CROWN FINANCIAL CORPORATION v. MCDONALD'S CORPORATION

Filing 92

OPINION. Signed by Judge Joseph E. Irenas on 5/6/2014. (tf, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
CROWN FINANCIAL CORPORATION,
Plaintiff,
v.
MCDONALD’S CORPORATION,
Defendant.

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Civil No. 12-4120 (JEI/AMD)

OPINION

APPEARANCES:
ARCHER & GREINER, P.C.
By: Christopher Gibson, Esq.
William F. Gill, IV, Esq.
Maureen T. Coghlan, Esq.
One Centennial Square
P.O. Box 3000
Haddonfield, New Jersey 08033
Counsel for Plaintiff
MORGAN, LEWIS & BOCKIUS, LLP
By: August W. Heckman, III, Esq.
Larry L. Turner, Esq.
Timothy Browne Collier, Esq.
502 Carnegie Center
Princeton, New Jersey 08540
Counsel for Defendant

IRENAS, Senior United States District Judge:
Presently before the Court is McDonald’s Motion for
Reconsideration arguing that this Court clearly erred when it
granted Crown Financial’s Motion for Partial Summary Judgment
concerning interpretation of the parties’ long-term commercial
lease.

The challenged Order and Opinion decided two Motions for
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Partial Summary Judgment, both filed by Crown.

The instant Motion

for Reconsideration only challenges the first motion decided,
concerning whether the Lease permits Crown to accept Crown, Cork &
Seal Master Trust’s offer to lease the premises at issue beginning
October 12, 2013, as opposed to October 12, 2028. 1
For the following reasons, McDonald’s Motion for
Reconsideration will be denied.

I.
The Court assumes familiarity with the underlying Opinion and
Order, available at 2013 WL 5963005.
The Lease provides for a 25 year term with five “options to
extend the term.” 2

Paragraph 16 of the Lease allows Crown to

accept bona fide offers to lease the premises “for a term
commencing at or after the term of this Lease.”

Id. at *2.

The

previous Opinion and Order rejected McDonald’s argument that “the
Lease contemplates a singular Lease term, the duration of which
can be extended,” Id. at *3, and accepted Crown’s interpretation

1

Although McDonald’s disputes that the Crown, Cork & Seal Master
Trust offer is bona fide, the Court and the parties assume
arguendo, for the purposes of this Motion only, that the offer is
“bona fide,” as the Lease separately requires.
2

The previous opinion misstated that the Lease had four options
to extend. 2013 WL 5963005 at *1. At oral argument on the
instant motion, the parties confirmed that the Lease provides for
an initial 25 year term with five five-year options, resulting in
a Lease that potentially spans 50 years, not 45. Id. at *4.
2

that the Lease provides for an initial 25-year term with five,
individual, successive five-year extension terms.

II.
A motion for reconsideration may be granted on the ground
that vacating the order is necessary to correct a clear error of
law or prevent manifest injustice.

North River Ins. Co. v. CIGNA

Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir. 1995).

III.
In adopting Crown’s proposed interpretation of the Lease the
Court explained,
The
Court
cannot
accept
McDonald’s
proposed
interpretation of the Lease. The Lease was the result
of a significant business transaction between two
sophisticated parties dealing at arm’s length.
It is
implausible that the parties intended that McDonald’s
would pay the same rent for up to [50] years,
regardless of inflation or market rates.
Crown correctly observes that the Lease contains no
rent escalation clause.
The absence of such a clause
is important because it leaves Paragraph 16 as the sole
mechanism for adjusting rent over the potential [50]–
year life of the lease. The only way to give effect to
such a mechanism is to interpret Paragraph 16 as
granting the lessor (Crown) the right to accept bona
fide offers and terminate McDonald’s lease at the end
of each individual lease term, not solely after
McDonald’s exhausts the last of its options to extend.

3

Crown Financial Corp. v. McDonald’s Corp., 2013 WL 5963005 at *34.
McDonald’s argues that the Court’s analysis is flawed because
the Lease itself provides for one “term” (singular), not “terms”
(plural); and the Court misapprehended the significance of the
parties’ omission of a rent escalation clause.

A.
The first argument is self-evident.

McDonald’s argues that

the plain language of the Lease speaks of a singular lease term,
there is no ambiguity; therefore the Court should not have gone
any further in its analysis.
The Court will not hinge its decision, however, on the
difference between the singular and plural of the word “term.”
Even in the absence of ambiguity, under New Jersey law, the Court
may always consider “evidence of the circumstances.”

Conway v.

287 Corporate Ctr. Associates, 187 N.J. 259, 269 (2006).
The polestar of construction is the intention of the
parties to the contract as revealed by the language
used, taken as an entirety; and, in the quest for the
intention, the situation of the parties, the attendant
circumstances, and the objects they were thereby
striving to attain are necessarily to be regarded. The
admission of evidence of extrinsic facts is not for the
purpose of changing the writing, but to secure light by
which to measure its actual significance. . . .
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Semantics cannot be allowed to twist and distort the
words’ obvious meaning in the minds of the parties.
Consequently, the words of the contract alone will not
always control.

Id. at 269-70 (quoting Atl. Ne. Airlines v. Schwimmer, 12 N.J.
293, 301-02 (1953)) (emphasis added).
This is exactly what the Court did when it considered the
specific factual circumstances of the case and concluded that the
parties could not have intended for the Lease to have no mechanism
for adjusting rent.
The Court did not err by looking beyond the text of the
Lease.

B.
McDonald’s also argues that the fact that the parties were
undisputedly sophisticated and dealing at arm’s length actually
supports its proposed interpretation of the Lease.

It argues that

these facts should support an inference that “the parties were
content with a flat rental rate,” (Moving Brief, p. 5) (i.e., the
omission of a rent escalation clause or other rent adjustment
mechanism was deliberate), and that drawing the opposite inference
violates summary judgment procedure which requires drawing
inferences in favor of the non-moving party, which was McDonald’s.
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The Court cannot accept McDonald’s interpretation for two
reasons.
First, McDonald’s proffered interpretation renders Paragraph
16 a nullity.

If there is only one Lease “term,” the bona fide

offer clause is unnecessary because Crown would, of course, be
able to accept any offer-- bona fide or not-- from any potential
lessee after the Lease between it and McDonald’s expired.

The

Court must interpret a contract so as to give reasonable meaning
to each provision, and avoid interpretations that would render
provisions meaningless.

Metro. Life Ins. Co. v. Woolf, 138 N.J.

Eq. 450, 455 (E. & A. 1946) (“The acceptance of appellant’s view
would render this provision of the contract meaningless; and we
are enjoined, in the exercise of the interpretative function, to
give the language used a reasonable meaning, considered in the
light of the subject-matter and the context.”). 3

Thus, McDonald’s

argument must be rejected.
Second, McDonald’s interpretation, in practice, would result
in an unusually one-sided Lease-- a Lease that is extremely
favorable to the lessee (McDonald’s) and extremely unfavorable to
the lessor (Crown).
3

See generally 5-24 Corbin on Contracts § 24.22 (“‘In the
interpretation of a promise or agreement or a term thereof, the
following standards of preference are generally applicable: ... an
interpretation which gives a reasonable, lawful, and effective
meaning to all the terms is preferred to an interpretation which
leaves a part unreasonable, unlawful, or of no effect... .’”)
(quoting Restatement (Second) of Contracts).
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McDonald’s, at least implicitly recognizing this apparent
inequity, suggests that its proposed interpretation actually is
not so unevenly favorable to it.

It asserts that Crown’s

predecessor-in-interest “traded a provision to increase the rent
for the foreseeable stability of an established commercial tenant,
McDonald’s.”

(Moving Brief, p. 7-8)

The Court is not persuaded.

McDonald’s seems to have a

somewhat inflated estimation of its value as a commercial tenant.
As discussed in the previous opinion, the property at issue is a
prime location in a popular tourist destination.

It strains

credulity to conclude, as McDonald’s argument necessarily
requires, that Crown would have appreciable difficulty attracting
one of McDonald’s fast-food restaurant competitors to lease the
property.
Moreover, even accepting McDonald’s assertion that it is a
valuable tenant, the Court cannot conclude that it is as valuable
as the math would indicate.

McDonald’s pays rent that is 15.62%

of the commercially reasonable rate. 4

The parties could not have

intended this result even when the Court factors in McDonald’s
stability as a tenant.

4

McDonald’s has stipulated that Crown, Cork & Seal Master Trust’s
offer is commercially reasonable. 2013 WL 5963005 at *4. The
Court has calculated the percentage based on the rent McDonald’s
currently pays ($2,083.33 monthly) and Crown, Cork & Seal Master
Trust’s proposed rent for the first five years ($13,333.33
monthly).
7

On summary judgment the Court is not required to give the
nonmoving party the benefit of every favorable inference, only
such inferences that are reasonable.

Matsushita Elec. Indus. Co.

v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986).

In light of

the facts of this case, McDonald’s proposed inference that the
parties intentionally omitted a rent adjustment mechanism for what
McDonald’s contends is a 50-year commercial lease is not
reasonable, therefore the Court is not required to draw the
inference.
The Court holds that it did not clearly err.

IV.
Admittedly, this is a close case, with very able attorneys on
both sides advancing equally intelligent arguments.
Court holds it did not clearly err.

However, the

McDonald’s arguments are

better directed to the Court of Appeals, where this Court’s
summary judgment decision will be reviewed de novo.

See Nat'l

Amusements, Inc. v. Borough of Palmyra, 716 F.3d 57, 62 (3d Cir.
2013).
McDonald’s Motion for Reconsideration will be denied.

An

appropriate Order accompanies this Opinion.

May 6, 2014

s/ Joseph E. Irenas
Joseph E. Irenas, S.U.S.D.J.

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