Tri-City Associates, L.P. v. Belmont, Inc. , 2016 S.D. 46 ( 2016 )


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  • #27449-a-LSW
    
    2016 S.D. 46
    IN THE SUPREME COURT
    OF THE
    STATE OF SOUTH DAKOTA
    ****
    TRI-CITY ASSOCIATES, L.P.,                  Plaintiff and Appellant,
    v.
    BELMONT, INC., a
    South Dakota Corporation
    and JOSEPH Z. ERBA,                         Defendants and Appellees.
    ****
    APPEAL FROM THE CIRCUIT COURT OF
    THE SEVENTH JUDICIAL CIRCUIT
    PENNINGTON COUNTY, SOUTH DAKOTA
    ****
    THE HONORABLE ROBERT A. MANDEL
    Judge
    ****
    MARK F. MARSHALL of
    Bangs, McCullen, Butler,
    Foye & Simmons, LLP
    Rapid City, South Dakota                    Attorneys for plaintiff
    and appellant.
    STAN H. ANKER
    JORDAN D. BORDEWYK of
    Anker Law Group, PC
    Rapid City, South Dakota                    Attorneys for defendants
    and appellees.
    ****
    CONSIDERED ON BRIEFS
    ON NOVEMBER 30, 2015
    REASSIGNED
    FEBRUARY 17, 2016
    OPINION FILED 06/01/16
    #27449
    WILBUR, Justice (on reassignment).
    [¶1.]        In this second appeal, Tri-City Associates, L.P. argues that the circuit
    court erred when it entered a judgment in favor of Belmont, Inc. In Tri-City
    Assocs., L.P. v. Belmont, Inc. (Tri-City I), we had reversed and remanded the case
    for the circuit court to enter “findings of fact and conclusions of law on the effect of
    Belmont’s failure to give notice of breach and an opportunity to cure.” 
    2014 S.D. 23
    ,
    ¶ 24, 
    845 N.W.2d 911
    , 918. We did so because the circuit court did not address
    whether Belmont’s claims were barred for Belmont’s failure to follow the notice-and-
    cure provision in the parties’ written lease. We stated that the “court’s failure to
    address the notice-and-cure issue is problematic because some courts have
    concluded that the failure to abide by a notice-and-cure provision precludes judicial
    relief.” Id. ¶ 22. On remand, the circuit court entered supplemental findings of fact
    and conclusions of law. It interpreted the notice-and-cure provision to allow for
    substantial compliance and found that Belmont substantially complied. It also
    found that Tri-City had actual notice of its material breaches and an opportunity to
    cure. Alternatively, the court concluded that, by bringing suit against Belmont, Tri-
    City repudiated any intention to perform its obligation under the lease and made
    futile the requirement that Belmont strictly comply with the notice-and-cure
    provision. It entered a judgment in favor of Belmont. Tri-City appeals. We affirm.
    Background
    [¶2.]        Tri-City owned and operated the Northgate Shopping Center in Rapid
    City, South Dakota. It entered into a written lease agreement with Belmont in
    April 2006 for unfinished commercial space. The unfinished commercial space
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    required substantial initial construction work before the lease was to begin on
    August 1, 2006. A “work letter” attached to the lease allocated the initial
    construction work between Tri-City and Belmont. The lease also contained a
    provision that required Belmont to give written notice to Tri-City of any alleged
    breach and give Tri-City the opportunity to cure any breach within 30 days. 1 Under
    the terms of the lease, Belmont could not avail itself of the remedies available under
    the terms of the lease at law or in equity until Tri-City had been afforded the
    opportunity to cure.
    [¶3.]         The parties experienced considerable difficulties in completing the
    terms of the lease. Tri-City proposed to move the start date of the lease to January
    15, 2007. Belmont did not respond to the requested modification. Ultimately, Tri-
    City did not deliver the premises to Belmont on August 1, 2006, in the condition
    required under the lease and did not complete its allocated initial construction
    work.
    1.      The provision reads as follows:
    Landlord shall be in default under this Lease upon . . . (b) the
    failure of Landlord to observe, keep or perform any of the other
    terms, covenants, agreements or conditions contained in this
    Lease on the part of the Landlord to be observed or performed
    and such failure continues for a period of thirty (30) days after
    written notice by Tenant to Landlord or, if such failure is not
    reasonably susceptible to cure within thirty (30) days, then
    within a reasonable period of time so long as Landlord shall
    have commenced to cure such failure within such thirty (30) day
    period and shall thereafter diligently pursue such care to
    completion. Tenant may not exercise any remedies available to
    it under this Lease, at law or in equity until Landlord has been
    afforded the cure periods described in this Paragraph 48 and
    any Lender shall have been given notice and afforded the cure
    periods described in Paragraph 30 above.
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    [¶4.]        After Belmont did not pay rent for the first few months of the lease,
    Tri-City served Belmont with a notice of default under the lease. A month later,
    Tri-City served Belmont with a notice to quit and vacate and, in April 2007, sued to
    evict Belmont. Belmont answered and asserted that Tri-City materially breached
    the lease, which Belmont asserted relieved it of its duty to pay rent. Then, in
    October 2007, Belmont counterclaimed for damages for Tri-City’s failure to perform
    under the terms of the lease. Tri-City responded to Belmont’s counterclaim that
    Belmont agreed to accept the premises “as is.” Tri-City also argued that Belmont
    failed to provide Tri-City with written notice of Tri-City’s alleged breach and did not
    give Tri-City an opportunity to cure as required by the notice-and-cure provision in
    the lease.
    [¶5.]        After a court trial on April 23-24, 2013, the court issued findings of fact
    and conclusions of law. It found that Tri-City breached the lease by failing to
    complete the required initial construction and deliver the premises in broom clean
    condition. To the court, Tri-City’s breach constituted a material breach because Tri-
    City’s “failures and delays defeated the very object of the Lease[.]” The court
    concluded that Tri-City’s material breaches excused Belmont’s duty to pay rent and
    excused Belmont’s “default of the terms and conditions of the Lease[.]” The court
    held that “because [Belmont’s] actions are excused,” Tri-City “is not entitled to
    damages.” However, the court concluded that Belmont “suffered substantial losses
    because of [Tri-City’s] material breach” and awarded Belmont a judgment against
    Tri-City in the sum of $89,220.67. The court also awarded Belmont reasonable
    attorney’s fees and costs because the terms of the parties’ lease allowed for such an
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    award to the prevailing party. The court did not enter any findings of fact or
    conclusions of law regarding the effect of lease provision requiring Belmont to give
    Tri-City written notice of default. Tri-City appealed to this Court.
    [¶6.]        On appeal, Tri-City did not dispute that it materially breached the
    parties’ lease. It asserted that “Belmont’s defense and counterclaim were barred as
    a matter of law by: (1) the lease provision in which Belmont accepted the premises
    as is, and (2) Belmont’s failure to give Tri-City notice of its alleged breach and an
    opportunity to cure.” Tri-City I, 
    2014 S.D. 23
    , ¶ 8, 845 N.W.2d at 914. From our
    review of the parties’ agreement, we concluded that “[a] harmonious reading of all
    provisions reflects that the as is clause did not abrogate Tri-City’s post-execution
    obligations to perform initial construction and to deliver the premises in broom
    clean condition.” Id. ¶ 14. We, however, remanded the case because the circuit
    court did not address the effect of the notice-and-cure provision on Belmont’s
    counterclaim. We directed the court on remand to enter “findings of fact and
    conclusions of law on the effect of Belmont’s failure to give notice of breach and an
    opportunity to cure.” Id. ¶ 24.
    [¶7.]        On remand, the circuit court did not take additional evidence. It
    issued supplemental findings of fact and conclusions of law. The court ruled that
    “[t]he intent of the notice and cure provision of the Lease was to provide a breaching
    party with notice that it is in breach of the lease and provide that party with an
    opportunity to cure the breach.” The circuit court held that Belmont “substantially
    complied with the ‘notice-and-cure’ provisions of the Lease,” that Tri-City “had
    actual notice that it was in breach of the Lease,” and that Belmont “provided [Tri-
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    City] with an opportunity to cure the breach.” Alternatively, the court concluded
    that “[b]y filing suit against [Belmont] for possession of the premises, [Tri-City]
    repudiated the Lease and any intention to perform under the Lease.” The court
    held that Tri-City’s “repudiation of the lease absolved [Belmont] of any obligation to
    provide [Tri-City] notice of breach and opportunity to cure breach as [Tri-City] had
    made its intention not to perform under the Lease unequivocal.” The court again
    entered a judgment in favor of Belmont for damages, plus interest, attorney’s fees,
    and costs.
    [¶8.]        Tri-City appeals and raises the following issue for our review: Did the
    circuit court err as a matter of law by entering a judgment in favor of Belmont?
    Standard of Review
    [¶9.]        We review both the circuit court’s conclusions of law and its
    interpretation of the contract de novo. Tri-City I, 
    2014 S.D. 23
    , ¶ 9, 845 N.W.2d at
    915 (citing Poeppel v. Lester, 
    2013 S.D. 17
    , ¶ 16, 
    827 N.W.2d 580
    , 584).
    Analysis
    [¶10.]       Tri-City asks this Court “to view the issue on remand within the
    appropriate context”—that Tri-City’s default, if any, was not material. Tri-City
    then directs this Court to multiple failings and defaults by Belmont under the terms
    of the lease. Tri-City also claims that the circuit court’s findings “do not identify
    with specificity the breach of contract of which Belmont complains.” In Tri-City’s
    view, the court’s “failure makes it difficult, if not impossible to determine whether a
    breach occurred and if so whether the breach was material.”
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    [¶11.]       This appeal does not concern whether Tri-City materially breached the
    parties’ lease. This is because Tri-City did not appeal the circuit court’s ruling that
    Tri-City materially breached the parties’ lease in Tri-City I. The breaches, as we
    recognized in Tri-City I, occurred because “Tri-City did not complete its allocated
    portion of the initial construction” and did not “deliver the premises in broom clean
    condition by August 1, 2006.” Id. ¶ 3.
    [¶12.]       This appeal concerns whether the circuit court erred when it entered a
    judgment in favor of Belmont. On this issue, Tri-City argues that Belmont’s duty to
    provide written notice of the alleged breach is a condition precedent to Belmont’s
    counterclaim. Tri-City avers that the plain language of the parties’ lease requires
    written notice and an opportunity to cure and “[n]either this Court nor the circuit
    court has the power to rewrite the parties’ Lease.”
    [¶13.]       It is undisputed that Belmont did not give Tri-City written notice of
    Tri-City’s default. But the parties did not hinge Belmont’s right to exercise its
    judicial remedies under the lease on whether Belmont gave Tri-City written notice
    of breach. Rather, the lease restricted Belmont’s right to recover on whether Tri-
    City had been afforded the cure periods described in the lease. The lease provision
    provides: “Tenant may not exercise any remedies available to it under this Lease, at
    law or in equity until Landlord has been afforded the cure periods described in this
    Paragraph 48[.]” The cure period is 30 days. And, here, it is undisputed that
    Belmont did not attempt to exercise its legal remedies until months after Tri-City
    repudiated the lease by filing its lawsuit against Belmont for possession of the
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    premises and damages. At that point, written notice to Tri-City affording Tri-City
    an opportunity to cure would have been futile.
    [¶14.]       This Court recognizes that “[t]he law does not require futile acts.”
    Adrian v. McKinnie, 
    2004 S.D. 84
    , ¶ 16, 
    684 N.W.2d 91
    , 99. Other courts have held
    that futility applies in the context of compliance with a notice-and-cure provision.
    Giuffre Hyundai, Ltd. v. Hyundai Motor Am., 
    756 F.3d 204
    , 209 (2d Cir. 2014);
    AAMCO Indus., Inc. v. DeWolf, 
    250 N.W.2d 835
    , 840 (Minn. 1977); Duncan v.
    Woodlawn Mfg., Ltd., 
    479 S.W.3d 886
    , 897 (Tex. App. 2015); Cheung-Loon, LLC v.
    Cergon, Inc., 
    392 S.W.3d 738
    , 745 (Tex. App. 2012). For example, the Texas Court
    of Appeals recognized that repudiation of a lease indicates “the futility of a demand
    for performance” of the notice-and-cure provision. Cheung-Loon, 
    392 S.W.3d at 745
    .
    Indeed, “[w]here the breaching party has abandoned the contract and evidenced a
    clear and unequivocal intent not to complete the contract, a cure notice is not
    required.” 5 Bruner & O’Connor Construction Law § 18:15.
    [¶15.]       Here, Tri-City’s suit against Belmont for possession of the premises
    and damages indicates that it would be meaningless to require Belmont to provide
    Tri-City written notice affording the cure period. Tri-City repudiated any intention
    to perform under the lease, excusing the requirement that Belmont strictly comply
    with the notice-and-cure provision. The circuit court did not err when it entered
    judgment in favor of Belmont.
    [¶16.]       Both parties move for appellate attorney’s fees under SDCL 15-26A-
    87.3. Their motions are accompanied by separate verified, itemized statements of
    legal services rendered. Belmont seeks $8,286.35 in attorney’s fees, sales tax, and
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    costs. Tri-City seeks $7,452.70 in attorney’s fees, sales tax, and costs. The parties
    do not dispute that the prevailing party is entitled to recover reasonable attorney’s
    fees and costs under the terms of the lease. The specific provision provides that “the
    prevailing party in such action or proceeding shall be entitled to recover the
    reasonable fees of its attorneys and other costs of suit and its costs and attorney’s
    fees in collecting any judgment or award,” if “any action or proceeding is brought by
    any party to enforce or interpret the provisions of this Lease, or if any other action
    or proceeding is brought arising out of or relating to this Lease[.]” Because Belmont
    is the prevailing party, we award its requested fees.
    [¶17.]       Affirmed.
    [¶18.]       GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN,
    Justices, concur.
    -8-
    

Document Info

Docket Number: 27449

Citation Numbers: 2016 SD 46, 881 N.W.2d 20, 2016 S.D. 46, 2016 WL 196975, 2016 S.D. LEXIS 86

Judges: Wilbur, Gilbertson, Zinter, Severson, Kern

Filed Date: 6/1/2016

Precedential Status: Precedential

Modified Date: 11/12/2024