228E58STR LLC v. Koleksiyon Mobilya San A.S.

Background

228E58STR LLC, the landlord, sued Koleksiyon Mobilya San A.S., the guarantor, to enforce a guaranty executed in connection with a ten-year commercial lease between the plaintiff and non-party tenant Koleksiyon USA LLC. The guaranty stated that it was absolute and unconditional and guaranteed the tenant’s payment of rent and additional rent under the lease. It also stated that the guarantor’s liability for claims arising under the lease would survive the lease’s surrender or termination.

The tenant vacated the premises on May 24, 2019, and provided the plaintiff with an acknowledgment of surrender on May 28, 2019. The plaintiff never signed that document. The tenant paid fixed rent for May 2019 but made no further payments. The plaintiff later sent notices of its intention to terminate the lease and of lease termination under the lease’s default provisions.

The plaintiff sought summary judgment on the existence of the defendant’s liability under the guaranty. The defendant cross-moved for summary judgment dismissing the complaint as a matter of law. The parties’ briefing and the court’s ruling did not address the amount of damages, although the plaintiff sought more than two million dollars in the complaint.

Parties’ Arguments

The defendant argued that the guaranty was a limited “good guy” guaranty under which the guarantor’s liability ended when the tenant surrendered or vacated the premises, provided the tenant had paid amounts due through that date. The defendant contended that the tenant’s vacating the premises, providing the acknowledgment of surrender, and delivering the keys constituted a surrender no later than May 28, 2019.

The plaintiff argued that the guaranty had to be read together with the lease because the lease incorporated the guaranty as an exhibit and the two agreements addressed the same transaction. The plaintiff maintained that the lease required a valid surrender to be in writing and signed by the landlord, and that no such signed agreement existed.

Court’s Analysis

The court applied New York law because both the lease and guaranty contained New York choice-of-law provisions. It concluded that the lease and guaranty were interrelated agreements that had to be interpreted together. The lease stated that the guaranty was attached as an exhibit and made part of the lease, and the guaranty repeatedly referred to the tenant’s obligations under the lease.

The guaranty referred to a “Surrender Date” but did not define that term, despite stating that it was defined below. The court rejected the defendant’s proposal to use only an ordinary or dictionary meaning of surrender. It held that the requirements for a valid surrender had to be determined by reference to the lease.

Section 23.02 of the lease provided that no surrender of the premises would be valid unless the landlord and any required superior parties accepted it in a signed writing. Because the plaintiff never signed an agreement accepting the tenant’s surrender, the court held as a matter of law that no effective surrender occurred. The tenant’s unilateral decision to vacate therefore did not end the guarantor’s liability.

The court also held that it did not need to decide whether the guaranty was properly characterized as a “good guy” guaranty. Even assuming that characterization and assuming liability would end upon a valid surrender, no valid surrender occurred here. The court noted that the guaranty’s language was absolute and unconditional and did not contain the type of express limitation found in some other guaranties.

Disposition

The court granted the plaintiff’s motion for summary judgment on the existence of the defendant’s liability under the guaranty and denied the defendant’s cross-motion for summary judgment. The court stated that the defendant remained liable under the guaranty. It reserved the scope of that liability and the amount of damages, including issues concerning mitigation and reletting, for a future proceeding. The parties were directed to submit a proposal for future damages proceedings within twenty-one days.