Sage Realty Corp. v. Insurance Co. of North America
| Decision Date | 02 September 1994 |
| Docket Number | 1960,Nos. 1959,D,s. 1959 |
| Citation | 34 F.3d 124 |
| Parties | SAGE REALTY CORP., Plaintiff-Appellee-Cross-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellant-Cross-Appellee. ockets 94-7160, 94-7232. |
| Court | U.S. Court of Appeals — Second Circuit |
Paul R. Koepff, O'Melveny & Myers, New York City (Thomas G. Carruthers, Mudge Rose Guthrie Alexander & Ferdon, Achilles M. Perry, O'Melveny & Myers, of counsel), for defendant-appellant-cross-appellee.
Vicki L. Safran, Nixon, Hargrave, Devans & Doyle, New York City (Matthew Tracy, of counsel), for plaintiff-appellee-cross-appellant.
Before: MESKILL, KEARSE and ALTIMARI, Circuit Judges.
Defendant-appellant-cross-appellee Insurance Company of North America ("INA") appeals from a judgment of the United States District Court for the Southern District of New York (Patterson, J.) granting summary judgment to plaintiff-appellee-cross-appellant Sage Realty Corporation ("Sage") and dismissing INA's counterclaims. The district court granted Sage's motion for summary judgment based on its finding that INA breached the terms of a lease between the parties. The district court dismissed INA's counterclaims based on its finding that pursuant to a provision in the lease, INA waived the right to interpose any counterclaims. In addition, the district court dismissed several of those counterclaims with prejudice based on its finding that two prior settlement agreements as well as INA's failure to avail itself of the dispute resolution procedure set forth in the lease precluded the assertion of those claims.
On appeal, INA principally contends that the district court: (1) erred in granting Sage's motion for summary judgment because genuine issues of material fact are in dispute regarding INA's alleged breach of the lease and Sage's alleged breach of that same agreement; and (2) improperly dismissed INA's counterclaims based on an unenforceable lease provision. On cross-appeal, Sage contends that the district court erred in failing to dismiss all of INA's counterclaims with prejudice pursuant to the terms of the lease. For the reasons set forth below, the district court's grant of summary judgment is conditionally affirmed, and its dismissal of the counterclaims is conditionally affirmed in part, vacated in part, and remanded. Because on remand the district court may determine that INA is entitled to assert a set-off against Sage's judgment, we stay the execution of the judgment pending the district court's consideration of the counterclaims pursuant to Fed.R.Civ.P. 13(a).
Sage is an agent for 127 John Street Associates, the owner of a building located in New York. In 1970, the predecessors in interest to 127 John Street Associates, as landlord, entered into a lease agreement with Employers Commercial Union Insurance Company of America ("Employers"), as tenant, for Floors 2-9 of the building. INA, an assignee of Employers, is the tenant under the lease, as it has from time to time been amended (the "Lease").
Under Section 22 of the Lease, INA pays a fixed minimum rent and is obligated to pay at the end of each operating year as "additional rent" its proportionate share of the total operating expenses to the extent that such expenses exceed the base operating expenses. Section 22.01(III) provides that after the expiration of each operating year:
Landlord shall deliver to Tenant a statement in reasonable detail prepared by Landlord's Certified Public Accountant setting forth the Base Operating Expense, the Operating Expenses of Landlord for such Operating Year, and the additional rent payable by Tenant, if any [ (the "Statement" or "Invoice") ]. Any such additional rent payable by Tenant shall be paid within 30 days after the rendition of such statement.
It further provides that the tenant shall have the right to inspect and to make copies Furthermore, if any disputes arise concerning operating expenses, the Lease requires that:
of the landlord's books and records relating to the determination of additional rent, but specifies no time restrictions.
[T]he determination of any such issue shall be made by any one of the following public accounting firms which may be selected by Tenant and at Tenant's cost and expense....
Pending the settlement of any such dispute, Tenant shall promptly pay the charges within the period hereinabove provided, and if any determination by any of the foregoing public accounting firms shall reduce or increase the amount payable by Tenant hereunder, payments required by such determination shall be made within 30 days. Such determination shall be final and binding on both parties. (emphasis added).
In the event of the tenant's default in paying additional rent as due under the Lease, the landlord has the right to invoke any remedy allowed at law or in equity, including reasonable expenses as the landlord may incur for legal expenses and attorneys' fees.
In November 1991, INA vacated the premises. Thereafter, on February 1, 1992, Sage rendered to INA the Invoice for INA's proportionate share of the 1991 Operating Expenses in the amount of $829,385. INA did not pay the amount invoiced within 30 days of rendition of the Statement and did not invoke the dispute resolution procedures set forth in the Lease.
On February 5, 1992, INA requested to inspect all books and records relating to the Operating Expenses. Sage made some of its books and records available for INA's review on March 19, 1992, but declined to provide INA with copies of certain documents. Following discussions between the parties, INA tendered a check dated June 16, 1992 for $580,000 as payment for a portion of the outstanding debt. Sage notified INA that it had defaulted under the Lease by failing to pay the entire amount invoiced, and demanded that INA pay the remaining amount due. INA refused to pay.
On September 25, 1992, Sage commenced this action in New York Supreme Court, New York County. INA timely removed this action to the United States District Court for the Southern District of New York. Sage's complaint alleged a cause of action for breach of contract in the amount of $249,385. In its answer, INA denied the material allegations of the complaint and asserted eleven counterclaims.
At the request of the parties, a conference was held and INA claimed that it had not been given access to Sage's records. Sage disagreed. The district court recommended that, in order to avoid the existence of a factual issue, Sage should allow INA a further opportunity to inspect its records. By letter dated February 1, 1993, Sage offered to permit INA to inspect and make copies of its relevant records relating to Operating Expenses, demanded the outstanding payment, and offered to allow INA to invoke the dispute resolution procedures. INA accepted the offer to inspect Sage's books, but refused to pay the remaining debt and failed to invoke the dispute resolution procedure.
Sage subsequently moved for summary judgment and to dismiss INA's counterclaims. On June 28, 1993, the district court granted Sage's motion for summary judgment based on its finding that INA breached the lease agreement. Notably, the district court determined that Sage complied with Section 22.01(III) by allowing INA to inspect and copy all documents relevant to Sage's complaint. Although INA claimed in its opposition papers that it was denied the opportunity to inspect certain documents relating to "electric costs," the district court held that the electric costs documents were not needed to calculate the Operating Expenses under Section 22.01(III). Thus, the district court concluded that INA was in possession of all facts essential to oppose the summary judgment motion.
In addition, the district court dismissed INA's counterclaims pursuant to Section 27.02 of the Lease which states that INA "waives the right to interpose a counterclaim ... in any action instituted by [the] Landlord for unpaid rent or additional rent under this Lease." Moreover, the district court found INA now appeals and Sage cross-appeals.
that even if the Lease did not contain a waiver provision, two settlement agreements arising out of previous disputes under the Lease as well as INA's failure to avail itself of the dispute resolution procedure set forth in Section 22.01(III) required dismissal of certain of INA's counterclaims with prejudice. The district court dismissed the remaining counterclaims without prejudice.
On appeal, INA contends that the district court erred in granting Sage's motion for summary judgment, claiming: (1) its performance under the Lease was excused when Sage breached the Lease by denying INA access to all documents concerning Operating Expenses; (2) the district court improperly resolved the motion without allowing INA to conduct discovery; and (3) the district court committed reversible error when it relied in part on an April 1, 1994 letter to decide the motion. In addition, INA argues that the district court erred in dismissing its counterclaims and awarding attorneys' fees in favor of Sage. On cross-appeal, Sage contends that the district court erred in failing to dismiss all of INA's counterclaims with prejudice.
(1) Motion for Summary Judgment
We review an appeal from a grant of summary judgment de novo. See Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb, Inc., 967 F.2d 742, 746 (2d Cir.1992). Under Fed.R.Civ.P. 56(c), summary judgment should be granted if there is "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986) (quotations omitted).
A review of the record in this case indicates that the district court granted summary judgment based on INA's failure to comply with the clear terms of the Lease. The Lease mandates the payment of additional rent...
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