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LLC v. STK Dallas, LLC

United States District Court, W.D. Texas, Austin Division

May 14, 2019

WC 1899 MCKINNEY AVENUE, LLC, Plaintiff/Counter-Defendant,
v.
STK DALLAS, LLC, and THE ONE GROUP HOSPITALITY, INC., Defendants/Counter-Plaintiffs,
v.
WORLD CLASS CAPITAL GROUP, LLC, NATIN PAUL, and SHEENA PAUL, Third-Party Defendants.

          ORDER

          SAM SPARKS, SENIOR UNITED STATES DISTRICT JUDGE.

         BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically WC 1899 McKinney Avenue, LLC, World Class Capital Group, LLC, and Natin and Sheena Paul (collectively, World Class)'s Motion for Summary Judgment [#79], STK Dallas, LLC and The One Group Hospitality, Inc. (collectively, STK)'s Response [#82] in opposition, and World Class's Reply [#92] in support.[1] Having reviewed the documents, the governing law, the arguments of counsel, and the file as a whole, the Court now enters the following opinion and orders.

         Background

         This dispute concerns a lease agreement between World Class and STK. STK is a restaurant group that sought to open a restaurant in Dallas, Texas. Resp. [#82-1] Segal Decl. at 1.[2] Towards that end, STK entered into discussions with World Class in 2014 regarding a potential lease of retail space at 1899 McKinney Avenue (the Premises). Id.

         I. Lease Negotiations

         During the lease negotiations, STK discovered the Premises lacked on site parking and expressed concern about its ability to secure nearby off site parking for its planned restaurant. Mot. Summ. J. [#79] at 106. In an attempt to allay these concerns, World Class undertook a search for off site parking in early 2015. Internal emails exchanged within World Class around that time suggest World Class had considered eight possible parking lots in the vicinity, of which four were unavailable. Mot. Seal [#83-1] Ex. A at 2-6. World Class concluded the other four lots were likely only available on a month-to-month basis "if they are available at all." Id.

         By May 2015, neither party had identified a parking solution, and on May 17, 2015, STK proposed "add[ing] a contingency [to the proposed lease agreement] for finding acceptable offsite parking for intended use" because "[o]perations has not had a chance to secure a lot." Segal Decl. at 8-9. World Class responded that there was "plenty of parking nearby in garages and surface lots" and assured STK that it would "help in any way as needed." Id. But World Class resisted adding a parking contingency to the Lease Agreement on the ground that the addition of another contingency would "throw a monkey wrench in execution." Id. STK ultimately conceded and informed World Class that it was "okay forgoing a parking contingency" but asked World Class to provide information on "the company that provided parking services for the previous tenant." Segal Decl. at 12.

         II. The Lease Agreement

         The Lease Agreement and a corresponding Guaranty Agreement were executed by the parties on June 5, 2015, and several of their provisions are relevant here. Mot. Summ. J. [#79] Ex. 2-A (Lease Agreement) at 62; Am. Compl. [#14] at 52-53 (Guaranty Agreement).

         First, the Lease Agreement contains an "as-is" clause specifying that the Premises were to be leased "as-is" and without reliance upon any warranty as to the fitness of the Premises for any particular purpose. Lease Agreement § 3.1. The "as-is" clause does, however, require World Class to deliver the Premises to STK "in compliance with" all local codes and regulations. Id.

         Second, the Lease Agreement contains a parking disclaimer clause. Lease Agreement § 3.2. Under the terms of that clause, STK acknowledged and agreed that the Premises "may not contain sufficient parking" for the Premises's intended use. Id. In turn, World Class agreed "at the request of [STK] but at no cost to [World Class], to assist [STK] in identifying and locating offsite parking." Id.

         Third, the Lease Agreement contains a provision establishing a contingency period. Under the terms of that provision, if the Premises were unable to be operated for their intended use because STK cannot "obtain the necessary permits" despite using "commercially reasonable best efforts," STK could terminate the Lease Agreement so long as STK provided written notice on or before August 3, 2015. Lease Agreement § 2.2(ii).[3]

         Fourth and finally, the Lease Agreement contains provisions affecting the timing of STK's rent obligations. Under Lease Agreement § 1.1 (i), the Rent Commencement Date falls on the earlier of (i) the date on which STK opened its restaurant to the public, or (ii) February 1, 2016, "subject to extension as provided for in Section 28.18." In turn, Lease Agreement § 28.18 provides the Rent Commencement Date "shall be extended by one day for each such day of delay" caused by a "Force Majeure Event." The Lease Agreement defines a "Force Majeure Event" as "any delay[] due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the reasonable control of such party." Id. § 28.6.

         III. Parking Problems

         After the parties signed the Lease Agreement, subsequent attempts to locate offsite parking failed. See Segal Decl. at 2 ("In July 2015, One Group retained Lone Star, a parking consulting company, to assist in securing the deeded parking spaces needed for operation of a restaurant. . . [but] [n] either One Group nor its consultants were ever able to secure the required number of deeded parking spaces under Dallas' local codes and regulations .. .."). Yet, in spite of the obvious obstacle the parking situation posed to opening a restaurant, STK failed to provide written notice within the contingency period of intent to terminate the Lease Agreement. See Segal Decl. at 3. STK also failed to pay its rent, and in March 2016, STK received a letter from World Class demanding that STK begin paying rent due under the terms of the Lease Agreement. Id. STK Group then made two rent payments to World Class "in the hopes that the needed parking would be found." Id.

         The needed parking was not found. In April 2016, STK informed World Class it was "unable to get car parking," that it had not received any substantial assistance from World Class, [4]and that the City of Dallas (the City) was unwilling to grant STK a parking variance. Segal Decl. at 3. As a result of these obstacles, STK concluded it could not proceed with the restaurant and ceased making rent payments to World Class. Id.

         Around the same time, STK learned a prior lessee had encountered similar parking problems and had applied for a parking variance from the City. Id. at 3-4. In conjunction with the parking variance application, the prior owner of 1899 McKinney Avenue had written a letter to the City asserting the owner had "tried in vain" to secure an offsite parking agreement but had been unable to do so. Segal Decl. at 4. Despite this entreaty, the City had denied the variance application in January 2014. Id.

         In October 2016, World Class and STK arranged an in-person meeting to discuss how to proceed. Segal Decl. at 4. STK alleges the parties agreed at this meeting that if they were unable to secure parking or a variance for operation of the restaurant, the parties would cancel the Lease Agreement and "walk[] away with no claim on the other." Id.

         IV. Procedural Posture

         Notwithstanding the parties' alleged agreement to cancel the Lease Agreement if parking could not be found, World Class filed suit in May 2017 alleging breach of contract. Notice Removal [#1-1] Ex. A (Pet.) at 13-14. STK then removed the action to this Court on the basis of diversity jurisdiction and filed counterclaims alleging fraud in the inducement, fraudulent concealment, negligent misrepresentation, and breach of contract. Not. Removal [#1] at 2-3; Countercls. [#21] at 10-15. World Class responded by asserting a fraud claim against STK alleging STK had misrepresented its "attention to detail" and financial condition when, in reality, it "could not meet the obligations under the Lease . . . [and] Guaranty." [#48] at 14-15. World Class now moves for summary judgment on its breach of contract claims as well as on STK's affirmative defenses and counterclaims. Mot. Summ. J. [#79]. This pending motion is ripe for review.

         Analysis

         I. Legal Standard

         Summary judgment shall be rendered when the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Washburn v. Harvey, 504 F.3d 505, 508 (5th Cir. 2007). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Washburn, 504 F.3d at 508. Further, a court "may not make credibility determinations or weigh the evidence" in ruling on a motion for summary judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, Ml U.S. at 254-55.

         Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, MS U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. Id. The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006). Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id.

         "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues that are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which ...


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