Second Circuit – Breach of lease agreement: Delsha 60 Ninth, LLC v. Free People of PA LLC

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United States Court of Appeals for the Second Circuit

 Breach of lease agreement — Covid-19 — Operating business

Delsha 60 Ninth, LLC v. Free People of PA LLC

25-148-(L)

Judges Leval, Lynch, and Sullivan

Background: The defendant operated a retail clothing store that it leased from the plaintiff but stopped paying rent during the Covid-19 shutdown. The defendant pointed to the lease agreement’s exception for government takings. The plaintiff terminated the lease and sued for breach of contract and the defendant counterclaimed premised on wrongful termination of the lease and retention of two inadvertent payments made after the lease was terminated. The defendant appealed from the grant of summary judgment to the plaintiff.

Opinion: The Second Circuit reversed. The court held that the district court misinterpreted the lease’s taking provision. The defendant operated a traditional clothing store offering in-person sales, from which it also fulfilled a portion of online orders. However, it was closed to the public due to the COVID-19 orders. One person was allowed to enter the store at a time to fulfill online orders. Pursuant to the takings provision, one person fulfilling remote orders is not the business that the defendant had previously operated on the premises.

Bradely S. Silverbush, of Rosenberg & Etis, for the plaintiff-counter-defendant-appellee-cross-appellant; Mark D. Taticchi, of Faegre Drinker Biddle & Reath, of the defendant-counter-claimant-appellant-cross-appellee.

Oral argument audio