JTRE Manhattan Avenue LLC v. Capital One, N.A.

Background

JTRE Manhattan Avenue LLC and JTRE 807 Manhattan Avenue LLC purchased the building at 807 Manhattan Avenue, Brooklyn, in 2018. Capital One, N.A. was the building’s sole tenant under a 20-year commercial lease with the prior owner, 807 Holdings.

Before buying the building, JTRE asked 807 Holdings to obtain an Estoppel Certificate from Capital One. The certificate stated that neither Capital One nor, to Capital One’s knowledge, the landlord was in default under the lease. It also stated that Capital One understood that JTRE would rely on the representation. JTRE bought the building shortly afterward and assumed the landlord’s obligations under the lease.

About five months later, Capital One notified JTRE of alleged heating problems and sought reimbursement for more than $200,000 in supplemental heating costs incurred during the prior winter. JTRE alleged that Capital One had previously notified 807 Holdings about the heating problems and therefore knew about them when it issued the certificate.

Capital One vacated the building in March 2020 and allegedly stopped paying rent from July 1 through December 31, 2020. JTRE sent a notice demanding payment, declared a tenant default after Capital One did not pay by the stated deadline, and terminated the lease. JTRE sued Capital One for breach of contract and negligent misrepresentation. Capital One moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim.

Negligent Misrepresentation

Under New York law, a negligent misrepresentation claim requires, among other things, a duty arising from a special relationship, a false statement the defendant should have known was incorrect, the defendant’s awareness that the plaintiff wanted the information for a serious purpose, intended reliance, and reasonable reliance causing harm.

The court held that JTRE had not plausibly alleged the required special relationship. First, Capital One’s knowledge of the alleged landlord defaults was not shown to be unique or specialized because 807 Holdings also knew about the heating problems, and JTRE did not allege that it asked 807 Holdings about possible defaults or independently investigated the building’s condition.

Second, the court found that the transaction was an arm’s-length business transaction between sophisticated parties and that the parties had no prior relationship. The Estoppel Certificate itself did not create the necessary relationship of trust or confidence. Although the certificate supported an inference that Capital One knew JTRE would rely on it, JTRE did not allege that Capital One urged JTRE to rely on the representation, and that factor alone was insufficient.

Because JTRE failed to plausibly allege the special-relationship element, the court did not decide whether JTRE adequately pleaded falsity. The court granted Capital One’s motion as to the negligent misrepresentation claim and dismissed that claim with prejudice.

Breach of Contract

Capital One did not argue that JTRE had failed to allege any breach of the lease; it argued primarily that JTRE could not claim 20 years of liquidated damages. The court addressed both the contract claim and the damages demand.

To plead breach of contract under New York law, a plaintiff must allege a contract, its own performance, the defendant’s failure to perform, and damages. The court found that JTRE adequately alleged each requirement at the pleading stage. The lease was treated as a valid contract, and JTRE alleged that it had complied with its obligations. JTRE also alleged that Capital One failed to pay minimum and additional rent from July through December 2020 and did not pay by the cure deadline.

The court concluded that the lease’s language supported JTRE’s allegation that Capital One breached the lease. JTRE alleged $404,212.70 in unpaid rent damages. The court explained that pleading some damages was enough to state a breach-of-contract claim, even if JTRE ultimately could not recover all the future rent it sought.

The parties disputed whether Capital One had exercised an early-termination right that moved the lease’s end date from October 30, 2035, to October 30, 2021. The court held that this dispute did not justify dismissal at the pleading stage. Even if the end date had changed, the lease could allow other damages, including attorneys’ fees and reasonable repair and re-letting costs. The court therefore declined to limit the damages claim at that stage and allowed the breach-of-contract claim to proceed.

Disposition

The court granted in part and denied in part Capital One’s motion to dismiss. JTRE’s negligent misrepresentation claim was dismissed with prejudice. JTRE’s breach-of-contract claim survived. The court lifted the discovery stay, scheduled a pretrial conference, and directed the parties to submit a joint letter and proposed amendments to the case-management plan. The Clerk of Court was directed to close the motion at Docket 29.