Anthony Gagliano & Co. v. Openfirst, LLC

• Decision Date: 15 July 2014
• Docket Number: No. 2012AP122.,2012AP122.
• Citation: 850 N.W.2d 845,2014 WI 65,355 Wis.2d 258
• Court: Wisconsin Supreme Court
• Parties: ANTHONY GAGLIANO & CO., INC., Plaintiff–Appellant, v. OPENFIRST, LLC and New Electronic Printing Systems, LLC, Defendants–Respondents, RWK Enterprises, Inc., d/b/a Alphagraphics, Inc., OFH Distribution, LLC, f/k/a Openfirst Holdings and New Diversified Mailing Services, LLC, Defendants, Quad Graphics, Inc. and Robert Kraft, Defendants–Respondents–Petitioners.

355 Wis.2d 258

850 N.W.2d 845

2014 WI 65

ANTHONY GAGLIANO & CO., INC., Plaintiff–Appellant,^†

v. OPENFIRST, LLC and New Electronic Printing Systems, LLC, Defendants–Respondents,RWK Enterprises, Inc., d/b/a Alphagraphics, Inc., OFH Distribution, LLC, f/k/a Openfirst Holdings and New Diversified Mailing Services, LLC, Defendants,Quad Graphics, Inc. and Robert Kraft, Defendants–Respondents–Petitioners.

No. 2012AP122.

Supreme Court of Wisconsin.

Argued Dec. 18, 2013.

Decided July 15, 2014.

For the defendant-respondent-petitioner Quad Graphics, there were briefs by Michael B. Apfeld, Michael D. Huitink, and Godfrey & Kahn, S.C., Milwaukee, and oral argument by Michael B. Apfeld.

For the defendant-respondent-petitioner Robert Kraft, there were briefs by Ann M. Maher, Lisa M. Lawless, and Whyte Hirschboeck Dudek S.C., Milwaukee, and oral argument by Lisa M. Lawless.

For the plaintiff-appellant, there were briefs by Thomas Armstrong, Beth J. Kushner, and Von Briesen & Roper, S.C., Milwaukee, and oral argument by Thomas Armstrong.

An amicus curiae brief was filed by Thomas D. Larson, Madison, on behalf of the Wisconsin Realtors Association.

PATIENCE DRAKE ROGGENSACK, J.

¶ 1 We review a decision of the court of appeals ¹ reversing the circuit court's order ² dismissing plaintiff Anthony Gagliano & Co., Inc.'s (Gagliano) claims against defendants New Electronic Printing Systems, LLC; Openfirst, LLC; Robert Kraft; and Quad/Graphics, Inc. Gagliano's claims concern rent allegedly owed under several commercial leases. This case presents two issues for our review: (1) whether Gagliano gave sufficient notice to extend the leases to the time when the alleged breach occurred; and (2) whether Quad/Graphics was a subtenant of the lessee or an assignee of the leases.

¶ 2 As to the first issue, we conclude that Gagliano's notice was valid. Gagliano provided notice: (1) to the entity designated as the tenant on the original lease; (2) to the entity who was the current tenant at the time of the notice; and (3) to the entity a subsequent amendment of the lease designated as the tenant. The notice is also valid because the current tenant at the time Gagliano sent the notice had actual notice that Gagliano was exercising its alleged right to extend the leases. Accordingly, we affirm the portion of the decision of the court of appeals that reversed the circuit court's directed verdict, which had concluded that Gagliano's notice was not valid. We remand to the circuit court for fact-finding necessary to decide the merits of Kraft's remaining arguments relating to the lawfulness of the extension provision in the leases.

¶ 3 In regard to the second issue, we conclude that Quad/Graphics is not liable to Gagliano because Quad/Graphics was a subtenant of the lessee, not an assignee of the leases. Undisputed evidence shows that New Electronic Printing Systems, the assignee of the original tenants, did not transfer its entire remaining leasehold estate to Quad/Graphics. Because Gagliano and Quad/Graphics did not share privity of estate, it is not an assignee. Therefore, we do not hold Quad/Graphics liable for New Electronic Printing Systems' alleged breach of contract to which Quad/Graphics was not a party. Accordingly, we reverse the portion of the decision of the court of appeals that reversed the order of the circuit court granting summary judgment in favor of Quad/Graphics and remand to the circuit court for dismissal of all claims against Quad/Graphics.³

I. BACKGROUND

¶ 4 In 1996, Robert Kraft formed Electronic Printing Systems, Inc.,⁴ a data processing company that helped businesses with their billing operations. Over the course of about 12 years, that company was rebranded, restructured, and sold to various entities. It also changed locations within Milwaukee's third ward from its original facility on Buffalo Street to Gagliano's facility at 300 North Jefferson Street, where it remained until it went out of business.

¶ 5 This case involves several leases that the company and its progenies had with Gagliano. It requires us to determine whether Gagliano provided valid notice to extend those leases to the time of the alleged breach. It also requires us to determine whether Quad/Graphics, the last entity to acquire assets of what was Electronic Printing Systems, can be held liable for that alleged breach. Before reaching these issues, we review the leases and describe the various changes the company underwent that bear on our decision.

A. The Leases

¶ 6 There are two North Jefferson Street leases that underlie this action: the May 22, 2000 lease and the May 18, 2001 lease. Both leases were amended numerous times as will be explained below.

¶ 7 On April 11, 2000, Gagliano and Kraft entered into a lease for 50,000 square feet of property in the Jefferson Street facility for a term of five years. The lease initially gave the tenant, which the lease listed as “Electronic Printing Systems,” the right to extend the lease for “two consecutive additional periods of three years.” The record shows that this section was crossed out.

¶ 8 On May 22, 2000, Gagliano and Kraft executed a revised version of the lease, which superseded the April 11, 2000 version. Whereas the first lease covered only 50,000 square feet of property, the May 22, 2000 lease covered 90,000 square feet, divided into two leased premises. The portion of the lease for the initial 50,000 square feet expired June 23, 2006. The portion of the lease for an additional 40,000 square feet expired six years after the tenant took occupancy.⁵

¶ 9 The May 22, 2000 lease contained several terms that bear on our analysis. First, it provided that upon notice at least 120 days before the expiration of the initial term, Gagliano had the right to extend the lease for an additional four-year term. Kraft claims that Gagliano fraudulently inserted this extension right for the landlord in place of the tenant's right to extend that was set out in the April 11, 2000 lease. Second, the May 22, 2000 lease provided that Gagliano was to send notices to Electronic Printing System's Buffalo Street addressprior to commencement of the lease and to the Jefferson Street facility thereafter. Third, Kraft personally guaranteed the May 22, 2000 lease and was, along with Electronic Printing Systems, to remain liable in the event of any sublease or assignment, both of which required Gagliano's consent.

¶ 10 About a year after executing the May 22, 2000 lease, Kraft decided to lease additional space in the Jefferson Street facility for his son's printing business. On May 18, 2001, Gagliano and Kraft, this time on behalf of Openfirst, Inc., executed a new lease for an additional 1,848 square feet in the Jefferson Street facility that expired 16 months after the completion of certain work. This was a new lease (the 2001 lease) and not an amendment of the May 22, 2000 lease. Gagliano concedes that Kraft did not guarantee the 2001 lease. The 2001 lease did not provide for any extensions of the lease term by Gagliano.

¶ 11 Gagliano and Kraft amended the 2001 lease twice to extend its term, first to November 7, 2004 and then to June 23, 2006. The second amendment added a provision that permitted Gagliano to extend the lease for an additional four-year term by giving notice within 120 days of the lease's expiration.

¶ 12 Gagliano and Kraft also amended the May 22, 2000 lease in a document that lacks a date of execution, but states that it “commences” October 23, 2003. This amendment added 8,900 square feet of space in a third leased premises and designated “OpenFirst, Inc., successor in interest to Electronic Printing Systems” as the appropriate recipient for further notice.

¶ 13 On November 6, 2002, Openfirst, Inc. and related companies sold their assets to Openfirst Holdings, LLC; New Diversified Mailing Services, LLC; and New Electronic Printing Systems. As part of the asset purchase, the leases that underlie this action were assigned to the buyers. Gagliano consented to the assignment on the condition that the “Tenant and any and all guarantors of [the] Lease[s] ... remain fully liable under [the] Lease[s].” Gagliano also consented to New Electronic Printing System's subsequent assignment of the leases as collateral to Associated Bank, NA, again on the condition “that none of the original obligors and/or guarantors” be released from liability.

¶ 14 On December 29, 2005, Gagliano sent notice of its intention to extend both leases for an additional four-year term. He sent the notices to the persons, entities, and addresses that follow:

Robert Kraft

300 N. Jefferson St.

Milwaukee, WI 53202

Electronic Printing Systems, Inc.

300 N. Jefferson St.

Milwaukee, WI 53202

Open First, Inc.

300 N. Jefferson St.

Milwaukee, WI 53202

Target Marketing Solutions, Inc.

300 N. Jefferson St.

Milwaukee, WI 53202

¶ 15 Kraft received Gagliano's notice and informed Gagliano that he did not “recognize” the extension as valid. New Electronic Printing Systems remained in the facility and continued to pay rent into the extended period.

¶ 16 At the time Kraft received Gagliano's notice, he had begun negotiations with Quad/Graphics to restructure the businesses. As part of the restructuring agreement “Quad/Graphics loaned money to, and received a promissory note from the following entities so they could buy Quad/Graphics's interest in the business: Openfirst [Holdings], LLC; New Diversified Mailing Services, LLC.; and New Electronic Printing Systems, LLC.” Anthony Gagliano & Co. v. Openfirst, LLC, 2013 WI App 19, ¶ 17, 346 Wis.2d 47, 828 N.W.2d 268 (internal quotation marks omitted). At the end of this transaction, New Electronic Printing Systems still owned the leases. Kraft remained a minority shareholder and officer until September 2007, when Quad/Graphics terminated his employment.

¶ 17 The restructuring with Quad/Graphics did not spell success for the companies involved. About two years later, New Electronic Printing Systems went out of...