Opinion
Index No. 57571/2021
03-16-2022
CW A&P MAMARONECK LLC, Plaintiff, v. PFM WC-1, LLC, Eric Gleit and Maya Klotsman a/k/a Maya Rudy Klotsman, Defendants.
FOR PLAINTIFF, LISA M. BLUESTEIN, ESQ., LAW OFFICES OF LISA M. BLUESTEIN, LLC, 111 Brook Street, Suite 202, Scarsdale, New York 10583 FOR DEFENDANTS, ADAM N. LOVE, ESQ., MARKS DIPALERMO PLLC, 485 Madison Avenue, 16th Floor, New York, New York 10022
FOR PLAINTIFF, LISA M. BLUESTEIN, ESQ., LAW OFFICES OF LISA M. BLUESTEIN, LLC, 111 Brook Street, Suite 202, Scarsdale, New York 10583
FOR DEFENDANTS, ADAM N. LOVE, ESQ., MARKS DIPALERMO PLLC, 485 Madison Avenue, 16th Floor, New York, New York 10022
Damaris E. Torrent, J.
The following papers numbered 1 to 10 were read on this motion (Seq. No. 1) by plaintiff for an order dismissing defendants’ counterclaims:
PAPERS NUMBERED
Notice of Motion / Affirmation (Bluestein) / Exhibits A - C /
Memorandum of Law 1 - 6
Memorandum of Law in Opposition / Affirmation (Love) 7 - 8
Reply Affirmation (Bluestein) / Memorandum of Law 9 - 10
Upon the foregoing papers, the motion is granted, and defendants’ counterclaims are dismissed.
In this commercial landlord-tenant action, the defendants, which operated a fitness center at the demised premises, raise defenses based on the doctrines of frustration of purpose and impossibility of performance. The defenses are grounded in the economic disruption which ensued during and after the "pause" caused by the COVID-19 pandemic. Defendants argue, in essence, that social issues and fears arising out of the pandemic substantially hindered defendants’ ability to use the premises for the intended purposes, and thus rendered the Lease "impractical, unfeasible, and no longer workable for its intended purposes." They maintain that "neither Defendants nor Plaintiff, or anyone else for that matter could have contemplated the scope and economic impact of the COVID-19 pandemic when the Lease was signed."
This matter arises out of an agreement pursuant to which defendant PFM WC-1, LLC (PFM) leased certain premises from plaintiff. The lease dated April 23, 2019 (Exh. A) is for a 10-year term. The individual defendants are guarantors on the lease. Plaintiff commenced this action by filing a Summons and Verified Complaint on June 2, 2021. Plaintiff alleges three causes of action: (1) PFM's breach of the lease for failure to pay rent; (2) the individual defendants’ breach of the guaranty by failure to make payment upon demand; and (3) a claim for attorney's fees pursuant to the lease and the guaranty.
Defendants served an Amended Verified Answer with Counterclaims dated September 15, 2021. Defendants assert three counterclaims: (1) seeking a declaration that plaintiff breached its obligations under the lease; (2) seeking a declaration that the purpose of the lease has been frustrated and the defendants’ obligations excused as a result of the COVID-19 pandemic and related government restrictions; and (3) seeking a declaration that defendants’ performance under the lease has been rendered impossible by the COVID-19 pandemic and related government restrictions.
By Notice of Motion filed on October 1, 2021, plaintiff seeks an order dismissing the counterclaims pursuant to CPLR 3211(a)(1) and (7). Plaintiff asserts that the counterclaims should be dismissed on the ground, inter alia , that they are barred by the express terms of the lease. Plaintiff points to Section 4.01(a) of the lease, which reads, in relevant part: "Tenant hereby covenants and agrees to pay to Landlord the Minimum Annual Rent without any prior demand therefor and without any offset or deduction whatsoever , expect (sic) as otherwise expressly provided in this Lease" (emphasis added). Plaintiff also points to Section 22.08 of the lease, which contains a force majeure clause:
Landlord and Tenant shall each be excused for the period of any delay in the performance of any obligations hereunder when prevented from doing to by a cause or causes beyond such party's control which shall include, without limitation, governmental regulations or controls. Notwithstanding the above, unless caused solely by Landlord, no cause or event shall (i) release Tenant from, or permit a delay in, or excuse, they payment of any item of rent or additional rent as such becomes due and payable in accordance with the terms of this Lease (emphasis added).
Plaintiff thus contends that the plain terms of the lease bar defendants from asserting the doctrines of frustration of purpose and impossibility of performance in connection with their obligations to pay rent. Plaintiff further contends that defendants’ arguments for the applicability of those common law doctrines has been repeatedly rejected in cases addressing the import of government restrictions relating to the COVID-19 pandemic. Plaintiff thus concludes that the counterclaims should be dismissed.
In opposition, defendants assert that the terms of the lease are not relevant to the analysis on this motion, as the lease and the guaranty in their entirety are rendered void on the grounds of frustration of purpose and/or impossibility of performance. In the alternative, defendants assert that the lease terms upon which plaintiff relies are ambiguous and thus discovery is necessary to determine their import. Defendants thus conclude that the lease cannot form the basis for dismissal pursuant to CPLR 3211(a)(1). Defendants further assert that they adequately pleaded claims on frustration and impossibility, precluding dismissal pursuant to CPLR 3211(a)(7). Defendants thus conclude that the motion should be denied.
Plaintiff correctly asserts that defendants’ opposition was served one day late. However, as the Court favors resolution of matter on the merits, and plaintiff was not denied an opportunity to reply, the opposition has been considered.
In reply, plaintiff contends that there is no ambiguity in the cited lease terms, and that those terms conclusively dispose of defendants’ counterclaims. As to the claim that plaintiff breached the lease, plaintiff again points to section 4.01, which requires defendants to pay rent regardless of such a claim. Plaintiff asserts that the parties expressly considered the possibility of government restrictions and allocated the risk of such restrictions to defendants in the lease and agreed that such an event would not excuse defendants’ obligation to pay rent. Plaintiff thus concludes that the motion should be granted.
Discussion
The Court has fully considered the submissions of the parties.
A motion to dismiss based on documentary evidence pursuant to CPLR 3211(a)(1) may be granted only where the documentary evidence "utterly refutes" the plaintiff's factual allegations, resolves all factual issues as a matter of law, and conclusively disposes of the claims at issue ( Goshen v Mutual Life Ins. Co. of NY , 98 NY2d 314, 326 [2002] ; Rodeo Family Enters., LLC v Matte , 99 AD3d 781, 782 [2d Dept. 2012] ). To be considered "documentary evidence" within the meaning of CPLR 3211(a)(1), the evidence must be unambiguous and of undisputed authenticity. Judicial records, as well as documents reflecting out-of-court transactions, such as mortgages, deeds, leases and contracts, which in context are "essentially undeniable," qualify as "documentary evidence" in the proper case ( Fontanetta v John Doe 1 , 73 AD3d 78 [2d Dept. 2010] ).
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" ( Warner v Kaplan , 71 AD3d 1, 6 [1st Dept 2009] [internal quotation marks and citation omitted], lv denied 14 NY3d 706 [2010] ). "The doctrine applies when a change in circumstances makes one party's performance virtually worthless to the other, frustrating [its] purpose in making the contract" ( PPF Safeguard, LLC v BCR Safeguard Holding, LLC , 85 AD3d 506, 508 [1st Dept 2011] [internal quotation marks and citation omitted]).
Under the related doctrine of impossibility of performance, "[i]mpossibility 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" ( Comprehensive Bldg. Contrs. v Pollard Excavating , 251 AD2d 951, 952 [3d Dept 1998] [internal quotation marks and citations omitted]; see Matter of A & S Transp. Co. v County of Nassau , 154 AD2d 456, 459 [2d Dept 1989] ["performance of a contract will be excused if such performance is rendered impossible by intervening governmental activities, but only if those activities are unforeseeable ... [W]hen a governmental action is foreseeable, a contractor may not invoke ‘impossibility’ to excuse performance."]). A party to a contract generally "must perform or respond in damages for its failure, even when unforeseen circumstances make performance burdensome" ( Kel Kim Corp. v Cent. Mkts., Inc. , 70 NY2d 900, 902 [1987] ). Impossibility is "applied narrowly, due in part to judicial recognition that the purpose of contract law is to allocate the risks that might affect performance and that performance should be excused only in extreme circumstances" (id. ). Accordingly, impossibility is rarely applied to excuse contractual obligations under New York law ( Lagarenne v Ingber , 273 Ad2d 735 [3d Dept 2000] ).
In the matter at bar, the subject lease plainly qualifies as documentary evidence for the purposes of CPLR 3211(a)(1). Defendants do not dispute the authenticity of the documents submitted on plaintiff's motion, and the terms of the lease with respect to defendants’ obligation to pay rent, and the force majeure provision, are unambiguous. Section 4.01(a) requires defendants to pay rent without any offset or deduction whatsoever. Section 22.08, the force majeure clause, specifically contemplates "governmental regulations or controls" as an event which may excuse a party's performance of certain obligations. That section expressly provides that neither governmental regulations or controls nor any other contemplated event shall release defendants from, or permit any delay in, their payment of rent.
In recent cases, the majority of decisions have rejected attempts to assert the doctrines of frustration of purpose or impossibility of performance based on government restrictions arising from the COVID-19 pandemic. For example, in Valentino U.S.A., Inc. v 693 Fifth Owner LLC , (70 Misc 3d 1218[A], 2021 NY Slip Op 50119[U] [Sup Ct, New York County, Borrok, J.], aff'd ––– Misc 3d ––––, 2022 NY Slip Op 01431 [1st Dept 2022] ), the tenant argued that it was released from liability for rent under the lease due to COVID-19 regulations. The trial Court noted that a broadly-worded lease precluded the tenant's claims. Although a pandemic was not specifically enumerated by the parties, the lease provided that nothing contained in the Section 21.11 of the Lease including "restrictive governmental laws or regulations," certain cataclysmic events, "or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed in performing work or doing acts required" would excuse the payment of rent. In affirming, the First Department held as follows:
"The motion court properly found that the complaint failed to state a claim under the lease or in equity. As an initial matter, the "narrow" doctrine of frustration of purpose is inapplicable here, where the purpose of the contract has not been completely thwarted. Contrary to plaintiff's contention, frustration of purpose is not implicated by temporary governmental restrictions on in-person operations, as the parties’ respective duties were to pay rent in exchange for occupying the leased premises, and plaintiff acknowledged that it was open for curbside retail services as of June 4, 2020 and services by appointment as of June 22, 2020 ( 2022 NY Slip Op 01431 at *1 [citations omitted]).
"The doctrine of impossibility is also inapplicable here. 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. Here, the pandemic, while continuing to be disruptive for many businesses, did not render plaintiff's performance impossible, even if its ability to provide a luxury experience was rendered more difficult, because the leased premises were not destroyed (id. [internal quotations and citations omitted]).
The Court similarly rejected claims based on failure of consideration or constructive eviction (see also Shmaltz Brewing Co., LLC v Dog Cart Mgt. LLC , ––– Misc 3d ––––, 2022 NY Slip Op 01086 [3d Dept 2022] [rejecting defendants’ argument that shutdown of businesses due to the COVID-19 pandemic gave rise to impossibility of performance, in the absence of documentary evidence conclusively establishing that performance under the contract was impossible as a consequence of the shutdown of businesses]).
In Gap, Inc. v 170 Broadway Retail Owner, LLC (195 AD3d 575 [1st Dept 2021] ), the First Department similarly concluded that the doctrine of frustration of purpose and impossibility barred claims of rescission based on COVID-19 related events. The doctrine of frustration of purpose did not apply as a matter of law, as the tenant was not "completely deprived of the benefit of its bargain" (citing Center for Specialty Care, Inc. v CSC Acquisition I, LLC , 185 AD3d 34, 43 [1st Dept 2020].) Moreover, the claim of impossibility failed as tenant was able perform its operations as a retail store as required by the lease by the time plaintiff filed its complaint in July 2020 (see also 558 Seventh Ave. Corp. v Times Sq. Photo , 194 AD3d 561, 561-562 [1st Dept 2021] ["Plaintiffs do not dispute that the tenant's business, an electronic sales and repair store, was shuttered for a period as a result of pandemic-related executive orders. However, defendants acknowledge that they eventually reopened for curbside service and that they were able to gain access to the premises during the period of nonpayment. Thus, although the pandemic has been disruptive for many businesses, the purpose of the lease in this case was not frustrated, and defendants’ performance was not rendered impossible, by its reduced revenues."]; A/R Retail LLC v Hugo Boss Retail, Inc. , 72 Misc 3d 627 [Sup Ct, New York County 2021] [terms of lease reflected that parties foresaw and addressed risk of government restriction]; CAB Bedford LLC v Equinox Bedford Ave., Inc. , 2020 NY Slip Op 34296[U] [Sup Ct, New York County 2020] [frustration of purpose and impossibility of performance not applicable to temporary interruption of operation of tenant's business]; The Ruxton Tower Ltd. Partnership v Cent. Park Taekwondo, LLC , 2021 NY Slip Op 32583[U] [Sup Ct, New York County 2021] ["hell-or-high-water" clause in lease requiring tenant to pay rent even if landlord was unable to fulfill obligations under lease barred application of doctrines of frustration of purpose and impossibility of performance]; BKNY1, Inc. v 132 Capulet Holdings, LLC , 2020 NY Slip Op 33144[U] [Sup Ct, Kings County 2020] [lease terms did not permit termination or suspension of tenant's obligation to pay rent in the event of governmental restrictions]).
In Center for Specialty Care , the First Department gave as examples of frustration of purpose "a lease's purposes being declared frustrated have included situations where the tenant was unable to use the premises as a restaurant until a public sewer was completed, which took nearly three years after the lease was executed and where a tenant who entered into a lease of premises for office space could not occupy the premises because the certificate of occupancy allowed only residential use and the landlord refused to correct it."
This Court is constrained by the forgoing authority to hold that the occurrence of the pandemic, and the restrictions and disruptions caused by that event, without more, do not give rise to circumstances warranting application of the doctrines of frustration of purpose or impossibility of performance, and that by virtue of the force majeure clause herein (Section 22.08 of the lease), defendants are precluded from asserting the doctrines of frustration of purpose and impossibility of performance in connection with their obligation to pay rent.
Accordingly, it is hereby
ORDERED that the motion is granted, and defendants’ counterclaims are dismissed; and it is further
ORDERED that, within ten (10) days of the date hereof, plaintiff shall serve a copy of this Decision and Order, with notice of entry, upon defendants; and it is further
ORDERED that within ten (10) days of service of notice of entry, plaintiff shall file proof of said service via NYSCEF; and it is further
ORDERED that the parties shall complete and file to NYSCEF a preliminary conference stipulation, a copy of which is available at: https://www.nycourts.gov/legacypdfs/courts/9jd/civilCaseMgmt/west-general-civil-preliminary-conf-stip-form.pdf, to be so ordered on or before April 29, 2022; and it is further
ORDERED that if the parties fail to file the preliminary conference stipulation as directed, the parties shall appear for virtual preliminary conference on May 4, 2022 at 10:00 a.m., subject to confirmation by Teams link to be sent by the Part.
The foregoing constitutes the Decision and Order of the Court.