Cuculich v. Rigos

Background

Steven A. Cuculich, as trustee of Inter Vivos Tr II FBO The Cuculich Family, sued John Z. Rigos for damages based on an alleged breach of a guaranty connected to a commercial lease. The Trust leased premises at 45-13 Broadway, Astoria, New York, to FlavorworksTruck LLC doing business as The Delicious Life by Rocco DiSpirito. The agreement required the tenant to pay rent, maintain certain insurance, and reimburse damages caused by a breach.

Under Article 37 of the agreement, Rigos allegedly guaranteed that he would fully and promptly pay and perform the tenant’s present and future obligations. The agreement also allegedly allowed the Trust to enforce the guaranty against Rigos before taking court action against the tenant.

The trustee alleged that the tenant failed to make required payments beginning March 1, 2019, and owed the Trust $313,350 as of October 20, 2021. The opinion states that the amended complaint did not explain how that figure was calculated or what period it covered. The trustee also alleged that the tenant failed, upon information and belief, to maintain required insurance. After a written demand in August 2019, the trustee and the tenant entered a December 2019 agreement under which the tenant agreed to pay outstanding amounts, but the tenant allegedly continued not to pay. The trustee sent Rigos a written demand on July 12, 2021, but alleged that Rigos did not pay or perform the tenant’s obligations.

Motion and Arguments

Rigos moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim. He argued that New York City Administrative Code § 22-1005, enacted during the COVID-19 pandemic, made certain commercial-lease personal guaranties unenforceable for defaults or other events occurring between March 7, 2020, and June 30, 2021. Rigos argued that the amended complaint was ambiguous about the period for which the trustee sought rent and that it appeared to include arrears from the protected period.

The trustee responded that the amended complaint made clear that he was not seeking payment barred by the law. He argued that the claim was based on obligations arising before the protected period and that the law did not bar the separate claim concerning the tenant’s failure to maintain insurance.

Legal Standards

To survive a Rule 12(b)(6) motion, a complaint must allege enough facts to make the claim plausible. In deciding such a motion, the court accepts well-pleaded factual allegations as true and draws reasonable inferences for the nonmoving party, but it need not accept legal conclusions presented as facts.

Under the New York law applied by the court, a breach-of-guaranty claim requires plausible allegations that a third party owed the plaintiff a debt, the defendant guaranteed payment of that debt, and neither the third party nor the defendant paid it.

The court explained that the Guaranty Law makes certain personal guaranties of commercial lease obligations unenforceable when specified pandemic-related conditions apply and the default or other event causing personal liability occurred during the period from March 7, 2020, through June 30, 2021. For rent arrears arising during that period, the court stated, the law permanently eliminates enforcement of the covered personal guaranty.

Court’s Analysis

The court found that the trustee plausibly alleged the elements of a breach-of-guaranty claim. The amended complaint alleged that the tenant owed rent, Rigos guaranteed the tenant’s payment obligations, the tenant defaulted after failing to pay for more than ten days following written notice, and neither the tenant nor Rigos paid the outstanding amounts. Rigos did not contest that those elements were adequately alleged.

The court focused on whether the Guaranty Law barred the claim. It concluded that the law did not bar the claim as a matter of law because the trustee based the claim on payment obligations that arose before March 2020. The trustee alleged that the tenant’s nonpayment began March 1, 2019, and that written demand for the outstanding rent was made on August 27, 2019. Based on those allegations, the court found that Rigos’s personal liability under the guaranty plausibly arose in September 2019, after the tenant failed to pay for more than ten days following the written demand.

The court rejected Rigos’s reliance on a prior New York appellate decision involving a commercial lease guaranty. In that earlier proceeding, the guarantor’s liability arose during the protected period because a settlement agreement treated the lease as expired and provided a cure period that began during that period. Here, the court stated that the trustee did not allege, and the court had no basis at this stage to conclude, that the December 2019 stipulation ended the agreement or deferred Rigos’s liability. The court therefore found that the trustee plausibly alleged that Rigos’s liability arose before March 7, 2020.

Disposition

The court denied Rigos’s motion to dismiss and directed the Clerk of Court to close the motion at ECF No. 22. The opinion did not enter judgment on the underlying breach-of-guaranty claim; it ruled that the claim was sufficiently pleaded and was not barred by the Guaranty Law at the motion-to-dismiss stage.