South College Street, LLC v. Charlotte School of Law, LLC

2018 NCBC 80

SOUTH COLLEGE STREET, LLC, Plaintiff, v. CHARLOTTE SCHOOL OF LAW, LLC, and INFILAW CORPORATION, Defendants.

No. 18 CVS 787

Superior Court of North Carolina, Mecklenburg

August 10, 2018

Troutman Sanders LLP, by Kiran H. Mehta and Christopher G Browning, Jr., for Plaintiff.

Womble Bond Dickinson (US) LLP, by Debbie W. Harden, Johnny M Loper, Sarah Motley Stone, and Jackson R. Price, for Defendants.

ORDER AND OPINION ON PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

MICHAEL L. ROBINSON SPECIAL SUPERIOR COURT JUDGE.

1. THIS MATTER is before the Court on Plaintiff's Motion for Partial Summary Judgment (the "Motion"). Having considered the Motion, the briefs in support of and in opposition to the Motion, and the arguments of counsel at a hearing on the Motion, the Court GRANTS the Motion.

I. FACTUAL BACKGROUND

2. The Court does not make findings of fact when ruling on a motion for summary judgment. E.g., In re Estate of Pope, 192 N.C.App. 321, 329, 666 S.E.2d 140, 147 (2008). The following factual background, taken from the undisputed evidence submitted in support of and in opposition to the Motion, is intended solely to provide context for the Court's analysis and ruling.

3. Plaintiff South College Street, LLC ("Plaintiff") is a Delaware limited liability company with its principal place of business in New York. (Compl. ¶ 1, ECF No. 3; Answer ¶ 1, ECF No. 13.) Plaintiff is registered to do business in North Carolina. (Compl. ¶ 1; Answer ¶ 1.)

4. Defendant Charlotte School of Law, LLC ("CSL") is a Delaware limited liability company registered to do business in North Carolina. (Compl. ¶ 2; Answer ¶ 2.) CSL was founded in 2006 as a for-profit law school and was accredited by the American Bar Association ("ABA") in 2011. (Compl. ¶ 2; Answer ¶ 2; Br. Opp'n to Pl.'s Mot. Partial Summ. J. Ex. A, ¶ 7, ECF No. 30.1 ["Ogene Aff."].)

5. Defendant InfiLaw Corporation ("InfiLaw") is a Delaware corporation with its principal place of business in Florida. (Compl. ¶ 3; Answer ¶ 3.) InfiLaw is registered to do business in North Carolina. (Compl. ¶ 3; Answer ¶ 3.) InfiLaw owns CSL. (Compl. ¶ 3; Answer ¶ 3.)

6. On or about October 11, 2012, Hines Charlotte Plaza LP ("Hines") and CSL executed an Office Building Lease Agreement (the "Lease") pursuant to which CSL agreed to lease approximately 250, 000 square feet of space in an office building then owned by Hines (the "Charlotte Plaza") in Charlotte, North Carolina (the "Premises"). (Compl. ¶ 9; Answer ¶ 9; Compl. Ex. A, § 1.6, ECF No. 3.1 ["Lease"]; Compl. Ex. C, §§ 2, 4, ECF No. 3.3.) On or about that same day, InfiLaw executed a Guaranty of Lease (the "Guaranty") pursuant to which InfiLaw guaranteed, "for and on behalf of [Hines] and [Hines]'s transfers, successors and assigns, the full and complete performance and payment (as applicable) of all of the obligations, liabilities and duties of any nature and kind of [CSL], its successors and assigns . . . under the Lease[.]" (Compl. ¶ 10; Answer ¶ 10; Compl. Ex. B, at 1, ECF No. 3.2 ["Guaranty"].) The Lease is expressly conditioned on InfiLaw executing the Guaranty. (Lease § 52.)

7. The Lease provides for a thirteen-year term beginning on August 1, 2013 (the "Lease Term"). (Lease § 1.7.) The Lease obligates CSL to pay rent to Hines on or before the first day of each month for each month of the Lease Term. (Lease § 3.1.) The Lease states that CSL shall be deemed in default if it

shall fail to pay when due any Rent or other sums payable by [CSL] hereunder within five (5) business days after written notice of such failure is given (or deemed given) to [CSL]; provided, however, such notice and such grace period shall be required to be provided by [Hines] and shall be accorded [CSL], if necessary, only one (1) time during any Lease Year, ^[1] and a default by [CSL] shall be deemed to have immediately occurred upon the failure by [CSL] to pay when due any Rent or other sums payable by [CSL] hereunder within five (5) business days after the due date within any Lease Year of the Lease Term after once being noticed and given an opportunity to cure as set forth above in any Lease Year.

(Lease § 20.1.)

8. Section 7.1 of the Lease states that CSL "shall use the Premises only for the Permitted Use." (Lease § 7.1.) "Permitted Use" is defined as an

[e]ducational institution, as well as for general office space, uses ancillary to its business and other legally permitted uses (with such other legally permitted uses if same are not ancillary to the foregoing Permitted Use as an educational institution to be subject to [Hines]'s approval, which approval shall not be unreasonably withheld, delayed or conditioned), consistent with the operation of first class office space, subject to the restrictions as defined in Exhibit "I" attached hereto.

(Lease § 1.13.) Exhibit I expressly prohibits CSL, other than for the Permitted Use, from leasing or permitting occupancy of office or retail space in the Charlotte Plaza to seven categories of tenants without Hines's prior written consent, which consent shall not be unreasonably withheld, delayed, or conditioned. (Lease Ex. I.) The categories of tenants include governmental entities, healthcare providers, employment agencies, and broadcasting facilities. (Lease Ex. I.) Exhibit I also expressly prohibits CSL, without Hines's prior written consent, from leasing or permitting occupancy of office space to publishers and photocopy shops, tenants with a density greater than that permitted by applicable laws, and any tenant conducting a retail business in any portion of the office space in the Charlotte Plaza. (Lease Ex. I.)

9. On December 3, 2014, Plaintiff entered into an agreement with Hines to purchase the Charlotte Plaza. (Aff. Maidad Rabina in Supp. Pl.'s Mot. Partial Summ. J. ¶ 3, ECF No. 25.3 ["Rabina Aff."].) The purchase closed on April 17, 2015, and on or about that same day, Hines informed CSL that the Charlotte Plaza had been sold to Plaintiff and that CSL was to make all future payments under the Lease directly to Plaintiff. (Rabina Aff. ¶¶ 3, 10a, Attachment 2.) From April 2015 to October 1, 2017, CSL paid its monthly rent to Plaintiff. (Rabina Aff. ¶ 10a.)

10. On November 14, 2016, the ABA notified CSL that it was being placed on probation due to CSL's failure to comply with certain ABA Standards for the Approval of Law Schools. (Ogene Aff. ¶ 15, Ex. 3, at 7.) The ABA directed CSL to take specific remedial actions. (Ogene Aff. ¶ 15.)

11. On December 19, 2016, the United States Department of Education ("DOE") denied CSL's application for recertification to continue to participate in the student financial assistance programs authorized pursuant to Title IV of the Higher Education Act of 1965. (Ogene Aff. ¶ 19, Ex. 3.) As a result, effective December 31, 2016, students could no longer obtain federal financial assistance to attend CSL. (Ogene Aff. ¶ 20, Ex. 3.)

12. On June 21, 2017, the University of North Carolina Board of Governors (the "Board of Governors") imposed conditions and limitations on CSL's license to conduct post-secondary degree activities in the State of North Carolina. (Ogene Aff. ¶ 23, Ex. 4.) One such condition was that the DOE must determine no later than August 10, 2017 that CSL students may participate in Title IV loan programs. (Ogene Aff. ¶ 23, Ex. 4, at 2.)

13. The DOE did not agree to restore CSL's participation in Title IV programs by August 10, 2017. (Ogene Aff. ¶ 24.) Accordingly, CSL's state license to conduct post-secondary degree activity expired, and CSL ceased operating on August 11, 2017. (Ogene Aff. ¶¶ 24, 26, Ex. 4, at 3.)

14. On October 1, 2017, CSL failed to pay its monthly rent due under the Lease. (Rabina Aff. ¶¶ 10a, 13.) By letter dated October 10, 2017, Plaintiff notified Defendants that CSL had failed to pay rent and demanded payment of all sums due. (Rabina Aff. ¶ 13; Compl. Ex. G, ECF No. 3.7.)

15. On October 26, 2017, CSL notified Plaintiff that it had abandoned the Premises. (Rabina Aff. ¶ 15, Attachment 13.)

16. From October 1, 2017 and continuing through the present, CSL and InfiLaw have failed to make monthly rent payments due under the Lease. (Rabina Aff. ¶¶ 10a, 13-14, 18; InfiLaw's Objs. & Resps. to Pl.'s First Set of Interrogs. & Reqs. for Produc. 5, ECF No. 25.1.)

II. PROCEDURAL HISTORY

17. Plaintiff filed its Complaint on January 12, 2018. The Complaint asserts a claim against CSL for breach of the Lease and a claim against InfiLaw for breach of the Guaranty. (Compl. 6, 8.)

18. This action was designated as a mandatory complex business case by order of the Honorable Mark Martin, Chief Justice of the Supreme Court of North Carolina, dated January 16, 2018, (ECF No. 7), and assigned to the Honorable Adam M. Conrad by order of then Chief Business Court Judge James L. Gale dated January 18, 2018, (ECF No. 2). This case was later reassigned to the undersigned by order dated April 6, 2018. (ECF No. 22.)

19. On March 19, 2018, Defendants filed their Answer to the Complaint.

20. On May 11, 2018, Plaintiff filed the Motion. (ECF No. 25.) The Motion has been fully briefed, and the Court held a hearing on the Motion on August 1, 2018. The Motion is now ripe for resolution.

III. LEGAL STANDARD

21. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c). "A 'genuine issue' is one that can be maintained by substantial evidence." Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000).

22. The moving party bears the burden of showing that there is no genuine issue of...