a), which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict." Anderson, 477 U.S. at 250.
Plaintiff's argument in support of its motion for summary judgment is uncomplicated. Under the explicit and unambiguous provisions of paragraph 7 of the lease amendment, the tenant could terminate the lease if (1) Johnson Higgins did not unconditionally waive in writing its option with respect to the premises prior to November 30, 1991, and (2) the tenant delivered a notice of termination to the Landlord not later than December 31, 1991, as to which date time being of the essence. It is undisputed that Johnson Higgins did not waive its option prior to November 30, 1991, and that plaintiff gave a timely notice of termination, that being the function of CRT Services's letter to the Landlord dated December 19, 1991.
In the light of that unambiguous language and those undisputed facts, plaintiff concludes, the lease was terminated and will expire on November 30, 1993.
The Landlord defends and cross-moves for summary judgment on the ground that "one of the links in plaintiff's claim of assignments was fatally flawed." Main Brief at 12. The factual predicate for the argument is that CRT, Inc.'s September 14, 1987 letter to the Landlord failed to include in its enclosures documentation evidencing the transfer of a controlling interest in CRT, Inc. That transfer of a controlling interest occurred, the Landlord contends, when on June 30, 1987 Chicago Research Trading Group transferred all of the CRT, Inc. stock to Chicago Research Trading Group, Ltd. The transfer is evidenced by plaintiff's answers to defendant's interrogatories Nos. 2 and 3, which recite that on March 19, 1987, there were 1,000 outstanding shares of CRT, Inc. held by Chicago Research and Trading Group, and that on June 30, 1987 the 1,000 shares were transferred when Chicago Research and Trading Group was converted into Chicago Research and Trading Group, Ltd.
In the interrogatories and answers, CRT, Inc. is referred to as "Securities."
The Landlord contends that these circumstances give rise to a fatal break in the chain of lease assignments from Hutton to CRT, Inc. to CRT, Ltd. to plaintiff CRT Services which deprives CRT Services of the standing, power and right to invoke the termination provision in paragraph 7 of the lease amendment. If that contention is well founded, then the Landlord is entitled to summary judgment, since paragraph 7 created a 31-day window of opportunity (the month of December, 1991) for the tenant to give a notice of termination. The passage of time has closed that widow.
It is now necessary to examine the documents upon which the Landlord bases these contentions.
In addition to the other documents executed on March 19, 1987 and referred to supra, the Landlord, Hutton and CRT, Inc. executed a letter agreement on that date which provided in paragraph 8:
In the event that there shall be any conflict between the terms, covenants and conditions of this letter agreement and the terms, covenants and conditions of the Lease, then the terms, covenants and conditions of this letter agreement shall prevail in each instance, and any conflicting terms, covenants and conditions of the Lease shall be deemed modified to conform with the terms, covenants and conditions of this letter agreement.
Paragraph 2 of that letter agreement provided:
No other or further sublease or assignment of the interest of Assignor or Assignee in the Lease, shall be made except with landlord's prior written approval, except with respect to an assignment to a permitted assignee in accordance with the provisions of Subparagraph D of Section 10.02 of the Lease, and all of the provisions of Article 10 of the Lease shall continue in effect.
Article 10.05 (B) of the lease provides:
B. No assignment, sublease or transfer shall be binding on Landlord unless such assignee, subtenant or transferee of Tenant shall deliver to Landlord a duplicate original of the instrument of assignment, sublease or transfer which (i) in the case of an assignment contains a covenant of assumption by the assignee or transferee of all of the obligations aforesaid; (ii) contains a confirmation that Landlord shall have all of the rights and options of Section 10.02 as to any further assignment or subletting superior to and pre-emptive of any rights of sublessor thereunder, and (iii) in every case, Landlord shall have consented thereto in advance in writing as required hereunder. In the event of a purported assignment, sublease or transfer in contravention of the provisions of this Lease, Landlord may elect to treat such purported assignee, subtenant or transferee as having assumed this Lease jointly and severally with Tenant, without in any way or to any extent binding Landlord to consent to such purported assignment, sub-lease or transfer.
The Landlord also relies upon the last sentence of Article 10, Section 10.01 of the lease, which provides:
Any direct or indirect transfer of a controlling interest by or of a corporate tenant [other than sales on a recognized stock exchange], or of a major partnership interest of a partnership tenant, shall be deemed an assignment of [sic] purposes of this Article.
Based upon these several provisions, the Landlord's argument comes down to this. The transfer of the stock of CRT, Inc. that occurred when Chicago Research Trading Group was converted into Chicago Research Trading Group, Ltd. should be characterized as the "transfer of a controlling interest by or of a corporate tenant" under Article 10, Section 10.01 of the lease. Accordingly the provisions of Section 10.05(B) apply; and the chain of lease assignments leading ultimately to plaintiff CRT Services is severed because "any transfer, direct or indirect, of a controlling interest in [CRT, Inc.] was to be deemed an assignment requiring that the transferee deliver to the Landlord a duplicate original of the instrument of transfer containing language protective of the Landlord's interests." Reply Brief at 7-8. The CRT interests failed to deliver such an instrument.
The substantive law governing the case at bar is that of New York. Under New York law the Landlord's contentions fail for two reasons.
First, the June 1987 conversion of Chicago Research Trading Group from a general into a limited partnership cannot be characterized as an assignment of the lease for purposes of violating that contract's nonassignment covenants. That change in the form of the parent and sole stockholder of the original corporate tenant, CRT, Inc., and the parent of its assignee, CRT, Ltd., had no effect upon the property or leasehold estate in the hands of either of those two entities. Accordingly it is not the sort of event against which the nonassignment covenants are intended to protect the Landlord. That is particularly the fact in this case, since the only change in corporate structure affected the parent Group, which is not a party to the lease and did not guarantee the lessee's performance.
The Second Department's recent decision in Brentsun Realty Corp. v. D'Urso Supermarkets, Inc., 582 N.Y.S.2d 216 (2d Dept. 1992) applies to the case at bar a fortiori. The landlord resisted the tenant's exercise of an option to renew the lease. The lease prohibited assignments without the landlord's consent, and also provided: "Transfer or sale of fifty percent (50%) or more of the stock of the [lessee] Corporation shall constitute an assignment of this Lease which must require landlord's consent as set forth above." The landlord consented to the assignment of the lease to a corporate tenant, BPFC, which thereafter was merged into another corporation owning all its shares. That parent corporation, appellant in the case, filed a certificate of merger with the state, but did not execute an assignment or sublease. The landlord, resisting exercise of the renewal option, contended that these events violated the nonassignment covenant. The appellate division disagreed, stating at N.Y.S.2d 217-18:
Under the facts of this case, the merger of the subsidiary corporation into its parent corporation did not constitute an assignment for purposes of violating the nonassignment covenant in the lease (see generally, Business Corporation law § 906; Torrey Delivery v. Chautaugua Truck Sales Serv., 47 A.D.2d 279, 366 N.Y.S.2d 506; Albert v. Salzman, 41 A.D.2d 501, 344 N.Y.S.2d 75, aff'd 15 N.Y.2d 705, 256 N.Y.S.2d 335, 204 N.E.2d 495; Rubinstein Bros. v. Ole of 34th St., 101 Misc.2d 563, 421 N.Y.S.2d 534). The merger did not change the beneficial ownership, possession, or control of BPFC's property or leasehold estate. Only BPFC's form was affected, not the corporate property. Therefore, no assignment or similar transfer of the lease occurred.
The appellate division also held:
The provision in the lease which states that transfer or sale of 50% or more of the stock of the "Corporation" shall constitute an assignment does not apply in this case because at no time since BPFC assumed the lease did it transfer or sell at least half of its stock to the appellant. Id. at 218.Brentsun applies to the case at bar a fortiori because the change in corporate form in that case involved the corporate tenant at the time. In the case at bar, the only change in corporate form affected is that of the parent Group, which was not a party to the lease and did not guarantee its performance.
Secondly, it is clear that under New York law the Landlord at bar has waived the purported breach of the nonassignment provision of the lease. CRT, Inc.'s September 14, 1987 letter to the Landlord gave the Landlord notice of the change in the parent group's status from corporation to limited partnership, and further advised the Landlord (if the Landlord had not already known it) that the Group was the tenant's sole stockholder. Accordingly the point of objection the Landlord now seeks to raise it could have raised then. Instead, the Landlord accepted the further assignment of the lease to CRT Services, and in the succeeding years and months accepted in excess of $5 million in rent from that corporate tenant. Those circumstances constitute waiver of any breach of the nonassignment of the provisions of the lease. Brentsun holds in the alternative:
Moreover, we conclude that, by accepting rent from the appellant for over two years after the merger, Brentsun waived the purported breach of the nonassignment provision of the lease (see e.g., Atkin's Waste Materials v. May, 34 N.Y.2d 422, 358 N.Y.S.2d 129, 314 N.E.2d 871; Conger v. Duryee, 90 N.Y. 594; Murray v. Harway, 56 N.Y. 337; Condit v. Manischewitz, 220 App.Div. 366, 221 N.Y.S. 371; Schwartz v. Certified Mgt. Corp., 117 A.D.2d 521, 498 N.Y.S.2d 135; Witkoff v. Shopwell, Inc., 112 A.D.2d 295, 491 N.Y.S.2d 740). Id. at 218.See also, TSS-Seedman's, Inc. v. Elota Realty Co., 72 N.Y.2d 1024, 534 N.Y.S.2d 925 (1928); 61 East 72nd Street Corporation v. Zimberg, 161 A.D.2d 452, 556 N.Y.S.2d 46 (First Dept. 1990);Lee v. Wright, 108 A.D.2d 678, 485 N.Y.S.2d 543 (1st Dept. 1985); In re Duplan Corp., 473 F. Supp 1089 (S.D.N.Y. 1979).
Accordingly, plaintiff's motion for summary judgment is granted. Defendant's cross-motion for summary judgment, asserted in its briefs, is denied.
Counsel for plaintiff are directed to settle an order and judgment consistent with this opinion on five (5) days' notice within twenty (20) days of the date of this Opinion.
It is SO ORDERED.