RPS Associates LLC v. McDonalds USA LLC
Filing
14
MEMORANDUM AND ORDER denying 10 Motion to Dismiss for Failure to State a Claim. So Ordered by Chief Judge William E. Smith on 5/18/2017. (Jackson, Ryan)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
)
)
Plaintiff,
)
)
v.
)
)
MCDONALDS USA, LLC,
)
)
Defendant.
)
___________________________________)
RPS ASSOCIATES, LLC,
C.A. No. 16-504 S
MEMORANDUM AND ORDER
WILLIAM E. SMITH, Chief Judge.
In October 2013, RPS Associates, LLC and McDonalds USA, LLC
entered into a Ground Lease for property located in Providence,
Rhode
Island
with
the
McDonald’s restaurant.
purpose
of
building
and
operating
a
Three years later, the restaurant had not
been built and RPS initiated this cause of action, alleging that
McDonald’s breached the lease and that RPS is entitled to specific
performance
of
the
rent
payment
obligations
compensatory and consequential damages.
in
addition
to
Presently pending before
the Court is McDonald’s Motion to Dismiss the Amended Complaint
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure
for failure to state a claim upon which relief can be granted.
For the reasons set forth below, McDonald’s Motion is DENIED.
I. Standard of Review
“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” 1
“A claim has facial
plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” 2
allegations
stated
in
the
In addition to reviewing the
complaint,
the
Court
may
consider
documents that are discussed in the complaint and included with
the complaint as exhibits. 3
II. Background
With this standard squarely in mind, a review of the Amended
Complaint, the Ground Lease, and four letters exchanged between
the parties prior to the start of this litigation reveals the
following. 4 In 2013, the parties executed the lease agreement that
1
Coll. Hill Properties, LLC v. City of Worcester, 821 F.3d
193, 195–96 (1st Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)).
2
Iqbal, 556 U.S. at 678.
3
Guerra-Delgado v. Popular, Inc., 774 F.3d 776, 780 n.3 (1st
Cir. 2014); see also Giragosian v. Ryan, 547 F.3d 59, 65 (1st Cir.
2008); Fed. R. Civ. P. 10(c) (“A copy of a written instrument that
is an exhibit to a pleading is part of the pleading for all
purposes.”)
4
The Ground Lease, the amendments thereto, and the four
letters were attached to the Amended Complaint, and may therefore
be considered in the analysis of this Motion to Dismiss. See n.3,
supra.
2
permitted McDonald’s to build and operate a restaurant.
One of
RPS’s responsibilities under the Ground Lease was to secure the
zoning
approvals
restaurant.
required
to
build
and
operate
a
McDonald’s
Once the zoning approvals were in place, McDonald’s
was, “without unreasonable delay . . . to use due diligence” to
apply for all building permits and other permits that would be
required to operate the restaurant. 5
The Ground Lease provided
termination rights to both parties; these rights were tied to a
contingency period, the expiration of which was extended twice by
the parties.
The precise scope and timing of the termination
rights are at the center of this litigation.
The development of the property was stalled by the zoning
approval process.
After RPS applied for the applicable zoning
approvals from the Providence Zoning Board, the owner of a Burger
King
franchise
objected.
located
across
the
street
from
the
property
In September 2014, the Providence Zoning Board granted
the zoning relief and approvals but the Burger King franchise owner
appealed the decision to the Rhode Island Superior Court.
The
Superior Court affirmed the decision of the Providence Zoning Board
on November 6, 2015.
Soon thereafter, RPS sent a letter to
McDonald’s stating that it had met its obligations to secure the
necessary
5
zoning
approvals
and
that
it
was
“ready
Ground Lease ¶ 6A1, Am. Compl. Ex. A, ECF No. 9-1.
3
for
the
applicable timelines in the lease to be reset and for the project
to move forward.” 6
McDonald’s promptly replied, stating that it
would not pursue any permits before the appeal period had run on
the Superior Court’s decision, and asserting that RPS had “failed
to satisfy the conditions set forth in Article 6(A) and Article
4(A)” of the Ground Lease. 7
The Burger King franchise owner filed a petition with the
Rhode Island Supreme Court to review the Superior Court’s decision;
this request was denied in October 2016.
review
was
pending,
correspondence.
In
however,
May
and
the
June
While the petition for
parties
of
2016,
exchanged
RPS
further
affirmed
its
commitment to the project and asserted its position that the Ground
Lease had not been terminated, and McDonald’s made its position
clear that the Ground Lease had long ceased to be in effect. 8
RPS alleges that, on August 1, 2016, it communicated its
desire to move forward with the project and its willingness to
accept a retraction of McDonald’s repudiation of the Ground Lease. 9
After McDonald’s declined RPS’ attempts to “get the project reset
and back on track,” RPS initiated this cause of action. 10
6
Am. Compl. ¶ 22, Ex. C.
7
Am. Compl. ¶ 23, Ex. D.
8
RPS
Am. Compl. ¶¶ 25, 26, Ex. E, F.
9
While this letter was referred to as Exhibit G in the Amended
Complaint, see ¶ 30, no such exhibit was filed with the pleading.
4
alleges that McDonald’s did not terminate the Ground Lease prior
to
the
contingency
period
and
was
therefore
bound
by
its
obligations to use commercially reasonable efforts to secure the
necessary building permits.
RPS further alleges that, by refusing
to perform its obligations, McDonald’s is in material breach of
the contract.
III. Discussion
McDonald’s attacks the Amended Complaint on several fronts.
It first argues that it did not breach the contract because it
properly terminated the contract according to the unambiguous
terms of the Ground Lease by notifying RPS prior to the final
judgment regarding the requested zoning relief that it would not
move forward with the project.
In addition, McDonald’s argues
that RPS is not entitled to specific performance as a remedy and
that it is also not entitled to enforce the rent obligation
because, pursuant to the agreed terms of the Ground Lease, this
obligation had not yet been triggered.
RPS responds with several reasons why its Amended Complaint
should survive McDonald’s Motion to Dismiss.
Relevant to the
arguments raised by McDonald’s, RPS contends that it has plausibly
pleaded that McDonald’s did not terminate the Ground Lease as
required by the terms of the contract because it did not terminate
10
Am. Compl. ¶ 30.
5
prior to December 1, 2014, the expiration of the final contingency
period negotiated by the parties. 11
RPS also asserts that, because
this case involves a “claim of anticipatory breach,” the Court can
— and should — order specific performance. 12
A. Right of Termination and Anticipatory Repudiation
Section 6 of the Ground Lease outlines the parties’ rights to
terminate; the parties focus on different parts of this section as
support for their respective positions regarding the scope and
timing of their rights.
Section 6(A) states, in part, that:
Tenant may, notwithstanding anything contained herein to
the contrary, at any time prior to the expiration of the
Contingency Period, terminate this Lease, and this Lease
shall be of no further force or effect as of the date
such notice is given. If Tenant has not provided to
Landlord a notice of termination or a notice stating
that the contingencies set forth in this Article 6A have
been satisfied or waived by Tenant prior to the
expiration of the Contingency Period, then Landlord may
terminate this Lease upon the expiration of the
Contingency Period.
RPS contends that, pursuant to this part of § 6(A), once the
contingency period expired, McDonald’s had no continuing right to
11
RPS also argues that McDonald’s should be estopped from
asserting that RPS did not timely secure the required zoning
relief, or that it failed to satisfy its obligations during the
contingency period, because McDonald’s supported RPS throughout
the zoning process and gave no indication that it wanted to
terminate the contract either before or after December 1, 2014.
[Pl.’s Opp. to Mot. to Dismiss 8-9, ECF No. 11-1] The Court notes
that this argument need not be addressed at this stage of the case,
and also that the argument would seem more apropos of a claim for
breach of the implied covenant of good faith and fair dealing.
12
Pl.’s Opp. to Mot. to Dismiss 11, ECF No. 11-1.
6
terminate the Ground Lease; only RPS could unilaterally terminate
after the contingency period expired.
McDonald’s, on the other
hand, contends that, after the expiration of the contingency
period, it could exercise its right to terminate at any time
pursuant to the condition set forth in § 6(A)(1), which states, in
part, that “[i]f [McDonald’s] is unable to obtain all necessary
permits and approvals prior to the expiration of the Contingency
Period, either party may terminate this Lease and declare it null
and void and of no further force and effect as provided in Article
6(A).”
McDonald’s argues that the permits were not obtained (and
could not be obtained) because zoning approval was delayed.
In the context of a motion to dismiss, the Court is hesitant
to draw any conclusions about the precise contours of McDonald’s
termination
rights
or
whether
the
post-contingency
termination rights are ambiguous or unambiguous.
period
The application
of the relatively lenient standard that this Court must apply to
McDonald’s Rule 12(b)(6) motion reveals that RPS has more than
adequately
reasonable
pleaded
facts
inference
that
that
allow
this
[McDonald’s]
Court
is
to
liable
“draw
the
for
the
misconduct alleged.” 13
According to the Rhode Island Supreme Court, “in order to
give rise to an anticipatory breach of contract, the defendant’s
13
Iqbal, 556 U.S. at 678.
7
refusal to perform must have been positive and unconditional.” 14
“[A] repudiation can be evidenced by either a statement to that
effect or ‘a voluntary affirmative act which renders the obligor
unable or apparently unable to perform without such a breach.’” 15
“A
mere
allegation
of
failure
to
fulfill
insufficient to establish repudiation.” 16
the
contract
is
When a party to a
contract repudiates his or her duty before a breach by nonperformance has occurred, the repudiation itself “gives rise to
damages for total breach.” 17
The Amended Complaint quotes extensively from the Ground
Lease; articulates allegations of McDonald’s support throughout
the zoning litigation process; alleges that McDonald’s changed its
mind about building on the property once the zoning approvals were
in place but prior to the Supreme Court’s order denying the
petition for review; and alleges that McDonald’s did not notify
RPS prior to the expiration of the contingency period that it was
terminating
the
contract.
RPS
also
claims
that
McDonald’s
14
Griffin v. Zapata, 570 A.2d 659, 662 (R.I. 1990) (citation
omitted).
15
Id. (citation omitted).
16
Thompson v. Thompson, 495 A.2d 678, 682 (R.I. 1985).
17
A.J. Amer Agency, Inc. v. Astonish Results, LLC, No. CA 12351 S, 2014 WL 3496964, at *32 (D.R.I. July 11, 2014) (citing
Restatement (Second) of Contracts § 253 (1) (1981)).
8
repudiated the Ground Lease in the letter dated June 23, 2016
because it clearly stated that it would not perform because it
considered the contract to be terminated.
sufficient
to
establish
a
plausible
This statement is
claim
for
anticipatory
repudiation because McDonald’s language in the letter, indicating
a refusal to perform its obligations under the lease, was “positive
and unconditional.” 18
The timing of McDonald’s notice that it
would not seek building permits for the property in question, as
well as whether this notice represents a proper termination of the
Ground
Lease,
a
breach
of
the
Ground
Lease,
or
anticipatory
repudiation of the Ground Lease is a determination that will need
to be made at a later stage of the litigation, perhaps by a jury.
B. Specific Performance
The final issue in this motion pertains to RPS seeking an
order for specific performance of the Ground Lease, and McDonald’s
arguing that such relief is not available to RPS based on the facts
alleged.
“[T]he equitable remedy of specific performance is never
required
but
justice.” 19
lies
“Under
within
Rhode
the
sound
Island
discretion
law,
‘a
grant
of
of
the
trial
specific
performance is appropriate when adequate compensation cannot be
18
Thompson, 495 A.2d at 682.
19
E. Motor Inns, Inc. v. Ricci, 565 A.2d 1265, 1271 (R.I.
1989) (citation omitted).
9
achieved through money damages.’” 20
“In such situations, money
damages fail as adequate compensation because the performance of
the contract involves a distinct or unique item, such as land.” 21
RPS may be entitled to specific performance as a matter of law,
but the Court declines McDonald’s invitation to rule on this issue
now.
Should McDonald’s ultimately be held liable for breach of
the Ground Lease — by anticipatory repudiation or otherwise — the
appropriate remedy will then be determined.
IV. Conclusion
For the reasons set forth herein, McDonald’s Motion to Dismiss
(ECF No. 10) is DENIED.
IT IS SO ORDERED.
William E. Smith
Chief Judge
Date: May 18, 2017
20
T.G. Plastics Trading Co. Inc. v. Toray Plastics (Am.),
Inc., 958 F. Supp. 2d 315, 330 (D.R.I. 2013) (quoting Yates v.
Hill, 761 A.2d 677, 679 (R.I. 2000)).
21
Id. (citing Griffin v. Zapata, 570 A.2d 659, 661–62 (R.I.
1990).
10
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