Court Opinion

ID: 813048
Source: CourtListenerOpinion
Date Created: 2012-12-04 17:49:02+00
Date Added: 2024-06-11T18:00:46.989501
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                _____________

                                     No. 12-1132
                                    _____________

                           G&S LIVINGSTON REALTY, INC.,
                                     Appellant

                                           v.

                                CVS PHARMACY, INC.
                                   _____________

                    Appeal from the United States District Court
                             for the District of New Jersey
                           (D.C. Civil No. 2-10-cv-00303)
                    District Judge: Honorable Susan D. Wigenton
                                    _____________

                               Argued November 14, 2012

           Before: RENDELL, FUENTES and CHAGARES, Circuit Judges

                            (Opinion Filed: December 4, 2012)
                                     _____________

Agnes Antonian, Esq.
Kevin J. Coakley, Esq.
Nicole B. Dory, Esq.
Stephen V. Falanga, Esq.    [ARGUED]
Connell Foley
85 Livingston Avenue
Roseland, NJ 07068
  Counsel for Appellant
Edith K. Altice, Esq.
Jason M. St. John, Esq. [ARGUED]
Saul Ewing
500 East Pratt Street, Suite 900
Baltimore, MD 21202

William C. Baton, Esq.
Saul Ewing
Suite 1520
One Riverfront Plaza
Newark, NJ 07102

Ruth A. Rauls, Esq.
Saul Ewing
750 College Road East, Suite 100
Princeton, NJ 08540
  Counsel for Appellee
                                     _____________

                                 OPINION OF THE COURT
                                      _____________

RENDELL, Circuit Judge.

      Appellant G&S Livingston Realty, Inc. appeals the District Court’s denial of its

motion for summary judgment and the District Court’s grant of Appellee CVS Pharmacy,

Inc.’s motion for summary judgment. For the reasons discussed below, we will vacate

and remand.

                                            I.

      The facts of this case are undisputed. In June 1996, Lessor G&S Livingston

Realty, Inc. (“G&S”) entered a lease with Lessee Linens ‘N Things, Inc. (“Linens”) for

retail space in the Livingston Retail Center (the “Lease”). The Lease included a Co-

Tenancy provision that states:

                                            2
      Landlord represents and warrants that it intends to enter into leases and/or
      operating agreements with at least two (2) nationally recognized retail
      tenants occupying at least twenty-five thousand (25,000) square feet each
      for initial terms expiring on or about the expiration of the Initial Lease
      Term. After such two (2) tenants initially open for business, if at all,
      thereafter if fewer than two (2) tenants occupying the minimum co-tenancy
      percentage are open for regular business, Tenant shall have the option to
      pay, as alternative rent in lieu of Annual Minimum Rent, its monthly Gross
      Sales, as defined in Exhibit I, multiplied by the three percent (3%), such
      product not to exceed its monthly installment of Annual Minimum Rent, in
      advance on or before the tenth (10th) day of the calendar month next
      following the month during which such sales were made (“Alternative
      Rent”). Tenant shall deliver copies of all sales figures for the Premises for
      the preceding calendar month on or before the tenth (10th) day of each
      month. If such condition persists for a period of twelve (12) consecutive
      months or more, Tenant shall have the right to cancel and terminate this
      Lease upon thirty (30) days notice to Landlord, such notice to be given at
      any time prior to the date the condition giving rise to such termination right
      has been satisfied.

In connection with the Lease, Melville Corporation, Linens’s parent company, executed

an unconditional guaranty that required it to pay rent and other sums due under the Lease

to G&S if Linens defaulted (the “Guaranty”). CVS Pharmacy, Inc. (“CVS”), the

successor to Melville, assumed the Guaranty.

      In May 2008, Linens defaulted on its obligations under the Lease and filed for

bankruptcy. In December 2008, it filed a notice rejecting the Lease and vacated the

leased premises. In February 2009, G&S and CVS executed a settlement agreement that

obligated CVS to pay the past due amounts that Linens owed under the Lease but

reserved CVS’s rights to contest future demands for payments. Throughout 2009, G&S

requested that CVS make payments that were due under the Lease, and CVS complied.

CVS never assumed the Lease, and Linens did not assert any claims against G&S in its

bankruptcy action.

                                            3
       In January 2010, CVS informed G&S that it was exercising Linens’s rights under

the Co-Tenancy provision of the Lease and terminating the Lease because there were

fewer than two co-tenants in the Retail Center for twelve consecutive months.      In

addition, CVS demanded that G&S repay it the rent it had paid in 2009, reasoning that it

was entitled to pay the Alternative Rent for that period, and under the Alternative Rent

formula, it owed nothing in rent.

       G&S brought suit against CVS, alleging among other things, that CVS breached

the Guaranty, and seeking declaratory judgment that CVS was in material breach of the

Guaranty and responsible for all accruing payments and expenses due under the Lease.

G&S argued that CVS could not invoke the Co-Tenancy provision of the Lease because it

was not a party to the Lease. G&S also argued that even if CVS could have exercised

Linens’s rights under the Lease, the Lease was terminated in 2008 under the common law

doctrine of surrender and/or when the Lease was rejected in bankruptcy and thus,

Linens’s rights under the Co-Tenancy provision were no longer exercisable in 2010 when

CVS attempted to assert them.

       CVS filed counterclaims against G&S seeking declaratory relief that it was

entitled to pay the Alternative Rent as of January 1, 2009 and that it was entitled to

terminate the Lease. In addition, CVS alleged that G&S breached the Lease by

demanding that CVS pay the Annual Minimum Rent in 2009 when it should have only

had to pay the Alternative Rent, and that it was entitled to recoup what it had paid in rent

during that year because under the Alternative Rent formula, it owed nothing.

                                              4
       Both G&S and CVS moved for summary judgment. The District Court denied

G&S’s motion and granted in part and denied in part CVS’s motion. The Court held that

the Lease was not terminated in 2008, and that CVS was allowed to exercise Linens’s

rights under the Co-Tenancy provision. The Court reasoned that, although it is a general

rule that “when a creditor sues a guarantor but the principal debtor is not named in the

action, the guarantor is not entitled to assert the claims of the principal debtor as defenses

against the creditor,” it is a well-established exception that “when the principal is

insolvent, the guarantor may set-off the principal’s claims against the creditor.” G&S

Livingston Realty, Inc. v. CVS Pharmacy, Inc., 2011 WL 6756948, at *3 (D.N.J. Dec. 21,

2011) (internal citation omitted). The Court explained that because in the instant case,

Linens was insolvent, CVS was entitled to affirmatively exercise Linens’s rights under

the Lease, which allowed CVS to pay the Alternative Rent while there were fewer than

two co-tenants in the Retail Center and to terminate the Lease if that condition persisted

for twelve consecutive months. However, the Court also concluded that CVS could not

recover the excess it paid over the Alternative Rent in 2009 because the Co-Tenancy

provision gave CVS an option to pay the Alternative Rent, which it had failed to exercise

for that period.

       G&S appeals the District Court’s ruling that the Lease did not terminate in 2008

and that CVS was able to exercise Linens’s rights under the Lease and thereby pay

nothing under the Guaranty.

                                              5
                                               II.

        We review a district court’s denial and grant of summary judgment de novo.

Pichler v. UNITE, 542 F.3d 380, 385 (3d Cir. 2008).

       We conclude that the District Court erred in holding that under New Jersey law, a

guarantor can affirmatively exercise a principal’s rights under a lease when the principal

is insolvent. It is black letter law that if a creditor sues a guarantor, and the guarantor is

not a party to the contract between the creditor and the principal or intended as a third-

party beneficiary to the agreement, the guarantor cannot assert a right under, or enforce,

the principal’s contract. First Nat’l Bank of N.J. v. Carlyle House, Inc., 102 N.J.Super.

300, 322 (N.J. Super. Ct. Ch. Div. 1968), aff’d, 107 N.J. Super. 389 (N.J. Super. Ct. App.

Div. 1969), certif. denied, 55 N.J. 316 (N.J. 1970) (“A party cannot enforce provisions of

a contract to which he is not a privy, unless it is clear that the parties to the contract

intended to confer upon him the right to enforce it.”). No authority has been cited to us

that would permit a non-party, non-beneficiary, to exercise a right to terminate, or

exercise an option under, a contract, as was done here. Here, CVS was not a party to the

Lease between G&S and Linens nor was it intended as a third-party beneficiary to the

agreement. Further, there is no language in the Lease, Guaranty, or settlement agreement

that can be construed as granting CVS the ability to assert Linens’s rights under the

Lease. Accordingly, we will reverse the District Court’s ruling that CVS could opt for

the Alternative Rent and terminate the Lease.

       CVS relies on case law that provides that, as an exception to this general rule, a

guarantor may assert a principal’s claim if the principal is insolvent, Coldwell Banker

                                               6
Real Estate, LLC v. P lummer & Assoc., Inc., 2009 WL 3230840, at *2 (D.N.J. Oct. 2,

2009). However, that case law does not apply here because CVS was not asserting a

“claim” against G&S. 12 G&S’s failure to maintain two co-tenants in the Retail Center

was not a breach of the Lease; it merely triggered Linens’s option to pay the Alternative

Rent and Linens’s right to terminate the Lease if the condition persisted—rights that

Linens did not exercise. Linens had no claim against G&S under the Lease, and neither

did CVS.

         Because we conclude that CVS could not, as a matter of law, affirmatively

exercise Linens’s rights under the Co-Tenancy provision, we do not find it necessary to

decide whether the Lease was terminated in 2008, as, pursuant to the terms of the

Guaranty, that does not impact CVS’s obligations under the Guaranty. The Guaranty

imposes an unconditional obligation on CVS that continues regardless of the status of the

Lease.

1
  Appellant argues that even if Linens had a claim against G&S, CVS could not assert it
because under New Jersey law, only sureties, and not guarantors, can assert a principal’s
claim against a creditor if the principal is insolvent. Because we conclude that Linens
does not have a claim that it could assert against G&S, we do not find it necessary to
resolve this issue of New Jersey law.
2
  Appellee cites Cinema North Corporation v. Plaza at Latham Associates, 867 F.2d 135
(2d Cir. 1989) in support of its contention that CVS can exercise Linens’s contractual
rights because Linens is insolvent. Cinema North, however, is clearly distinguishable.
There, the Second Circuit Court of Appeals, applying New York law, held that a
guarantor, who negotiated a lease on behalf of the principal, could bring suit seeking
specific performance of a lease because the guarantor was presumed to have the
principal’s consent to do so, as the principal was a “corporation to be formed by, to be
controlled by, and to have the same officers” as the guarantor. Id. at 139-40.

                                             7
       For the reasons stated above, we will vacate the order of the District Court and

remand for entry of judgment against, and assessment of amounts due and owing from,

CVS.

                                             8