Opinion
2010/3579.
Decided July 6, 2010.
RALPH C. LORIGO, ESQ., for Plaintiff.
MICHAEL E. FERDMAN, ESQ., for Defendant.
Plaintiff is the owner of real property leased long-term to defendant for use as a charter school, which defendant has operated at the site since September of 2006. By the terms of the April 2006 Lease Agreement, defendant has paid and will pay plaintiff rent escalating from $216,900 for years one through five of the lease term to $289,200 for years sixteen through twenty, plus additional rent consisting of certain expenses of operating and maintaining the property (including taxes and insurance costs). The rent is to be paid in monthly installments. Defendant has options to renew the lease for two successive five-year terms. Defendant may not sublease the premises without plaintiff's consent, although that consent may be withheld only in plaintiff's "reasonable discretion." The lease defines a default by defendant as, inter alia, its failing to make any payment of base or additional rent, vacating or abandoning the premises (i.e., without subletting them), filing for bankruptcy or making an assignment for benefit of creditors, having its State charter revoked or non-renewed, or violating any of its other obligations under the lease, one of which is "to comply with all applicable governmental laws, rules, orders, ordinances and regulations." The lease grants plaintiff typical remedies in the event of any such default, including the option to sue for specific performance and/or monetary damages.
Plaintiff commenced the instant action in April 2010. The complaint states three causes of action, all of which hinge on the allegation that defendant is in "anticipatory breach" of the lease. The first cause of action seeks in excess of $4 million in damages, representing the accelerated rent for years three (in part) through year twenty of the lease. The second cause of action seeks to preliminarily and permanently enjoin defendant from breaching the lease (or more accurately, from doing the acts that plaintiff predicts will lead to a breach of the lease). The third cause of action seeks recovery of plaintiff's reasonable attorneys' fees as part of plaintiff's lease-specified remedies in the event of defendant's default.
The facts underlying plaintiff's claims are familiar to this Court as the result of related litigation, a CPLR article 78 proceeding entitled Samuel J. Savarino v City of Buffalo (Sup Ct Erie Co, Index No. 2010-3489). The petitioner in that related proceeding, Savarino, is a principal in the instant corporate plaintiff, 124 Elmwood, LLC. Additionally, Savarino and Elmwood Village Charter School are competing for the privilege of purchasing and operating as a charter school a certain former public school building, School No. 36, that the City of Buffalo has proposed to abandon and sell for such purpose. Indeed, the legal object of the related litigation, in which Savarino has thus far prevailed, is to annul a March 2010 resolution of the City of Buffalo Common Council authorizing the sale of School No. 36 to the instant defendant.
In light of that related litigation and its object, this Court is compelled to infer that the underlying strategic objective of the instant litigation is to give Savarino and his firm, 124 Elmwood, LLC, leverage over defendant, its tenant, in relation to defendant's quest to purchase School No. 36. That object is more than hinted at in plaintiff's second cause of action, which explicitly alleges that defendant's breach of the lease can be averted as long as defendant abandons its plans to expand its student base, purchase School No. 36 from the City, and operate at just that site or at dual campuses.
Just as clearly, defendant's quest to purchase School No. 36 and operate it as a charter school forms the basis for plaintiff's instant allegations that defendant is in "anticipatory breach" of the subject lease. Basically, plaintiff alleges that the fact that defendant is in the market for a second school building that it proposes to expand into and operate in place of or in tandem with its present school building, i.e., the one leased by it from plaintiff, threatens to place defendant in violation of Education Law former § 2853 (1) (b-1), which provided that "an education corporation operating a charter school shall not be authorized to operate more than one school or house any grade at more than one site." According to the complaint, that state of affairs thus threatens to place defendant in default of its lease obligation to refrain from violating any applicable "governmental laws, rules, orders, ordinances and regulations." Either that, or defendant will have to abandon its present school building (or so plaintiff alleges), thereby placing defendant in default of its lease obligation to continuously occupy the leasehold premises. Under either scenario, plaintiff alleges, defendant will risk not having its State charter renewed, which likewise will constitute a default under the lease. Finally, plaintiff alleges that defendant demonstrably lacks the resources to both purchase School No. 36 and continue to meet its rental obligations to plaintiff, meaning that if defendant goes through with the purchase of the second building, it necessarily will default in paying rent under the lease.
Effective May 28, 2010, i.e., during the pendency of this motion, the statute was amended to provide:
"(b-1) An education corporation operating a charter school shall be authorized to operate more than one school or house any grade at more than one site, provided that a charter must be issued for each such additional school or site in accordance with the requirements for the issuance of a charter pursuant to this article and that each such additional school or site shall count as a charter issued pursuant to subdivision nine of section twenty eight hundred fifty-two of this article; and provided further that:
(A) a charter school may operate in more than one building at a single site; and
(B) a charter school which provides instruction to its students at different locations for a portion of their school day shall be deemed to be operating at a single site" (L 2010, ch 101, § 14).
Currently before this Court is defendant's pre-answer motion to dismiss the complaint for failure to state a cause of action ( see CPLR 3211 [a] [7]). That motion is opposed by plaintiff. Upon the consideration of the parties' submissions, this Court renders the following determinations:
On the motion to dismiss for failure to state a cause of action, the Court must accept the allegations of the complaint as true and accord the plaintiff the benefit of every possible favorable inference ( see Leon v Martinez, 84 NY2d 83, 87). The Court then must determine whether the facts as alleged by the plaintiff fit within any theory cognizable at law (see Leon, 84 NY2d at 87-88; Morone v Morone, 50 NY2d 481, 484). In opposing such a motion, the plaintiff may rest upon the allegations made in the complaint, in which case the issue for the Court is whether, within its four corners, the complaint sets forth the elements of a viable cause of action. Alternatively, in opposing a motion to dismiss under CPLR 3211 (a) (7), the plaintiff may submit affidavits and other materials to remedy defects in the complaint and preserve inartfully pleaded but potentially meritorious claims ( see Arrington v New York Times Co., 55 NY2d 433, 442, rearg denied and dismissed 57 NY2d 669, 674, cert denied 459 US 1146; Rovello v Orofino Realty Co., 40 NY2d 633, 635). In that case, the plaintiff's additional submissions are likewise to "be given their most favorable intendment" ( see Arrington, 55 NY2d at 442; see also Pharmhealth Infusion, Inc. v Rohm Servs. Corp., 249 AD2d 950 [4th Dept 1998]), and the Court is to focus on whether the pleader has a cause of action rather than on merely whether he has properly stated one (see Leon, 84 NY2d at 88; Rovello, 40 NY2d at 636). In that analysis, "unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, again dismissal should not eventuate" ( Guggenheimer v Ginzburg, 43 NY2d 268, 275).
Upon examining the allegations of the complaint within its four corners, the Court determines that it does not make out a valid claim either for anticipatory repudiation or for breach of contract. The Court further concludes that the deficiencies in the complaint are not rectified by a consideration of the materials submitted by plaintiff in opposition to the motion to dismiss.
First, this Court has some difficulty with the formulation in the complaint and in much of the case law of a concept of "anticipatory breach." The proper term of art, the Court feels, is "anticipatory repudiation." To employ the phrase "anticipatory breach" is essentially to refer to a breach in anticipation of a breach — a non-intelligible notion. The phrase "anticipatory repudiation," in contrast, conveys the more logical concept of a contracting party's repudiation or disavowal of its contractual obligations in advance of the performance of such obligations and, even more accurately, before the time for such performance — in other words, a repudiation in anticipation of a breach of contract, as conventionally defined ( see American List Corp. v U.S. News and World Report, 75 NY2d 38, 44 [holding that the doctrine refers to a "repudiation of the contract by one party before the time for performance"]; see also Long Is. R. R. Co. v Northville Indus. Corp., 41 NY2d 455, 466-468). Thus,
"The expression anticipatory breach is elliptical; it is the repudiation that is anticipatory, and the full expression would be breach, by anticipatory repudiation" (Restatement [First] of Contracts § 318, Comment d). "[An anticipatory] repudiation is sometimes elliptically called an anticipatory breach,' meaning a breach by anticipatory repudiation" (Restatement [Second] of Contracts § 253, Comment a).
"[a]n anticipatory breach of a contract precedes the time prescribed for its performance, or at least the time when tender of performance has been proffered. If it does not precede the time of performance or actual tender, it is not anticipatory" ( Wester v Casein Co. of Am., 206 NY 506, 514 [1912]).
Just as logical is the idea that the contracting party whose performance has become due is either in breach of or compliance with his contractual obligations and, while he remains in compliance, he is not (yet) in breach, "anticipatorily" or otherwise. Here, defendant's time for performing its contractual obligations — including the obligations of occupying the premises and paying rent to plaintiff — has arrived. (Indeed, defendant has performed and continues to perform all of its obligations under the contract.)
Second, in order to be guilty of an anticipatory repudiation, a contracting party must by its words or conduct unequivocally communicate or indicate its intention not to perform its agreed-upon obligations ( see Highbridge Dev. BR, LLC v Diamond Dev., LLC , 67 AD3d 1112 , 1115 [3d Dept 2009]; O'Connor v Sleasman , 37 AD3d 954 , 956 [3d Dept 2007], lv denied 9 NY3d 806; DeLorenzo v Bac Agency, 256 AD2d 906, 908 [3d Dept 1998]) — all of them. Thus, "[f]or there to be an anticipatory breach, there must be an unqualified and positive refusal to perform the whole of a contract" ( Broden v Marlow, 27 Misc 3d 133(A) *2 [App Term 2010], citing 22A NY Jur 2d, Contracts § 455; Rachmani Corp. v 9 E. 96th St. Apt. Corp., 211 AD2d 262, 266-267). Here, plaintiff has not alleged and cannot colorably allege, as it must to in order to claim an anticipatory repudiation, that defendant has finally, definitely, and unequivocally communicated to plaintiff its intent not to perform all of its future contractual obligations ( see Jacobs Private Equity, LLC v 450 Park LLC , 22 AD3d 347 [1st Dept 2005], lv denied 6 NY3d 703, citing Rachmani Corp., 211 AD2d at 266-267). Again, far from having disavowed its contractual obligations, defendant continues to perform them. Thus, under the circumstances at bar, plaintiff cannot make out a cause of action for either breach of contract or for anticipatory repudiation thereof. Plaintiff must await a default by defendant in occupying the premises, paying rent, maintaining its State charter, or otherwise complying with its lease obligations before plaintiff may sue to enforce the contract.
The Court makes clear, however, that it rejects defendant's argument that because, the lease spells out what acts or contingencies would amount to a default and thus would ground a claim for breach of contract, it would be conceptually impossible for defendant to anticipatorily repudiate its obligations under the lease. To put it another way, the lease by its terms would not preclude a claim for anticipatory repudiation.
Third, even assuming that an anticipatory repudiation is conceptually possible in a situation, such as this, in which the contracting party has undertaken to perform its contractual obligations and its still performing them, the allegations of the complaint, even if taken as true, fail to articulate any such repudiation by defendant. The former Education Law provision that plaintiff cites as precluding defendant's expansion of its school into a second school building did not in fact preclude any such thing. Rather, the former statute permitted a single charter school entity (i.e., defendant) to operate at more than one site, as long as it did not "house any grade at more than" one such site. Plaintiff's allegations also disregard any possibility that defendant will obtain a modification of its charter (if that is even necessary) now or upon renewal, that defendant will sublease the premises (in a manner and to an entity that may or should be "reasonably" acceptable to plaintiff), or that defendant will obtain sufficient funding to enable it to occupy both buildings, the one it seeks to buy and the one it currently leases from plaintiff. In any event, even open discussions by defendant's representatives of the charter school's existing or possible future financial problems does not constitute an anticipatory repudiation of its rent-payment obligations to plaintiff, any more than such discussions would constitute an anticipatory repudiation of defendant's contractual obligations to its teachers and other staff or to its suppliers and other creditors. "Mere expression of difficulty in tendering the required performance . . . is not tantamount to a renunciation of the contract ( Rachmani Corp., 211 AD2d at 267).
In any event, even that restriction has been relaxed or can be avoided (i.e., by daily shuttling students between the two school buildings) by the terms of the very recently amended statute ( see footnote 1, supra).
Accordingly, the motion of defendant is GRANTED, and complaint is DISMISSED in its entirety. Plaintiff's request for leave to amend its complaint is DENIED
SO ORDERED: