United States District Court, S.D. New York
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
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
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
The Lease requires the Rings' consent to any assignment, and it permits
the Rings to cancel the Lease altogether within
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
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
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
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).
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
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
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,
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 of the
GameSpy checks as a waiver of their right to withhold consent to the
assignment. See Jefpaul Garage, 462 N.E.2d at 1178; Excel
Graphics. 767 N.Y.S.2d at 103.
HearMe points out that "parties may waive a `no-waiver' clause,"
Lee v. Wright, 485 N.Y.S.2d 543, 544 (App. Div. 1st Dep't
1985), and argues that the Rings' overall conduct, beyond the mere
acceptance of rent, was sufficient as a matter of law to overcome the
no-waiver clause and thereby waive the Rings' right to withhold consent.
The record evidence is completely at-odds with this assertion. First, the
Rings immediately informed HearMe that it considered the assignment to
violate the terms of the Lease. Second, the Rings cashed rent checks only
from HearMe, the party whom they thought bound by the Lease; the Rings
did not cash the rent checks
from GameSpy. Third, the fact that the Rings engaged GameSpy in
long negotiations for a separate and more expensive lease suggests that
the Rings considered themselves to have some bargaining power in those
negotiations i.e., the right to decline the assignment request.
Fourth, when those negotiations collapsed, the Rings explicitly indicated
by letter that they did not consider GameSpy's checks to form the basis
of a landlord-tenant relationship. Keeping in mind the importance of
intent to this inquiry, see Degnon Contracting, 118 N.E. at
210, and the rationale behind the waiver rules of preventing a party from
clinging to inconsistent positions, see Jefpaul Garage, 462
N.E.2d at 1178, the Court notes that the evidence clearly demonstrates
the Rings' consistent and unambiguous intent to resist the purported
assignment. Accordingly, the Court concludes, as a matter of law, that
the Rings did not waive their right to withhold their consent to assign
HearMe next argues that the Rings unreasonably withheld their consent
to assign. HearMe emphasizes that the nature of the occupancy of the
Premises did not change after GameSpy took over because the same
employees continued running the same business in the same manner. HearMe
claims that the Rings withheld their consent to the assignment only for
the purpose of exacting a higher lease price from GameSpy, and they argue
that this is not a reasonable justification to withhold consent
under New York law. The Rings respond that they withheld consent out of
their concern for GameSpy's ability to pay, and they point out that "the
financial condition of the proposed assignee" is one factor explicitly
mentioned in the lease as a reason to withhold consent. Ring Aff. Ex E at
52. The Court concludes that there is no admissible record evidence of a
reasonable explanation for the Rings to withhold their consent to assign,
and that, therefore, the Rings breached the Lease in this regard.
Under New York law, "[t]he party seeking to enforce a contractual
obligation generally bears the burden of proof with respect to a
condition precedent." Rachmani Corp. v. 9 East 96th Street Apartment
Corp., 629 N.Y.S.2d 382, 386 (1st Dep't 1995). Applying that
principle to the Lease at issue here, HearMe bears the burden to show the
condition precedent that the Rings were unreasonable in
withholding consent because it is HearMe that seeks to enforce
the Rings' obligation to consent to the assignment.
Although New York law permits landlords to restrict the right of
assignment, such covenants are disfavored and "construed with the utmost
jealousy." See Riggs v. Pursell, 66 N.Y. 193, 201 (1876). "
[W]here a landlord affirmatively promises not to unreasonably withhold
its consent, its refusal
can only be based upon a consideration of objective factors," such
as the assignee's financial status, and the proposed use and nature of
the new occupancy. Astoria Bedding, Mr. Sleeper Bedding Center Inc.
v. Northside P'ship, 657 N.Y.S.2d 796, 797 (App. Div.3d Dep't 1997)
In this case, HearMe correctly points out that there is nothing in the
record to suggest that the Rings had a legitimate reason to withhold
consent. GameSpy's CEO testified at his deposition that the Rings never
alerted him to any objection to GameSpy's occupancy, nor any objection to
GameSpy's financial condition. It is undisputed that the nature of the
occupancy remained the same. The Rings only asserted reason for
withholding consent is that they believed GameSpy would be a financial
risk. The only evidence for this assertion, however, is the affidavit of
Frank Ring, which states that some unspecified GameSpy documents showed
that GameSpy "was losing money, but had some cash in the bank." Ring.
Aff. ¶ 9. Those documents are not attached to the affidavit, nor is
there any further explanation of how GameSpy would be a financial risk.
Under Federal Rule of Civil Procedure 56, a summary judgment affidavit
must set forth "such facts as would be admissible in evidence," and
"[s]worn or certified copies of all papers or parts thereof referred to
in an affidavit shall be attached thereto or served
therewith." Fed.R.Civ.P. 56(e). Under that Rule, the
unsubstantiated assertion that some unspecified documents showed GameSpy
to be a risk is insufficient. HearMe has met its burden to demonstrate
that the Rings' withholding of consent was unreasonable, and, because the
Rings failed to respond with "specific facts showing that there is a
genuine issue for trial," Id., the Court concludes that, as a
matter of law, the Rings' violated the terms of the Lease by unreasonably
withholding their consent to assignment. The Court notes additionally
that the Rings' desire for a more favorable lease with GameSpy is not a
reasonable ground to withhold consent to assignment because, if such
grounds were sufficient, landlords could render a "reasonable consent"
provision meaningless merely by demanding independent negotiations for a
lease on different terms with the potential assignee. Conceptually, such
a practice would be incompatible with one of the defining principles of
any assignment: that the assignee steps into the shoes of the assignor
and assumes whatever title and interests, rights and obligations the
assignor possesses and may transfer whole pursuant to the governing
property instrument. See In re Stralem, 758 N.Y.S.2d 345, 347
(App. Div.2d Dep't 2003). Because the parties here have not sufficiently
addressed the question of the proper remedy for such a breach, the Court
will reserve that
determination for later submissions, or for trial.
The parties concede that the Rings are owed at least some rent for the
period of February through August 2001, though no party attempts to
apportion that liability as between HearMe and GameSpy, nor does any
party attempt to specify an amount. Accordingly, those determinations
will also be made upon later submissions, or at trial.
For the stated reasons, it is hereby
ORDERED that the motions of defendants GameSpy Industries,
Inc. ("GameSpy") and HearMe (collectively, "Defendants") for partial
summary judgment declaring that they are not liable for rent owing to
plaintiffs Michael and Frank Ring (the "Rings") pertaining to the lease
(the "Lease") of the commercial premises at 30 E. 23rd St., Eighth Floor,
New York, New York, 10011 (the "Premises") for the period beyond August
9, 2001 are granted in part and denied in part. The Rings did not waive
their right to withhold consent to assign the Lease, but the Rings
breached the Lease by unreasonably withholding their consent to assign
the Lease. In all other respects, the motions are denied; it is further
ORDERED that the Rings' motion for partial summary judgment
is granted in part and denied in part. Defendants are liable to the Rings
for unpaid rent pertaining to the Premises
accruing on and before August 9, 2001. The amount and apportionment
of that liability will be determined upon later submissions or at trial.
The Rings did not waive their right to withhold consent to assign the
Lease, but the Rings breached the Lease by unreasonably withholding their
consent to assign the Lease. In all other respects, the motion is denied;
and it is finally
ORDERED that the parties appear at a final pre-trial
conference with the Court on February 20, 2004 at 3:30 p.m. to schedule