Thor 725 8th Ave. LLC v. Goonetilleke

• Decision Date: 02 October 2015
• Docket Number: No. 14 Civ. 4968(PAE).,14 Civ. 4968(PAE).
• Citation: Thor 725 8th Ave. LLC v. Goonetilleke, 138 F.Supp.3d 497 (S.D. N.Y. 2015)
• Parties: THOR 725 8TH AVENUE LLC, Plaintiff, v. Shanthioa GOONETILLEKE a/k/a Martin Goonetilleke and Marie Goonetilleke, Defendants.
• Court: U.S. District Court — Southern District of New York

138 F.Supp.3d 497

THOR 725 8TH AVENUE LLC, Plaintiff,

v.Shanthioa GOONETILLEKE a/k/a Martin Goonetilleke and Marie Goonetilleke, Defendants.

No. 14 Civ. 4968(PAE).

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

Signed Oct. 2, 2015.

Joseph Lee Matalon, for Plaintiff.

Thomas Hoffman, Thomas Hoffman Law Offices, P.C., New York, NY, for Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

This lawsuit is a breach-of-guaranty action brought by a landlord. Plaintiff Thor 725 8th Avenue LLC ("Thor") sues Shanthioa Goonetilleke, a/k/a Martin Goonetilleke ("Martin"), and his wife Marie Goonetilleke ("Marie"). Thor claims that its tenant on a commercial real-estate lease, a corporate entity owned by Martin that operated an adult-video store, defaulted and that Thor thereafter properly terminated the lease, triggering a contractual guaranty signed by the Goonetillekes. Thor claims that the Goonetillekes owe it more than $2 million in past-due rent, conditional rent reductions, and real-estate taxes. The Goonetillekes deny liability.

The parties, following discovery, now move for summary judgment. For the reasons that follow, the Court grants Thor's motion and denies the Goonetillekes' cross-motion.

I. Background ¹

A. The Parties

Thor, a limited liability company wholly owned by citizens of New York,² owns the building at 725 8th Avenue, New York, NY (the "Premises"), which was purchased from the prior landlord, 725 8th Avenue Realty, LLC, on September 25, 2013. Joint 56.1 ¶ 1; id. at Ex. 9. The tenant under the commercial lease at issue (the "Lease") is DVD Depot Inc. ("DVD"), which is wholly owned by Martin. Id. at Ex. 1 ("Lease"). The Goonetillekes, who are husband and wife, and Extraordinary DVD Inc. ("EDVD"), a company owned by Martin, are guarantors of the Lease. Id. at Ex. 2 ("Guaranty").

B. Overview of Relevant Agreements and Timeline

This case involves three sets of agreements, primarily executed among the prior landlord, DVD, and defendants. To guide the reader in following the intricate factual history that follows, the Court begins with a brief overview,

The first series of agreements, executed in late 2003 and early 2004, are the Lease and Guaranty. These set out the original terms of DVD's leasehold and the Goonetillekes' guarantee of the tenant's rent to the prior landlord. After DVD defaulted on rent in 2009, the prior landlord sued the Goonetillekes, as DVD's guarantors, and DVD. That dispute was resolved through the second series of agreements—a stipulation of settlement ("Stipulation") and an addendum to the stipulation ("Addendum")—which formally terminated the Lease, but kept its substantive terms and the Guaranty in place; DVD continued to lease the Premises. The final series of agreements were executed in 2013 before Thor purchased the Premises from the prior landlord. They include the Tenant Estoppel Certificate ("TEC"), the Guarantors' Certification ("GC"), and the Amendment to Occupancy Agreement (the "Amendment"). These agreements set out the terms governing DVD's occupancy of the Premises, and, with minor modifications, left in place the terms of the Lease, the Stipulation, and the Addendum (collectively, the "Occupancy Agreement"). Critically important here, the Goonetillekes remained liable as guarantors, although, under the Amendment, they were to be released from the guarantee if DVD timely—and in compliance with the Occupancy Agreement—vacated the Premises pursuant either to a notice of termination by the landlord or its own notice to vacate.

Soon after Thor purchased the Premises in September 2013, DVD defaulted again in November 2013. Following this default and DVD's repeated failure to pay Thor the growing amount of back-rent due, Thor served a termination notice on DVD, which notified DVD that its occupancy was terminated effective May 7, 2014. DVD, however, did not vacate the Premises on that date. Instead, DVD, purporting to act pursuant to the Occupancy Agreement, disregarded the termination notice and gave Thor a notice of its intent to vacate, stating that it would vacate the Premises on July 7, 2014. However, DVD did not meet that self-imposed deadline, either. DVD remained in occupancy until July 14, 2014, and, upon leaving, left the premises in other than the "broom clean" condition required under the Lease.

In pursuing summary judgment, Thor contends that, based on DVD's default, it had the right to issue a termination notice to DVD, that the notice was properly served, and that DVD failed both to meet the deadline to vacate and to leave the Premises in lease-compliant condition. These lapses, Thor argues, triggered the Goonetillekes' liability under the Guaranty, and obliged the Goonetillekes to pay Thor not only DVD's unpaid rent, but also, in light of DVD's breaches, to cover five years (dating back to 2009) of conditional reductions in rent and real-estate taxes that DVD had received. The same result holds, Thor argues, even if DVD's deadline to vacate were the later one set by DVD's notice to vacate because DVD also missed that deadline.

The Goonetillekes counter that Thor's termination notice was technically defective and thus void and that DVD's notice therefore set the deadline to vacate. And, the Goonetillekes argue, although DVD failed to timely vacate the Premises even as measured under that notice—and although DVD left the Premises in a non-compliant condition—DVD came sufficiently close to meeting those contractual duties as to excuse its guarantors from liability under the Guaranty. Alternatively, the Goonetillekes argue that holding them to the Guaranty here would work a legally impermissible "forfeiture."

The Court turns first to the parties' history and the relevant agreements.

C. Factual Background

1. The first series of agreements

i. The Lease

On January 14, 2004, DVD entered into the Lease for the Premises. The Lease, which has a 15–year term, became effective on March 1, 2004, and was to expire February 28, 2019, unless earlier terminated.

Lease, Art. 3; see also Joint 56.1 ¶ 5. The Lease was:

a net lease; accordingly, it is the purpose and intent of Landlord and [DVD] that the Rent shall be absolutely net to Landlord, so that this Lease shall yield, net to Landlord, the Rent specified in Article 4 hereof in each year during the Lease Term, and that all costs and expenses of every nature and description relating to the Demised Premises or [DVD's] use thereof which may arise or become due during the term of the Lease Term shall be paid by [DVD].

Id. Art. 5.A. DVD's monthly rent began at $40,000; the Lease included a rent schedule, with the rent due by DVD to increase annually. Id. Art. 4.A. DVD also was responsible for "100% of all real estate taxes." Id. Art. 6.A.

The Lease stated that the rent must be paid "without any set-off or deduction whatsoever." Id. Art. 4.B. Under the Lease, if DVD failed to pay rent or additional rent when due, and the failure continued for five days, this constituted an "Event of Default." Id. Art. 18.A.1–2.³ The Lease provided that, upon an Event of Default, the landlord:

shall have the right to give [DVD] a five (5) day notice of Landlord's termination of this Lease; and upon the fifth (5th) day net succeeding the giving of such notice, this Lease and the estate hereby granted shall expire and terminate on such date as fully and completely and with the same effect as if such date were the date herein fixed for the expiration of the Lease Term ... and on such date [DVD] shall quit and peacefully surrender the Demised Premises back to Landlord.

Id. Art. 18.B. Further, the landlord, in light of an Event of Default and prior to serving a lease termination notice, had:

the right to give [DVD] a five (5) day notice terminating [DVD's] right of possession of the Demised Premises; and upon the fifth (5th) day next succeeding the giving of such notice, [DVD's] right of possession of the Demised Premises will, without any further notice or action by Landlord, end and terminate; and on such date [DVD] shall quit and peacefully surrender the Demised Premises back to Landlord.

Id. Art. 18.C.

Under the Lease, any notice or communication between the parties, including the five-day notice of termination, was to be in writing; it could be sent by certified mail, return receipt requested, or by overnight courier. Id. Art. 30. The address identified for DVD under the Lease was 278 McCloud Drive, Fort Lee, New Jersey (the "Fort Lee address"). Id. at 1; see also Joint 56.1 ¶ 17. DVD and the landlord could change their notice addresses "by giving notice of such change to the other party by notice given" in the aforementioned described manner. Id. Art. 30.

Further, the Lease provided, "[u]pon the expiration or prior termination of the Lease Term, [DVD] shall vacate and surrender the Demised Premises to Landlord vacant and broom clean and in good order and repair, ordinary wear and tear excepted." Id. Art. 7.D; see also id. Art. 29.A ("Tenant shall surrender the Demisted Premises to Landlord upon the expiration or sooner termination of this Lease, vacant and broom clean and in at least the condition as same had been upon the execution and delivery hereof, reasonable wear and tear excepted."). The Lease also provided that:

No expiration or termination of this Lease ... shall relieve Tenant of any of its liabilities and obligations hereunder, including without limitation the liability for Rent and additional rent for the entire stated term of this Lease, all of which shall survive such expiration, termination, repossession and/or re-letting of any of the Demised Premises.

Id. Art. 18.E. Finally, the Lease provided that, "[s]imultaneously upon execution of this Lease," defendants and EDVD would execute a "joint and several ‘good guy’ guaranty," id. Art. 41, which the Court now describes.

ii. The Guaranty

On December 22, 2003, the Goonetillekes executed the Guaranty. Under it, the guarantors (the Goonetillekes and Martin, as president of EDVD):

jointly and severally

...