Encore Big Beaver LLC v. Uncle Julio's of Fla., Inc.

ENCORE BIG BEAVER LLC, Plaintiff, v. UNCLE JULIO'S OF FLORIDA, INC. and UNCLE JULIO'S CORPORATION, Defendants.

Civil Action No. 20-CV-12345

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

June 30, 2021

HON. BERNARD A. FRIEDMAN

OPINION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT, DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT, AND GRANTING DEFENDANT UJ-FL'S MOTION TO AMEND ITS ANSWER

This matter is presently before the Court on the parties' cross-motions for summary judgment [docket entries 17 and 22] and defendant Uncle Julio's of Florida, Inc.'s motion for leave to amend its answer [docket entry 26]. The motions are fully briefed. Pursuant to E.D. Mich. LR 7.1(f)(2), the Court shall decide these motions without a hearing.

This is a contract dispute. Plaintiff Encore Big Beaver LLC ("Encore") is a Michigan-based company and the owner of commercial retail property located in Troy, Michigan. Compl. ¶¶ 1, 11. Defendant Uncle Julio's Corporation ("UJC") is headquartered and incorporated in Texas and is the parent company of defendant Uncle Julio's of Florida, Inc. ("UJ-FL"), which is incorporated in Florida and principally based in Texas (collectively, "defendants"). Id. ¶¶ 2-3, 5. Defendants operate a chain of Tex-Mex restaurants around the country. See id. ¶ 4.

Plaintiff alleges that "[o]n or about September 17, 2018, Encore entered into a written Lease Agreement (the 'Lease') with UJ-FL."¹ Compl. ¶ 12 (footnote omitted). "The term of theLease was for 10 years, with two 7-year renewal options." Id. ¶ 14. Plaintiff adds that

[t]o induce Encore to enter into the Lease, on or about September 12, 2018, Thomas Vogel, as CEO of UJC, signed a guaranty, through which UJC agreed to absolutely and unconditionally guarantee to Encore the performance by UJ-FL of each and every covenant, agreement and obligation of UJ-FL under the Lease including, without limitation, the payment to Encore, after applicable notice and cure periods, of all sums due under the Lease at the time such sums shall be due and payable, and the timely completion of the "Tenant's Work," in accordance with the Lease terms (the "Guaranty[]").

* * *

Under the terms of the Lease, rents payable were not due until the "Rent Commencement Date." Specifically:

Following Tenant's satisfaction of all of its contingencies . . . , subject to the Blackout Period, Minimum Rent and Other Charges shall commence on the date that is the earlier of (a) 210 days after the later of (i) Tenant's receipt of its building permits and (ii) Landlord's completion of all Landlord's Work or (b) that date that Tenant opens for business in the Premises.

Id. ¶ 15, 21 (quoting the Lease § 1.1(f)).

Plaintiff states that on March 24, 2020, the governor of Michigan issued an executive order "that effectively shut down construction activities across the state due to [the] Covid-19 [pandemic]." Id. ¶ 22. The Lease agreement contained a force majeure clause that covered delays in "performing work or doing acts required under the Lease" that were not the fault of the party delayed, including those caused by "governmental laws or regulations." Id. ¶ 23. The force majeure clause provided in relevant part that

the period for performance . . . shall be extended for a period equivalent to the period of such delay. Notwithstanding the foregoing, th[is] provision[] . . . shall at no time operate to excuse Tenant from any obligations for payment of Minimum Rent or Other Charges required by the terms of this Lease when the same are due, and all such amounts shall be paid when due.

Id. (quoting the Lease § 24.5). After forty-five days of delay, the pandemic-related construction suspension was lifted. Id. ¶ 25.

Plaintiff alleges that "[o]n or about June 9, 2020, Scott Lark[, UJC's senior real estate director,] sent and email to Jason Hamama, Encore's CEO, and indicated . . . that UJ-FL wanted to delay the tenant's buildout of the Premises until November 2021, with Rent Commencement Date of June 2022." Id. ¶ 26. Plaintiff states that in the email, Lark expressed UJC's intention to move forward with the Lease agreement, but stated that the company had experienced pandemic- and protest-related business interruptions and financial shortfalls. See id. (quoting Pl.'s Ex. 5 (June 9, 2020 email)). In this same communication, Lark mentioned that UJC had "obligations on other projects, so [it would] need to delay the construction start of the Troy site." Id. (quoting Pl.'s Ex. 5 (June 9, 2020 email)).² Plaintiff alleges that following this exchange the parties were unable to agreeupon amended Lease terms. Id. ¶¶ 30-34.

Plaintiff states that "[u]nder the doctrine of anticipatory breach, a party may cease performance under a contract when the other party is in material anticipatory breach." Id. ¶ 41. Plaintiff contends that Lark's June 9 email communicated defendant UJ-FL's "unequivocal intention not to perform under the terms of the Lease" and thereby "excuse[d] Encore's further performance." Id. ¶¶ 41, 45 (emphasis in original).

Plaintiff raises two claims in the complaint: Breach of lease agreement by UJ-FL (Count I) and breach of guaranty by UJC (Count II).³ Id. ¶¶ 43-57. Plaintiff seeks damages plus pre- and post-judgment interest, as well as attorney fees and costs. Plaintiff states that "[a]s of July 23, 2020, the project costs due and owing to Encore by UJ-FL and UJC, jointly and severally, are not less than $2,116,038.00 under the Lease and Guaranty." Id. ¶ 38.

I. Cross Motions for Summary Judgment

A. Defendants' Motion for Summary Judgment

In their motion for summary judgment, defendants contend that they did not "unequivocally declare, at a time prior to performance through [their] words or actions, that [they] will not perform," and therefore did not anticipatorily breach (or repudiate) their contract with plaintiff. Defs.' Br. at 1 (emphasis in original) (quoting Midfield Concession Enters., Inc. v. Areas USA, Inc., 130 F. Supp. 3d 1122, 1137 (E.D. Mich. 2015)). Defendants argue that "[t]o determine whether or not a repudiation occurred, the Court must look to the party's intention as manifest[ed] by acts and words," id. at 7 (quoting Midfield Concession, 130 F. Supp. 3d at 1137), and that plaintiff cites neither acts nor words that unequivocally communicated defendants' intention not to perform under the Lease. See id. at 10-22. Defendants emphasize that the bar to establish repudiation is "extremely high," requiring more than defendants' silence, uncertainty, or request for modification. Id. at 12-15. Defendants argue that while the communications between Lark and Hamama may have "unequivocally indicated that UJ-FL wanted to delay the tenant's buildout of the Premises until November 2021," not one of the "twenty-four emails or text messages Encore describes in its answer to [defendants' first interrogatory]" unequivocally indicates that defendants would not perform their contractual obligations. Id. at 15-16. Defendants contend that "[a]t most, UJ-FL was seeking to negotiate another amendment to the Lease [and] . . . [t]he very fact that UJ-FL wanted to delay its performance shows that it would perform its obligations." Id. at 15-16. Defendants assert that the parties' failure to reach an agreement about an amendment to the terms of the Lease, "simply meant that the existing Lease terms remained in place." Id. at 19.

As to plaintiff's claim of breach of guaranty, defendants argue that the claim fails for "any or all of three reasons." Id. at 22. First, defendants cite Com. Place, LLC v. Jenna B Corp, No.262747, 2005 WL 2655966, at *1 (Mich. Ct. App. Oct. 18, 2005), for the proposition that the doctrine of anticipatory breach only applies to bilateral contracts, whereas a guaranty is a unilateral contract. Id. at 22-23. Second, defendants contend that Encore's requested remedy of "rescission-and-restitution" "is not available against a defendant whose defaulted obligation is exclusively to pay money[,] . . . [which] is necessarily the case with a guaranty." Id. at 23. Third, defendants argue that "by its terms, the Guaranty does not apply to restitution damages" because UJC only assured the fulfillment of UJ-FL's contractual obligations. Id. at 24. Rather than seeking to enforce UJ-FL's duties under the Lease, plaintiff now seeks to rescind the Lease, which, defendants argue, falls outside the terms of the Guaranty. Id. Defendants further contend that if the Court finds that UJ-FL did not repudiate the Lease, then "there could be no liability under the Guaranty." Id. at 22.

In response, plaintiff argues that the "Mr. Lark's words say it all. 'We will need to delay' is a declaration, at a time prior to performance that UJ-FL will not perform." Pl.'s Resp. Br. at 8 (emphasis in original). Plaintiff adds that prior emails between the parties' representatives illustrate "the rising tensions between the parties[, the] frustration by Encore leadership with [the] lack of clarity from UJ-FL/UJC management[, and] . . . Encore's desire to continue with the project." Id. at 8. Plaintiff states that "Mr. Lark could have said something more equivocal, such as 'we hope we can dely' or 'we would like to delay' or 'would Encore consider a delay' but Mr. Lark didn't do that. Instead, he stated 'we will need to delay' clearly and unequivocally." Id. at 12 (emphasis in original).

Regarding defendant's liability under the Guaranty, plaintiff states that

[t]he Guaranty speaks for itself: UJC agreed to absolutely and unconditionally guarantee to Encore the performance by UJ-FL of each and every covenant, agreement and obligation of UJ-FL under the Lease including, without limitation, the payment of damages that Encore may suffer as a result of any default or breach under theLease.

Id. at 13 (citing Pl.'s Ex. 1, at Ex. E.). Plaintiff further contends that "[d]efendants' argument that Encore is seeking only a rescission-restitution remedy is not accurate. The words 'rescind' or 'rescission'...