The following e-filed documents, listed by NYSCEF document number (Motion 001) 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24 were read on this motion to/for DISMISSAL. DECISION ORDER ON MOTION The motion to dismiss by defendant Cohen Fashion Optical LLC (the “Guarantor”) is denied. Background Plaintiff contends that defendant Cohen Fashion Optical Store No. 273 LLC (“Tenant”) entered into a lease with plaintiff dated April 20, 2011 and the lease term was supposed to expire on August 31, 2027. Plaintiff acknowledges that there were two lease modifications, one in April 2017 and one in January 2020. It alleges that the Tenant surrendered possession of the premises on December 1, 2020 but contends that the Tenant did not make the rental payments from July 1, 2020 through December 1, 2020. Plaintiff also seeks unpaid rent that has accrued from April 1, 2021. The Guarantor brings this motion to dismiss on the ground that its obligations were discharged when the original lease was modified without its consent. It argues that it cannot be held liable where the Tenant agreed to certain modifications. The Guarantor also contends that plaintiff was required to provide written notice of its demand for the Tenant’s outstanding obligations under the terms of the original lease. It maintains that under well-established principles of contract law, a surety cannot be forced to cover a different obligation without express consent. The substitution of a new contract forecloses recovery on a guarantor. In opposition, plaintiff emphasizes that the modifications actually reduced the obligations of the Tenant and, therefore, the Guarantor cannot shirk its responsibilities. Plaintiff contends that the commencement letter issued in 2011 merely adjusted the expiration date to reflect the actual start date but did not change the length of the lease. It points out that the Tenant was given a four month free rent period and that nothing in any of the modifications changed the fact that the lease was for 15 years and fourth months (of which the Tenant had to make payments for 15 years). Plaintiff argues that the first modification simply allowed plaintiff to use some of the basement storage space in exchange for a rent reduction of $850 per month. The second modification included the Tenant’s relinquishment of its possession of the basement storage space as well as a rent reduction in the amount of $7,500 per month. Plaintiff observes that both of these modification were signed by the Guarantor’s CEO and the Tenant’s CFO. In reply, the Guarantor argues that any alteration of a contract discharges its obligation to pay under the guaranty. It rejects plaintiff’s apparent assertion that the Court should reject the corporate form and find that Guarantor consented to the modification simply because a principal of both the Guarantor and the Tenant signed the modifications. The Guarantor emphasizes that there is no basis to find that the modifications were signed on behalf of the Guarantor. Its point is that a guaranty must be interpreted strictly and that any changes to the underlying agreement render a guarantor’s obligations moot if it does not consent. Discussion “On a motion to dismiss a complaint pursuant to CPLR 3211, we must liberally construe the pleading and accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Dismissal under CPLR 3211(a)(7) is warranted if the plaintiff fails to assert facts in support of an element of the claim, or if the factual allegations and inferences to be drawn from them do not allow for an enforceable right of recovery” (Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc., 2021 NY Slip Op 03485 [2021]). “A guaranty must be construed in the strictest manner. Thus, an alteration of the contract to which the guaranty applies will serve to discharge the guarantor’s obligation unless the guarantor has consented to the alteration. The rationale for discharging a guarantor when the underlying contract is modified is that the modification substitutes a new obligation for the old one, and the guarantor cannot be held responsible for the failure of the principal to perform an obligation other than the obligation originally guaranteed” (Arlona Ltd. Partnership v. The 8th of January Corp., 50 AD3d 933, 933-34, 857 NYS2d 208 [2d Dept 2008] [internal quotations and citations omitted]). The central question on this motion is whether any modification of a guaranty absolves a guarantor of its obligations, even if those modifications actually reduce the tenant’s obligations. Here, there is no dispute that the modifications at issue actually reduced the Guarantor’s potential liability. The commencement letter merely clarified the start date of the lease (NYSCEF Doc. No. 6), the April 2017 modification reduced the Tenant’s rent in exchange for plaintiff’s use of some of the basement storage space (NYSCEF Doc. No. 7) and the January 2020 modification reduced the Tenant’s rent (NYSCEF Doc. No. 8). While the Court recognizes that the January 2020 modification also involved the Tenant surrendering the basement space and required the Tenant to provide an additional letter of credit (as security), plaintiff is not seeking relief with respect to the letter of credit. Plaintiff is seeking to hold the Guarantor liable for the unpaid rent and nothing in these modifications increased the amount of rent the Tenant was required to pay. The guaranty at issue here is a “good guy guaranty,” a limited guaranty that required the Guarantor to pay all rent and additional rent so long as the Tenant remained in the space (NYSCEF Doc. No. 5, 67). The Guarantor claims that any modification renders the guaranty moot while plaintiff emphasizes that the modifications did not increase the Guarantor’s potential obligation. However, neither side submitted binding caselaw on this issue. The Court observes that typically, arguments about the impact of a lease modification on a guaranty involve a lease renewal (see 404 Park Partners, L.P. v. Lerner, 75 AD3d 481, 482, 906 NYS2d 36 [1st Dept 2010]) or a modification that increases the rent (Arlona, 50 AD3d at 934). They do not usually address the Guarantor’s position that any modification of the underlying agreement nullifies a guaranty. The common theme through cases that deal with the intersection of modifications and a guaranty is whether there is an increased risk for the guarantor. In Arlona, the Second Department emphasized that the alteration in the modification agreement raised the tenant’s rent and thereby increased the guarantor’s risk, although the Court found that there was an issue of fact with respect to whether the guarantor had consented to the modification (id.). In a case about a commercial loan, the Third Department concluded that the guaranty remained in effect where the modification did not involve any additional credit or change in the monthly payments (Fleet Bank v. Tiger Racquet Fitness and Exercise Center Inc., 255 AD2d 793, 794-95, 680 NYS2d 317 [3d Dept 1998]). The Court noted that the modification had “neither altered nor had an adverse impact on the guarantors’ obligation to plaintiff and, therefore, did not discharge their guarantees” (id. at 794). It also concluded that a “material” and “substantial modification” of the agreement was required to discharge the guarantor’s obligation (id.). These cases stand for the proposition that there can be some changes to an underlying agreement without discharging a guarantor’s obligation and, accordingly, this Court denies the motion. The fact is that the Guarantor agreed to pay all outstanding rent and additional rent while the Tenant occupied the premises. The three alleged modifications at issue did not increase the amount of the Guarantor’s liability. Rent was not increased nor was the lease renewed. In fact, two of the modifications actually decreased the Guarantor’s potential liability because the Tenant’s monthly rental obligations were reduced. The Court is unable to find that lease modifications that benefitted the Guarantor somehow discharges all of the Guarantor’s obligations. The overriding principle from cases dealing with this issue is that a guarantor should not have to face additional liability without its consent. That is not a concern here, even acknowledging that the guaranty at issue is a good guy guaranty (a limited, rather than a broad guaranty). The Court rejects plaintiff’s argument that the Guarantor consented because the Tenant’s representative who signed the various modifications is also the CEO of the Guarantor. The Court cannot simply assume that a signature on behalf of the Tenant is the same as one from the Guarantor only because a person works for both entities. To reach such a conclusion, the Court would have to pierce the corporate veil and plaintiff has not sufficiently alleged facts to support that theory. And with respect to the demand notice, plaintiff contends that it mailed the demand that the Guarantor pay the arrears in accordance with the lease (NYSCEF Doc. No. 13, 17). At the motion to dismiss stage, that satisfies plaintiff’s burden on this issue. Accordingly, it is hereby ORDERED that the motion by Cohen Fashion Optical LLC to dismiss is denied and this defendant is directed to answer pursuant to the CPLR. CHECK ONE: CASE DISPOSED X NON-FINAL DISPOSITION GRANTED X DENIED GRANTED IN PART OTHER APPLICATION: SETTLE ORDER SUBMIT ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT REFERENCE Remote Conference: October 4, 2021.
