MRO Mid-Atlantic Corp. v. Interstone/CGL Partners, L.P.

By Judge Leslie M. Alden This matter came before the Court on June 13, 1997, upon Defendant's Demurrer, Plaintiffs Opposition thereto, and Defendant’s Reply to the Opposition. At die hearing, the Court took under advisement die following issues: (i) whether the terms of the Lease required Defendant Interstone/CGL Partners, LJP. ("Interstone") to approve the proposed assignment by Plaintiff MRO Mid-Atlantic Corp. ("MRO”) to McDonald’s Corporation, (II) whether Interstone was estopped from arguing that its basis for denial of the assignment at issue was because it "amended” die Lease, (HI) whether a cause of action for tortious interference was properly alleged in the Motion for Judgment, and (IV) whether there were any facts in dispute which would prevent the Court from entering a final disposition on this case as a matter of law. As explained below, the Court finds that Interstone is not required to approve the proposed assignment by MRO, Interstone is not estopped from asserting additional arguments, and tortious interference is not properly alleged in this case. Accordingly, the Demurrer is sustained as to each Count. Factual Background MRO and Interstone are successors to Marriott Corporation and Holiinswood Associates, respectively, who executed a 100 year lease in 1979 ("Lease”). In the Lease, tenant Marriott agreed to occupy commercial property — 262 — owned by landlord Hollinswood. Marriott agreed to operate a Roy Rogers restaurant on the demised premises, which adjoined property upon which a hotel was to be constructed. Paragraph 4 of the Lease provides: 4. Use of the Demised Premises A. The demised premises may be used solely for the purpose of operating a “Roy Rogers Restaurant’ facility substantially similar to that being currently (roerated by Tenant on the demised premises, and any other commercial or retail use, so long as such is consistent with the best interest, as more fully described in subparagraph B below, of the hotel to be constructed on the adjoining property, as more fully described in subparagraph below. B. Landlord and Tenant acknowledge that Landlord intends to construct on toe property adjoining toe demised premises a first class commercial hotel facility. Tenant covenants and agrees that during toe term hereof it shall not use toe demised premises in a manner detrimental to or which will interfere in any way with Landlord’s use of toe adjoining property. In furtherance, but not in limitation of toe said covenant, Tenant agrees that it shall not use toe demised premises in such a way as to compete with Landlord’s use and that it will not usé toe demised premises in an unattractive or disreputable manner or construct on toe demised premises improvements which will detract from the appearance of toe adjoining property or materially interfere with toe view from landlord's proposed improvements. Tenant further covenants and agrees that toe appearance of toe demised premises and toe deportment of personnel employed therein, as well as toe nature and subject matter of all displays, advertising, and products offered for sale will be consistent with this Paragraph 4. Under toe terms of toe Lease, toe tenant agreed to pay toe landlord $35,941.20 per month for twenty years and $1.00 per month tor toe remaining eighty years of the Lease term. See Motion for Judgment, Exhibit (“Ex.”) 1. After MRO and Interstone acquired their respective interests in toe Lease, MRO sold the Roy Rogers restaurant to McDonald’s Corporation; however, pursuant to toe Lease, MRO needed Interstone’s consent to assign toe Lease to McDonald’s. See Lease paragraph 13. Paragraph 13 sets out when assignment and subleasing are permissible. Paragraph 13.A affords the Tenant toe right to assign the Lease to: — 263 — any corporation wholly owned by or affiliated with the Tenant, or to a corporation resulting from the merger or consolidation of the Tenant, or to a corporation resulting from the sale of the entire business of the Tenant.... The Tenant may also assign the Lease to non-affiliated entities as long as the assignment comports with the terms of Paragraph 13.C. Paragraph 13.C of tiie Lease provides: Tenant shall have the right to assign this Lease ... subject to the provisions of this [paragraph]. Prior to such assignment, Tenant shall provide Landlord with a fully executed copy of said assignment which shall contain the full and complete agreement between the parties thereto ... . Landlord shall have the right to disapprove said proposed assignment only if, in its reasonable judgment, the proposed assignee would not be capable of satisfactorily complying with the provisions of Paragraph 4 hereof. [Emphasis added.] MRO presented Interstone with the proposed assignment (“P.A.”). See Motion for Judgment, Ex. 2, “Assignment of Lease.” Interstone refused to consent to the P.A. In a letter to MRO, Interstone cited Section 4 of the Lease as grounds for rejecting the PA. In response to Interstone’s rejection of the P.A., MRO filed this Motion for Judgment, seeking in Count 1 a declaratory judgment that Interstone must consent to the P.A. to McDonald’s, alleging in Count n a breach of contract for Interstone’s Mure to do so, seeking in Count HI Interstone’s specific performance of the covenants in the Lease, and alleging in Count IV that Interstone has tortiously interfered, with the expectations of MRO; MRO also seeks recovery of its attorney’s fees. MRO’s successful pursuit of these claims depends upon whether Interstone was obliged by the Lease terms to consent to the P. A In its Memorandum of Law in Support of its Demurrer to the Motion for Judgment (“Demurrer”), Interstone argues that it is not obligated to approve the assignment because tire proposed transaction (I) does not conform with the requirements of Paragraph 13 of the Lease and (2) is actually an amendment to the Lease rather than a mere assignment. MRO disputes these contentions, claiming that the proposed assignee can comply with the provisions of Paragraph 4 of the Lease mid, accordingly, the Lease affords no other basis for Interstone to reject the PA. — 264 — Legal Arguments L Whether the terms of the Lease required Interstone to approve the proposed assignment by MRO. For the following reasons, foe Court finds that foe P.A. exceeded foe scope of permissible assignments as agreed to by foe parties and as provided in the Lease, and thus, Interstone is under no obligation to approve foe P.A. The Lease signed in 1979 governs foe parties" rights and obligations with respect to assignments and subletting. Paragraph 13 of the Lease sets out the circumstances under which an assignment of foe Lease is permitted. Pursuant to foe provisions relevant here, MRO has foe ability to assign foe Lease to McDonald's only with Interstone's acceptance. Lease paragraph 13.C, supra. Interstone may disapprove a proposed assignment if, in its reasonable judgment, foe proposed assignee is not capable of complying with foe Lease provisions outlining how foe tenant may use the property. Id. Among other things, foe Lease provides that an assignment, if otherwise permitted, shall not be construed as a waiver of MRO’s duty to obtain Interstone’s consent to any subsequent assignments. Paragraph 13.E provides: hi foe event of a permitted assignment or subletting hereunder, such assignment shall not be construed as a waiver of foe duty of foe Tenant (or foe permitted assignee .. .) to obtain from foe Landlord consent to any other subsequent assignment or subletting ... . Any such permitted assignment or sublease shall be upon and subject to all of the provisions, terms, covenants, and conditions of this Lease, and any permitted assignee or sub-tenant shall continue to be and remain liable thereunder. These are foe requirements of foe Lease governing assignments. However, the P.A. submitted by MRO was impermissible because it did not conform to these requirements of foe Lease. By its express terms, foe P.A. sought to eliminate Interstone’s right to approve subsequent assignments of the Lease. Paragraph 3(a) of foe P.A. states that foe landlord’s "consent shall not be required for any assignment, sublease, or other transfer to a franchisee or wholly-owned subsidiary of Assignee.” Clearly, Interstone had no obligation under foe terms of foe Lease to accept such a proposal. Indeed, such a proposal directly contravenes Interstone’s reserved rights under the Lease. Moreover, MRO is manifestly precluded by foe Lease from making an assignment such as that proposed. According to § 17(AX¡ii) of foe Lease, an — 265 — event of default is defined as an attempt to assign the Lease in a manner that does not conform to the requirements of Paragraph 13. Arguably, by tendering the P.A. and insisting upon it, MRO’s conduct constitutes an event of default under ihe Lease, hi any event, the P.A. does not comport with the requirements of an assignment under the Lease, and Interstone is not obligated to accept it To the extent the P.A. can be described as a unilateral amendment to the Lease, nothing in the Lease requires Interstone to approve it II. Whether Interstone is estopped from arguing that it is not required to approve the proposed assignment because the assignment operates as an amendment to the Lease that need not be accepted. Interstone’s initial rejection of the P.A. was “based on the fact that the proposed assignee is not capable of satisfactory complying [sic] with the provisions of Section 4 ... .* December 3, 1996, Letter from Intersione to MRO. In its pleadings filed in this Court, interstone argued that it rejected the P.A. because it effected an amendment to die Lease and because it derogated Interstone’s rights under the Lease. MRO argues that hiterstone is estopped from asserting any justification for its rejection other than that raised in its December 3, 1996, letter to MRO. hi support of its estoppel argument, MRO relies on cases decided by die Fourth Circuit Court of Appeals. Fruit Growers’ Express Co. v. Plate Ice Co., 59 F.2d 605 (4th Cir. 1932); Chevrolet Motor Co. v. Gladding, 42 F.2d 440 (4th Cir. 1930); Luckenbach S.S. Co. v. W. R. Grace & Co., 267 F. 676 (4th Cir. 1920). According to MRO, these cases establish that a party who xeMes on a certain reason for refusing to perform a contract may not raise a different defense when later sued on a claim of nonperformance. None of die cases cited by MRO, however, involve Virginia statutes or cite to specific Virginia case law. Moreover, the facts of each of the cases relied upon by MRO are clearly distinguishable from the case before the Court Fruit Growers’ Express Co. involves a North Carolina corporation seeking recovery from a Delaware corporation for breach of a sales contract where the place of delivery is at issue. In Chevrolet Motor Co., which cites primarily District of Columbia and Maryland law, at issue is a contract for the sale of cars and parts and whether the contract lacks mutuality or consideration. In Luckenbach S.S. Co., a Connecticut corporation sued a Delaware corporation over the validity of a contract executed by the two parties; at issue was die defense of “want of mutuality” and whether the terms of the shipping contract were affected by a Declaration of War. To the extent these cases correctly reflect die law regarding estoppel, the Court finds that it simply does not — 266 — apply to the facts of this case. Rather, Paragraph 17.G of the parties’ Lease resolves the dispute over the issue. That paragraph provides: The exercise by Landlord of any one or more of the rights or remedies provided for in this Lease... shall not preclude simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. The parties to the Lease agreed that die landlord would not be barred from exercising its rights, including raising all available defenses under die Lease, when necessary. Where a contract provides bargained-for protection, a party is not estopped fiom invoking that protection to his benefit. See Spotsylvania County v. Seaboard Surety Co., 243 Va. 202, 216-17 (1992). Further, die Court finds that Interstone’s position in this litigation is not inconsistent with its position at the time of the rejection of the P. A. Given that the P.A. was contrary to the Lease and provided for Interstone’s consent to and acceptance of unidentified and unknown future assignees, Interstone was permitted under the Lease to disapprove die P.A. MRO has not alleged facte in the Motion for Judgment to support a claim that Interstone’s disapproval of the P.A. under these circumstances was a violation of Interstone’s obligation to exercise its reasonable judgment in considering the PA. Nor has MRO alleged facte which suggest that Interstone acted unreasonably in concluding that an unidentified assignee could not perform satisfactorily the Lease obligations contained in Paragraph 4. Thus, if estoppel were to prevent Interstone fiom asserting arguments beyond those initially raised, Interstone is not precluded fiom advancing extensions, or other aspects, of its earlier arguments. HI. Whether a cause of action for tortious interference was properly alleged in the Motion for Judgment. Interstone additionally argues that the claim for tortious interference with a prospective business relationship will not lie because MRO claims recovery under a breach of contract theory for the same acts. To properly state a claim for tortious interference with a prospective business relationship, MRO must demonstrate: (l)the existence of a business relationship or expectancy, with a probability of future economic benefit to plaintiff; (2) defendant’s — 267 — knowledge of die relationship or expectancy; (3) a reasonable certainty that absent defendant’s intentional misconduct, plaintiff would have continued in the relationship or realized the expectancy; and (4) damage to plaintiff. Commercial Business Systems, Inc. v. Halifax Corp., 253 Va. 292 (1997). As Interstone’s disapproval of the P.A. is the only misconduct alleged by MRO and given die Court’s decision that Interstone was entitled under dm lease to reject die P.A., there can be no finding of misconduct on diese finds. Accordingly, MRO’s claim of tortious interference must fail because, as a matter of law, MRO has not stated all elements of the tort IV. Whether there were any facts in dispute which would prevent the Court from entering a final disposition on this case as a matter of law. The parties seem to agree that there exist no material diets in dispute regarding the issues presented by the Demurrer. However, as the Demurrer is sustained as to all counts and as to MRO’s prayer for attorney’s fees, MRO may have leave to amend the motion for judgment within twenty-one days of August 8,1997.