McDonald's Corp. v. Vanderbilt Atl. Holdings LLC
| Decision Date | 05 May 2021 |
| Docket Number | 19-CV-06471 (DLI) (ST) |
| Parties | MCDONALD'S CORPORATION, Plaintiff, v. VANDERBILT ATLANTIC HOLDINGS LLC, Defendant. |
| Court | U.S. District Court — Eastern District of New York |
On January 10, 2020, Vanderbilt Atlantic Holdings, LLC ("Defendant") moved to dismiss and compel arbitration of McDonald's Corporation's ("Plaintiff") claims in this landlord-tenant rent dispute. See, Dkt. Entry No. 8-1. On September 30, 2020, the Court denied Defendant's motion finding that Plaintiff's claims fell outside of the scope of the parties' arbitration agreement. See, Memorandum and Order ("M&O"), Dkt. Entry No. 22. On November 2, 2020, Defendant appealed this Court's decision to the United States Court of Appeals for the Second Circuit pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 16(a)(1)(C).1 See, Dkt. Entry No. 25.
Defendant now moves to stay this action, including discovery, pending the Second Circuit's decision on its appeal. See, Def.'s Mot. to Stay ("Mot."), Dkt. Entry No. 37-1. Plaintiff opposed the motion. See, Plf.'s Opp'n to Mot. to Stay ("Opp'n"), Dkt. Entry No. 37-6. Defendant replied. See, Def.'s Rep. in Supp. of Mot. to Stay ("Rep."), Dkt. Entry No. 37-8. For the reasons set forth below, Defendant's motion is denied.
The Court assumes the parties' familiarity with the facts underlying this action, which aresummarized more fully in the Court's Memorandum and Order dated September 30, 2020. See, M&O at 2-4.
On March 18, 1998, Plaintiff entered into a twenty-year lease agreement with Anthony M. Musto, a landlord, as the tenant of a parcel of real property. See, Complaint ("Compl."), Dkt. Entry No. 1 at ¶¶ 12, 17. Plaintiff constructed a McDonald's restaurant on the property located at 840 Atlantic Avenue in Brooklyn, New York. Id. ¶¶ 12, 16. Plaintiff's lease term ran from April 9, 1999 through April 8, 2019 and, upon its expiration, it automatically was extended for four successive five-year periods through April 8, 2039. Id. ¶¶ 17, 21. On November 30, 2017, Defendant assumed the rights, interests, and obligations of the landlord under the lease. Id. ¶ 26.
On April 8, 2019, Plaintiff's lease term expired and automatically was extended for the first five-year period. Id. ¶¶ 20, 23. The lease provided that rent for the first five-year extension period was to be calculated as specified in the Option Rent Addendum ("ORA"). Id. ¶ 21. Under the addendum's terms, Plaintiff was to pay a monthly rent of $16,032.58 or an annual rent equal to 80% of the fair market value ("FMV") of the premises as of April 8, 2019, as determined by written agreement of the parties. Id. ¶ 25; ORA, Exhibit 1 to Compl., Dkt. Entry No. 1-1 at 31. Once the parties agree to the rent calculation for the first five-year extension period, every five years the rent will increase 15% through the end of the lease term on April 8, 2039. Compl. ¶ 25.
If the parties cannot reach a consensus about the property's FMV, they agreed to submit their dispute to real estate appraisers for binding arbitration. ORA at 31. Under the terms of their arbitration agreement, each party appoints an appraiser to "estimate" the FMV in a "letter opinion of value." Id. If the two appraisals differ by more than 15%, the two appraisers appoint a third appraiser, and the three appraisers provide an "estimate" of the FMV in a "letter opinion of value[.]" Id. The appraisers' collective or majority decision on the property's FMV binds theparties. Id. If the appraisers or a majority cannot agree on the property's FMV, the FMV is determined by adding the three appraisers' estimates and dividing the total by three. Id. The arbitration agreement further provides that, if one of the parties "fails to cooperate in any way so that the process described [] cannot be completed prior to 120 days of the expiration of the primary term of this Lease, the FMV of the one appraiser chosen by the cooperating party shall be used to determine the rent during the extension periods." Id. at 32. The agreement does not identify who decides if a party has cooperated or what constitutes a failure to cooperate.
The parties could not agree about the property's FMV and opted to arbitrate their dispute. Compl. ¶ 35. Plaintiff's appraiser valued the property at $350,000, whereas Defendant's appraiser valued the property at $1,348,000, amounting to a difference of more than 15% in their respective FMV estimates. Id. ¶ 41. Instead of proceeding to the next stage whereby the appraisers appoint a third appraiser and the appraisers make a final decision as to the FMV, Plaintiff filed this action.
Plaintiff seeks a declaratory judgment that Defendant failed to cooperate with the appraisal process, and Defendant's appraisal consequently should not be used. Id. ¶¶ 75-84. Specifically, Defendant's appraiser used a valuation methodology that was not authorized by the parties in their lease or consistent with New York law. Id. ¶¶ 43-47, 62-63. Plaintiff claims that despite its repeated requests for Defendant to correct this issue, Defendant refused to direct its appraiser to comply with the valuation methods the parties agreed to in their lease. Id. ¶¶ 51-52, 57-61, 72-73. Plaintiff further alleges that Defendant refuses to allow the parties' appraisers to communicate with a third appraiser and work collaboratively to prepare a single letter opinion of value, if the parties reach that stage. Id. ¶¶ 54, 79. Plaintiff seeks a declaratory judgment, if necessary, that the three appraisers may work together for that purpose. Id. ¶ 94.
Defendant moved to compel arbitration of Plaintiff's claims. See, Dkt. Entry No. 8-1.Defendant argued that the parties intended for the appraisers both to decide if a party had cooperated and to explain the parameters of the appraisal process. Id. at 5, 12, 17-19. Plaintiff responded that the parties did not intend for the appraisers to decide its claims, which require legal determinations from the Court. See, Dkt. Entry No. 10 at 6. The Court denied Defendant's motion, finding that Plaintiff's claims fell outside of the scope of the parties' arbitration agreement.
The Court explained that the parties agreed for the appraisers to provide "estimate[s]" of the FMV in "letter opinion[s] of value," not opinions about a party's cooperation with the appraisal process or explanations regarding the third appraiser's role. M&O at 8. The arbitration agreement also was not susceptible to Defendant's interpretation. When a party fails to cooperate, that party's appraisal cannot be used. Id. at 11. The cooperating party's appraisal controls, and there is no need for the parties' appraisers to appoint a third appraiser. Id. Therefore, the parties could not have intended for the third appraiser to decide if a party has cooperated. Id. If the third appraiser also were to decide that a party had not cooperated with the appraisal process, its mandatory obligation to appraise the property would be obviated and rendered meaningless as the cooperating party's appraisal, once again, controls. Id. Thus, Defendant's interpretation was incompatible and inconsistent with the framework of the parties' arbitration agreement.
Defendant appealed this Court's decision denying its motion to compel arbitration to the Second Circuit pursuant to 9 U.S.C. § 16(a)(1)(C). Defendant now moves to stay this action, including discovery, pending the Second Circuit's decision on its appeal. See, Mot. Plaintiff opposes the motion. See, Opp'n. Defendant replied. See, Rep.
Nken v. Holder, 556 U.S. 418, 433-34 (2009) (internal alterations, quotation marks, and citations omitted).
The Court must consider four factors when deciding a motion to stay an action pending an appeal: "(1) whether the stay applicant has made a strong showing that [it] is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies." Id. at 434 (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)). The first and second factors are the "most critical." Id. "[T]he degree to which a factor must be present varies with the strength of the other factors, meaning that more of one factor excuses less of the other[s]." In re World Trade Ctr. Disaster Site Litig., 503 F.3d 167, 170 (2d Cir. 2007) (internal alterations, quotation marks, and citations omitted); See also, Mohammed v. Reno, 309 F.3d 95, 101 (2d Cir. 2002) () (citation omitted).
Defendant has not made a strong showing that it is likely to succeed on the merits of its appeal. This factor requires more than a "mere possibility of relief[.]" Nken, 556 U.S. at 434 (internal quotation marks omitted). Defendant must demonstrate "a substantial possibility, although less than a likelihood, of success[.]" Mohammed, 309 F.3d at 101 (emphasis added) (citation omitted). There must be "serious questions" going to the merits of the dispute with the balance of hardships tipping decidedly in Defendant's favor. In re A2P SMS Antitrust Litig., 2014 WL 4247744, at *2 (S.D.N.Y. Aug. 27, 2014) (quoting Citigroup Global Mkts., Inc. v. VCGSpecial Opportunities Master Fund, Ltd., 598 F.3d 30, 35 (2d Cir. 2010)).
Defendant makes two primary arguments in its appeal. First, it contends that the failure to...
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