McDonald's Corp. v. Vanderbilt Atlantic Holdings LLC ( 2021 )

20-3751-cv
McDonald’s Corp. v. Vanderbilt Atlantic Holdings LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed
on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate
Procedure 32.1 and this Court’s Local Rule 32.1.1. When citing a summary order in a
document filed with this Court, a party must cite either the Federal Appendix or an
electronic database (with the notation “summary order”). A party citing a summary order
must serve a copy of it on any party not represented by counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 29th day of June, two thousand twenty-one.
PRESENT: PIERRE N. LEVAL,
JOSÉ A. CABRANES,
WILLIAM J. NARDINI,
Circuit Judges.
MCDONALD’S CORPORATION,
Plaintiff-Counter-Defendant-Appellee, 20-3751-cv
v.
VANDERBILT ATLANTIC HOLDINGS LLC,
Defendant-Counter-Claimant-Appellant.
FOR DEFENDANT-APPELLANT: STEPHEN B. MEISTER, Howard S. Koh (on
the briefs), Meister Seelig & Fein LLP, New
York, NY.
FOR PLAINTIFF-APPELLEE: BRENDAN M. WALSH, Pashman Stein
Walder Hayden P.C., Hackensack, NJ.
Appeal from an October 8, 2020 order of the United States District Court for the Eastern
District of New York (Dora L. Irizarry, Judge).
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UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the October 8, 2020 order of the District Court is AFFIRMED and the
cause REMANDED for further proceedings.
Vanderbilt Atlantic Holdings LLC (“Vanderbilt”) appeals the District Court’s denial of its
motion to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 1, of claims brought
against Vanderbilt by Appellee McDonald’s Corporation (“McDonald’s”) pursuant to the parties’
commercial property lease. We assume the parties’ familiarity with the underlying facts, the
procedural history of the case, and the issues on appeal.
As relevant here, the lease provided that, if the parties disagreed about the fair market value
(“FMV”) of the rental property, each was to appoint an appraiser to assess the FMV and be bound
by the average between the two valuations unless the valuations differed by more than 15%. If the
valuations differed by more than 15%, the two appraisers were to appoint a third and the three
appraisers were to attempt to jointly estimate the FMV. Failing agreement between a majority of the
three appraisers, the parties were to be bound by the average among the three valuations. The lease
also provided (in the “Cooperation Clause”) that “[i]f one of the parties . . . fails to cooperate in any
way so that the [FMV dispute resolution] process . . . cannot be completed prior to 120 days of the
expiration of the primary term of this Lease, the FMV of the one appraiser chosen by the
cooperating party shall be used to determine the rent during the extension periods.” 1
The parties disagreed over the FMV and therefore began the dispute resolution process.
When the two party-designated appraisers failed to agree, McDonald’s brought this suit seeking (1) a
declaratory judgment stating that Vanderbilt had failed to cooperate with the contractual dispute
resolution procedure for calculating McDonald’s’ rent and (2) if necessary, a declaratory judgment
stating that the three appraisers were to be permitted to collaborate to seek agreement on an FMV
estimate. Vanderbilt moved to compel arbitration, arguing that that the lease agreement gave the
appraisers authority to resolve all contractual disputes about renewal of rent, including disputes over
whether parties participated in good faith in the resolution process and disputes over the roles of the
appraisers.
In its Memorandum and Order of October 8, 2020 (“Memorandum”), the District Court
denied Vanderbilt’s motion, holding that the provision in the lease contemplating the appointment
of appraisers was a “narrow” arbitration clause that did not “encompass [McDonald’s’] claims
regarding [Vanderbilt’s] lack of good faith in the appraisal process and the role of the third
appraiser.” 2 The District Court based this conclusion chiefly on three considerations: First, the lease
1
Joint Appendix, 58.
2
McDonald's Corp. v. Vanderbilt Atl. Holdings LLC, No. 19CV06471DLIST, 2020 WL 6481408, at
*6 (E.D.N.Y. Sept. 30, 2020).
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“defined and limited the appraisers’ responsibilities” as providing estimates of FMV. 3 Second, the
expertise of appraisers does not extend to “address[ing] claims concerning a party’s good faith or the
role of the third appraiser, which is a matter of contract interpretation.” 4 Third, to refer the issue of
Vanderbilt’s compliance with the Cooperation Clause to the appraisers would lead to anomalous
results that the parties could not be reasonably supposed to have intended. 5
We agree with the District Court’s interpretation of the lease. Vanderbilt insists that
McDonald’s has, as a cynical stalling tactic, reframed what is clearly a technical dispute over appraisal
methodology as a dispute over the Cooperation Clause. In essence, Vanderbilt asserts that its
compliance with the Cooperation Clause is so obvious that the District Court can simply ignore
McDonald’s’ claim to the contrary as a sleight of hand. But the issue of Vanderbilt’s compliance vel
non with the Cooperation Clause is—whether easy or difficult to resolve, and whether or not
requiring consideration of appraisal methodologies—clearly a question of contract interpretation
squarely raised by McDonald’s’ suit, and one that the lease does not reserve to the appraisers. It is
clearer still that the lease does not contemplate that appraisers will resolve disputes regarding the
powers or duties of appraisers. Therefore, substantially for the reasons stated by the District Court
in its Memorandum, we affirm the October 8, 2020 order of the District Court. We emphasize that
this disposition does not preclude the District Court from referring the cause to arbitration at a later
stage of the litigation, if warranted by development of the facts and issues in the case.
3
Id. at *4.
4
Id. at *5.
5
“Common sense and logic dictates that [authorizing the appraisers to determine whether a
party has complied with the appraisal process] cannot be what the parties intended. When a party
fails to cooperate, that party’s appraisal is a nullity. The cooperating party’s appraisal alone binds the
parties and there is no need for a third appraiser. Thus, the parties could not have intended for the
third appraiser to decide if a party has cooperated. If the parties intended for the appraisers to decide
this question collectively, the third appraiser also would need to decide whether the cooperating
party’s appraisal controls. However, if the third appraiser decides that a party has not cooperated,
the third appraiser’s mandatory obligation to appraise the property’s FMV would be obviated and
rendered meaningless.” Id. at *6.
3
CONCLUSION
We have considered all Vanderbilt’s arguments and find them to be without merit.
Accordingly, we AFFIRM the October 8, 2020 order of the District Court and REMAND the
cause for further proceedings.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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