Law360 (March 9, 2021, 10:42 PM EST) -- The Gap Inc. can't use the pandemic and ensuing lockdown orders as an excuse not to pay rent for a pair of stores in Manhattan, a New York federal judge has ruled, saying the clothing retailer wasn't prevented from offering curbside pickup, online order fulfillment or limited in-store shopping.
U.S. District Judge Laura Taylor Swain on Monday tossed Gap's claims that it's lease for a pair of Gap and Banana Republic stores at 59th Street and Lexington Avenue became invalid at the onset of the coronavirus pandemic last March when stores in New York were required to close and that it bears no liability to pay rent after that date. Judge Swain granted summary judgment in favor of the retailer's landlord, Ponte Gadea New York LLC.
The judge said Gap hasn't shown that the COVID-19 pandemic and governmental restrictions frustrated the principal purpose of the lease — the operation of the two stores — to the point that the rental didn't make sense.
Gap argued that it entered into the lease in order to operate stores in one of the busiest shopping districts in Midtown Manhattan and that the pandemic substantially diminished foot traffic through the area, according to the order.
But Judge Swain noted that the retailer was able to operate the stores for periods of time since the beginning of the pandemic, including offering curbside pickup of purchases, and that it opened other locations in Manhattan to in-person shopping. Gap argued that those stores are in other parts of the city with different demographics and are under different leases, according to the order.
"Gap makes no proffers regarding any relevant differences in the terms of its leases for the other premises, and it points to no covenant in the lease in which Ponte Gadea made any guarantee regarding foot traffic or the nature or demographic characteristics of the area of the Lexington Avenue store premises," the judge said.
Judge Swain noted that while the pandemic is "undeniably unfortunate," it hasn't amounted to a frustration of the lease's purpose, according to the order. Instead, she said the evidence suggests that Gap simply made a business decision to close its stores at 59th and Lexington.
Gap's argument that it bears no responsibility for rent payments after March 2020 because the pandemic and resulting lockdowns amounted to a "casualty" under the lease that rendered the entire premises unusable also doesn't pan out, according to the order. Judge Swain said a "casualty" refers to singular incidents, like a fire, that have a physical impact in or to a store — and that the term doesn't include a pandemic.
"It is self-evident that Ponte Gadea is not in a position to do restoration work that could eliminate the pandemic or alter the government restrictions that constrain Gap's operations," the judge said. "Hence, there is no reasonable reading of the lease's casualty provision or the rent abatement provision cited by Gap that would be triggered by the pandemic-related changes cited by Gap."
Gap's argument that it hasn't received the consideration promised under the lease also fails, the judge said, because the retailer has continued to use the stores to house merchandise and has offered curbside pickup and some limited in-store shopping, as well as maintaining possession of the stores.
Ponte Gadea is entitled to summary judgment dismissing Gap's claims based on the lease's alleged termination in March 2020, the judge said, finding that all of Gap's claims turn on the retailer's "unsupported and legally flawed assertion" that it had no obligations to make rent payments after March 19, 2020.
The landlord is also entitled to summary judgment on its counterclaims, the judge said, finding that the lease was terminated by Ponte Gadea in June 2020 after Gap stopped paying rent. Judge Swain also said the landlord is entitled to payment for holdover occupancy of the stores since June.
The judge then sent the case to a federal magistrate judge for an inquiry on Ponte Gadea's damages, including outstanding unpaid rent from April 2020 and holdover rent from June 15, 2020, according to the order.
Representatives for the parties did not immediately respond to requests for comment Tuesday evening.
Gap is represented by Michael Geibelson of Robins Kaplan LLP and Jesse B. Schneider and Joshua H. Epstein of Davis & Gilbert LLP.
The landlord is represented by Darryl R. Graham, Kathleen M. Prystowsky and Joshua Bernstein of Akerman LLP.
The case is The Gap Inc. v. Ponte Gadea New York LLC, case number 1:20-cv-04541, in the U.S. District Court for the Southern District of New York.
--Editing by Jill Coffey.
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