605 Fifth Property Owner, LLC v. Abasic, S.A.

Background

605 Fifth Property Owner, LLC owns a building at 605 Fifth Avenue in New York City. In January 2020, it entered into a three-year lease with NTS W. USA Corporation, identified in the opinion as DUSA, for a retail store. Abasic guaranteed DUSA’s obligations under the lease. The opinion states that DUSA is Abasic’s wholly-owned subsidiary.

After New York shut down non-essential retail businesses and barred construction in response to the COVID-19 pandemic, DUSA did not open or operate its planned store and refused to pay rent. DUSA later filed for bankruptcy protection and brought an adversary proceeding against the landlord. It sought, among other things, a ruling that the lease was unenforceable or should be terminated, or that rent should be reduced because performance was impossible or the lease’s purpose had been frustrated.

The Bankruptcy Court rejected DUSA’s arguments about impossibility and frustration of purpose when evaluating its likelihood of success, then entered a final judgment dismissing most of DUSA’s claims. DUSA appealed that judgment to the Southern District of New York. The appeal remained pending when Abasic asked the court to pause this guaranty action.

The Parties’ Positions

The landlord filed this action alleging that Abasic breached the guaranty by failing to pay rent owed by DUSA. The landlord sought base rent and additional rent that totaled $551,609.85 at the time of the complaint, plus attorney’s fees.

Abasic argued that this action should be stayed, meaning temporarily paused, because the pending appeal could affect the amount of rent DUSA owed and therefore Abasic’s liability as guarantor. The landlord opposed the motion. It argued that the bankruptcy proceeding and appeal involved the lease, while this action involved the separate guaranty. The landlord also relied on provisions that it said preserved the guarantor’s liability and waived defenses available to DUSA.

Court’s Analysis

The court explained that a district court may stay or dismiss a case that substantially overlaps with another federal case. The court considers the equities, the risk of concurrent litigation over the same subject matter, and judicial economy. It also discussed the prior-pending-action doctrine, under which an earlier-filed proceeding generally receives priority absent circumstances favoring the later case.

The court rejected the landlord’s argument that no earlier proceeding existed. The bankruptcy case and the appeal both began before this action, and the court concluded that the doctrine could apply to a pending appeal.

The court acknowledged that the proceedings were not identical. The current action concerns Abasic’s guaranty, while the appeal concerns DUSA’s liability under the lease. Nevertheless, both proceedings arise from DUSA’s failure to pay rent and involve the same defenses based on the pandemic’s effect on DUSA’s intended performance and the lease’s purpose. Because Abasic is DUSA’s guarantor and DUSA is Abasic’s wholly-owned subsidiary, the court found that the potential overlap was substantial.

The court did not decide how the appeal would affect this action, whether the landlord’s interpretation of the guaranty was correct, or whether the guaranty’s waiver provision would ultimately control. It stated that those issues could be addressed later and were unnecessary to decide the motion to stay.

Disposition

The court granted Abasic’s motion to stay. The action is stayed pending resolution of the appeal, Case No. 20-cv-6692-CS. Within one week after that appeal is resolved, the parties must submit a letter stating their positions on whether and how the appeal’s decision affects this case. The Clerk of Court was directed to terminate the motion at docket entry 16. The order did not decide the underlying breach-of-guaranty claim.