Friday Invs., LLC v. Bally Total Fitness of the Mid-Atlantic, Inc.
2017 N.C. App. LEXIS 632
| N.C. Ct. App. | 2017Background
- Tower Place landlord leased premises to Bally Total Fitness (tenant) in 2000; Bally Total Fitness Holding Corporation (Bally Holding) executed a separate guaranty (attached as Exhibit C) guaranteeing tenant's lease obligations.
- Tenant assignments and amendments occurred (including a 2007 First Amendment and a 2009 Second Amendment modifying rent/site plan); Bally Companies filed Chapter 11 in 2007 and again in 2008–2009; the Lease was included on the bankruptcy court’s Assumed Lease Schedule.
- The Bally debtors' confirmed Chapter 11 Plan included Consolidation Provisions providing for deemed consolidation "solely for purposes of implementing the Plan," and stating that "all guarantees... shall be deemed eliminated except to the extent that they are required to be maintained." A Fanelli declaration reiterated that guarantees required to be maintained post-Effective Date would survive.
- Plaintiff (successor landlord) purchased the property in 2011; an estoppel certificate executed by Bally acknowledged the Lease and the guaranty were in effect.
- Plaintiff sued Bally of the Mid-Atlantic for lease breaches and Bally Holding on the guaranty; trial court granted summary judgment for Plaintiff against the tenant but later granted summary judgment for Bally Holding, concluding the guaranty was discharged by the confirmed Plan; trial court’s order was certified under Rule 54(b) and appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lease and Guaranty are separate contracts | Guaranty is part of the Lease and must be assumed with it | Guaranty is an independent contract and could be discharged separately | Court: Lease and Guaranty are separate contracts under NC law (reverses trial court on other grounds) |
| Whether the guaranty was discharged by the 2008–2009 Plan consolidation provisions | Guaranty was "required to be maintained" (assumed) and not eliminated by Plan | Consolidation provision eliminated guarantees unless required to be maintained; no indication this guaranty was required | Court: Genuine issue of material fact exists whether guaranty was "required to be maintained"; summary judgment improper for Bally Holding |
| Effect of Second Amendment on guaranty survival | Second Amendment did not expressly release guarantor; guaranty language covers renewals/modifications and binds successors | Defendants contend Second Amendment showed guarantor was not required to be maintained post-Plan and did not join Bally Holding | Court: Second Amendment raises genuine factual disputes whether guaranty survived and was required to be maintained |
| Whether equitable estoppel prevents Bally Holding from asserting discharge | Plaintiff relies on estoppel certificate and conduct to estop Bally Holding | Bally Holding contends discharge in bankruptcy defeats claim and estoppel doesn't apply | Court: Left unresolved on merits; majority notes factual disputes and reverses summary judgment (trial court previously found no estoppel) |
Key Cases Cited
- Trust Co. v. Clifton, 203 N.C. 483 (N.C. 1932) (definition and separateness of guaranty contract)
- Tripps Rests. of N.C., Inc. v. Showtime Enters., Inc., 164 N.C. App. 389 (N.C. Ct. App. 2004) (guaranty independence rule)
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (assumption of executory contract carries burdens and benefits)
- In re Owens Corning, 419 F.3d 195 (3d Cir. 2005) (discussion of deemed consolidation limited to plan implementation/distributions)
- In re Genesis Health Ventures, Inc., 402 F.3d 416 (3d Cir. 2005) (effect and scope of substantive/deemed consolidation)