Thor 680 Madison Ave LLC v. Qatar Luxury Group S.P.C.

Background

Thor brought a breach-of-contract action against Qatar Luxury Group S.P.C. (Qatar Group), which had guaranteed obligations of Qatar Luxury Group Fashion USA Inc. (Qatar Fashion) under a fifteen-year commercial lease for space at 680 Madison Avenue. Qatar Fashion agreed to pay fixed and additional rent, complete a build-out, and provide a $12 million letter of credit as security. Qatar Group provided the letter of credit and executed a guaranty for Qatar Fashion’s lease obligations.

Qatar Fashion did not complete the build-out and stopped paying rent after September 1, 2015. Thor terminated the lease in December 2015, re-let the premises in 2016, and drew down the full $12 million letter of credit between January 2016 and July 2017. Thor later filed a second amended complaint that included a claim seeking reformation—meaning correction—of a lease provision concerning damages after termination.

Qatar Group filed two counterclaims in its answer to the second amended complaint: breach of contract and unjust enrichment. Qatar Group alleged that Thor had no contractual or equitable right to withdraw fixed rent from the letter of credit after termination of the lease and sought recovery of the amounts it claimed were wrongfully withdrawn. Qatar Group’s earlier answers had not included these counterclaims.

Thor’s Motion

Thor moved to strike the counterclaims under Federal Rule of Civil Procedure 12(f), arguing that Qatar Group had not obtained consent or court permission and had not shown good cause under the scheduling order. In the alternative, Thor moved under Rule 12(b)(6) to dismiss the counterclaims for failure to state a claim.

Motion to Strike

The court denied the motion to strike. It relied on Second Circuit precedent holding that a Rule 12(f) motion to strike should not be used to dismiss a counterclaim.

Timing and Scope of the Counterclaims

The court granted Thor’s motion to dismiss because Qatar Group filed the counterclaims at a late stage of the case—after fact discovery had closed and while the parties were briefing summary-judgment motions. The court also concluded that the counterclaims did not respond only to new allegations in the second amended complaint. Thor had drawn the entire $12 million before the original complaint was filed, so Qatar Group already knew about the withdrawals and could have asserted its claims earlier.

The court rejected Qatar Group’s explanation that it did not understand the basis for the withdrawals until Thor’s later discovery production and reformation claim. The court noted that the lease authorized Thor to draw on the letter of credit when Qatar Fashion defaulted on fixed or additional rent. It also noted that Qatar Group’s theories were logically connected to Thor’s claims and therefore constituted compulsory counterclaims—claims that generally must be asserted in the same lawsuit when they arise from the same transaction or occurrence.

Breach-of-Contract Counterclaim

The court held that Qatar Group failed to state a breach-of-contract claim based on the lease because Qatar Group was not a signatory to the lease. Under the law applied by the court, a nonparty generally cannot enforce a contract unless the contract clearly shows an intent to allow that enforcement.

Qatar Group argued that its first counterclaim was instead a claim for breach of a warranty under New York’s version of Uniform Commercial Code section 5-110(a)(2), concerning letters of credit. The court rejected that characterization because the counterclaim was labeled “Breach of Contract,” did not mention a warranty or that statute, and did not plead facts supporting such a claim. The court stated that Counterclaim I would be dismissed for failure to state a claim.

Unjust-Enrichment Counterclaim

The court also rejected Qatar Group’s unjust-enrichment counterclaim. Unjust enrichment is an equitable claim generally unavailable when an enforceable contract governs the subject matter of the dispute. The court held that the lease governed Thor’s authority to draw on the letter of credit and that this rule applied even though Qatar Group was not a party to the lease. Qatar Group did not oppose Thor’s motion to dismiss this counterclaim.

Disposition

The court denied Thor’s motion to strike and granted Thor’s motion to dismiss Qatar Group’s counterclaims. The court directed the Clerk of Court to terminate the motion. The opinion states that the matter would proceed to trial on June 13, 2022, on the remaining claims.