Jeffrey S. Lindner v. Meadow Gold Dairies, Inc.

United States District Court, D. Hawai`i
515 F. Supp. 2d 1141 (2007)

ELI5:

Rule of Law:

A cause of action for breach of a lease agreement due to underpayment of rent accrues on the date each periodic rental payment is due. Each underpayment constitutes a separate breach, triggering a new statute of limitations period for that specific payment.

Facts:

On October 1, 1988, Amfae Property Development Corporation leased a property to Meadow Gold Dairies, Inc. for a ten-year term with renewal options.
The lease stipulated that for renewal terms, rent would be reset to fair market value, with disputes to be settled by arbitration.
On June 21, 1996, Amfae assigned its landlord interests in the lease to Jeffrey Lindner.
On May 28, 1997, Meadow Gold exercised its renewal options, extending the lease until 2013.
On September 4, 1997, Meadow Gold assigned its lessee obligations to Southern Foods Group, L.P. (SFG), though Meadow Gold remained liable under the lease.
After the initial term expired on October 1, 1998, Lindner and SFG began negotiations to determine the new fair market value rent for the renewal period.
From October 1, 1998, to December 31, 2000, SFG continued to pay the original, lower rent amount while negotiations were ongoing.
The parties failed to agree on the new rent, and neither party initiated the arbitration process specified in the lease to resolve the dispute.

Procedural Posture:

On July 19, 2006, Jeffrey Lindner (Plaintiff) filed a lawsuit against Meadow Gold Dairies, Inc. (Defendant) in the U.S. District Court for the District of Hawaii.
On December 1, 2006, Meadow Gold filed a Third-Party Complaint against Southern Foods Group, L.P. (SFG), impleading it as a third-party defendant.
SFG filed a Motion for Partial Summary Judgment, arguing that Lindner's claims were partially barred by the six-year statute of limitations.
In the alternative, SFG filed a Motion to Compel Arbitration for any claims that were not time-barred.
Meadow Gold joined SFG's motions against Lindner.

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Issue:

Under Hawaii's six-year statute of limitations for contract claims, does a cause of action for underpayment of rent under a lease accrue separately on the due date of each individual rent payment?

Opinions:

Majority - J. Michael Seabright

Yes. A cause of action for rent accrues upon the due date of each rental payment, and each underpayment constitutes a separate breach that starts a new six-year limitations period. Under Hawaii law, which follows the traditional 'occurrence rule,' the statute of limitations for a contract breach begins to run when the breach occurs. In the context of a lease requiring periodic payments, a breach occurs each time a payment is due but not fully paid. Therefore, each underpayment gives rise to a separate cause of action with its own six-year limitations period. Lindner filed suit on July 19, 2006, so any claims for rent due before July 19, 2000, are time-barred. The court also held that under Federal Rule of Civil Procedure 14(a), a third-party defendant like SFG may assert any defense the original defendant has, including the statute of limitations, to protect itself from derivative liability. Finally, the court found that although SFG was not an original signatory to the lease, it could compel arbitration for the remaining, timely claims because Lindner's claims were fundamentally intertwined with the lease agreement containing the arbitration clause, equitably estopping him from refusing to arbitrate.

Analysis:

This decision solidifies the application of the 'occurrence rule' for statutes of limitation in the context of leases and other installment contracts. It establishes that each missed or insufficient payment is a distinct legal injury, preventing a party from 'saving up' years of breaches for a single lawsuit long after the initial breach occurred. The ruling also underscores the procedural power of third-party defendants in federal court, affirming that under FRCP 14(a), they can stand in the shoes of the original defendant to assert critical defenses. This precedent encourages landlords to be diligent in enforcing lease terms and discourages delays in litigation over periodic payment disputes.

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