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June 26, 1991

LEGAL COUNSEL, INC., et al., Defendants

George H. Revercomb, United States District Judge.

The opinion of the court was delivered by: REVERCOMB


 The plaintiff, Unisys Corporation, seeks damages pursuant to an alleged breach of a sublease agreement from Legal Counsel, Inc., Speights and Micheel, Nathaniel H. Speights, Richard A. Micheel, Iverson O. Mitchell, III, and Linda P. Holman ("Legal Counsel"). The plaintiff also seeks relief from defendants Markborough Columbia, Inc., Viking Capital, Inc., Norseman Property Group, Ltd., Norseman Columbia, Inc. and Norseman Capital ("M-VP defendants"), based upon an indemnity agreement between the plaintiff and the M-VP defendants.

 The M-VP defendants have filed a motion for summary judgment, claiming that the actions of Unisys materially increased the risks or prejudiced the rights of the M-VP Defendants, and therefore, the M-VP Defendants are discharged of their duties as indemnitor. The plaintiff has opposed and filed a cross motion for summary judgment, claiming that the M-VP defendants have not met their obligation to indemnify as set forth in the Indemnity Agreement.

 The following facts are set forth by the M-VP Defendants and the plaintiffs have not placed them in dispute. In March, 1987, Unisys moved from one building to another and subleased its old office space to Legal Counsel. Unisys' new landlord, the M-VP defendants, entered into an agreement with Unisys, indemnifying it against rental losses on the sublease. The term of the sublease commenced August 1, 1987, with Legal Counsel's first rent payment due February 1, 1988.

 Joseph Sheedy, Manager of Unisys' Real Estate Department, was responsible for administering the sublease. Sheedy forwarded the check to Corporate Accounting with instructions to invoice Legal Counsel on a monthly basis and to advise Legal Counsel to forward their rent payments to Corporate Accounting. Sheedy subsequently transferred Legal Counsel's April and May rent to Corporate Accounting, each time with instructions to advise Legal Counsel where to send rent payments. Legal Counsel made no further rent payments after the May 1988 payment.

 Under the terms of the sublease, Legal Counsel's basic rent was to increase annually according to a predetermined formula. In October, 1988 and February, 1989, Sheedy wrote to Legal Counsel advising it of the monthly rental escalation, but made no reference to the rent defaults. Sheedy assumed that Corporate Accounting was invoicing Legal Counsel each month and that Legal Counsel had paid its rent but never verified these assumptions with Corporate Accounting.

 On February 16, 1989, Sheedy wrote to James Fetgatter of M-VP, advising him of the first rent increase and requesting reimbursement under the Indemnity Agreement for the shortfall payment (the difference between Unisys' rent to its landlord and the rent that Sheedy assumed Legal Counsel had been paying). However, Sheedy mistakenly notified M-VP that Legal Counsel had paid $ 119,488.48. In fact, Legal Counsel had only paid four months' rent, $ 41,454.36. Sheedy testified that when he wrote M-VP in February, 1989, he did not know Legal Counsel was not paying its rent.

 In February 1989, Corporate Accounting advised Sheedy that it could find no record of Legal Counsel's rent payments. After verifying with Legal Counsel that it had paid no rent since May, 1988, Sheedy requested the assistance of Peter Allen, counsel in Unisys' Real Estate Department, who requested the payment of back rent from Legal Counsel and threatened rental acceleration and repossession.

 On June 5, 1989, Sheedy again wrote to Fetgatter of M-VP requesting a second shortfall payment. Sheedy set out the amount of Unisys' rent, with Legal Counsel's sublease rent as a deduction, even though he knew at the time that rent was not being paid by Legal Counsel.

 On June 13, 1989, Legal Counsel forwarded to Unisys its plan for bringing its account current, including a proposal to perform legal services in order to work off past due rent. The plan was not approved, but Legal Counsel was not notified. Legal Counsel continued to be permitted to remain in the premises.

 During the summer of 1989, Sheedy phoned Fetgatter to collect M-VP's shortfall payment and mentioned that Unisys was having a collection "problem" with Legal Counsel. Sheedy did not request reimbursement or indemnification from M-VP for unpaid rent. The plaintiff contends that this mention of a problem gave M-VP notification of the rental delinquency. In August, 1989, Sheedy again wrote to Fetgatter about the second shortfall payment, but failed to mention Legal Counsel's default. In January, 1990, Allen called Legal Counsel to request that it vacate the premises, and Legal Counsel complied on March 15, 1990. Unisys brought this action against Legal Counsel on June 25, 1990, and M-VP was not notified of Legal Counsel's default until June 1, 1990.

 Upon consideration of the M-VP Defendant's Motion for Summary Judgment, the Plaintiff's Opposition, the Defendant's Reply, the Plaintiff's Motion for Summary Judgment, the Defendant's Opposition, and oral argument, it is

 ORDERED that the Defendant's Motion for Summary Judgment is GRANTED and the Plaintiff's Motion for ...

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