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Northbrook Plic, LLC v. Cvs Pharmacy

February 17, 2012

NORTHBROOK PLIC, LLC,
NORTHBROOK VNBP, LLC, AND
NORTHBROOK SUB, LLC, PLAINTIFFS,
v.
CVS PHARMACY, INC., DEFENDANT.
CVS PHARMACY, INC., THIRD-PARTY PLAINTIFF,
v.
GARDEN FRESH-NORTHBROOK, INC., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Judge Joan B. Gottschall

MEMORANDUM OPINION & ORDER

Plaintiffs Northbrook PLIC, LLC, Northbrook VNBP, LLC, and Northbrook SUB, LLC (collectively "Northbrook") move for partial summary judgment against Defendant CVS Pharmacy, Inc. ("CVS"), which cross-moves for summary judgment against Northbrook. Northbrook alleges that CVS is liable for breaching its obligations under a guaranty contract. For the reasons stated below, Northbrook's motion is granted in part and CVS's cross-motion is denied.

I. BACKGROUND

On or about September 21, 1994, Northbrook's predecessor in interest, Orix TMK Northbrook Venture ("Orix"), entered into a lease agreement with Northbrook L.T., Inc. ("LT") for the use of commercial space in the Village Square Shopping Center in Northbrook, Illinois (the "Lease"). LT was a wholly-owned subsidiary of Melville Corporation ("Melville"), which is now CVS. The Lease, which began sometime in 1995, provided for an initial lease-term of fifteen years, plus a partial lease year ending on January 31 of the year following the initial fifteen year term. The rent payments in the Lease began at $49,552.25 during the first five years of the Lease and were to escalate over time. As an inducement to lease the property to LT, Melville agreed to the terms of a guaranty agreement (the "Guaranty"). LT's successor in interest was LNT, Inc. ("LNT"), which merged into LT on or about December 2000. (See Ex. A, Tab 5, at GF 1720.)*fn1

Pursuant to an assignment and assumption of lease and agreement*fn2 entered into between LNT and Garden Fresh Northbrook, Inc. ("Garden Fresh") on July 31, 2003 (collectively "the assignment agreements"),*fn3 Garden Fresh assumed certain obligations under the Lease so that it could occupy the commercial space previously occupied by LNT. The assignment and assumption of the lease indicated that LNT "assigns, conveys, transfers, and sets over onto [Garden Fresh] all of the right, title, interest and estate of [LNT] as tenant under the Lease" (see Ex. A, Tab 3, at GF 1651), and the agreement indicated that Garden Fresh was to pay $40,000 per month directly to LNT as monthly rent. (See id. at GF 1657.) Nonetheless, the assignment agreements further stipulated that LNT remained responsible to pay Northbrook for the remaining portion of rent, common area maintenance, additional charges, taxes, and insurance costs as defined in the Lease. (See id. at GF 1656-57.) Garden Fresh was also obligated to pay LNT 2% of its gross sales every month. (Id.) If LNT wished to protest rent or other charges under the Lease, Garden Fresh agreed to cooperate with LNT's efforts, and the parties agreed to indemnify one another if either of them violated Lease provisions. (See id. at GF 1658-59.)

After LNT executed the assignment agreements with Garden Fresh, Garden Fresh became a tenant in the Village Square Shopping Center and continued to fulfill its obligations under those agreements. However, on May 2, 2008, LNT filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware. After LNT filed for bankruptcy, Garden Fresh, as was its practice, tendered $40,000 in rent payments to LNT in both May and June of 2008, but Northbrook never received those payments from LNT. Nonetheless, there is no indication in the record that Northbrook notified CVS or LNT of a default as a result of LNT's unpaid rent. In July 2008, Garden Fresh paid rent directly to Northbrook in the amount of $65,781.18.

On June 9, 2008, LNT asked the bankruptcy court to reject the Lease as a matter of law, including it in a list of unexpired leases that it submitted to that court. In that request, LNT also sought to reject the assignment agreements it had made with Garden Fresh. (See Ex. B to Def.'s Resp. to Pls.' 56.1 Stmt. of Material Fact, ECF No. 56.) On June 24, 2008, Northbrook opposed the motion seeking to reject the Lease, asserting that, pursuant to the assignment agreements, LNT "assigned all of its right, title, interest and estate as tenant under the Lease" to Garden Fresh. (See id. Ex. C.) On June 27, 2008, the bankruptcy court issued an order rejecting certain of LNT's commercial leases and subleases, but not the Lease or the assignment agreements. (See id. Ex. D.)

While LNT's bankruptcy proceedings were ongoing, Northbrook entered into a new lease agreement directly with Garden Fresh (the "New Lease"). Although the commencement date of the New Lease was July 1, 2008, the New Lease was executed by Northbrook and Garden Fresh on July 31, 2008. The New Lease provided Garden Fresh with a lease term of ten years; Garden Fresh would be responsible for monthly payments of $34,448.25 from July 1, 2008 through June 30, 2013 and payments of $37,893.08 from July 1, 2013 through June 30, 2018. The New Lease did not name CVS or anyone else as guarantors (see Ex. A, Tab 4, at GF 1667), and a rider to the New Lease acknowledged that the original Lease had been previously "assigned from [LNT] to [Garden Fresh]." (Id. at GF 1704.) The rider further stated that, "[t]o the parties' knowledge, LNT declared bankruptcy, rejected the [Lease], and has no rights in or to the [Lease]," and that "[Northbrook] and [Garden Fresh] hereby terminate the [Lease] effective as of the Commencement Date of this [New Lease], it being the intention of the parties hereto that this [New Lease] supersede and replace the [Lease] . . . ." (Id.) After the New Lease was executed, the original Lease was rejected by operation of law on August 30, 2008 pursuant to 11 U.S.C. § 365(d)(4).*fn4

Almost one year later, on August 11, 2009, Northbrook sent a letter to CVS contending that CVS was liable under the Guaranty because LNT was "in default of its obligations under the Lease." (See Ex. A, Tab 5, at GF 1720.) Northbrook asserted that it had suffered damages totaling over $1 million, (see id.), and demanded payment. (See id. at GF 1721.) CVS rejected this demand on September 17, 2009. (See id. Ex. A, Tab 6, at GF 1722.) After Northbrook renewed the demand on October 14, 2009, CVS once again rejected it on October 28, 2009. (See id. Ex. A, Tabs 7-8, at GF 1724-25.) This litigation was then filed in the Circuit Court of DuPage County on January 5, 2010, and it was removed to this court on February 9, 2010 based on diversity jurisdiction.

II.LEGAL STANDARD

Under Federal Rule of Civil Procedure 56(a), "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." When reviewing a motion for summary judgment, the court should view all evidence in the light most favorable to the nonmoving party, drawing all reasonable inferences in that party's favor. See Ogden v. Atterholt, 606 F.3d 355, 358 (7th Cir. 2010). However, the party who bears the burden of proof on an issue may not rest on the pleadings or mere speculation, but must affirmatively demonstrate that there is a genuine issue of material fact that requires a trial to resolve. See Springer v. Durflinger, 518 F.3d 479, 484 (7th Cir. 2008). The evidence presented must comport with the Federal Rules of Evidence and be admissible at trial, United States v. 5443 Suffield Terrace, Skokie, Ill., 607 F.3d 504, 510 (7th Cir. 2010), and it must consist of affidavits or declarations "made on personal knowledge, set[ting] out facts that would be admissible in evidence, and show[ing] that the affiant or declarant is competent to testify on the matters stated." Fed. R. Civ. P. 56(c)(4).

III.ANALYSIS

This is a case of contract interpretation. In its motion for partial summary judgment, Northbrook contends that LNT breached its obligations under the Lease, triggering CVS's liability under the Guaranty. Northbrook claims that LNT breached its obligations when it declared bankruptcy and subsequently failed to pay rent to Northbrook. CVS responds that (1) the July 2003 assignment agreements caused Garden Fresh to assume all of LNT's obligations under the Lease, releasing CVS from any subsequent liability stemming from LNT's actions; (2) Northbrook failed to tender notice of non-payment of rent to either LNT or Garden Fresh between May and June of 2008, suggesting that there was not a breach of the Lease; and (3) Northbrook terminated the original Lease on July 31, 2008, the date that the New Lease between Northbrook and Garden Fresh was executed.

The parties agree, and the relevant contracts stipulate, that Illinois law applies to the analysis of the contracts at issue. In Illinois, "[t]he rules of construction of contracts apply generally to contracts of guaranty." McLean Cnty. Bank v. Brokaw, 519 N.E.2d 453, 456 (Ill. 1988). The court needs to "effectuate, if ascertainable, the intent of the parties to the contract." Id. (citing Blackhawk Hotel Assocs. v. Kaufman, 421 N.E.2d 166 (Ill. 1981)). Nonetheless, "[a] guarantor is to be accorded the benefit of any doubt which may arise from ...


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