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

Background

605 Fifth Property Owner, LLC, referred to as “Owner,” leased a building on 605 Fifth Avenue to NTS W. USA Corp. for three years beginning in 2020. NTS was Abasic, S.A.’s wholly owned subsidiary. Abasic signed a guarantee promising to pay NTS’s obligations under the lease. The guarantee stated that Abasic’s obligation was continuing, absolute, unconditional, and primary rather than secondary.

NTS’s renovation plans were affected by COVID-19-related government restrictions. NTS later filed for bankruptcy, rejected the lease, and brought a related proceeding against Owner. The bankruptcy court ruled against NTS in that proceeding, and the ruling was affirmed by the district court; the opinion states that the matter was then on appeal to the Second Circuit. NTS’s Chapter 11 reorganization plan released NTS and certain related persons and entities from claims. Owner later sued Abasic for breach of the guarantee and attorney’s fees.

The parties filed competing motions for summary judgment. Abasic sought summary judgment based on the bankruptcy release. Owner sought summary judgment on that defense, on its claims, and on Abasic’s remaining defenses. Owner also moved to amend the complaint to include rent that accrued during the litigation.

Amendment and liability

The court allowed the complaint to be amended to allege $2,213,009.82 in unpaid rent damages. It found that Abasic had notice that Owner sought to hold it responsible for rent under the guarantee and had not shown that the amendment would prejudice it.

Under Rule 56, summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. Applying New York law, the court held that Owner met its burden to enforce the guarantee. The guarantee covered all of NTS’s lease obligations, and Abasic did not dispute that NTS rejected the lease or that Abasic had made no payments under the guarantee.

Defenses

The court denied Abasic’s bankruptcy-release defense. Although the reorganization plan referred to NTS and its “affiliates,” the court concluded that the release did not cover Abasic’s separate obligations under the guarantee. The court reasoned that Abasic’s liability was primary and did not depend on NTS’s liability under the lease. It also found that whether Abasic qualified as an “affiliate” under the Bankruptcy Code or the plan did not resolve whether its guarantee obligations were released. Owner therefore received summary judgment on this defense, while Abasic’s motion for summary judgment on the defense was denied.

The court granted Owner summary judgment on Abasic’s defenses of impossibility and frustration of purpose. The pandemic and related economic difficulties did not make performance objectively impossible or completely defeat the purpose of the lease or guarantee. The court also noted that the lease assigned the risk of conditions beyond the landlord’s reasonable control and did not guarantee beneficial use of the premises.

The court granted Owner summary judgment on the failure-of-consideration defense because Owner had delivered the premises and Abasic identified no failure by Owner to perform its side of the bargain. The court also granted summary judgment on the defense seeking dismissal or a stay while the related bankruptcy appeal was pending. Finally, the court granted Owner summary judgment on all remaining defenses. It treated the laches, waiver, and estoppel defenses as abandoned because Abasic did not oppose summary judgment on them, and rejected the failure-to-state-a-claim defense because it depended on the unsuccessful argument that the underlying lease was invalid.

Damages and disposition

Owner submitted the lease, a rent ledger, and calculations accounting for rent, operating expenses, taxes, surcharges, the security deposit, and rent received from replacement tenants. The ledger totaled $2,213,009.82. The court also concluded that rent waived during the lease’s initial free-rent period became payable when NTS defaulted. It further concluded that the guarantee covered $70,964.52 in legal fees connected to NTS’s default and bankruptcy case.

The court denied Abasic’s October 29, 2021 motion for summary judgment on the release defense. It granted Owner’s November 12, 2021 cross-motion for summary judgment on that defense. It also granted Owner’s January 21, 2022 motions to amend the complaint and for summary judgment on its remaining claims and Abasic’s remaining defenses. The court held that Abasic was liable to Owner for $2,213,009.82, attorney’s fees, and legal costs, and stated that the guarantee was enforced.