MIDDLEBROOK TECH v. Moore

849 A.2d 63

157 Md. App. 40

MIDDLEBROOK TECH, LLC v. Roger H. MOORE.

No. 1104, Sept. Term, 2003.

Court of Special Appeals of Maryland.

May 7, 2004.

Greg R. Saber (Robert S. Selzer, Selzer, Gurvitch, Rabin & Obeeny, Chtd., on brief), Bethesda, for appellant.

Dawn White, Berkeley Springs, W.Va., for appellee.

Argued before EYLER, DEBORAH S., ADKINS, BLOOM, THEODORE G. (Ret'd, Specially Assigned), JJ.

DEBORAH S. EYLER, J.

The Circuit Court for Montgomery County granted summary judgment in favor of Roger H. Moore, the appellee, in a breach of guaranty action brought against him by Middlebrook Tech, LLC ("Middlebrook"), the appellant. On appeal, Middlebrook presents three questions for review, which can be distilled into the single question of whether the circuit court's decision to grant summary judgment was legally incorrect.¹ For the following reasons, we shall reverse the circuit court's decision and remand the case to that court for further proceedings.

FACTS AND PROCEEDINGS

In 1980, Moore founded Optim Electronics Corporation ("Optim"), a Maryland corporation with its principal place of business in Germantown, Montgomery County. Optim was in the business of manufacturing electronic measuring systems for use in industry. At Optim's inception, Moore was its president and sole stockholder. At a time not specified in the record, but prior to 1992, Moore sold all of his stock in Optim to Bowthorpe, LLC, a British company. He remained as president of Optim, under an employment contract.

On April 30, 1992, Optim entered into a Lease Agreement ("Lease") with Brooke Venture Limited Partnership ("Brooke"), the predecessor-in-interest to Middlebrook. Pursuant to the Lease, Optim rented from Brooke commercial office space on the second floor of a building located at 12401 Middlebrook Road, in Germantown ("the Leased Premises"). The Lease was for a five-year term, ending on April 30, 1997. It established an annual rent, payable in monthly installments.

As pertinent to this case, section 15 of the Lease, entitled "Default Provisions," stated, inter alia, that the tenant would be in default for failure to pay rent ten days after the time it was due. The Lease also contained, as section 26, a "Holding Over" clause, stating that, if the tenant should hold possession of the Leased Premises after the end of the term, the tenant would be

deemed to be occupying the Leased Premises as a Tenant from month to month, at double the Rent, adjusted to a monthly basis, and subject to all the other conditions, provisions, and obligations of this Lease insofar as the same are applicable, or as the same shall be adjusted, to a month-to-month tenancy.

Finally, also as relevant to this case, the Lease contained the following "Bankruptcy Termination Provision," at section 16:

This Lease shall automatically terminate and expire, without the performance of any act or the giving of any notice by Landlord, upon the occurrence of any of the following events: (1) Tenant's admitting in writing its inability to pay its debts generally as they become due, or (2) the commencement by Tenant of a voluntary case under the federal bankruptcy laws ... or any other applicable federal or state bankruptcy, insolvency or other similar law, or (3) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of Tenant in an involuntary case under the federal bankruptcy laws ... or any other applicable federal or state bankruptcy, insolvency or other similar law, and the continuance of any such decree or order unstayed and in effect for a period of 30 consecutive days, or (4) Tenant's making an assignment of all or a substantial part of its property for the benefit of its creditors, or (5) Tenant's seeking or consenting to or acquiescing in the appointment of, or taking possession by, a receiver, trustee, or custodian for all or a substantial part of its property, or (6) the entry of a court order without Tenant's consent, which order shall not be vacated, set aside or stayed within 30 days from the date of entry, appointing a receiver, trustee or custodian for all or a substantial part of its property. The provisions of this Section 16 shall be construed with due recognition for the provisions of the federal bankruptcy laws, where applicable, but shall be interpreted in a manner which results in a termination of this Lease in each and every instance, and to the fullest extent and at the earliest moment that such termination is permitted under the federal bankruptcy laws, it being of prime importance to the Landlord to deal only with Tenants who have, and continue to have, a strong degree of financial strength and financial stability.

In 1993, Brooke conveyed its interest in the Leased Premises to a life insurance company, which in 1996 reconveyed that interest to First Amsterdam Realty, LLC ("First Amsterdam").

On February 25, 1997, Optim and First Amsterdam entered into an Amendment to the Lease ("Amendment") that, among other things, extended the Lease term for five years, from May 1, 1997, to April 30, 2002 ("the Extended Term"). In addition, the Amendment gave Optim an option to renew the Lease term for an additional five years, from May 1, 2002, to April 30, 2007 ("the Renewal Term"). Section 2(b) of the Amendment stated:

Provided that Tenant is not then in default of any of the terms and conditions of this Lease, Tenant shall have the right to renew this Lease for one (1) additional term of five (5) years commencing on May 1, 2002 and terminating on April 30, 2007 ... provided that for Tenant to validly exercise the option for the Renewal Term, Tenant shall give Landlord written notice at least one (1) year prior to the expiration of the Extended Term, and provided that there shall be no further right of renewal.

Sometime thereafter, but before December 7, 1999, First Amsterdam conveyed its interest in the Leased Premises to Middlebrook.

On December 7, 1999, Moore executed an "Unconditional Guaranty of Lease Agreement" ("Guaranty"). The Guaranty was given in connection with Bowthorpe's sale of all of Optim's stock to Trident Analytical, Inc., a wholly owned subsidiary of Trident Overseas Limited (collectively "Trident"), also a British Company. The Guaranty states:

In consideration of and as a material inducement of [Middlebrook] ... to consent to the transfer of all or part of the capital stock of [Optim] from [Bowthorpe to Trident], which consent is required pursuant to [the Lease and Amendment] ... [Moore] hereby unconditionally and absolutely guarantees unto [Middlebrook] ..., the full, prompt and complete payment of any amounts of rent, minimum rent, additional rent, or any additional payment, as these terms may be provided for and used in the [Lease] to be paid by [Optim], and the complete and prompt observance and performance by [Optim] of all the terms, covenants and conditions of the Lease on [Optim's] part to be performed or observed.

Two days later, on December 9, 1999, Trident entered into a loan agreement with the Bank of Scotland ("BOS"). At the same time, Trident, Optim, and the BOS entered into a Security Agreement, by which Trident pledged what amounted to all of Optim's assets as security for the BOS loan. A Financing Statement was recorded, granting BOS a first priority security interest in all of Optim's personal property.

About a year and a half later, on April 20, 2001, Moore, in his capacity as President of Optim, sent Middlebrook a letter stating that it was Optim's intent to renew the Lease for the five year Renewal Term (May 1, 2002 to April 30, 2007) ("the Renewal Letter").

Ultimately, Trident defaulted on the BOS loan. On August 30, 2001, Trident was forced by the BOS into an "administrative receivership" in the United Kingdom, under a debenture held by the BOS. Two accountants with the firm of Arthur Andersen in Great Britain were appointed "Joint Administrative Receivers" of Trident.

On December 31, 2001, Moore's employment contract with Optim expired and was not renewed. Optim continued operating for the first two weeks of January 2002, but its employees were not paid. On February 8, 2002, Optim's employees and Moore filed a petition, in the United States Bankruptcy Court for the District of Maryland ("Bankruptcy Court"), seeking to place Optim in involuntary bankruptcy under Chapter 7 of the federal bankruptcy code. On March 13, 2002, the Bankruptcy Court issued an order granting that relief. Thereafter, in April 2002, the Bankruptcy Court appointed Michael Wolff, Esquire, as Trustee for Optim.

Beginning in March 2002, Optim ceased making any rent payments under the Lease.

On May 13, 2002, in the bankruptcy case, Middlebrook filed a motion for relief from the automatic stay imposed by section 362(a) of the bankruptcy code. It argued that the Lease term ended on April 30, 2002, and that, from May 1, 2002 on, Optim was occupying the Leased Premises as a holdover tenant, under section 26 of the Lease. Its argument that the Lease was not renewed was twofold: that, as of the date of the Renewal Term (May 1, 2002), Optim was in default, for non-payment of rent, and therefore could not exercise the renewal option; and that the Renewal Letter was ineffective because it was not sent by registered or certified mail, as required under a notice provision of the Lease.

Middlebrook further argued that, in any event, even if the lease were renewed, it was deemed rejected by the Trustee, as of May 12, 2002, under Section 365(d)(4) of the bankruptcy code, and therefore Middlebrook was entitled to immediate possession of the Leased Premises.

On June 7, 2002, the Bankruptcy Court entered an order granting Middlebrook's motion for relief from the automatic stay. The court ordered that the Lease was deemed rejected on May 13, 2002, pursuant to section 365(d)(4). It further ordered

that the automatic stay ... be and hereby is terminated as to [Middlebrook], and that [Middlebrook...