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AGT Crunch Chicago, LLC v. 939 North Avenue Collection

March 18, 2008

AGT CRUNCH CHICAGO, LLC, A DELAWARE LIMITED LIABILITY COMPANY, SUCCESSOR-IN-INTEREST TO BALLY TOTAL FITNESS CORPORATION, PLAINTIFF,
v.
939 NORTH AVENUE COLLECTION, LLC, A DELAWARE LIMITED LIABILITY COMPANY, SUCCESSOR-IN-INTEREST TO NORTH AVENUE COLLECTION, LLC, DEFENDANT.



The opinion of the court was delivered by: Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

Plaintiff, AGT Crunch Chicago, LLC ("Crunch"), has filed suit seeking a declaratory judgment that in the Lease governing its relationship with Defendant, 939 North Avenue Collection LLC ("939 North"), the phrase "Real Estate Taxes in the Base Year" refers to the Real Estate Taxes levied or assessed by the Cook County taxing authority in that year. In addition, Crunch seeks a declaratory judgment that 939 North's right to choose the measure of real estate taxes for a given year applies only to the years subsequent to the Base Year, that Crunch is not in default under the Lease, and that by declaring a default and drawing upon Crunch's letter of credit, 939 North has breached the Lease. Crunch also seeks attorneys' fees and costs pursuant to Section 14.3 of the Lease. Defendant has filed a motion to dismiss the complaint, arguing that Plaintiff's construction of the Lease is not supported by its plain language. For the reasons stated below, Defendant's motion is denied.

I. Background

For purposes of this motion, I accept the following facts alleged in Plaintiff's complaint as true:

Plaintiff, AGT Crunch Chicago, LLC ("Crunch"), leases space from 939 North Avenue Collection, LLC ("939 North"), in which it operates a fitness club. The parties' predecessors-in-interest executed a lease governing their relationship as of January 5, 2001 (the "Lease"). The Lease requires that, each year, Crunch pay a share of the increase in Real Estate Taxes between the current year and the "Real Estate Taxes in the Base Year," which the parties agree is 2004. To calculate the share of the tax increase allocated to Crunch each year, the Lease specifically provides:

Tenant shall pay to Landlord, on the first day of each calendar month, commencing on the Additional Rent Commencement Date (defined in Section 5.4 hereof) and continuing throughout the balance of the Term of the Lease, one-twelfth (1/12th) of the increase in Tenant's Proportionate Share (or Prorata Share [defined hereinafter], as the case may be) of Real Estate Taxes, for that calendar year, over Tenant's Proportionate Share (or Prorata Share, as the case may be) of Real Estate Taxes, in the Base Year.

As defined above, Crunch's share of the tax increase is determined by a simple formula: Crunch must pay 939 North a portion (one-twelfth) of the amount by which Real Estate Taxes "for" a calendar year exceeds the Real Estate Taxes "in" the Base Year. The first part of this equation, the calculation of Real Estate Taxes "for th[e] calendar year" subsequent to the Base Year, is undisputed. Recognizing that in Cook County, taxes based on a property's value in one year are paid the following year, the Lease explicitly provides 939 North the option to treat Real Estate Taxes "for" a calendar year either as the taxes paid in that year, or the taxes assessed against the property in that year and due the following year. While the parties agree on the meaning of the first part of the equation, they dispute the calculation of Real Estate taxes "in the Base Year," which is the amount subtracted from Crunch's share of Real Estate Taxes "for [t]he calendar year" to determine its share of the yearly tax increase.

On February 16, 2007, 939 North informed Crunch by letter that it had performed an audit of the Lease and declared Crunch in default under the Lease for failing to pay its share of the Real Estate Tax increase, as calculated using the Real Estate Taxes paid in 2004. In the letter, 939 North demanded that payment in addition to late fees. Responding with a letter dated March 14, 2007, Crunch asserted an alternative interpretation of the Lease in support of the amount it had paid. On April 20, 2007, attorneys for 939 North sent Crunch a "final notice" of default, demanding payment of $245,497.46 for its share of Real Estate Taxes and late fees. In addition, the final notice provided that if 939 North did not receive payment from Crunch within five days, 939 North would draw on Crunch's letter of credit, which Crunch would be obligated to replenish. Crunch then filed the complaint in this case, seeking a judgment declaring that its interpretation is correct, and that therefore Crunch is not in default under the Lease. Defendant, 939 North, then filed a motion to dismiss Plaintiff's claim under 12(b)(6), alleging that Plaintiff's construction of the Lease is not supported by its plain language, and therefore, Plaintiff's complaint fails as a matter of law.

At core, the parties dispute the meaning of "Real Estate Taxes in the Base Year." The meaning of this phrase is crucial to the calculation of Crunch's share of the Real Estate Taxes each year. Crunchinterprets "Real Estate Taxes in the Base Year" as the taxes levied or assessed against the property in the Base Year, 2004. These taxes are based on the value of the property in the 2004 and are actually paid in 2005. In contrast, 939 North interprets "Real Estate Taxes in the Base Year" as the taxes actually paid in 2004, based on value of property in 2003. Because the value of the property increased after the completion of construction at or about 2003, the Real Estate Taxes assessed in 2003 (and paid in 2004) were much lower than those assessed in 2004 (and paid in 2005). Accordingly, if "Real Estate Taxes in the Base Year" refers to the lower amount, as advanced by 939 North, Crunch bears responsibility for a much higher proportionate share than if the phrase refers to the taxes assessed in 2004.

II. Discussion

Defendant asserts that Crunch's claim relies on an interpretation of the Lease that is not supported by its plain language, and, therefore, asks the court to resolve the purely legal issue of contract construction by dismissing Crunch's complaint under Rule 12(b)(6). In contrast, Crunch claims that its complaint states a cause of action necessitating declaratory relief; moreover, "if the declaratory judgment will clarify and settle the disputed legal relationships and afford relief from uncertainty and controversy that created the issues, it is usually resolved rather than dismissed." NUCOR Corp. v. Aceros y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 578 (7th Cir. 1994).

A. Motion to Dismiss

A motion to dismiss tests the sufficiency of a complaint, not the merits of a case. Autry v. Northwest Premium Servs., Inc., 144 F.3d 1037, 1039 (7th Cir. 1998). I must accept all well-pleaded factual allegations in the complaint as true, drawing all reasonable inferences from those facts in Plaintiff's favor. Cleveland v. Rotman, 297 F.3d 569, 571 (7th Cir. 2002). I may grant the motion only if "no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). That said, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (internal citations and quotations omitted).

When considering a contract appended to pleadings in the context of a motion to dismiss, I need not accept the plaintiff's allegations as to the meaning of the document; I "can independently examine the document and form [my] own conclusions as to the proper construction and meaning to be given the material." Rosenblum v. Travenbyus.com Limited, 299 ...


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