JM Holdings 1 LLC v. Quarters Holding GmbH

Background

JM Holdings 1 LLC and Cedar Holdings, LLC sued Quarters Holding GmbH over a planned lease of a multifamily property at 251 DeKalb Avenue in Brooklyn, New York. Plaintiffs alleged that Quarters breached its guaranty of the lease and acted in bad faith.

The parties agreed in July 2019 to lease the property to Medici 251 DeKalb LLC, a shell company controlled by Quarters. Plaintiffs agreed to renovate the property. Construction delays pushed completion beyond the originally projected date of November 30, 2019. According to the amended complaint, Quarters continued representing that it intended to occupy the property and encouraged Plaintiffs to keep investing in renovations.

After the COVID-19 pandemic reached New York City, Quarters allegedly refused to sign a certificate needed for Plaintiffs to obtain financing unless Plaintiffs admitted that they were in default or signed a side letter stating that they were in default. When Plaintiffs refused, Quarters informed them that it would terminate the lease. For simplicity, the court used “Quarters” to refer to both Quarters and Medici because Plaintiffs dealt solely with Quarters’ agents.

Procedural history

Quarters appeared and filed motions to dismiss and for sanctions. The court denied both motions on March 8, 2021, and directed Quarters to answer. Quarters filed an answer on March 29, 2021.

On April 21, 2021, the court allowed Quarters’ lawyers, Akerman LLP, to withdraw and ordered Quarters to have new counsel appear within 30 days or risk default. No new counsel appeared, and Quarters ceased defending the case. The Clerk entered a certificate of default on October 10, 2021. Plaintiffs then moved for default judgment.

Legal standard and ruling

Under Federal Rule of Civil Procedure 55, a party is in default when it fails to plead or otherwise defend. A default generally admits the well-pleaded factual allegations against the defaulting party. The court must still determine whether those allegations establish legal liability.

The court had previously ruled that Plaintiffs adequately pleaded their claims when it denied Quarters’ motion to dismiss. Applying the same pleading standard used for a motion to dismiss, the court concluded that Quarters’ liability had been established as a matter of law.

Relief awarded

The court granted Plaintiffs’ motion for default judgment. It awarded JM Holdings 1 LLC and Cedar Holdings, LLC $8,783,337.58 against Quarters. The court stated that this amount represented the base rent for the duration of Quarters’ aborted lease, less the security deposit Quarters had already paid. The award also included post-judgment interest at the statutory rate.

The Clerk was directed to enter final judgment, close the case, and close the motion. Plaintiffs were directed to serve a copy of the order on Quarters.