SVAP II Pasadena Crossroads LLC v. Fitness Int'l LLC
| Docket Number | 1982-2022 |
| Decision Date | 21 December 2023 |
| Parties | SVAP II PASADENA CROSSROADS LLC v. FITNESS INTERNATIONAL LLC |
| Court | Court of Special Appeals of Maryland |
1
SVAP II PASADENA CROSSROADS LLC
v.
FITNESS INTERNATIONAL LLC
No. 1982-2022
Court of Special Appeals of Maryland
December 21, 2023
Circuit Court for Anne Arundel County Case No. C-02-CV-20-001258
Berger, Shaw, Eyler, James R. (Senior Judge, Specially Assigned), JJ.
OPINION
Berger, J.
This case involves a dispute between a commercial landlord and tenant regarding the tenant's obligation to pay rent during the initial phase of the COVID-19 pandemic when executive orders significantly limited business operations throughout the State of Maryland. Commercial tenant Fitness International LLC d/b/a L.A. Fitness ("LAF"), appellee, refused to pay rent to SVAP II Pasadena Crossroads, LLC ("Landlord"), appellant, from April through June 2020, asserting that payment of rent was excused in light of the executive orders issued by Maryland Governor Larry Hogan. Landlord filed a claim in the circuit court seeking unpaid rent and attorney's fees. LAF filed a response as well as a counterclaim, presenting claims of breach of contract, breach of the covenant of good faith and fair dealing, declaratory judgment, specific performance, and promissory estoppel.
A bench trial was held in the Circuit Court for Anne Arundel County, after which both parties submitted post-trial memoranda. The circuit court subsequently entered judgment in favor of LAF and against Landlord, awarding LAF damages in the amount of $34,529.98, plus costs. In this timely appeal, Landlord presents the following two issues for our consideration:
I. Whether the circuit court erred in ruling that Landlord did not satisfy its burden of proof to establish [LAF]'s breach of contract in light of the uncontroverted evidence at trial
II. Whether the circuit court erred in determining that LAF met its burden on its counterclaim despite LAF's failure to offer any supporting admissible evidence
For the reasons explained herein, we shall reverse the judgment of the circuit court and remand for further proceedings consistent with this opinion.
FACTS AND PROCEEDINGS
The relevant facts are not disputed by the parties. In May 2009, Landlord was the owner of a building known as the Pasadena Crossroads Shopping Center located at 8070 Governor Ritchie Highway in Pasadena, Maryland, near the corner of Governor Ritchie Highway and Jumpers Hole Road (the "Property"). On May 26, 2009, Landlord and LAF entered into a lease (the "Lease") pursuant to which LAF leased approximately 40,000 square feet of commercial space (the "Premises") located within the Property.[1] LAF utilized the Premises for the operation of a fitness facility, typically referred to as L.A. Fitness.
Pursuant to the Lease, LAF was required to pay Minimum Rent, which was calculated as a variable formula based on the Consumer Price Index. At the time relevant to this appeal, the Minimum Rent was $68,757.59 per month. LAF was also required to pay Additional Rent, which included charges for real estate taxes, common area expenses, and garbage removal. Pursuant to the Lease, LAF was required to pay Minimum Rent and Additional Rent by the fifth day of each calendar month. The Lease provided that if rent is not paid by the fifth of each month, LAF is subject to late charges and interest. The Lease further provided that the prevailing party would be awarded attorney's fees if either
party had to "institute any action or proceeding against the other party relating to [the] Lease."
The Lease also contained a force majeure provision, which provided, in relevant part:
If either party is delayed or hindered in or prevented from the performance of any act required hereunder because of . . . restrictive laws . . . or other reason of a similar or dissimilar nature beyond the reasonable control of the party delayed, financial ability excepted (any "Force Majeure Event"), subject to any limitations expressly set forth elsewhere in this Lease, performance of such act shall be excused for the period of the Force Majeure Event and the period for the performance of such act shall be extended for an equivalent period (including delays caused by damage and destruction caused by such Force Majeure Event). Delays or failures to perform resulting from lack of funds or which can be cured by the payment of money shall not be Force Majeure Events. Following the Rent Commencement Date, in no event (except as otherwise provided in this Lease) shall Tenant's obligation to pay Minimum Rent or Additional Rent pursuant to the terms and provisions of this Lease be excused by a Force Majeure Event.
(Emphasis supplied.)
On March 5, 2020, as COVID-19 began to spread throughout the United States, Governor Larry Hogan declared a "State of Emergency and Existence of Catastrophic Health Emergency" in the State of Maryland. On March 16, 2020, the Governor issued an executive order ordering the closure of all fitness centers to the general public. On April 3, 2020, the Governor issued an order prohibiting residential and commercial evictions. Commercial tenants were, however, still required to pay rent, as the executive order provided that "[n]o provision of this Order shall be construed as relieving any person or
entity of any obligation to make payments or to comply with any other obligation that such person or entity may have pursuant to a note, loan agreement, or lease."
On March 17, 2020, LAF wrote to Landlord stating that Governor Hogan's March 16, 2020 order had "forced" LAF "to close" its fitness center. LAF asserted that the executive order "both frustrated the purpose of the Lease by robbing [LAF] of [its] essential benefit of the bargain under the Lease" and "constituted a force majeure event and has made performance under the Lease both impossible and impracticable . . . allowing us to fully abate rent[.]" LAF was permitted to reopen its fitness facility on June 19, 2020, albeit with certain restrictions, including a limit on occupancy. LAF resumed payment of rent in July 2020.[2]
On April 13, 2020, LAF was served with a ten-day notice of default demanding payment of the past due rent, but LAF did not remit payment. Thereafter, LAF did not pay rent for April, May, and June of 2020, nor did LAF pay associated late fees and interest.
Landlord asserts that the total amount owed for the relevant time period is $206,644.45, plus late fees, interest, and attorney's fees.
On May 26, 2020, Landlord filed a claim in the Circuit Court for Anne Arundel County seeking unpaid rent and attorney's fees; LAF filed a response as well as a counterclaim, presenting claims of breach of contract, breach of the covenant of good faith and fair dealing, declaratory judgment, specific performance, and promissory estoppel.
On October 22, 2021, Landlord sold the Property to Paramount Realty N.J. LLC ("Paramount"). The Purchase and Sale Agreement ("PSA") pursuant to which the Property was sold included the following provision regarding Landlord's retention of rights to rent due from tenants prior to the sale of the Property in Section 7.3.1(a):
All rentals and other tenant charges and Additional Rents . . . under the Leases received by Purchaser or Seller from any Tenant after the Proration Date shall not be prorated on the Closing Date and shall be applied as follows: . . . (ii) third, on account of Seller for any amount then currently due Seller from such tenant for any periods before the Proration Date[.]
(Emphasis supplied.)[3] Section 7.3.1(c) provides that rent received by either Landlord or
Paramount shall be apportioned to whichever party was entitled to the rent for the relevant time period: to Landlord for the time period before the Proration date, and to Paramount for rent for the time period after the Proration date. If Landlord received payment for rent owed to Paramount, Landlord was required to, in turn, give the rent to Paramount. If
Paramount received payment for rent owed to Landlord, Paramount was required to give the rent to Landlord.
Section 7.3.1(f) of the PSA addressed the collection of rents due under leases that were assigned to Paramount from Landlord pursuant to the PSA:
(f) Collection. After Closing, Purchaser [i.e., Paramount] shall (i) bill each tenant under the Leases for all rentals and other tenant charges and Additional Rents, (ii) include all delinquent amounts in its normal billings, (iii) pursue the collection of all amounts using reasonable and customary measures, and (iv) reasonably cooperate with Seller [i.e., Plaintiff] in collecting any amounts due Seller (but shall not be required to litigate or declare a default under the applicable Lease). Delinquent payments, if any when collected by Purchaser, shall be paid to Seller to the extent of Seller's interest therein, and if not collected despite Purchaser's efforts as set forth in the preceding sentence, Seller may not collect those payments, nor pursue an action against any tenant owing delinquent rents or any other amounts to Seller attributable to the period before the Proration Date.
(Emphasis supplied.)
The PSA further included a provision specifically referencing ongoing litigation with LAF in Section 5.9 of the PSA:
5.9 LA Fitness Litigation. Seller agrees to indemnify, defend and hold Purchaser harmless from and against any claims, costs and expenses (including without limitation, reasonable attorneys' fees and expenses), damages, demands, losses, suits, actions, judgments or liabilities incurred by Purchaser relating to, or in connection with the LA Fitness Litigation, including, without limitation, any termination of, or loss or liability arising under, the LA Fitness Lease. Seller shall not have any obligation to settle the LA Fitness Litigation; however, any settlement shall require the prior written consent of Purchaser, which consent shall not be unreasonably withheld,...
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