Seaport v. Seaport Rebel Rest. LLC
| Decision Date | 14 February 2022 |
| Docket Number | 20-P-1421 |
| Citation | 182 N.E.3d 340 (Table),100 Mass.App.Ct. 1124 |
| Parties | SEAPORT B/C RETAIL OWNER LLC v. SEAPORT REBEL RESTAURANT LLC & another. |
| Court | Appeals Court of Massachusetts |
This appeal arises from a dispute over a tenant's obligation pursuant to the terms of a commercial lease to seek and use all diligent efforts to obtain a liquor license. After a jury-waived trial, a judge of the Superior Court entered judgment in favor of the plaintiff, landlord Seaport B/C Retail Owner LLC (Seaport Retail), and subsequently denied the motion of the tenant, Seaport Rebel Restaurant LLC (STK), and STK's guarantor, The ONE Group Hospitality, Inc. (TOGH) (together, the defendants), to amend the findings and judgment or, in the alternative, for a new trial. On appeal, the defendants argue that: (1) the judge erred in concluding that STK breached the lease; (2) Seaport Retail failed to prove it was harmed by any alleged breach; and (3) the judge improperly calculated damages. We affirm.
Background. We summarize the facts as found by the judge, leaving certain facts for our later discussion. See, e.g., Cavadi v. DeYeso, 458 Mass. 615, 624 (2011).
1. Lease and guaranty. Seaport Retail owns retail space in Seaport Square in Boston. On January 20, 2016, after approximately one year of negotiations, STK entered into a ten-year agreement with Seaport Retail to lease 8,323 square feet on two floors (premises), to be used as a steakhouse restaurant. Section 20.27(A) of the lease required STK "to apply for (by no later than September 1, 2016), seek and use all diligent efforts to obtain, and to have duly approved by the appropriate governmental authorities and officials of the City and the State, as soon as possible, a so-called 7-day all alcoholic beverages liquor license" (emphasis added).
Other provisions of the agreement permitted Seaport Retail to terminate the lease in the event of a nonmonetary default, provided that STK was so notified and given thirty days to cure. If Seaport Retail terminated the lease in the event of a default, STK remained "liable for ... Rent and other charges" as they would have "become due if this Lease had not been terminated." The lease further provided that, if the premises were relet by Seaport Retail, STK "shall be entitled to a credit in the net amount of Rent received by [Seaport Retail] in reletting, after deduction of all expenses incurred in reletting the Demised Premises (including, without limitation, remodelling costs, and brokerage fees), and in collecting the Rent in connection therewith."
The same day that the lease was executed, STK's parent company, TOGH, signed a limited guaranty of certain of STK's obligations under the lease. In relevant part, the guaranty provided:
"Landlord agrees that Guarantor's liability under this Guarantee [sic] shall apply (and be limited in all respects) to only the covenants, conditions and agreements to be performed and observed by Tenant (and its successors and assigns) under the Lease relating to the payment of Minimum Rent and additional rent under Articles VII, VIII and XII during the first thirty-six (36) full calendar months of the Term of the Lease, but specifically excluding any liquidated damages or acceleration of rent whether permitted by the Lease or at law" (emphasis added).
2. Efforts to obtain liquor license. The number of liquor licenses available in Boston is limited by statute. See G. L. c. 138, §§ 12, 17. In the two years preceding the execution of the lease, the Legislature increased the number of full, on-premises, all alcoholic beverages liquor licenses in Boston from 650 to 665. See St. 2014, c. 287, §§ 71-73; St. 2015, c. 119, §§ 18-19. The fifteen new licenses were free, fully transferable, and available for establishments anywhere in the city. Ten of those free licenses became available in January 2016, the same month that the lease was executed. The licensing board awarded all ten licenses shortly thereafter, and none were available by early February 2016. Relevant here is that one of those licenses was awarded to another tenant of Seaport Retail, for a different establishment in the Seaport.
The remaining five licenses became available on September 1, 2016. An entity seeking one of those licenses was required to submit an application that conformed with the licensing board's requirements, and the manager of record listed in the application was required to attend a public hearing. The licensing board would then vote to approve or deny the application without considering potential future applicants, meaning the board would not postpone its decision to hear from all those who applied in the same time period. The board could deny an application if it determined that granting the requested license would not serve a "public need."
The parties understood that STK needed a liquor license to operate a restaurant in the Seaport. STK and TOGH were both unfamiliar with the procedures for applying for a liquor license in Boston. However, for approximately seven months after executing the lease, STK made no effort to inform itself of the process and general practice for obtaining a license. If the defendants had educated themselves about the process, they would have known that many applicants would seek the free liquor licenses and STK would have to act quickly to obtain one.
On August 23, 2016, STK requested that the deadline for filing the liquor license application be extended from September 1 to September 30, 2016, and expressed that STK was "confident that there will be no issues in getting the license." The following day, the parties signed an agreement to extend the deadline as requested. On or about August 25, 2016, STK engaged an attorney to represent it in connection with the liquor license application. STK had been referred to that attorney nearly a month earlier by an affiliate of Seaport Retail.
On September 6, 2016, STK submitted its application to the licensing board. Because the person designated in the application as the manager of record was not a Massachusetts resident, however, she was not eligible to serve in that role under the licensing board's rules. STK incorrectly indicated on the application that the designated person was a Massachusetts resident, but the licensing board gleaned otherwise based on the person's criminal offender record information (CORI) form. As a result, the board informed STK that it would not schedule a hearing on the application.
In October 2016, the board awarded four of the five free liquor licenses to entities that had submitted applications in August 2016. Thereafter, on November 9, 2016, STK submitted a revised application designating a new manager of record who resided in Massachusetts. STK first contacted that person in late October 2016. STK did not submit the designated manager's proof of citizenship documents in connection with the application until January 5, 2017. The licensing board then scheduled a hearing for January 25, 2017.
In the interim, on January 18, 2017, the board granted the last remaining free license to an entity located near the Seaport area in South Boston. That application was filed on November 23, 2016. Following the scheduled hearing on STK's application, the licensing board voted to deny the application. The licensing board later explained that the basis of the denial was that no licenses were available at the time of the vote. STK made no efforts to purchase a liquor license on the secondary market, the price of which was between $350,000 and $400,000.
Seaport Retail declared an event of default under the lease, citing, in part, STK's failure to use all diligent efforts to obtain a liquor license, and then notified STK that it had thirty days to cure the defaults.4 Thereafter, STK exercised its option to terminate the lease under section 20.27, because it had not obtained a liquor license within the period prescribed under the lease. Seaport Retail then issued a letter to terminate the lease due to STK's failure to cure the defaults alleged in its earlier letter. Seaport Retail ultimately subdivided the premises and relet it to replacement tenants.
3. Present action. Seaport Retail brought this action in the Superior Court asserting claims against STK and TOGH for breach of the lease and guaranty and seeking declarations concerning the parties’ rights under those two instruments. The defendants filed a counterclaim seeking declarations (1) that STK properly terminated the lease on or about February 10, 2017, or, alternatively, that the lease expired on April 11, 2017, and (2) regarding the extent of TOGH's obligations under the guaranty.
Following a jury-waived trial over the course of four days, the judge issued comprehensive findings of fact, rulings of law, and an order for entry of judgment. The judge concluded that STK breached the lease by failing to use all diligent efforts to obtain a liquor license, Seaport Retail was entitled to recover from TOGH under the guaranty, and Seaport Retail was entitled to the full amount of three years’ minimum rent plus STK's pro rata share of real estate taxes and common area maintenance costs under the guaranty, totaling $2,192,757.5 The defendants subsequently moved to amend the judgment or findings of fact or, in the alternative, for a new trial, which motion the same judge denied by a written decision and order.
Discussion. "When reviewing the trial judge's decision, we accept [the] findings of fact as true unless they are clearly erroneous, and we give due regard to the judge's assessment of the witnesses’ credibility." Andover Hous. Auth. v. Shkolnik, 443 Mass. 300, 306 (2005). Our review of the judge's conclusions of law is de novo. See Martin v. Simmons Props., LLC, 467 Mass. 1, 8 (2014).
1. Breach. The defendants contend that STK did not breach the lease because STK applied for a liquor license before the September 30 contractual deadline and responded to all subsequent...
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