State of Rhode Island and Providence Plantations
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STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS PROVIDENCE, SC. SUPERIOR COURT (FILED: MAY 18, 2012) OMNI-COMBINED W.E., LLC : : v. : C.A. No. PB 10-2530 : 20/20 COMMUNICATIONS, INC. : DECISION SILVERSTEIN, J. Before the Court is Defendant 20/20 Communications, Inc.‟s (20/20 Communications) Motion for Summary Judgment on the Issue of Damages, as well as Plaintiff Omni-Combined W.E., LLC‟s (Omni) Motion for Summary Judgment, both pursuant to Super. R. Civ. P. 56. At the center of this litigation is the disputed termination of a commercial lease between Omni, the Landlord, and 20/20 Communications, the Tenant. 20/20 Communications moves the Court to grant summary judgment on the issue of damages, arguing that an acceleration clause contained in the lease is unenforceable by law. In Omni‟s motion, it requests the Court to grant summary judgment in its favor on its breach of contract claim. I Facts and Travel On January 12, 2009, 20/20 Communications entered into a written commercial lease agreement (Lease) with Omni for the rental of office space owned by Omni and located at 220 West Exchange Street, Suite 202, in Providence, Rhode Island. See Pl. Omni-Combined W.E., LLC‟s Mot. for Summ. J. Against Def. 20/20 Communications, Inc. (Pl.‟s Mot. for Summ. J.) Ex. 1 (Lease). The Lease set a term of three years, beginning February 1, 2009 and ending January 31, 2012. Id. Pursuant to the Lease, Tenant1 was to pay monthly rent and additional rent—such as common area expenses, utilities, and other assessments. See id. The rent was due “in equal monthly installments, in advance, on the first day of each calendar month . .” Id. at § 1.4. In the event Tenant failed to timely pay rent, the Tenant could be subject to a late charge equal to ten percent (10%) of the total unpaid amount. Id. at § 1.6. Among its terms, the Lease contained an Early Termination provision, negotiated by the parties to permit the Tenant to terminate the Lease prior to its expiration date under certain conditions. See id. at § 1.3; Jason Gross Affidavit ¶ 2, Jan. 27, 2011. The section provides: “In addition to those rights set forth in Sections 5.1 and 5.2,2 it is agreed that Tenant may terminate this Lease (“Early Termination”) at any time after the First (1st) anniversary of the Commencement Date of the Lease, for any reason, provided that Tenant, or any Tenant affiliate, will not be occupying office space within a forty (40) mile radius of the Leased Premises during the period between Early Termination and the Expiration Date. The following terms and conditions shall, in any and all events, apply to Early Termination; (a) Tenant shall not at any time during the Term of this Lease become in default of any material provision of this Lease; (b) Tenant shall give Landlord written notice not less than Sixty (60) days prior to the intended Early Termination date, and; (c) such notice shall not be effective unless accompanied by a check for the sum of Seven Thousand and 00/100 Dollars ($7,000.00) reduced by Nine and 59/100 Dollars ($9.59) for each day less than Seven Hundred Thirty (730) Days (years 2 and 3 of the Lease) that the balance of the Lease Term will be reduced. Tenant shall be required to continue to pay any and all rent called for hereunder for the remainder of the Term between the date of said Notice through Early Termination. If at any time subsequent to Tenant providing notice of Early Termination, as provided hereunder, Tenant defaults under any material term of this Lease, then Tenant‟s right to Early Termination shall become null and void in the sole and absolute discretion of Landlord.” (Lease § 1.3.) 1 Throughout, the term “Tenant” refers to 20/20 Communications, and the term “Landlord” refers to Omni. 2 Sections 5.1 and 5.2 of the Lease concern Condemnation and Destruction of the leased premises and are in no way at issue here. 2 The conditions include written notice accompanied by a check for an amount determined by the number of days remaining in the lease term. See id. Notice, as required by the lease, “. shall be hand delivered or sent by certified mail, return receipt requested . .” (Lease § 7.2.) Additionally, although the Tenant has the option of Early Termination if compliant with the set conditions, the Tenant‟s right to Early Termination becomes “null and void” if there is default under any material term of the Lease. (Lease § 1.3.) One term of the Lease specifically provides that “if Tenant shall abandon or vacate the Leased Premises . then . Tenant shall be in default of this Lease.” (Lease § 6.1(a).) Upon such default, the “Landlord shall then and at any time thereafter be entitled to immediate possession of the Leased Premises . .” (Lease § 6.1(b).) Further, the Lease includes a rent acceleration provision, stating: “Landlord shall immediately be entitled to recover from Tenant, and Tenant shall forthwith pay Landlord as compensation . any unpaid rent, or other payments called for hereunder accrued to such date, a sum equal to the amount of all payments called for hereunder to be paid by Tenant for the remainder of the Lease Term.” Id. Further, “[i]n the event of Tenant‟s default hereunder, Landlord shall be entitled to recover from Tenant the amount of any attorneys‟ fees, costs, and expenses reasonably incurred by Landlord in enforcing its rights and remedies hereunder.” (Lease § 6.3.) A later section of the Lease specifies with regard to vacating the premises that: “[i]n the event the Tenant during the Term of this Lease, or any renewal thereof, discontinues operation of its business, at the leased premises, for a period of twenty (20) days or more, Landlord shall have the right and option within ten (10) days written notice to terminate this Lease and accelerate all rent and other charges due under this Lease.” (Lease § 7.4.) 3 Accordingly, both sections 6.1 and 7.4 provide so-called acceleration clauses, purportedly entitling the Landlord to recover all rent that would be due under the Lease in the event of a breach by the Tenant. In September or October of 2009, 20/20 Communications attempted to exercise its right to Early Termination of the Lease, to be effective April 1, 2010. (Gross Aff. ¶ 4.) 20/20 Communications asked Omni what the actual amount of the termination fee would be, allegedly because 20/20 Communications had difficulty calculating the amount from the formula set forth in the Lease. See id. at ¶¶ 5-6; Lease § 1.3. Omni never responded to inform 20/20 Communications how much it owed for the termination fee. (Gross Aff. ¶ 9.) However, 20/20 Communications vacated the premises and discontinued its operations there as of December 21, 2009.3 See Pl.‟s Mot. for Summ. J. Ex. 4 (Def.‟s Resp. to Pl.‟s First Req. for Admis.) at ¶ 113, Ex. 5 (Def.‟s Ans. to Interrogs. Propounded by Pl.) at ¶ 12. 20/20 Communications ceased making rent or other payments as of March 1, 2010, last paying rent for the month of March. See Dominic Shelzi Affidavit ¶ 11, Jan. 31, 2011. 20/20 Communications cannot prove that it sent notice of Early Termination to Omni by either hand delivery or certified mail, return receipt requested.4 See Pl.‟s Mot. for Summ. J. Ex. 3 (Jason Gross Dep., Aug. 5, 2010) at 34:6-18, 79:16-21. Furthermore, 20/20 admits it never sent notice accompanied by a check for the termination fee. See id. at Ex. 4 (Def.‟s Resp. to Pl.‟s First Req. for Admis.) at ¶¶ 106-08, Ex. 3 (Gross Dep.) at 30:19-31:20, 60:14-25. It also 3 Omni contends that 20/20 Communications vacated the premises prior to that date, but 20/20 Communications disputes that fact. Through discovery in this matter, though, 20/20 Communications admitted to vacating the office space in December 2009. 4 The purported notice, attached as an exhibit to the summary judgment motions and affidavits, states that it was sent “Via Certified Mail” on October 17, 2009. See Gross Aff. Ex. 3. Omni articulates that 20/20 Communications has not provided any evidence that the notice was in fact sent certified mail, return receipt requested, or hand delivered. 4 appears that after vacating the premises but before the expiration of the term of the Lease, 20/20 occupied office space in Quincy, Massachusetts, within a forty-mile radius of the leased premises. See id. at Ex. 4 (Def.‟s Resp. to Pl.‟s First Req. for Admis.) at ¶¶ 9-10. On March 9, 2010, Omni sent written notice of default to 20/20 Communications, demanding, among other things, accelerated rent. (Pl.‟s Mot. for Summ. J. Ex. 12.) 20/20 Communications has not made any payments to Omni since March, 2010, when Omni declared default and demanded accelerated rent. See Shelzi Aff. ¶ 11. Omni filed the instant action on April 28, 2010 for breach of contract and breach of good faith and fair dealing. Omni claims 20/20 Communications breached the Lease by failing to effectively exercise its Early Termination right, and subsequently, defaulted on the Lease by vacating the premises and by failing to pay rent due. 20/20 Communications moved for summary judgment on the issue of damages, claiming the acceleration clause in the Lease is punitive and legally unenforceable. Omni objected to 20/20 Communications‟ motion, and Omni moved for summary judgment on Count I of its Complaint, alleging 20/20 Communications breached the Lease contract.