Ruradan Corporation v. City of New York

Background

Ruradan Corporation owned and leased commercial premises at 8 East 48th Street in New York City. In 2014, Ruradan entered into a lease with L&K 48 Venture, Inc. for use of the premises as a delicatessen and for related grocery sales. In 2019, with Ruradan’s consent, the lease was assigned to JLee 19 Corp., which operated a business called Toasties. The lease term was extended through August 31, 2029.

Jin Choi, Matthew Ahn, and Raymond Kim signed a guaranty in favor of Ruradan. The guaranty unconditionally guaranteed the tenants’ payment of rent and additional rent and their performance of the lease obligations. It also covered damages and reasonable attorneys’ fees resulting from a tenant default.

During the COVID-19 pandemic, New York executive orders restricted on-premises restaurant service and reduced in-person workforces. JLee stopped making the required payments in approximately April 2020. The defendants made partial payments in June and July 2020, but made no further payments. The parties disputed when the premises were vacated, but the opinion states that the keys were returned in October 2020. Ruradan later leased the premises to a new tenant.

Procedural history and jurisdiction

The amended complaint asserted four claims against the City of New York challenging the City’s commercial-lease guaranty law under the federal Contracts, Takings, and Due Process Clauses and under New York law. It also asserted a breach-of-contract claim against L&K Venture, JLee, and the three guarantors, collectively referred to in the opinion as the Toasties Defendants.

In an earlier ruling, the court granted the City’s motion to dismiss the Takings Clause, Due Process Clause, New York Constitution, and Municipal Home Rule Law claims, while denying dismissal of the Contracts Clause claim and the breach-of-contract claim. In April 2024, the court granted the City’s summary-judgment motion and dismissed the remaining Contracts Clause claim against the City because Ruradan had abandoned its damages claim and lacked standing to seek declaratory or injunctive relief. The only remaining claim was the breach-of-contract claim against the Toasties Defendants.

The City and the Toasties Defendants argued that the court could not exercise supplemental jurisdiction over the remaining state-law contract claim because the federal claims had been dismissed. The court rejected that argument. It held that the federal claims had not been frivolous and had supplied federal-question jurisdiction when the case began. Because the contract claim arose from the same underlying events, the court held that it had supplemental jurisdiction and would continue exercising it. The court also found personal jurisdiction based on the lease and guaranty provisions submitting the defendants to the court’s jurisdiction.

Breach of contract

Under New York law, a breach-of-contract claim requires a valid contract, the plaintiff’s performance, the defendant’s breach, and resulting damages. The court found that the lease and guaranty existed, that Ruradan had performed its obligations, and that the defendants had defaulted. The defendants did not dispute their failure to pay rent and additional rent.

Force majeure

The defendants argued that the lease’s force majeure provision excused their nonpayment during the pandemic. The court disagreed after examining the provision’s text. It held that the clause addressed circumstances in which the landlord could not perform certain obligations because of governmental orders, emergencies, or similar conditions, but expressly left the tenants’ obligations to pay rent and perform their other covenants in place. The court therefore held that the clause did not excuse the defendants’ nonperformance.

Frustration of purpose

The defendants argued that pandemic restrictions frustrated the purpose of the lease. The court described this doctrine as a narrow defense that may apply when an unforeseeable event makes a contract essentially valueless or destroys the fundamental reason for the agreement.

The court held that the doctrine did not apply. The lease lasted through August 2029, and the restrictions on on-premises service were temporary. The lease also anticipated government restrictions and other disruptions and allocated the risks of those events. The defendants could still use the premises for delicatessen preparation, takeout, curbside service, and related retail sales. Reduced profitability or business losses were not enough to make the lease’s purpose legally frustrated.

Impossibility

The defendants also asserted impossibility, an affirmative defense that may excuse performance only when an unanticipated event makes performance objectively impossible. The court held that this defense did not apply because the lease anticipated government restrictions and because the premises remained usable. Although the pandemic made the business difficult or impractical to operate, the defendants were not prohibited from using the premises for all of the purposes stated in the lease. The court therefore held that impossibility did not excuse the failure to pay rent.

Damages and related issues

Ruradan sought damages for unpaid amounts under the lease and guaranty through August 31, 2029, offset by rent from the replacement tenant, plus legal fees and commissions incurred in finding that tenant. The opinion states that Ruradan’s pretrial damages request was $1,684,245.02, although the amended complaint had sought $1,000,127.27. The court permitted amendment of the pleadings to reflect the larger amount because the evidence supported the revised request and the Toasties Defendants did not object.

The defendants argued that Ruradan failed to mitigate damages by delaying the replacement lease or accepting below-market rent. The court rejected that argument, explaining that under New York law a commercial landlord generally has no duty to relet abandoned premises to reduce damages. The lease also allowed Ruradan to relet the premises and recover any deficiency and related expenses.

The defendants further argued that judicial estoppel barred Ruradan from seeking more than the $291,131.90 it had claimed in an earlier state-court action. The court rejected that argument because the earlier case had been voluntarily dismissed and the damages figure had not been adopted by that court. The court considered the earlier allegation only as an evidentiary admission and found that the undisputed evidence outweighed it.

The court held that the lease and guaranty clearly allowed Ruradan to recover reasonable attorneys’ fees and costs incurred in enforcing those agreements. It also held that Ruradan was entitled to prejudgment interest under New York law at the statutory rate of nine percent per year, beginning April 13, 2022.

Disposition

The court found the Toasties Defendants liable to Ruradan for breach of contract. It directed Ruradan to submit a proposed judgment consistent with the opinion, including evidence of its costs and reasonable attorneys’ fees. The opinion does not state that the City of New York was liable on the remaining contract claim.