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Fifty Liberty Street, LLC v. Eureka Petroleum

August 5, 2008

FIFTY LIBERTY STREET, LLC, PLAINTIFF,
v.
EUREKA PETROLEUM, INC., TIBAROM, INC., PEANUT OIL, LLC, SAMUEL E. PEARSON, III, AND DEBORAH PICKETT, DEFENDANTS.



The opinion of the court was delivered by: John T. Curtin United States District Judge

In this diversity action for breach of lease, plaintiff Fifty Liberty Street, LLC ("Fifty Liberty") moved for partial summary judgment on its claims against defendants Peanut Oil, LLC, Samuel E. Pearson, III, and Deborah Pickett for unpaid past due rents and lost future rents under a written lease assignment. Peanut Oil, Mr. Pearson, and Ms. Pickett cross-moved for summary judgment in their favor dismissing the action against them. At oral argument on July 2, 2008, the court was advised that Peanut Oil has filed a petition for bankruptcy, limiting the relief sought by way of the pending motions to the individual defendants. See 11 U.S.C. § 362 (Bankruptcy Code automatic stay provisions).

For the following reasons, and to the extent set forth in the ruling below, plaintiff's motion is granted, and defendants' motion is denied.

BACKGROUND

In September 2004, Fifty Liberty purchased a parcel of improved commercial real estate at 50 Liberty Street, Batavia, New York, from Sovereign JF, LLC ("Sovereign"), a California company. As part of the purchase, Sovereign assigned to Fifty Liberty all rights and interest under a lease with Tibarom, Inc., and its wholly owned subsidiary Eureka Petroleum, Inc. (the "Lease"), which had a 25-year term commencing on October 27, 2003, and expiring on October 26, 2028 (see Item 8, Ex. A, § 3(A)). Tibarom and Eureka occupied the premises as co-tenants, and Eureka operated a Jiffy Lube(r) service center at the premises under a franchise agreement with Jiffy Lube International, Inc., dated October 20, 2003 (see Item 33, Ex. F).

Section 10 of the Lease governs "Assignment and Subletting," and provides in part:

A. Lessee's Assignment. Lessee's interest in this Lease may be assigned to any third person or entity without the prior written consent of Lessor, provided, however, that Lessor agrees that the assignee is a "qualified" Jiffy Lube franchisee. For purposes of this Lease Agreement a franchisee shall be deemed qualified if the proposed assignee's financial condition, experience and revenues are equal to or greater than Lessee's. (Item 8, Ex. A, § 10(A)).

On May 2, 2005, Eureka and Tibarom entered a series of complex written agreements with Peanut Oil, and Mr. Pearson and Ms. Pickett individually, designed to accomplish the transfer of certain assets from Eureka to Peanut Oil pursuant to a lengthy "Asset Sale Agreement" (see Item 48, Ex. C). Among the assets involved in the sale were Eureka's leasehold and franchise interests in the Jiffy Lube service center at the 50 Liberty Street premises, as well as similar interests in Jiffy Lube franchises at several other leased locations in New York and Pennsylvania (see id., Schedule C).

Of primary importance to the dispute in this case, as presently framed, the parties to the asset sale executed a "Lease Assignment and Assumption Agreement," which identifies Eureka and Tibarom as "Assignors," and Peanut Oil, Pearson, and Pickett collectively as "Assignees" (Item 8, Ex. B. p. 1). This document specifically provides that the Assignees agree to "assume[ ] all of the Assignors' obligations and liabilities now incurred or accrued or hereafter accruing or arising with respect to the Leases, including, but not limited to, the obligation to pay all rents . . ." (id. at ¶ 2). It was signed by Jeffrey E. Langan, Esq., on behalf of Assignors Eureka and Tibarom, and by Mr. Pearson (both individually and as Managing Member of Peanut Oil) and Ms. Pickett (individually) on behalf of the Assignees (see id. at p. 3).

Further related to the May 2005 asset transfer, Eureka and Peanut Oil entered an "Assignment of Franchise Agreement" under which Eureka assigned to Peanut Oil its rights and obligations to operate the Jiffy Lube franchise at 50 Liberty Street pursuant to the October 2003 franchise agreement with Jiffy Lube International (see Item 33, Ex. E). This document was signed by Mr. Langan on behalf of Eureka as "Assignor;" by Mr. Pearson on behalf of Peanut Oil as "Assignee;" and by Kevin M. Lyng, Vice President of Jiffy Lube International, as "Franchisor" (id., Ex. E, p. 3). In addition, the document was signed by Paul Morabito, Sam Morabito, Edward Bayuk, and Mr. Langan as the sole stockholders of Eureka, and by Mr. Pearson as sole stockholder of Peanut Oil, acknowledging their "agreement to be bound, individually, by the provisions of the foregoing Assignment" (id. at pp. 3 and 4). Peanut Oil took possession of the leasehold premises in May 2005, and assumed operation of the Jiffy Lube franchise facility.

Eureka and Peanut Oil subsequently entered a series of five addenda to the Asset Sale Agreement to amend certain terms and provisions, and to provide for Peanut Oil's purchase of the outstanding stock of Tibarom (see Item 48, Exs. D through H). The addenda were executed by the Morabitos, Bayuk, and Langan, along with Arcadia Living Trust, as the sole shareholders of the Tibarom stock (id.).

Meanwhile, shortly after Peanut Oil took possession of the premises, Fifty Liberty's Massachusetts counsel Craig A. Ciechanowski, Esq., sent Eureka a series of letters advising that Fifty Liberty objected to the "proposed assignment" (Item 33, Ex. B; see also id. at Exs. C & D). As indicated in this correspondence, on at least two occasions in June and July 2005, Fifty Liberty requested information from Eureka to show that certain "very specific requirements" had been met in order for the assignment of the Lease to be considered effective, but as of June 2006, Fifty Liberty had not received that information (id., Ex. B). In August 2006, Fifty Liberty advised Eureka that the rent payment made by Peanut Oil for the month of July 2006 was "being accepted for use and occupancy only without waiving any of the lessor's rights against the tenant." (Id., Ex. C).

Peanut Oil continued to occupy the premises and operate the Jiffy Lube service center at 50 Liberty Street until early November 2006, when the rent became three months in arrears, the franchise agreement was terminated (see Item 33, Ex. G), and the premises was abandoned.

Fifty Liberty commenced this action in January 2007 against Eureka, Tibarom, and Peanut Oil, and filed an amended complaint as of right in March 2007 to add Mr. Pearson and Ms. Pickett as defendants (Item 8). Fifty Liberty alleges in Counts I, II and III of the amended complaint that the failure of Eureka and Tibarom to pay the rents due under the Lease, as well as the "Purported Assignment" to Peanut Oil, Mr. Pearson, and Ms. Pickett (the "Assignee Defendants"), constitutes material breach and default of the Lease resulting in damages for past and future rents. In Counts IV and V, Fifty Liberty alleges alternatively that if the "Purported Assignment" is valid, then Peanut Oil, and Mr. Pearson and Ms. Pickett individually, are liable for the breach.

Peanut Oil, Pearson, and Pickett answered the amended complaint (see Item 12), and subsequently filed a third-party complaint against Arcadia Living Trust, Salvatore Morabito, Edward Bayuk, Jeffrey Langan, and Tibarom California, Inc. (Item 17; amended upon consent, Item 48).*fn1 Peanut Oil, Pearson, and Pickett allege that these third-party defendants breached the terms of the May 2005 Asset Sales Agreement and the addenda in several material respects, and seek the contractual ...


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