The opinion of the court was delivered by: David G. Trager United States District Judge
This dispute arises from the assignment of a commercial lease, which the landlord contends was made in violation of the lease. A Yellowstone injunction was granted in November 2004; now, both parties move for summary judgment.
Defendant Rian Realty, Inc. ("defendant" or "Rian") is the owner of real property located at 115-05 Beach Channel Drive, Far Rockaway, New York 11694 ("Premises"). Def's Appx., Ex. R. (Deposition of Naftaly Hirshman) ("Hirshman Dep.") at 7-8.*fn1 Rian is owned by Naftaly Hirshman and his wife. Hirshman Dep. at 6-7. Rian has owned the Premises since 1976. Id. at 7. From 1976 until 1998, there was a Exxon gas station on the Premises. Id. at 7-8; Affidavit of Matthew Fischer ("Fischer Aff.") ¶ 2; Ex. S; Ex. U, Article 1(b). Although it is unclear from the record, it appears that Exxon Corporation ("Exxon") held a lease to the gas station. Hirshman Dep. at 8-9. On July 16, 1998, Rian and Exxon duly executed a new written lease ("Lease") affecting the Premises. Ex. U.*fn2 The Lease, which became effective on July 21, 1998, has a term of fifteen years, running from January 1, 1999 to December 31, 2013. The parties agreed that the gas station would be torn down and a new gas station and convenience store would be constructed. Ex. V. (First Amendment of Lease, dated Oct. 19, 1999); Ex. S. (Deposition of Adam DiGirolamo) ("DiGirolamo Dep.") at 8; Hirshman Dep. at 14-15, 23. Once the Lease was signed, the old gas station was dismantled. Id.
On December 19, 1999, Exxon informed Rian that Tosco Corporation ("Tosco") had agreed to acquire over 1,700 Exxon service stations. Ex. 2. Exxon sought Rian's consent to an assignment of the Lease to Tosco. Id. In a letter dated February 27, 2000, Exxon explained to Rian that Exxon*fn3 believed that it was entitled to assign the Lease to Tosco Corporation ("Tosco") and that Rian's consent to the assignment could not be reasonably withheld under the circumstances.*fn4 Ex. O. The letter also discussed a number of other outstanding issues between Exxon and Rian. On March 1, 2000, with written consent from Rian, Exxon assigned its interest in the Lease to Tosco. Ex. O; Fischer Aff. ¶ 2. As part of that assignment, Tosco assumed the remaining costs of constructing the gas station and convenience store, which were completed in July 2000. Fischer Aff. ¶ 2. Tosco then merged into plaintiff Phillips Petroleum Company, which later changed its operating name to ConocoPhillips. Fischer Aff. ¶ 2. The service station continued to do business under the Exxon trademark. Ex. 2; Affidavit of Harry Brenner ("Brenner Aff.") ¶ 13.
In a letter dated June 11, 2003, ConocoPhillips informed Rian that it had entered into an agreement to sell a number of service station properties and related leasehold interests, including the Lease, to plaintiff Cumberland Farms, Inc. ("Cumberland Farms"). Ex. G. ConocoPhillips requested that Rian consent to a proposed assignment of the Lease to Cumberland Farms ("Proposed Assignment"). Ex. 4. At some point after receiving the June 11, 2003 letter, Hirshman spoke to "somebody over the phone" at ConocoPhillips and "told them that [he was] not consenting to [the Proposed Assignment]." Hirshman Dep. at 64. On September 10, 2003, ConocoPhillips executed an "Assignment and Assumption Lease" with Cumberland Farms ("Assignment"), in which ConocoPhillips assigned its interest in the Lease to Cumberland Farms. Ex. L. Although the Assignment states that "Landlord has consented to such transfer pursuant to Article 27 of the Lease, a copy of which consent is attached as Exhibit B attached hereto," no consent form was attached to the document. Id.
In a letter dated September 16, 2003, ConocoPhillips informed Rian that because it did not "respond timely to our requests for consent, we take the position that consent has been unreasonably withheld and are, therefore, proceeding with our proposed assignment of the lease to [Cumberland Farms]." Ex. K. ConocoPhillips added that "[u]pon completion of our transaction, we will provide you with a copy of the fully executed assignment of lease for your file, along with information concerning the new tenant." Id.
On November 17, 2003, Rian sent a letter to Cumberland Farms stating that "[w]e indicated to ConocoPhillips that our client would object to your Assignment unless the [pending] defaults were cured." Ex. 6. Rian also stated that it "did not consent to the assignment or assumption of the Lease." Id. Rian explained that its "withholding of consent was based upon (i) [three] pending uncured defaults*fn5 and (ii) the Landlord's right to object to any assignment to other than a 'Major' [oil company] as defined in [Article 27 of] the Lease." Id. Finally, defendant stated that "[a]ll rents paid or received since the date of your purported Assignment from ConocoPhillips will be accepted by the Landlord without prejudice to the Landlord's rights and remedies, all of which are fully reserved." Id. (emphasis in original). From September 30, 2003 onward, Cumberland Farms paid rent directly to Rian.*fn6 Affidavit of Christine Corkum ("Corkum Aff.") ¶ 3.
In a document entitled "Notice to Cure" and dated August 10, 2004 ("August 10 Notice to Cure"), defendant informed Cumberland Farms that it was in default of various provisions of the Lease. Ex. 9. Article 30 provides a cure period to allow the lessee to cure potential defaults.*fn7 In the August 10 Notice to Cure, defendant listed the following alleged defaults:
(1) The Lessee is in default in the performance of Article 13(f) entitled "I.C.I.P." in that the Lessee has never furnished nor filed the materials required to enable the Lessor to receive the tax abatements and exceptions provided by the I.C.I.P. Program and that as a result thereof, the Lessor never received the tax abatements nor exceptions to which it would be entitled under the program.
(2) The present occupant of the premises allegedly, pursuant to the mesne assignments, the last of which allegedly was from PHILLIPS/CONOCO to CUMBERLAND FARMS, has never been validated nor is it effective by reason of the multiple failures to comply with the provisions of Article 27 of the Lease entitled "Assignment by Lessee" including, but not limited to, the following:
(i) There was no request for the Landlord's consent to the alleged Assignment from PHILLIPS/CONOCO to CUMBERLAND FARMS and the Landlord never executed a consent nor made a rejection of the application. By reason thereof, the Assignment is a nullity and void.
(3) In accordance with sub-division (b), the Tenant/Lessee EXXON CORP. and each successor Lessee, is not relieved of liability pursuant to the terms of the Lease by reason of the fact that no Assignee, a major oil company, delivered to the Lessor a full, unconditional Assumption Agreement, whereby it assumed all obligations of the Lessee under the Lease.
(4) That in accordance with subdivision (c), there has been no delivery of any Estoppel Certificate and Assignment and Assumption Agreement (duly acknowledged) signed by all of the parties to such Assignment. To date, same has never been furnished by the occupant, CUMBERLAND FARMS, nor its alleged Assignor.
(5) The documents required to be furnished to the Lessor, in accordance with (4) above, were required pursuant to sub-division (c) to be delivered ". . . prior to the effective date of the proposed Assignment. . . ." Same was not so delivered.
Ex. 9. The "Notice to Cure" advised Cumberland Farms that unless the enumerated defaults were cured within thirty days, the Landlord "may at its option elect to terminate the subject Lease by giving appropriate Notice of Termination." Id.
On September 8, 2004 Cumberland Farms and ConocoPhilips (collectively "plaintiffs") filed suit against Rian in New York State Supreme Court, seeking declaratory and injunctive relief, including a temporary restraining order and a Yellowstone injunction pursuant to First Nat. Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630, 237 N.E.2d 868, 290 N.Y.S.2d 721 (1968).*fn8 Ex. A. On September 9, 2004, the court granted plaintiffs' request for a temporary restraining order. Ex. D. On September 15, 2004, defendant removed the case to federal court based on diversity jurisdiction. On September 28, 2004, Rian filed an answer and counterclaim.*fn9 Ex. B. After defendant filed an "Affirmation of Consent" to the Yellowstone injunction, an order was entered on November 30, 2004, granting the Yellowstone injunction and tolling the cure period, "such that plaintiffs shall have at least twenty (20) days after service upon it of a copy of the order to be entered determining this action, to cure, or to commence to cure and thereafter to proceed diligently to cure, any default as may be found by this court." Ex. D.
On November 23, 2005, Rian filed a motion for summary judgment seeking a termination of the Lease and attorneys' fees under Article 40 of the Lease.*fn10 On December 27, 2005, plaintiffs filed a cross-motion for summary judgment seeking a declaratory judgment that the assignment is valid and the lease is entitled to full force and effect.
a. Failure to Qualify for Tax Incentive Program
Under Article 13, the Lessee is required pay, as "additional rent," 50% of the real estate taxes for the Premises. Additionally, Article 13(f) of the Lease requires the Lessee to cooperate with the Lessor in filing the forms required to receive certain tax incentives and abatements for new construction under New York City's Industrial and Commercial Incentive Program ("ICIP").*fn11 To qualify for an ICIP tax abatement, an applicant must file both a preliminary application and a final application. DiGirolamo Dep. at 11. Vassalotti Associates ("Vassalotti"), an architectural firm, was retained to complete the preliminary ICIP application. Id. at 15. Although it is unclear whether Exxon or Rian hired Vassalotti, it appears likely that Exxon retained the firm. On September 18, 1998, Vassalotti submitted the preliminary ICIP application to the New York City Finance Department. Ex. M. On October 5, 1998, Vassalotti sent a letter to Hirshman, informing him that the preliminary ICIP application had been filed. The October 5th letter contained instructions for filing the final ICIP application. Id. The letter also stated "[p]lease be advised we have not been retained to complete the final application." Id. According to Vassalotti's engineer, he never had any further discussion with Exxon about submitting the final ICIP application. DiGirolamo Dep. at 15. In its February 27, 2000 letter to Rian, Exxon discussed the pending ICIP application, stating:
Attached are copies of the preliminary application for the [Premises] and correspondence to Mr. Hirshman concerning the final application. As indicated by these papers, ExxonMobil had cooperated with Mr. Hirshman and has complied with its obligations under Article 13(f) of the lease: ExxonMobil provided plans and supporting documentation to Mr. Hirshman, timely filed and obtained regulatory acknowledgment of the preliminary ICIP application, and delivered copies of the relevant documents to Mr. Hirshman, including the date of projected commencement of construction (i.e., January 1, 1999).
It appears that the final ICIP application was never filed. As such, the Premises never qualified for the ICIP tax abatements. In a letter dated May 27, 2003, defendant informed ConocoPhillips that its contribution toward the taxes for the Premises would be increased because "[a]s you are aware, Exxon failed to comply with the Lease requirement for the filing of documentation necessary for the qualification of [the Premises] under the [ICIP]."*fn12 Ex. 5. According to Rian, if the property had qualified for the ICIP tax abatements the taxes for a specific portion of the Premises "would have been frozen at their pre-construction levels ...