Ninety-Five Madison Company, L.P. v. Vitra International AG

Background

Ninety-Five Madison Company, L.P. brought a breach-of-contract action against Vitra International AG. Vitra International was the guarantor of a commercial lease between Ninety-Five Madison and Vitra, Inc., Vitra International’s wholly owned subsidiary. The complaint alleged that Vitra, Inc. breached the lease by failing to begin certain alterations promptly and by failing to spend at least $1,912,500 on those alterations within the required period.

The lease also required Ninety-Five Madison to perform certain landlord work. After Vitra, Inc. sued Ninety-Five Madison in state court, the parties settled. The settlement changed the deadline for Vitra, Inc.’s alteration spending: the nine-month period would begin after Ninety-Five Madison completed the landlord work. The settlement also required disputes about the settlement and alterations to be submitted to binding arbitration.

The arbitrator found that Vitra, Inc.’s delay in starting the alterations resulted from Ninety-Five Madison’s interference with regulatory approval. The arbitrator also found that Ninety-Five Madison had not completed the landlord work because it had not installed required air-conditioning supports. Under the settlement, Vitra, Inc.’s spending obligation had not yet begun.

Motions and analysis

Vitra International moved to dismiss under Federal Rule of Civil Procedure 12(b)(5), arguing that service of process was insufficient, and under Rule 12(b)(6), arguing that the complaint failed to state a legally sufficient claim.

The court denied the Rule 12(b)(5) motion. Although Vitra International was not a signatory to the lease, it had signed the guaranty and agreed to perform the lease obligations covered by the guaranty. The court concluded that this agreement bound Vitra International to the lease provision allowing service by certified or registered mail. Ninety-Five Madison had served Vitra International in Switzerland by registered mail, so service was proper.

The court granted the Rule 12(b)(6) motion. It explained that a guaranty creates secondary liability: the guarantor’s obligation arises only when the primary party has defaulted. The court concluded that Ninety-Five Madison could not pursue claims based on alleged defaults before the settlement because the settlement resolved the parties’ earlier claims and counterclaims and modified the lease obligations. The court further concluded that the claims based on alleged post-settlement defaults were barred by the arbitrator’s binding decisions. Those decisions established that Vitra, Inc. was not in default and that its alteration-spending obligation had not yet been triggered.

Ruling

The court stated that Ninety-Five Madison could not use the guaranty as an independent basis for recovery from Vitra International when Vitra, Inc. had not defaulted. The court denied the motion to dismiss for insufficient service of process, granted the motion to dismiss for failure to state a claim, and in the conclusion granted Vitra International’s motion to dismiss. The clerk was directed to close the motion. Judge George B. Daniels did not add a prejudice qualification to the disposition.