Gap Inc. v. Ponte Gadea New York LLC

• Decision Date: 08 March 2021
• Docket Number: No. 20 CV 4541-LTS-KHP,20 CV 4541-LTS-KHP
• Citation: 524 F.Supp.3d 224
• Parties: The GAP INC., Plaintiff, v. PONTE GADEA NEW YORK LLC, Defendant.
• Court: U.S. District Court — Southern District of New York

524 F.Supp.3d 224

The GAP INC., Plaintiff,

v.PONTE GADEA NEW YORK LLC, Defendant.

No. 20 CV 4541-LTS-KHP

United States District Court, S.D. New York.

Signed March 8, 2021

Michael Geibelson, Robins Kaplan LLP, Los Angeles, CA, Jesse Brian Schneider, Joshua H. Epstein, Davis & Gilbert LLP, New York, NY, for Plaintiff.

Joshua David Bernstein, Kathleen Marie Prystowsky, Darryl Robert Graham, Akerman LLP, New York, NY, for Defendant.

MEMORANDUM OPINION AND ORDER

LAURA TAYLOR SWAIN, United States District Judge

Plaintiff The Gap Inc. ("Gap") brings this action, asserting claims for breach of contract, declaratory judgment, rescission, reformation, money had and received, and unjust enrichment against Defendant Ponte Gadea New York LLC ("Ponte Gadea"). Ponte Gadea asserts counterclaims for declaratory judgment and breach of contract. The parties’ claims arise out of a lease agreement for premises at the corner of 59th Street and Lexington Avenue in Manhattan, in which Gap has operated a retail business, and the impact of the COVID-19 pandemic, and Gap and governmental actions in response thereto. Gap contends, in essence, that its closure of the two stores operating on the premises in response to the pandemic, the governmental measures taken in response to the pandemic that restrict or condition store operations, and changes in the volume of foot traffic in the vicinity of the stores warrant Gap's release from its obligations under the lease as of March 19, 2020. Ponte Gadea, pointing to provisions of the lease and Gap's failure to vacate the premises, contends that it is entitled to continued payment of rent and to holdover rent for occupancy after Ponte Gadea gave notice of termination of the lease for non-payment. The Court has jurisdiction of this action pursuant to 28 U.S.C. § 1332.

The parties have cross-moved for summary judgment. Gap seeks summary judgment in its favor on all of its claims and judgment dismissing Ponte Gadea's counterclaims. Ponte Gadea seeks the dismissal of all of Gap's claims and judgment in its favor on the counterclaims. The Court has considered carefully all of the parties’ submissions. For the following reasons, Ponte Gadea's motion is granted as to liability on its first and second counterclaims, Gap's Complaint is dismissed, and Gap's motion is denied in its entirety.

BACKGROUND

Unless otherwise indicated, the following facts are undisputed.¹ Gap operates a national retail network of stores specializing in fashion for men, women, and children. (Docket Entry No. 30 ("Pl. 56.1 St.") ¶ 1.) On February 18, 2005, Gap entered into a lease agreement with Ponte Gadea's predecessor-in-interest² for premises for the operation of two "first-class retail businesses," a Banana Republic store and a Gap store, at 130 East 59th Street, New York, NY 10022. (Docket Entry No. 18 ("Def. 56.1 St.") ¶ 1; Docket Entry No. 16-1 Ex. A (the "Lease") at 1 & §§ 4.1, 4.5(A).) The term of the Lease extended to January 31, 2021, unless terminated or extended by the parties. (Pl. 56.1 St. ¶ 14.)

Four provisions of the Lease—section 1.7(H), Article 16, Article 21, and Article 25—are of particular relevance to the parties’ cross-motions. First, section 1.7(H) defines a "Force Majeure Event" to mean "a strike or other labor trouble, fire or other casualty, governmental preemption of priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or labor resulting therefrom, or any other cause beyond Tenant's reasonable control."

Second, Article 16, titled "Casualty," sets forth the parties’ restoration obligations, termination rights, and rent obligations in the event of a "fire or other casualty." Section 16.1 provides that Gap "shall notify Landlord promptly of any fire or other casualty that occurs in the Premises." Sections 16.2 and 16.3 set forth the parties’ obligations to "repair the damage to the Premises to the extent caused by fire or other casualty," which obligations are excused "to the extent that this Lease terminates by reason of such fire or other casualty as provided in this Article 16." Section 16.4 provides for a proportional abatement of Gap's rent obligations if, "as a result of a fire or other casualty, all or a portion of the Premises shall not be usable by Tenant" for a period of more than 14 days. Section 16.5 provides Ponte Gadea with a termination right if "the Building is so damaged by fire or other casualty that, in Landlord's opinion, substantial alteration, demolition, or reconstruction of the Building is required," and section 16.6 provides Gap a termination right if (1) an independent contractor's estimate to complete the premises restoration work contemplated in section 16.2 exceeds 18 months, or (2) by reason of a fire or other casualty, "Landlord has an obligation to perform a restoration as contemplated by Section 16.2," but fails to do so within the requisite timeframe. Section 16.7 provides that either party may terminate the Lease if "the Premises are substantially damaged by a fire or other casualty that occurs during the period" of one year preceding the end of the Lease. Finally, section 16.8 provides that Gap has "no right to cancel this Lease by virtue of a fire or other casualty except to the extent specifically set forth herein."

Third, Article 21 governs defaults under the Lease. It defines an "Event of Default" as occurring when (among other circumstances not relevant here) Gap fails to pay monthly rent when due pursuant to section 1.6(A) (and fails to remedy that failure within five business days of notice from Ponte Gadea). (Lease §§ 1.6(A), 21.1(A).) It also defines an "Event of Default" as occurring when:

Tenant defaults in the observance or performance of any other covenant of this Lease on Tenant's part to be observed or performed and Tenant fails to remedy such default within thirty (30) days after Landlord gives Tenant notice thereof, except that if (i) such default cannot be remedied with reasonable diligence during such period of thirty (30) days (including by reason of the occurrence of a Force Majeure Event), (ii) Tenant takes reasonable steps during such period of thirty (30) days to commence Tenant's remedying of such default, and (iii) Tenant prosecutes diligently Tenant's remedying of such default to completion, then an Event of Default shall not occur by reason of such default[.]

(Id. § 21.1(F) (emphasis added).) Section 21.1(F)’s reference to a Force Majeure Event is the Lease's only use of that defined term. The occurrence of an Event of Default provides Ponte Gadea with a right to terminate the lease, in which event "Tenant immediately shall quit and surrender the Premises, but Tenant shall nonetheless remain liable for all of its obligations hereunder[.]" (Id. § 21.2.)

Finally, Article 25 of the Lease, which governs the end of the Lease term, imposes a holdover rental payment liability for use and occupancy after the expiration or termination date of the Lease. (Lease § 25.2.)

In December 2019 and the first quarter of 2020, a new coronavirus disease referred to as COVID-19 spread throughout the world, resulting in a global pandemic. World Health Organization, Coronavirus disease (COVID-19) pandemic, https://www.who.int/emergencies/diseases/novel-coronavirus-2019 (last visited March 8, 2021). Beginning in March 2020, the spread of COVID-19 caused significant disruptions in New York State and New York City. (Pl. 56.1 St. ¶ 36.) On March 7, 2020, the State declared a state of emergency (id. ¶ 37) and, on March 20, 2020, the State ordered non-essential businesses (including those operated by Gap in the leased premises) to reduce their in-person workforces by 100% no later than March 22, 2020, at 8:00 p.m., in order to reduce transmission of the virus. (Def. 56.1 St. ¶ 27.)

Gap's response to the COVID-19 pandemic was also significant. On March 17, 2020, Gap "decided ... to close all its stores in the United States, Canada, and Mexico to protect the wellbeing of its employees and customers." (Docket Entry No. 29 ("Pl. Opp.") at 12); accord Gap Inc. Blogs, Gap Inc. Announces Temporary Closure of Stores in North America, https://www.gapinc.com/en-us/articles/2020/03/gap-inc-announces-temporary-closure-of-stores-in-n (last visited March 4, 2021). In Gap's Form 8-K filing dated April 23, 2020, Gap disclosed that, in April 2020, it had "suspend[ed] rent payments under the leases" for all of its stores in North America. (Def. 56.1 St. ¶ 30.) Consistent with that decision, Gap has not paid rent pursuant to the Lease since March 2020. (Id. ¶¶ 28-32.) On June 8, 2020, Ponte Gadea served Gap with a Notice of Termination, which stated that Gap's failure to pay rent, if not cured within five business days, would constitute an Event of Default under section 21.1 of the Lease, and that Ponte Gadea would have the right to terminate the Lease and to seek recovery of unpaid rent and other relief and remedies available under the Lease. (Id. ¶¶ 51-52; see also Docket Entry No. 16-9 ("Notice of Termination").)

Also on June 8, 2020, New York City entered "phase one" of its reopening, allowing retail stores, including Gap, to offer curbside pick-up. (Def. 56.1 St. ¶ 40.) On June 12, 2020, Gap began offering curbside pickup at the Banana Republic store on the premises. (Docket Entry No. 44 ("Def. Add'l 56.1 St.") ¶ 11.)³ On June 22, 2020, New York City entered "phase two" of its reopening, allowing retail stores, including Gap, to permit customers to shop indoors at no more than 50% capacity, subject to mandatory masking and social distancing requirements. (Pl. 56.1 St. ¶ 40.)⁴ Thereafter, Gap opened certain of its other retail locations in Manhattan to indoor shopping (Def. Add'l 56.1 St. ¶¶ 17-19, 21-22), but did not so open its stores at 59th and Lexington—though it did offer curbside pick-up at the Banana Republic store between June 12, 2020, and September 20, 2020, and at the Gap store between August 27, 2020, and September...