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Lilac Group-W Scranton Corp. v. Wells Fargo Bank, N.A.

United States District Court, S.D. New York

March 29, 2017

LILAC GROUP-W SCRANTON CORP., Plaintiff,
v.
WELLS FARGO BANK, NA, Defendant.

          Gardiner S. Barone, Esq. Blustein, Shapiro, Rich & Barone, LLP Goshen, NY Counsel for Plaintiff

          Emma M. Kline, Esq. Julie D. Goldstein, Esq. Fox Rothschild Warrington, PA Counsel for Defendant

          OPINION & ORDER

          KENNETH M. KARAS, District Judge

         Plaintiff Lilac Group-W Scranton Corp. (“Plaintiff”) brings this Action against Wells Fargo Bank, NA (“Wells Fargo”), alleging that Wells Fargo breached a lease agreement pertaining to certain real property located in Scranton, Pennsylvania, by failing to pay rent pursuant to the terms of the lease agreement. (See generally Compl. (Dkt. No. 1).) Before the Court is Wells Fargo's Motion To Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), or, in the alternative, To Transfer the Action to the Middle District of Pennsylvania pursuant to 28 U.S.C. § 1404(a) (the “Motion”). (Dkt. No. 18.) For the reasons stated below, the Motion is denied.

         I. Background

         A. Factual Background

         The following facts are drawn from Plaintiff's Complaint and the documents appended thereto, and are taken as true for the purpose of resolving the Motion.

         In May 2004, Wachovia Bank, N.A. (“Wachovia”), and First States Investors 3300, LLC (“FSI”), entered into an Agreement of Sale and Purchase, setting forth a sale-leaseback transaction involving a portfolio of 147 properties that were originally owned by Wachovia. (Compl. ¶ 16.) At the time of the sale, Wachovia was using the properties as a part of its banking operations. (Id. ¶ 17.) The sale-leaseback transaction occurred on September 22, 2004, when Wachovia conveyed to FSI 147 properties, and then those same properties were leased back to Wachovia by FSI. (Id. ¶ 18.)

         To memorialize the transaction, FSI and Wachovia executed a Master Agreement and separate leases (the “Leases”) for each of the properties conveyed to FSI and then leased back to Wachovia. (Id. ¶ 24.) The Master Agreement was intended to set forth additional covenants and agreements with respect to the underlying Leases. (Id.) The Master Agreement explains:

This Master Agreement is also being executed pursuant to the Purchase Agreement at the closing thereunder. The purpose hereof is to set forth additional covenants and agreements with respect to the Leases between Master Landlord . . ., on the one hand, and Wachovia, on the other. Generally, it is the intention of the parties to set forth such additional covenants and agreements in this Master Agreement, as opposed to setting forth the same in each of the Leases, due to (i) the application thereof to more than a single Lease Property, and/or (ii) the fact that the same are not intended to apply to any third party (i.e., unaffiliated) successors to the Master Landlord and/or Tenant under the Leases, except as provided in this Master Agreement; but this sentence is intended as explanatory and shall not be deemed to limit the express provisions hereof.

(Id. Ex. B, at Background ¶ C (“Master Agreement”) (italics omitted).) The Master agreement defined “Master Landlord” as:

(i) Master Landlord Named Herein, (ii) the person that shall succeed to the interest of Master Landlord hereunder upon the Enforcement Completion Date pursuant to Section 13.3 hereof, or (iii) following such a succession under Section 13.3 hereof, any person that shall thereafter acquire the interest of Master Landlord hereunder pursuant to an assignment permitted under Section 13.4 hereof.

         (Master Agreement § 1.) FSI was designated as the “Master Landlord Named Herein.” (Id. Preamble.) “Wachovia, ” as used in the Master Agreement, was defined as:

(i) Wachovia Bank, N.A., or (ii) a person constituting an immediate or remote successor to Wachovia Bank, N.A. by virtue of one or more mergers, consolidations and/or transfers of all, or substantially all, the assets of Wachovia Bank, N.A. (or another person described in this clause (ii)).

(Id. § 1.) The Master Agreement states:

Without limiting the generality of the foregoing, it is intended, as more particularly provided herein, that this Master Agreement be integrated with, and constitute a part of, each Integrated Lease. In that regard, certain provisions of each Lease (by way of example only, Article XI of each Lease setting forth Wachovia's Termination Rights) were written to fully reflect the terms and conditions that apply under such Lease from and after the point, if any, that it becomes a Non-Integrated Lease, but only partially reflect the terms and conditions that apply under such Lease while it remains an Integrated Lease; it being intended that (i) for so long as each Lease shall remain an Integrated Lease, it shall be read together with this Master Agreement (as an indispensable part thereof) in determining the rights of the Landlord and the Tenant under the Lease (and that, in the event of any conflict between the terms and conditions of this Master Agreement and the terms and conditions of the Lease, the terms and conditions of this Master Agreement shall control and apply in all respects, to the extent herein expressed), and (ii) from and after the point, if any, that it becomes a Non-Integrated Lease, it shall be read independent of this Master Agreement (which shall no longer be a part thereof) in determining the rights of the Landlord and the Tenant under the Lease, provided, that this clause (ii) shall not be deemed to limit, in any way, the rights and/or obligations of any party to this Master Agreement under this Master Agreement (including the obligations of Wachovia to pay any Excess Termination Rights Payments pursuant to Section 3.4 hereof).

(Id. Background ¶ D.) The Master Agreement categorized the Leases as either “Integrated” or “Non-Integrated” Leases. “Integrated Lease” was defined as “any Lease, other than a Non- Integrated Lease.” (Id. § 1.) On the date the Master Agreement was consummated, all of the Leases were deemed to be Integrated Leases. (Id.) “Non-Integrated Leases, ” on the other hand, were defined as

any Lease with respect to which a Non-Integration Event has occurred. Notwithstanding the foregoing, if (I) a Lease theretofore became a Non-Integrated Lease solely by reason [of] the occurrence of the Non-Integration Event described in clause (b)(2) of the definition thereof, (II) subsequent thereto, an Acceleration Rescission Notice is delivered by the Designated Portfolio Lender, (III) no other intervening Non-Integration Event shall have occurred with respect to such Lease, and (IV) upon the delivery of the Acceleration Rescission Notice, the Landlord's Estate in such Lease is held by the Master Landlord or a Wholly-Owned Subsidiary of the Master Landlord, then such Lease shall no longer be [a] Non-Integrated Lease (i.e., it shall be reinstated as an Integrated Lease) unless and until another Non-Integration Event shall occur.

(Id. (italics omitted).)

         The Master Agreement set forth certain conditions on Wachovia's ability to terminate the Leases, irrespective of whether Wachovia continued to be the tenant in possession under a particular Lease. As relevant here, the Master Agreement provides:

         3. Limitations on Wachovia's Termination Rights.

3.1 As expressed in Article XI of the Leases, Wachovia may, from time to time during the Initial Term (but not during any Renewal Term), exercise Wachovia's Termination Rights to terminate a Lease with respect to all or any portion(s) of the then Base Leased Premises under any Lease, all in the manner and subject to the terms and conditions set forth in such Article XI.
3.2 Notwithstanding the foregoing, it is not the intention of the parties hereto that Wachovia's Termination Rights be unconditional as between Master Landlord (and, if applicable, any Landlord), on the one hand, and Wachovia, on the other; more specifically, (i) Wachovia's exercise of Wachovia's Termination Rights under any Integrated Lease, shall be subject to the provisions of Section 3.3 below, and (ii) Wachovia's exercise of Wachovia's Termination Rights under any Non-Integrated Lease, shall be subject to the provisions of Section 3.4 below.
3.3 With respect to all Integrated Leases, Wachovia's Termination Rights may be validly and effectively exercised if, and only if, at the time of such exercise, the then Available Termination Rights Area is equal to or greater than the Exercise Termination Area as to the exercise of such Wachovia's Termination Rights; and any purported exercise by Wachovia of Wachovia's Termination Rights under any Integrated Leases at a time when the then Available Termination Rights Area is less than the purported Exercise Termination Area as to the exercise of such Wachovia's Termination Rights shall be rendered void and of no force or effect (but the fact that such purported exercise is rendered null and void shall not prevent any subsequent exercise by Wachovia of Wachovia's Termination Rights consistent with the provisions hereof).
3.4 With respect to all Non-Integrated Leases, Wachovia's Termination Rights may be validly and effectively exercised even if, at the time of such exercise, the then Available Termination Rights Area is less than the Exercise Termination Area as to the exercise of such Wachovia's Termination Rights (it being understood that neither Master Landlord, any Landlord, nor any other party, shall have any right to object to any exercise of Wachovia's Termination Rights under any Non-Integrated Lease under any circumstances); but, in such event, Wachovia shall (on or prior to the Early Termination Date) pay the Excess Termination Rights Payment with respect [to] such exercise by Wachovia to (i) the Designated Portfolio Lender, if there is a Designated Portfolio Lender, or (ii) the Master Landlord, if there is no Designated Portfolio Lender; in each case, such payment shall be sent to such party at the address provided to Wachovia therefor (or, at the election of such party, . . . by wire transfer of immediately available funds to an account designated by such party). In no event will the obligation of Wachovia to pay Rent under a Non-Integrated Lease terminate until the applicable Excess Termination Rights Payment required pursuant to this Section 3.4 is paid pursuant hereto; it being understood that any payment made [by] Wachovia to a Depositary (or a court of competent jurisdiction) consistent with the provisions of Section 3.5 hereof shall be deemed paid pursuant hereto.

(Id. § 3 (italics omitted).) The definition and calculation of an “Excess Termination Rights Payment” is not relevant for purposes of this Motion.

         Also on September 22, 2004, Wachovia and FSI entered into a lease (the “Lease Agreement”), the interpretation of which gives rise to this Action. (Compl. ¶ 23.) Wachovia leased back from FSI a multi-story office building (the “Building”) located at 130 Wyoming Avenue, Scranton, Pennsylvania. (Id. ¶ 14.) The Lease Agreement, which terminates in 2024, (id. ¶ 37), contains the following provisions relating to Wachovia's right to terminate the agreement:

         11.1 Wachovia's Termination Right

(a) Subject to the terms and conditions of this Article XI, during the Initial Term of this Lease (but not during any Renewal Term), Wachovia shall have the right (herein called “Wachovia's Termination Right”), exercisable from time to time, to terminate this Lease with respect to all or any portion(s) of the then Leased Premises (other than the whole or any portion(s) of any Short-Term Additional Space then constituting a part of the Leased Premises). Wachovia may exercise Wachovia's Termination Right only by written notice to Landlord (each, a “Termination Rights Exercise Notice”), which shall (i) indicate whether Wachovia is exercising Wachovia's Termination Right with respect to the entirety of the then Leased Premises (which may be done only if no Short-Term Additional Space then constitutes a part of the Leased Premises), or less than the entirety of the then Leased Premises, (ii) in any case that Wachovia is exercising Wachovia's Termination Right with respect to less than the entirety of the then Leased Premises, specify, with particularity, the portion(s) of the Leased Premises with respect to which Wachovia's Termination Right is being exercised (such portion(s) of the Leased Premises being herein separately referred to as the “Vacate Space”), and be accompanied by a floor plan showing the location and configuration of the Vacate Space, (iii) the date upon which Wachovia is electing to terminate this Lease with respect to the entirety of the Leased Premises or the Vacate Space, as the case may be, which date shall not be earlier than the date that is nine (9) months after the date of Wachovia's Termination Rights Exercise Notice (such date being herein called the “Early Termination Date”). Notwithstanding the foregoing, Wachovia's right to specify Vacate Space comprising less than all of the then Base Leased Premises located on any floor of the Building, shall be contingent upon such Vacate Space being of a size and configuration that makes it separately leasable to third party tenants.
(b) Notwithstanding the provisions of Section 11.1(a) above, during the Integration Period, Wachovia's Termination Right shall be limited by the provisions of Section 3.3 of the Master Agreement.
(c) Notwithstanding anything to contrary contained herein, it is understood and agreed that Wachovia's Termination Right shall belong solely to Wachovia, and, notwithstanding any Assignment, shall survive as a right belonging solely to Wachovia for the balance of the Initial Term. Accordingly, Wachovia's Termination Right may be exercised, at anytime during the Initial Term, by, and only by, Wachovia (whether or not Wachovia is then the Tenant hereunder). Upon request of Wachovia made, from time to time, during any period that Wachovia is not the Tenant hereunder, Landlord shall acknowledge the foregoing in writing.

(Id. Ex. A (“Lease Agreement”) § 11.) The definition of “Wachovia” is slightly different than the definition provided by the Master Agreement. Wachovia is defined as:

(i) Tenant Named Herein, or (ii) a person constituting an immediate or remote successor to Tenant Named Herein by virtue of one or more mergers, consolidations and/or transfers of all, or substantially all, the assets of Tenant Named Herein (or another person described in this clause (ii)).

         (Lease Agreement § 1.1(b).) “Assignment, ” as used in § 11.1(c), is defined as:

8.1.1 For purposes of this Lease, the following terms shall have the following meanings:
(a) “Assignment” shall mean any assignment or other transfer of Tenant's interest in this Lease (whether voluntarily, by operation of law or otherwise); it being agreed that a Change of Control Transaction with respect to Tenant shall also be deemed an “Assignment” (and shall be deemed entered into by Tenant), but only if a principal purpose or effect of such Change in Control Transaction is the transfer of Tenant's interest in this Lease.
(b) “Change in Control Transaction, ” with respect to a person, shall mean any transaction or related series of transactions (including any transfer(s) of stock or partnership, membership or other equity interests) which results, directly or indirectly, in a change in the control of such person (except, that, as used in this definition, the term “transaction” shall not include sales or issuances of stock over a recognized stock exchange or “over-the-counter” market or otherwise as part of a public offering).

(Id. § 8.1 (italics omitted).) Finally, the Lease Agreement contains a provision relating to a waiver of any of its provisions:

7.5 No Waiver of Rights
No failure or delay of Landlord or Tenant in any one instance to exercise any remedy or power given it herein or to insist upon strict compliance by Tenant or Landlord of any obligation imposed on it herein in any other instance and no custom or practice of either party hereto at variance with any term hereof shall constitute a waiver or a modification of the terms hereof by such party in any one instance or any right it has herein to demand strict compliance with the terms hereof by the other party in any other instance. No express waiver shall affect any condition, covenant, rule, or regulation other than the one specified in such waiver and then only for the time and in the manner specified in such waiver. No person has or shall have any authority to waive any provision of this Lease unless such waiver is expressly made in writing and signed by an authorized officer of Landlord or Tenant. No endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy provided in this Lease.

(Id. § 7.5.)

         From September 22, 2004 through April 1, 2008, the Lease Agreement was an Integrated Lease. (Compl. ¶ 31.) On April 1, 2008, FSI and Wachovia entered into a Second Amendment to the Master Agreement, which reclassified the Lease Agreement as a ...


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