958 Avenue of the Americas, LLC v. ABASIC, S.A.

Background

958 Avenue of the Americas, LLC leased a New York building from SCG Realty II LLC and subleased it to NTS W. USA Corp., doing business as Desigual. ABASIC, S.A., which guaranteed NTS’s obligations under the sublease, was also a defendant. The sublease was subject to and subordinate to 958’s lease with SCG.

NTS filed for Chapter 11 bankruptcy protection in July 2020. In October 2020, 958, NTS, and ABASIC entered into a fifth amendment to the sublease. That amendment reduced the sublease term to September 30, 2023, and reduced the monthly fixed rent to $16,666.66. NTS later took the position that SCG had terminated the underlying lease, announced that it would surrender the building, and delivered the keys to 958 on June 1, 2021.

SCG had sent 958 notices of default and termination. In a later settlement stipulation in the related state-court action, SCG admitted that the notices were legally insufficient to terminate 958’s lease. 958 then sued Defendants for breach of contract. The parties filed competing motions for summary judgment, which ask the court to decide issues without a trial when no genuine dispute of material fact exists.

Amendment and Lease Termination

The court allowed 958’s complaint to be treated as amended to request $1,102,676.31 in unpaid rent through October 31, 2022. The court found no showing that the amendment would prejudice Defendants.

The court then held that SCG’s notices did not terminate the underlying lease as a matter of law. Article 23.02 of that lease required a notice of default followed by a separate notice of intent to terminate, with specified periods between the notices and the termination. The August 14, 2020 notice did not comply with that process and did not separately identify base rent, real estate taxes, or the periods for which those amounts were allegedly owed.

The court also found the March 5 and March 24, 2021 notices invalid. The March 5 notice described itself as a backup notice and improperly attempted to supplement the earlier notice. The March 24 notice purported to terminate the lease immediately rather than after the required ten-day period. The court therefore concluded that the Overlease was never validly terminated and that the Sublease was not terminated on that basis.

Fraud and Defenses

Defendants claimed that 958 fraudulently induced them to enter the fifth amendment by representing that the Overlease was valid, in effect, and not in default beyond applicable cure periods. The court held that the fifth amendment did not expressly extend the date of the representation in the original sublease. It also held that 958 had not made a misrepresentation because the alleged default was not beyond the expiration of a valid grace or cure period. In addition, Defendants had not submitted a sworn statement showing reliance on a misrepresentation and resulting damages. The court dismissed the fraud-in-the-inducement claim.

The court also dismissed Defendants’ defenses based on failure to state a cause of action, equitable estoppel, unclean hands, and failure of consideration. It concluded that 958 had stated a breach-of-contract claim, that Defendants had not shown a false representation or concealment supporting equitable estoppel, that their unclean-hands argument relied on the same rejected fraud theory, and that they had received substantial consideration by operating their business in the building before voluntarily leaving.

Disposition

The court granted Plaintiff 958’s motion for summary judgment with respect to its first, second, and fourth causes of action. The court denied Defendants’ motion for partial summary judgment with respect to their first, second, third, fourth, fifth, and sixth defenses. The opinion notes that 958 had withdrawn its third cause of action.

The court did not determine the final amount of damages or attorney’s fees in this order. It directed the parties to file supplemental letter briefs with a proposed order within 21 days concerning damages, attorney’s fees, and indemnification under the Sublease. The court also directed the clerk to close the two motions.