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RING v. MPATH INTERACTIVE

February 17, 2004.

MICHAEL RING and FRANK RING, as tenants in common, Plaintiffs, -against- MPATH INTERACTIVE, INC., HEARME, and GAMESPY INDUSTRIES, INC., Defendants


The opinion of the court was delivered by: VICTOR MARRERO, District Judge

DECISION AND ORDER

In this diversity action, plaintiffs Michael and Frank Ring (the "Rings") leased commercial space (the "Premises") to defendant HearMe. Defendant GameSpy Industries, Inc. ("GameSpy") purchased a large portion of HearMe's assets, including the business conducted at the Premises. HearMe attempted to assign its lease to GameSpy, but the Rings resisted. GameSpy eventually vacated the Premises before the end of the lease term. The Rings move the court for partial summary judgment and argue that either HearMe or GameSpy owes them the unpaid rent through the end of the lease term. HearMe and GameSpy, also moving for summary judgment, point the finger at one another as to who is bound by the lease, but they agree that no rent is due beyond the time period during which GameSpy's business occupied the Premises. Partially resolving all three motions for summary judgment, the Court concludes that, although the Rings did not waive their right Page 2 to withhold consent to assignment of the lease, the Rings unreasonably withheld that consent, in violation of the lease. The Court will determine the remedy for such breach by later submissions, or at trial.

I. BACKGROUND*fn1

  In June 1999, HearMe (then known as Mpath Interactive, Inc.) leased the Premises, comprising commercial space on 23rd Street in Manhattan, from the Rings for a five-year term (the "Lease"). In January 2001, GameSpy purchased certain HearMe assets, including the internet gaming media business HearMe conducted at the Premises. GameSpy did not alter in any way the business on the Premises — the same employees conducted the same business as before, except under new ownership. Later that month, HearMe wrote a letter to the Rings purporting to assign its lease to GameSpy. The Rings responded with a letter notifying HearMe that it considered the purported assignment to violate the Lease. The letter also requested that HearMe provide the Rings certain financial information from GameSpy.

  The Lease requires the Rings' consent to any assignment, and it permits the Rings to cancel the Lease altogether within Page 3 60 days of any assignment request. However, the Lease states that, if the Rings have not cancelled within the 60-day window, and if the tenant provides the name and reasonable financial information of the proposed assignee, the Rings may not unreasonably withhold their consent to the assignment.*fn2

  In the following months, the Rings attempted to negotiate an independent lease with GameSpy for a higher monthly rent, instead of an assignment. HearMe continued to pay rent for February, March and April 2001. GameSpy also tendered rent checks for those same months, as well as for May and June 2001, but the Rings never cashed GameSpy's checks. Negotiations for a new lease with GameSpy were not successful, and at some point in the summer of 2001, Frank Ring went to the Premises and, allegedly in loud, abusive language, told GameSpy employees that they had no right to occupy the Premises, and that their rent checks (which the Rings had not Page 4 cashed) were insufficient. In August 2001, the Rings wrote a letter to GameSpy stating that they would accept the checks tendered, "under protest and without prejudice to [their] rights." Ring Aff. Ex. H. The letter stated that the payments would be accepted only "as use and occupancy for the premises," not as the basis for a landlord-tenant relationship. Id. The letter suggested that the Rings would initiate eviction proceedings, unless the parties could agree on a suitable lease agreement. Id.

  GameSpy vacated the Premises one week later and stopped payment on the rent checks it had tendered to the Rings. The Rings assert that, despite their best efforts, they have not been able to re-lease the Premises.

 
II. STANDARD FOR A SUMMARY JUDGMENT MOTION
  The Court may grant summary judgment only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court must first look to the substantive law of the action to determine which facts are material; "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Page 5 Lobby, Inc., 477 U.S. 242, 248 (1986). Even if the parties dispute material facts, summary judgment will be granted unless the dispute is "genuine.'" Id. at 249. "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Id. at 252.

  Throughout this inquiry, the Court must view the evidence in the light most favorable to the non-moving party and must draw all reasonable inferences in favor of that party. See Hanson v. McCaw Cellular Communications, Inc., 77 F.3d 663, 667 (2d Cir. 1996).

  III. DISCUSSION

  All three summary judgment motions depend, at least in part, upon whether HearMe's purported assignment of the Lease to GameSpy was valid. The Lease requires that the Rings consent to any assignment, and it is undisputed that they did not formally do so. HearMe first argues that the Rings waived their right to withhold consent because their actions — accepting rent from HearMe and GameSpy and permitting GameSpy to remain on the Premises for over five months — amounted to a waiver of the Rings' right to withhold consent. The Court disagrees.

  Under New York law, waiver occurs where there "is an Page 6 intentional abandonment or relinquishment of a known right or advantage which, but for such waiver, the party would have enjoyed." Alsens American Portland Cement Works v. Degnon Contracting Co., 118 N.E. 210 (N.Y. 1917). Waiver is "essentially a matter of intention." Id. When a landlord accepts rent from a tenant while knowing of a lease violation which would otherwise permit the landlord to terminate the tenancy, New York courts normally deem the violation waived. See, e.g., Woollard v. Schaffer Stores Co., 5 N.E.2d 829, 832 (N.Y. 1936). The "primary reason" for such a rule is the inconsistency inherent in the landlord's treating the tenant as both a tenant (in accepting rent) and as a trespasser (in maintaining the right to terminate the tenancy). See Jefpaul Garage Corp. v. Presbyterian Hosp., 462 N.E.2d 1176, 1178 (N.Y. 1984).

  However, a waiver may not be inferred from the landlord's acceptance of rent when, by the terms of a lease's "no-waiver" clause, the parties "have expressly agreed otherwise." Id. In other words, "the parties to a commercial lease may mutually agree that conduct, which might otherwise give rise to an inference of waiver, shall not be deemed a waiver of specific bargained for provisions of a lease." Excel Graphics Technologies, Inc. v. CFG/AGSCB 75 Ninth Ave., L.L.C., 767 N.Y.S.2d 99, 103 (App. Div. 1st Dep't 2003). Allowing an Page 7 inference of waiver under such circumstances would effectively render meaningless a part of the lease. Id.

  In this case, the parties agreed to a no-waiver clause in the Lease, which states:
The receipt by Owner of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. . . . Acceptance by Owner of rent from anyone other than Tenant shall not be deemed . . . as a consent by Owner to an assignment . . . to such payor. . . .
Ring Aff. Ex E at 48. By the unambiguous terms of this no-waiver provision, the Court will not construe the Rings' acceptance ...

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