Gotlieb v. Taco Bell Corp.

• Citation: 871 F. Supp. 147
• Decision Date: 13 December 1994
• Docket Number: No. CV 92-2735 (MLO).,CV 92-2735 (MLO).
• Parties: David GOTLIEB and Enid Blaymore, Plaintiffs, v. TACO BELL CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of New York

871 F. Supp. 147

David GOTLIEB and Enid Blaymore, Plaintiffs, v. TACO BELL CORPORATION, Defendant.

No. CV 92-2735 (MLO).

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

December 13, 1994.

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Salamon, Gruber, Newman, Blaymore & Rothschild, P.C. by Frederick Newman, Roslyn Heights, NY, for plaintiffs.

Friedman, Wang & Bleiberg, P.C. by Arthur S. Friedman and Susan J. Schwartz, New York City, for defendant.

MEMORANDUM OPINION AND ORDER

ORENSTEIN, United States Magistrate Judge:

This action involves a dispute arising from an alleged breach of a commercial ground lease, dated August 15, 1991, between the landlord plaintiffs Gotlieb and Blaymore, and tenant defendant Taco Bell Corporation ("Taco Bell").

District Judge Arthur D. Spatt granted summary judgment in favor of the plaintiffs and referred this matter to the undersigned for a trial on damages. Order, dated January 15, 1994. Thereafter the parties consented to proceed before a Magistrate Judge for all purposes. Order, November 7, 1994; 28 U.S.C. § 636(c)(1).

Plaintiffs seek damages for: 1) rent, accrued and future; 2) the value of a building that was to have been built on the premises; and 3) attorney's fees and costs. Testimony and evidence on these issues was heard at trial before the undersigned on February 14-17, 1994. The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a).

INTRODUCTION

The parties entered into a twenty year lease, effective August 15, 1991, for the purpose of establishing a Taco Bell restaurant at 1532-54 86th Street, Brooklyn, New York. (Lease dated August 15, 1991, attached as exhibit A to complaint, hereinafter "Lease.") The lease provided that the defendant was required to exercise diligence to obtain the necessary permits and administrative approvals to construct and operate the Taco Bell restaurant on the premises. (Lease at ¶¶ 6, 69.) The defendant was entitled to cancel the lease if they were unable to obtain such permits and administrative approval within a six month "permitting period," ending on February 15, 1992. (Lease, at ¶ 6.)

Sometime in September, 1991, local community and religious groups began an organized effort to oppose the construction and operation of the Taco Bell restaurant at the subject location, and against fast-food establishments in the community generally. (Affidavits of James A. Chronley, Christopher B. DeBolt and Mark W. Schaefer in opposition to Plaintiff's Motion for Summary Judgment.)

This organized opposition included public demonstrations of protest with placards, handbilling, and letter writing, telephone campaigns, and community meetings with local politicians. (Id.) Taco Bell attempted to assuage this community opposition by attending these meetings, proposing amendments to the design plans and suggesting alternative measures to address the community group's safety and environmental concerns. (Id.)

During the intervening six month period, the Defendant engaged the services of local attorneys and engineers in an effort to develop plans and a permit application. Nevertheless, defendant did not file its permit application with the appropriate governmental entities until February 14, 1992, one day prior to the expiration of the contractual "permitting period" referred to in paragraph 6 of the lease.

Also on February 14, 1992, defendant served on plaintiffs a written repudiation of the lease pursuant to Lease paragraph 6. Plaintiffs rejected this repudiation also by letter dated February 14, 1992. The plaintiffs initiated the instant action in June, 1992. Upon the completion of discovery, District Judge Spatt granted plaintiffs' motion for summary judgment. (Transcript of November 26, 1993, at 35.) District Judge Spatt found that defendant failed to meet the conditions required by lease paragraph 6, that the lease remained in effect, and that the defendant remained liable under its terms and conditions. (Id.)

DISCUSSION

A lessor has numerous options when a lessee attempts to repudiate a lease prior to the expiration of its term. See Centurion Development Ltd. v. Kenford Co., Inc., 60 A.D.2d 96, 400 N.Y.S.2d 263, 264 (1977); 74 N.Y.Jur.2d Landlord and Tenant § 108. The landlord may reject the repudiation and do nothing, in which case the tenant continues to remain liable under the terms of the lease, as there is no obligation for a commercial lessor to mitigate damages. See Sage Realty Corp. v. Kenbee Management-New York, Inc., 182 A.D.2d 480, 582 N.Y.S.2d 182 (1992); Mitchell Titus Assocs., Inc. v. Mesh Realty Corp., 160 A.D.2d 465, 554 N.Y.S.2d 136 (1990); Syndicate Bldg. Corp. v. Lorber, 128 A.D.2d 381, 512 N.Y.S.2d 674, 675 (1987) (this duty recently imposed on residential landlords, however the contrary is true in the context of commercial leases). The lessor could also elect to notify the tenant that it was entering the premises and reletting for the tenant's benefit, in which case the tenant remains liable for any rent deficiency. Underhill v. Collins, 132 N.Y. 269, 30 N.E. 576 (1892). The lessor also has the option to accept the repudiation, re-enter the premises and re-let for its own benefit. In that event the lessee is generally relieved from any further liability under the lease. See Herter v. Mullen, 159 N.Y. 28, 53 N.E. 700, 701 (1899); Centurion Development, 60 A.D.2d 96, 400 N.Y.S.2d at 264; 59th & Park Assoc. v. Inselbuch, 68 A.D.2d 838, 414 N.Y.S.2d 537, 540 (1979) (Lupiano, J. concurring); see also 74 N.Y.Jur.2d Landlord & Tenant § 108. No further rent accrues because the landlord-tenant relationship no longer exists. See Hermitage Co. v. Levine, 248 N.Y. 333, 162 N.E. 97, 98 (1928).

The defendant herein repudiated the lease by letter dated February 14, 1992, (Exhibit D to Complaint), sent in response to plaintiff's letter dated February 14, 1994 (Exhibit C to Complaint). Plaintiff's letter rejected defendant's February 10, 1992 request to alter the terms of the lease (Exhibit B to Complaint). The plaintiffs' February 14, 1992 letter explicitly stated that they would reject any attempt by the defendant to repudiate the lease and informed the defendant that they would be held liable under the terms of the lease. (Exhibit C to Complaint.)

The extent of plaintiffs' entitlement to damages therefore turns upon whether the surrender and repudiation of the lease was accepted, notwithstanding the assertions made in plaintiffs' February 14, 1992 letter.

A. Acceptance of the Repudiation

Termination of an estate by repudiation or surrender may be effected by express agreement or by operation of law, where it is inferred from the conduct of the parties. Riverside Research Inst. v. KMGA, Inc., 68 N.Y.2d 689, 506 N.Y.S.2d 302, 303-04, 497 N.E.2d 669, 670-71 (1986); Gray v. Kaufman Dairy & Ice-Cream Co., 162 N.Y. 388, 56 N.E. 903 (1900); Saracena v. Preisler, 180 A.D. 348, 167 N.Y.S. 871, 874 (1917); Tootle Theater Co. v. Shubert Theatrical Co., 175 A.D. 530, 162 N.Y.S. 111 (1916); Building Supervision Corp. v. Skolinsky, 50 Misc.2d 375, 270 N.Y.S.2d 454, 457 (N.Y.Civ.Ct.1966); see also Beall v. White, 94 U.S. 382, 389, 24 L.Ed. 173 (1876).

Acceptance of a surrender is created by operation of law when the parties to a lease do some act so inconsistent with the landlord-tenant relationship which implies "their intent to deem the lease terminated." Riverside, 68 N.Y.2d 689, 506 N.Y.S.2d at 303, 497 N.E.2d at 670; see also Gray, 162 N.Y. 388, 56 N.E. at 904. Such an implied acceptance of surrender has been found in "conduct by the landlord which fell short of an actual re-letting but which indicated the landlord's intent to terminate the lease and use the premises for his own benefit." Centurion Development Ltd. v. Kenford Co., Inc., 60 A.D.2d 96, 400 N.Y.S.2d 263, 264 (1977) (citing Saracena, 180 A.D. 348, 167 N.Y.S. 871; Crane v. Edwards, 80 A.D. 333, 80 N.Y.S. 747 (1903)).

In addition, an outward refusal to accept repudiation of the lease does not bar a finding that the subsequent conduct of the parties creates an acceptance by operation of law. See e.g., Gray, 162 N.Y. 388, 56 N.E. at 904 (court found acceptance by operation of law where plaintiff refused defendant's offer of surrender yet re-rented in his own name); Tootle Theater, 175 A.D. 530, 162 N.Y.S. at 113 ("The fact that plaintiff refused to accept surrender ... does not establish conclusively the absence of acceptance ... it may be implied from all the circumstances of the case"). Therefore it is of no moment that the plaintiffs rejected the defendant's surrender and repudiation in February of 1992.

The arguments before Judge Spatt on the motion for summary judgement pertained only to whether the plaintiffs were required to accept the defendant's repudiation under the lease terms. Specifically, the issue before Judge Spatt was whether the defendant exercised due diligence in obtaining the required permits during the lease's six month "permitting period." Judge Spatt found as a matter of law, that the defendant had not met the required due diligence under the lease. Accordingly, plaintiffs were not required to accept the defendant's repudiation of the lease under paragraph 6. Thus the lease was not terminated by the defendant's February 14, 1992 letter pursuant to lease paragraph 6.

Nevertheless, the testimony of plaintiff David Gotlieb at the damages trial revealed that despite the plaintiffs' rejection of the defendant's repudiation and surrender, the plaintiffs negotiated and made a written offer to lease the premises for their sole benefit to a prospective new tenant, Rite-Aid drug stores. (Trial Transcript, hereinafter "Tr." at 3-142 to 3-186; Plaintiffs' Ex. 9; Defendant's Ex. F.)¹ Plaintiffs originally referred the representatives of Rite-Aid to Taco Bell for a possible sub-let (Plaintiffs' Ex. 6.), yet apparently became impatient and initiated this effort to re-rent the...