Davis v. JT Building and Development, LLC

• Decision Date: 05 November 2010
• Docket Number: C.A. PB 07-4683
• Parties: SCOTT DAVIS v. JT BUILDING AND DEVELOPMENT, LLC
• Court: Rhode Island Superior Court

SCOTT DAVIS v. JT BUILDING AND DEVELOPMENT, LLC

C.A. No. PB 07-4683

Superior Court of Rhode Island

November 5, 2010

DECISION

SILVERSTEIN, J.

This matter is before the Court for decision following a bench trial. The Plaintiff, Scott Davis (Davis or Guarantor), seeks a judgment against Defendant, JT Building & Development LLC (JT Building or Landlord or Lessor), for damages incurred as a result of the Landlord's allegedly unreasonable withholding of consent to the assignment of a Commercial Lease Agreement (Lease) between JT Building and Davco Management, Inc. d/b/a Quiznos Sub (Davco or Lessee). Davis additionally seeks attorney's fees pursuant to G.L. 1956 § 9-1-45 and requests that the Court strike the assignment provision of the Lease and relieve him of his personal liability under the Guaranty executed in conjunction with the Lease. JT Building seeks a judgment finding that (1) it reasonably withheld consent to Lessee's assignment request; (2) Davco^1[] is in default of the Lease for having failed to obtain consent prior to the stock sale; and (3) Davis and Davco remain primarily liable under the terms of the Lease and Guaranty. Defendant also seeks attorney's fees pursuant to § 9-1-45, as well as costs and expenses.

I Facts and Travel

Davis was the President and a stockholder of Davco, a Rhode Island corporation. JT Building is a Massachusetts limited liability corporation and the owner of property located at 448 Newport Avenue, Pawtucket, Rhode Island (Premises).

After acquiring a Quiznos Sub franchise, Davis began negotiations with Jeff Dufficy (Dufficy), manager of JT Building, to lease the Premises for a Quiznos Sub store. During these negotiations, Dufficy received and reviewed Davis' personal financial statement.^2[] See Pl.'s Ex. 1. The parties also negotiated the terms of a form lease provided by Quiznos Sub and revised numerous provisions. (Pl.'s Ex. 2.) In particular, paragraph 12, entitled "Assignment and Subletting, " was heavily discussed and scrutinized by the parties. Id. Additionally, Davis agreed to execute a personal guaranty of Davco's obligations under the Lease, the consideration for which was paid for by Davco. Id. at 22.

On December 9, 2004, Davis on behalf of Davco and Dufficy on behalf of JT Building executed the Lease. Id. Under its terms, Davco agreed to lease the Premises from JT Building for a ten-year period for the purpose of operating a Quiznos Sub. Id. JT Building agreed to improve the Premises in accordance with the specifications of the "Standard Quiznos Sub Shell." Id. at 18.

With respect to assignment and subletting the Lease stated:

"a) Tenant shall not either voluntarily, or by operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest therein, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or allow any other person (the employees, agents, servants and invitees of Tenant excepted) to occupy or use the Premises, or any portion thereof without first obtaining the written consent of Landlord which consent shall not be unreasonably withheld. . . .

"Consent to any such assignment or subletting shall in no way relieve [Davco] of any liability under this Lease. Any such assignment or subletting without such consent shall be void, and shall, at the option of Landlord, constitute a default under the terms of this Lease. . . .

"b) Notwithstanding the foregoing, [Davco] shall have the right to assign this Lease or sublet the Premises, without charge and without Landlord's consent being required to Quizno's Franchising LLC ("QF"), or its parent, subsidiaries or affiliates (QF, its parent, subsidiaries and affiliates are each referred to herein as a "QF Entity" or "Franchisor") or to a duly authorized franchisee of Franchisor[;] however, if the assignment is to such a duly authorized franchisee, the Landlord's reasonable consent shall be required, and such consent may be based upon, without limitation, the Landlord's reasonable satisfaction with the financial statements and personal guaranty of such proposed franchisee. In the event of an assignment to a QF Entity, the QF Entity shall have the right to reassign the Lease, without charge and with Landlord's reasonable consent and approval of the financial condition and personal guaranty of the proposed assignee, to a duly authorized franchisee of Franchisor and to thereupon be released from any further liability under the Lease. . . ." Id. ¶ 12.

In conjunction with the Lease, Davis signed an irrevocable and continuing personal guaranty-the consideration for which was paid for by Davco-securing Davco's obligations under the Lease. Id. at 21. The Guaranty provides in pertinent part:

"In consideration of the sum of One ($1.00) Dollar and other valuable consideration to it in hand paid by [Davco] . . . and in further consideration of [Davis'] personal, business and/or financial interest in [Davco], and in further consideration of the execution and delivery of the Lease to which this instrument is attached, and to induce [JT Building] to execute and deliver that lease, being between [JT Building], as Lessor, and [Davco], as Lessee, dated as of even date with this Guaranty, covering the [Premises], irrevocably guarantees to [JT Building], its successor and assigns, the full and due performance by [Davco], and by its successor and assigns, of all the terms, obligations, covenants and agreements under that Lease, and each of them, on the part of [Davco], its successors and assigns to be observed or performed, and, without limiting the foregoing, the full and punctual payment by [Davco] and its successors and assigns of all Rent, Additional Rent, and other sums of money, as and when they become due and payable by [Davco], its successors and assigns, as provided in that Lease, during the full term of that Lease . . . ." Id.

In addition to guaranteeing the full performance of all terms, obligations, covenants, and agreements under the Lease, the Guaranty provides that all agreements contained in the Guaranty are binding upon the Guarantor, its successors, and assigns and for Davis' continuing liability in the event of an assignment of the Lease. Id. The Guaranty states in pertinent part:

"5. All of the foregoing agreements of [Davis] contained in this Guaranty, and each of them, shall be binding upon [Davis, his] successors and assigns, and shall inure to the benefit of the Landlord, its successors and assigns.

"6. Anything to the contrary above contained notwithstanding, it is agreed that the liability of the Guarantor, after an assignment of the Lease, when, and only when, the assignment is other than to (a) an associate or affiliate company of [Davco] or to a company with which [Davco] has been merged or consolidated or (b) any company with which the Lessor may be merged or consolidated or any associate or subsidiary thereof, shall be limited to, but at the same time shall be as coextensive as, the liability of the Lessee named in the Lease, both as to the Lessee's liability in respect to the period of the term up to the assignment, as well as to the continuing liability of the assignor from and after the date of that assignment.

"Nothing in this Guaranty is intended to vary or digress from the provisions of the Lease governing assignments or to dilute the restrictions as to assignment stated in the Lease." Id. at 22.

In effect, these provisions contemplated that under certain circumstances, should Davco assign the Lease to a third party, Davis would remain personally liable for Davco's continuing liability as assignor. Id.

Subsequently, Davis and his wife decided they no longer wanted to own or operate the Quiznos Sub franchise. Although they never directly listed the franchise for sale, Davis received several offers from interested buyers. Ultimately, Davis decided to sell the assets of his Quiznos Sub franchise to Gene and Hannah Choi (collectively, the Chois). At the time, the Chois were authorized Quiznos Sub franchisees and were seeking a location in which to open a Quiznos Sub. Hannah Choi had a background in food services, a MBA degree, and also operated a business out of her home. Gene Choi had a Masters Degree in Marketing and was employed as an engineering manager. (Def.'s Ex. E.)

On April 8, 2007, the Chois, as ChoiS Management, Inc., entered into an Asset Purchase Agreement (Asset Agreement) to purchase the assets of the Quiznos Sub franchise owned by Davco for $287, 600. (Pl.'s Ex. 7.) As part of the Asset Agreement, the Chois were to purchase the merchandise, furniture, fixtures, equipment, goodwill and all other assets related to the Quiznos Sub located at the Premises. Id. Additionally, the Asset Agreement provided that the sale was contingent on the assumption and assignment of the Lease of the Premises by ChoiS Management, Inc.^3[] Id. On April 9, 2007, Davis notified Dufficy of his intention to sell the Quiznos Sub and requested that the remainder of the Lease be assigned to the Chois' entity.^4[]See Pl.'s Ex. 4.

In response, by a letter dated April 12, 2007, the Landlord through its counsel, Stephen J. McLaughlin (McLaughlin), requested the Chois' personal financial statements and authorization to obtain their credit reports. (Pl.'s Ex. 5.) In the letter, McLaughlin stated that the "financial condition and creditworthiness of the [Chois was] of crucial concern to the Landlord" and highlighted that the Lease specifically provided that '[c]onsent to any such assignment or subletting shall in no way relieve Tenant of any liability under this Lease.' Id. McLaughlin reiterated that Davis, as "a personal guarantor of [Davco's] obligations under the Lease, [would] remain personally liable under the Lease and [would]...