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RPS Associates LLC v. McDonalds USA LLC

United States District Court, D. Rhode Island

May 18, 2017

RPS ASSOCIATES, LLC, Plaintiff,
v.
MCDONALDS USA, LLC, Defendant.

          MEMORANDUM AND ORDER

          WILLIAM E. SMITH, Chief Judge

         In October 2013, RPS Associates, LLC and McDonalds USA, LLC entered into a Ground Lease for property located in Providence, Rhode Island with the purpose of building and operating a McDonald's restaurant. Three years later, the restaurant had not been built and RPS initiated this cause of action, alleging that McDonald's breached the lease and that RPS is entitled to specific performance of the rent payment obligations in addition to compensatory and consequential damages. Presently pending before the Court is McDonald's Motion to Dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. For the reasons set forth below, McDonald's Motion is DENIED.

         I. Standard of Review

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'”[1] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[2] In addition to reviewing the allegations stated in the complaint, the Court may consider documents that are discussed in the complaint and included with the complaint as exhibits.[3]

         II. Background

         With this standard squarely in mind, a review of the Amended Complaint, the Ground Lease, and four letters exchanged between the parties prior to the start of this litigation reveals the following.[4] In 2013, the parties executed the lease agreement that permitted McDonald's to build and operate a restaurant. One of RPS's responsibilities under the Ground Lease was to secure the zoning approvals required to build and operate a McDonald's restaurant. Once the zoning approvals were in place, McDonald's was, “without unreasonable delay . . . to use due diligence” to apply for all building permits and other permits that would be required to operate the restaurant.[5] The Ground Lease provided termination rights to both parties; these rights were tied to a contingency period, the expiration of which was extended twice by the parties. The precise scope and timing of the termination rights are at the center of this litigation.

         The development of the property was stalled by the zoning approval process. After RPS applied for the applicable zoning approvals from the Providence Zoning Board, the owner of a Burger King franchise located across the street from the property objected. In September 2014, the Providence Zoning Board granted the zoning relief and approvals but the Burger King franchise owner appealed the decision to the Rhode Island Superior Court. The Superior Court affirmed the decision of the Providence Zoning Board on November 6, 2015. Soon thereafter, RPS sent a letter to McDonald's stating that it had met its obligations to secure the necessary zoning approvals and that it was “ready for the applicable timelines in the lease to be reset and for the project to move forward.”[6] McDonald's promptly replied, stating that it would not pursue any permits before the appeal period had run on the Superior Court's decision, and asserting that RPS had “failed to satisfy the conditions set forth in Article 6(A) and Article 4(A)” of the Ground Lease.[7]

         The Burger King franchise owner filed a petition with the Rhode Island Supreme Court to review the Superior Court's decision; this request was denied in October 2016. While the petition for review was pending, however, the parties exchanged further correspondence. In May and June of 2016, RPS affirmed its commitment to the project and asserted its position that the Ground Lease had not been terminated, and McDonald's made its position clear that the Ground Lease had long ceased to be in effect.[8]

         RPS alleges that, on August 1, 2016, it communicated its desire to move forward with the project and its willingness to accept a retraction of McDonald's repudiation of the Ground Lease.[9]After McDonald's declined RPS' attempts to “get the project reset and back on track, ” RPS initiated this cause of action.[10] RPS alleges that McDonald's did not terminate the Ground Lease prior to the contingency period and was therefore bound by its obligations to use commercially reasonable efforts to secure the necessary building permits. RPS further alleges that, by refusing to perform its obligations, McDonald's is in material breach of the contract.

         III. Discussion

         McDonald's attacks the Amended Complaint on several fronts. It first argues that it did not breach the contract because it properly terminated the contract according to the unambiguous terms of the Ground Lease by notifying RPS prior to the final judgment regarding the requested zoning relief that it would not move forward with the project. In addition, McDonald's argues that RPS is not entitled to specific performance as a remedy and that it is also not entitled to enforce the rent obligation because, pursuant to the agreed terms of the Ground Lease, this obligation had not yet been triggered.

         RPS responds with several reasons why its Amended Complaint should survive McDonald's Motion to Dismiss. Relevant to the arguments raised by McDonald's, RPS contends that it has plausibly pleaded that McDonald's did not terminate the Ground Lease as required by the terms of the contract because it did not terminate prior to December 1, 2014, the expiration of the final contingency period negotiated by the parties.[11] RPS also asserts that, because this case involves a “claim of anticipatory breach, ” the Court can - and should - order specific performance.[12]

         A. Right of Termination and Anticipatory Repudiation

         Section 6 of the Ground Lease outlines the parties' rights to terminate; the parties focus on different parts of this section as support for their respective positions regarding the scope and ...


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