Opinion
No. 11–P–359.
2012-06-26
REALTY RESOURCES HOSPITALITY LEXINGTON, LLC, & another v. AYUSHI, LLC, & another ; Denny's, Inc., third party defendant.
By the Court (GRAHAM, GRAINGER & HANLON, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
This case arises out of a dispute over a commercial sublease of a restaurant in Lexington. The plaintiffs, Realty Resources Hospitality Lexington, LLC (the sublessee of the premises), and Realty Resources Hospitality New England, LLC (collectively Realty Resources), filed this action, seeking a declaratory judgment that the defendant landlords, Ayushi, LLC and Jamsan Hotel Management (collectively Ayushi), had breached the lease by serving a notice of default, and that neither Realty Resources nor its sublessor, Denny's, Inc. (Denny's), was in default of the lease. Ayushi counterclaimed, asserting that Realty Resources had breached the master lease, interfered with advantageous business relationships, and violated G.L. c. 93A; Ayushi also filed a third party complaint against Denny's Inc., alleging a breach of contract.
Background. On October 31, 2000, Denny's and Ayushi's predecessor
Ayushi also sought an accounting.
entered into a written lease for the property at 438 Bedford Street. The lease provided that the premises were to be used solely for the operation of a Denny's restaurant and for no other purpose without the prior written consent of the landlord. The lease also required the tenant, within eighteen months of July 1, 2003, “completely [to] remodel [the premises] to conform to Denny's Inc. then current standard image.”
Innkeepers Financing Partnership. Ayushi bought out Innkeepers in 2005, succeeding to all rights under the lease.
On November 7, 2000, Denny's subleased the premises to Realty Resources Lexington as part of a sale of seven Denny's restaurants. Article 14 of the sublease provided that it was “subject to each and all of the terms, conditions and provisions of the Master Lease,” including the requirement that the premises be remodeled by December 31, 2004. Thereafter, Denny's granted extensions on the time limits but continued to insist that the renovations be made. Nevertheless, Realty Resources, deciding it would not recoup the capital investment required, never made the renovations.
Meanwhile, representatives of Realty Resources also began to explore with Ayushi, who had purchased the property and the adjacent hotel, the possibility of locating a different “full service restaurant” at the location.
Realty Resources did not inform Ayushi that Denny's was insisting that Realty Resources fulfill its obligation to make the required renovations.
Realty Resources began negotiations with Famous Dave's; Ayushi later negotiated with Ruby Tuesdays and then with the 99 Restaurant chain. Realty Resources also negotiated with a local restaurateur, Ken Santaino, on behalf of the Boston Restaurant Group. No agreement was reached with any of the potential buyers.
By May, 2006, Denny's demanded either that the renovations be made or that the restaurant cease to function as a Denny's as of May 31. Denny's agreed that Realty Resources would be allowed to reopen another restaurant in its stead if Ayushi consented, as required under the master lease. In response, as the judge found, Realty Resources “unilaterally decided that [it] would continue to operate the restaurant as the ‘Lexington Cafe’ until a buyer was found.” A representative of Realty Resources notified Denny's of this development by e-mail, but did not notify Ayushi that Realty Resources was required to cease operating as Denny's, saying, instead, “we asked corporate Denny's for permission to close as a Denny's to accommodate a new concept for the Restaurant. They granted that permission.... We have made alternate plans to run the restaurant ourselves until you conclude your deal with Ruby Tuesdays.... Because Denny's is asking, would you acknowledge your acquiescence in the plan we have outlined.” This e-mail was sent to Ayushi on May 30, 2006.
On May 31, 2006, Realty Resources stopped operating the restaurant as a Denny's. Ayushi's representative, Ashok Patel, did not see the e-mails until June 6, 2006, after Denny's was already closed. Patel testified that he first learned of the closing when he drove past the restaurant on his way to the hotel on the morning of June 6 and noticed “the [restaurant] signs bagged.” He then reviewed his e-mails and responded, “I am fine with you guys re-opening the restaurant on Thursday as Lexington Diner. I am meeting with Ruby's tomorrow.” In a second e-mail Patel stated, “We will work with Ruby's to get a deal together ASAP. Meanwhile you may operate the restaurant as Lexington Diner.”
Over the course of the next months, both Realty Resources and Ayushi attempted, unsuccessfully, to obtain a buyer for the sublease rights (see note 5, supra ); by October, 2006, Realty Resources was putting considerable pressure on Ayushi either to approve the sale to the Boston Restaurant Group or to complete a transaction with the 99 Restaurant. As a result, on December 26, 2006, an attorney for Ayushi sent Denny's a notice of default, claiming Denny's had breached the master lease when the restaurant stopped operating as a Denny's. The notice “specif[ied] that the [l]ease would terminate if the default was not cured in thirty days.”
Although the parties met in the meantime and Patel maintained that the notice of default was meant only to preserve Ayushi's position, and that he intended to pay Realty Resources its share if the transaction went through, Realty Resources filed suit on January 25, 2007. It then closed the Lexington Cafe and abandoned the premises on January 31, 2007. Thereafter, it made no payments to Ayushi.
After a bench trial, a judge of the Superior Court, in detailed and thoughtful findings, found that closing the restaurant breached the lease without cause. She found: “After May 31, [2006,] Realty Resources could no longer operate a Denny's at the site. But the [l]ease required a Denny's and because Ayushi was operating a hotel on the adjacent property, authority to transfer the lease was limited. Realty Resources needed Ayushi's consent and Ayushi had sole discretion to withhold consent unless the transfer was to a nationally or regionally known family style, full-service restaurant .” She determined “that [Realty Resources] had breached the lease and violated the covenant of good faith and fair dealing” and ordered Realty Resources Hospitality Lexington and Denny's to pay damages, including unpaid rent and maintenance fees, utilities, and taxes required under the lease.
The judge found in favor of Realty Resources New England on all claims, because, based on the record, it was not a party to the sublease.
Realty Resources dismissed an additional claim for injurious falsehood during the trial.
The judge also found the evidence insufficient to establish a G.L. c. 93A violation on the part of either the plaintiffs or the defendants. She further found that Ayushi had failed to prove its claim for intentional interference with business relations. We affirm the judgment.
Realty Resources and Denny's have appealed. Their position is that they did not breach the master lease because Ayushi had consented to closing the Denny's restaurant and reopening under a new name and concept. Based on this consent, they argue, the default was unjustified and deceptive, filed for the purpose of preventing Realty Resources from receiving the proceeds of the lease buyout. Realty Resources also challenges the denial of its claim under G.L. c. 93A.
Discussion. 1. Chapter 93A violation. Realty Resources and Denny's first argue that the notice of default sent to Denny's corporate office on December 26, 2006, was unfair and “incurable”; they claim Ayushi's actions constituted a deceptive trade practice in violation of chapter 93A.
Their position is that Patel, on behalf of Ayushi, had waived the terms of section 7.1 of the lease, in his June 6, 2006, e-mail, when he consented to closing Denny's and reopening the restaurant the following week under a new name. The trial judge disagreed, finding that Ayushi's consent was based on “false pretenses, i.e., by [Realty Resources] failing to disclose that it had received an ultimatum from Denny's to perform the renovations.”
Realty Resources did not raise its estoppel claim (count II) on appeal and therefore we do not address it.
Waiver is a question of fact, to be decided by the fact finder from all existing facts and circumstances. See Pear v. Davenport, 67 Mass.App.Ct. 239, 241, 853 N.E.2d 206 (2006). The trial judge is in the best position to assess the credibility of the evidence and to determine the relevant facts to support her conclusion that consent was not waived. See Millennium Equity Holdings, LLC v. Mahlowitz, 456 Mass. 627, 637–638, 925 N.E.2d 513 (2010).
Here, based on the record before us, we agree with the judge's conclusion that Patel did not waive consent to § 7.1 in his June 6th e-mail response, although we base our holding on different grounds. The record makes clear that Patel, in the e-mail, conditioned his agreement for the closing and reopening of the restaurant on the anticipated signing of a new lease by Ruby Tuesdays; obviously, that signing never took place. See Feeney v. Dell Inc., 454 Mass. 192, 211, 908 N.E.2d 753 (2009) (reviewing court may consider grounds apparent on the record that supports the result reached in the trial court).
In addition, although neither Realty Resources nor Ayushi was completely forthcoming in its business dealings with the other,
there is no indication in the record that Ayushi's conduct rose to the heightened standard of establishing a c. 93A claim. Duclersaint v. Federal Natl. Mort. Assn., 427 Mass. 809, 814, 696 N.E.2d 536 (1998). In fact, prior to the notice of default, Ayushi's representatives had “invested substantial efforts,” to which they were not legally obligated under the lease, to assist Realty Resources in finding and securing a national chain or franchise to buy out their lease interest.
Patel did not disclose to Realty Resources the price that he was negotiating with the 99 Restaurant for the lease rights.
In fact, Ayushi issued the notice of default only after Kevin LaBree (vice president of Realty Resources Lexington) sent Ayushi an e-mail on October 5, 2006, delivering what was essentially an ultimatum. He stated that Realty Resources “will have no choice but to accept the legitimate and solid offer [it has] from the Boston Restaurant Group's buyer” if Realty Resources did not receive the draft purchase and sale agreement from “99 Diner” by the next day; Realty Resources' buyer was Ken Santaino, a local restaurateur unknown to Ayushi.
Under section 7.1 of the master lease, if Ayushi was still operating the adjacent hotel when Realty Resources sought to change the establishment from a Denny's, Ayushi had “sole discretion to withhold consent to a proposed use [of the restaurant] other than a nationally or regionally known family style, full-service restaurant .” Patel testified that Ayushi “couldn't have approved or rejected [Santaino's offer] because there was no information available to [Ayushi]” from Realty Resources on which to base a decision. The trial judge clearly credited this testimony.
In response, Patel assured Realty Resources in a January 16, 2007, e-mail that he was acting in “good faith and [had] put up with the Lexington Cafe [to] help you guys out.” He confirmed that, if the deal with the 99 Restaurant closed, Realty Resources would still get paid for its lease interest. In response, Realty Resources, rather than continue to work cooperatively to find a buyer as Patel suggested, closed the Lexington Cafe and abandoned the premises. Realty Resources had made clear that its “intent was not to operate the Lexington Diner forever;” the judge appropriately found that Realty Resources then used the default as “an excuse” to close the cafe and stop paying rent, thereby breaching the lease. In addition, we see no error in the judge's reasonable conclusion that the default notice was “sent because Realty Resources was attempting to obtain money from Ayushi by falsely claiming that Ayushi had agreed unconditionally to purchase its rights under the [l]ease. Realty Resources was also claiming falsely that it had given up an opportunity to sell its lease right to Santaino ... at the request of Ayushi when Santaino's offer was conditioned on his ability to enter into a new lease with Ayushi on reasonable terms and Ayushi had an unconditional right under the [l]ease to withold its consent to any sale or assignment of the [l]ease rights to Santaino.” See Duclersaint, 427 Mass. at 814–815, 696 N.E.2d 536.
2. Breach of contract. Realty Resources and Denny's next argue that the judge erroneously concluded, on Ayushi's counterclaim, that Realty Resources had breached the lease when it abandoned the property and ceased paying rent. They claim that Ayushi's notice of default was a “constructive eviction” because it was impossible to reestablish a Denny's restaurant on the premises, resulting in an “automatic termination of both the Master Lease and the Sublease.” We disagree.
As noted, Ayushi had “sole discretion” under the master lease to withhold consent to a tenant other than a “nationally or regionally known family style, full-service restaurant” as long as a hotel was actively operating on the adjacent property. Given this, along with the determination that Ayushi did not waive the requirement that it consent to the May 31, 2006, closing of the Denny's, we see no error in the judge's conclusion that Realty Resources breached the lease.
Realty Resources also failed to meet its burden of proving constructive eviction. Wesson v. Leone Enterprises, Inc., 437 Mass. 708, 713, 774 N.E.2d 611 (2002).
As a result, we do not address separately Realty Resources' declaratory judgment argument that it had not breached the lease.
Ayushi's earlier, conditional consent on June 6, 2006, was a goodwill gesture intended to support the parties' mutual interest in securing a new tenant. There is no evidence that Ayushi ever abandoned that effort. On the other hand, Realty Resources abandoned the premises, along with the effort to find a buyer, on January 31, 2007, when it stopped paying rent and other monies owed some eleven years prior to the expiration of the lease (in 2018). The judge appropriately determined that, in so doing, Realty Resources breached the lease. Accordingly, Ayushi was entitled to recover damages including nonpayment of rent.
The parties stipulated to a total damage amount of $154,327.
Realty Resources does not argue that the assessment was untimely. See 275 Washington Street Corp. v. Hudson River Intl., LLC, 81 Mass.App.Ct. 418, 427, 963 N.E.2d 758 (2012).
Judgment affirmed.
Order dated December 23, 2010, affirmed.