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Eviction Ban Doesn’t Preclude Attachment

(Massachusetts Lawyers Weekly)

Despite the state’s moratorium on evictions, a commercial landlord could attach its restaurant tenant’s assets to ensure it eventually recoups rent that went unpaid as the COVID-19 pandemic reduced the business’s revenue to zero, a Superior Court judge has decided.

However, the judge declined to grant the landlord a preliminary injunction that would have enjoined the restaurant from using its liquor licenses during the pendency of the case.

To obtain a writ of attachment, a plaintiff must show that there is a reasonable likelihood that it will recover a judgment of at least the attached amount, over and above any insurance proceeds, Superior Court Judge Heidi E. Brieger noted.

She partially granted the attachment, as the defendants did not contest that the rent payments they owe could be considered debts for purposes of a reach-and-apply equitable attachment.

But she drew the line at the base and additional rents that the landlord claimed are due and did not include other charges the plaintiff was seeking, as it was unclear that the plaintiff would eventually recover them, given that they hinged on whether the landlord had properly terminated the defendants’ lease.

The defendants had argued that the equities favored not considering the lease terminated, and the plaintiff “has not explained why the Court should conclude otherwise,” Brieger wrote.

‘Equitable And Fair’

While the state’s eviction moratorium made clear that tenants had not been relieved of their obligation to pay rent, it left open the question of how far landlords could go to enforce that obligation, said the plaintiff’s attorney, Kelly L. Frey of Boston.

“This case answers that question,” he said.

By obtaining a pre-judgment security interest, landlords can ensure that funds that a tenant currently has available to pay past-due rent will still be available once a lawsuit resolves, Frey said.

Frey said the decision provides a “roadmap” for landlords to pursue a remedy against a tenant that is “using the moratorium as a pretext to not pay rent despite having assets available.”

The defendants’ attorney, Albert A. DeNapoli of Boston, said unlike his clients’ adversary, most landlords are trying to work with tenants whose businesses have been hit hard by the pandemic.

DeNapoli, a board member of the Massachusetts Restaurant Association, said he was heartened that Brieger did not enjoin the brewpub from using its liquor licenses, which he saw as an attempt to make an “end run around the moratorium.”

Granting such relief would have amounted to a “constructive eviction,” he said.

James L. Rudolph, a Boston attorney who represents numerous Massachusetts restaurants, said the grant of pre-judgment security seemed “equitable and fair” under the circumstances.

“It takes into consideration the standard for the grant of pre-judgment security as well as the tough economic times in which we live,” he said.

As courts continue to interpret the moratorium, DeNapoli said he expects cases to turn on their specific facts. Here, it helped that his clients had never had any liquor license violations or missed a rent payment.

“They came in with clean hands and a good record, and it was clear to the court the only reason [they were] in this situation was because of the pandemic,” he said.

Brieger’s decision shows that a court is not going to look kindly on a landlord that tries to take advantage of the pandemic to get rid of a tenant, DeNapoli added.

Boston attorney Michael C. Fee said he has seen landlords generally be more hesitant to pursue remedies as aggressively as the plaintiff in NFLSRE 51 Sleeper. Instead, landlords are willing to make accommodations, such as amortizing past-due rent over the life of a lease.

“They would much rather get to the end of COVID-19 and have a viable tenant resurrecting its business than an empty space or litigation,” he said.

By taking actions that Brieger said “can fairly be described as oppressive,” the landlord not only bolstered the tenants’ argument that they should benefit from equitable considerations but may have opened the door to a counterclaim under G.L.c. 93A, Fee said.

Decisions like Brieger’s help to resolve ambiguity in the eviction moratorium, Fee added, with the emerging picture one of landlords having “to tread very lightly.”

Trouble Brewing

The brewpub Hopsters has two locations, one in Newton and the other in Boston’s Seaport District, where patrons are permitted to brew their own beer.

In conjunction with its operations, Hopsters holds two types of liquor licenses and has never been cited for a liquor license violation in connection with either restaurant.

On Oct. 28, 2016, Hopsters executed a 10-year lease for its Seaport premises with its previous landlord. The lease requires Hopsters to pay in advance each month a “base rent” and “additional rent” consisting of Hopsters’ proportionate share of the property’s operating expenses and taxes. From January 2018 until the pandemic hit, it had never missed a payment.

On Dec. 25, 2016, Hopsters’ owner, Jeffrey S. Forgosh, executed a limited guaranty, under which he unconditionally guaranteed performance by Hopsters of all its obligations under the lease up to $140,000, including payment of rents and all other sums due to the landlord.

In late January 2020, plaintiff NFLSRE Sleeper 51, LLC, purchased the premises, becoming the successor to the former owner’s interest in the lease and guaranty.

Less than two months later, Gov. Charlie Baker issued an emergency order, effective March 17, 2020, limiting all restaurants to takeout and delivery due to the COVID-19 outbreak.

The next day, Hopsters’ CEO, Lee Cooper, sent an email to NFLSRE, detailing the drastic measures Hopsters had taken in response to the governor’s order, which included laying off 95 percent of its staff and shutting down its Seaport location entirely. That left Hopsters unable to pay rent for March and April.

On April 13, NFLSRE sent Hopsters and Forgosh a notice, giving them five days to cure their default.

On April 20, Baker signed into law the state’s moratorium on evictions and foreclosures, prohibiting landlords from initiating “non-essential evictions” against residential tenants and small business owners or imposing late fees for nonpayment of rent, if a tenant provides notice that its failure to pay rent is due to COVID-19’s financial impact.

On April 24, NFLSRE sent Hopsters a notice of lease cancellation for failure to pay rent. The landlord claimed that the relevant provision in the lease triggered another provision requiring Hopsters to surrender its liquor licenses to NFLSRE.

Five days later, Cooper and NFLSRE’s CEO, Matthew Powers, discussed Hopsters’ situation by phone. Cooper reported that he had been approved for a $378,000 loan from the federal Paycheck Protection Program but was unsure if he could use any of it. He asked for time to sort through his options.

Powers responded that he did not see Hopsters being able to survive the shutdown and believed NFLSRE would be better off renting the premises to a bank.

On May 13, NFLSRE representatives tried to prevent Cooper and another Hopsters employee from entering the restaurant, claiming that Hopsters had been evicted. With help from the Boston Police Department, Cooper was allowed in.

NFLSRE 51 Sleeper, LLC v. Hopster’s LLC, et al., Lawyers Weekly No. 12-040-20 (16 pages)

THE ISSUE: In light of the state’s moratorium on evictions, can a commercial landlord attach its restaurant tenant’s assets to ensure it will eventually recoup rent that has gone unpaid due to the COVID-19 pandemic?

DECISION: Yes, but equitable considerations may make other forms of relief harder to secure (Superior Court)

LAWYERS: Kelly L. Frey and Aaron R. Fenton, of Mintz Levin, Boston (plaintiff)

Albert A. DeNapoli and Tasnuva T. Islam, of Tarlow, Breed, Hart & Rodgers, Boston (defense)

After Baker permitted restaurants to resume in-person service, Hopsters rehired 30 of its 60 employees and reopened its doors on July 9. A few days later, NFLSRE filed suit, alleging that Hopsters had breached the lease and that Forgosh had breached the guaranty.

Because NFLSRE believes it validly terminated the lease, the landlord is currently charging Hopsters a monthly “holdover charge” equal to the greater of 200 percent of the monthly base rent and additional rent, or the fair market value of the premises.

No Injunctive Relief

While NFLSRE argued that it was likely to succeed on its claim that Hopsters had improperly failed to transfer the liquor licenses, Brieger wrote, “The claim’s strength is — at this juncture — far from clear.”

Brieger highlighted the fact that equitable considerations may have prevented NFLSRE from terminating the lease, which was a precondition to Hopsters being forced to turn over its liquor licenses.

“Here the record shows that Hopsters never missed a rent payment until March 2020, and that its current inability to pay rent is due not to mismanagement, malfeasance, or neglect, but rather is the direct result of circumstances beyond its control — its lawful compliance with Governor Baker’s emergency Order limiting all restaurants to takeout and delivery due to the outbreak of COVID-19,” she wrote.

Nor had NFLSRE made much of an effort to accommodate Hopsters, instead choosing to terminate the lease shortly after Baker’s first emergency order.

“In fact, the record reflects that NFLSRE may even have engaged in conduct that can fairly be described as oppressive, particularly in light of the Moratorium,” Brieger wrote.

She noted that NFLSRE had made no mention of the pandemic in its eight-page memorandum in support of its request for equitable relief.

Even if the lease had been properly terminated, NFLSRE had another problem, Brieger found: It had not shown that it was able legally to accept transfer of the liquor licenses, even if Hopsters was willing to transfer them.

Nor could NFLSRE show that it would suffer irreparable harm if the injunction were not granted, Brieger decided.

The balance of the harms also tipped in Hopsters’ favor, given that there was no evidence that the liquor licenses were in jeopardy, while the issuance of the requested injunction would pose an existential threat to a business whose primary offering is beer.

“Preventing Hopsters from using the Liquor Licenses would likely mean business would come to a standstill, it would have to shut its doors, and its employees would lose their jobs,” Brieger wrote.