C & C Tenn. Properties, LLC v. Reeves & Reeves Properties, LLC ( 2020 )

08/26/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
June 10, 2020 Session
C & C TENN. PROPERTIES, LLC v.
REEVES & REEVES PROPERTIES, LLC
Appeal from the Chancery Court for Hamilton County
No. 17-0181 Jeffrey M. Atherton, Chancellor
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No. E2018-01488-COA-R3-CV
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This appeal concerns a legal dispute between a landlord and a commercial tenant. The trial
court found that the landlord, a recent purchaser of the commercial property, had breached
the pre-existing lease. We affirm the judgment of the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
JOHN W. MCCLARTY, J., delivered the opinion of the court, in which D. MICHAEL SWINEY,
C.J., and THOMAS R. FRIERSON, II, J., joined.
John P. Konvalinka, John R. Anderson & Joseph W. Dickson, Chattanooga, Tennessee, for
the appellant, C & C Tenn. Properties, LLC.
Gary R. Patrick, Elizabeth M. Hill & McKinley S. Lundy, Jr., Chattanooga, Tennessee, for
the appellee, Reeves & Reeves Properties, LLC.
OPINION
I. BACKGROUND
C&C Tenn. Properties, LLC1 (“C&C”) and Reeves & Reeves Properties, LLC
(“R&R”) are landlord and tenant, respectively, of the commercial property at 2114
Chapman Road in Chattanooga, Tennessee (“Property”). The Property was previously
1
C&C is owned 50/50 by Larry Crane and his son, David Crane. C&C Motors is a sole
proprietorship owned by Larry Crane.
owned by Kenneth and Russell Hall (“Halls”). R&R entered into a written lease (“Lease”)
with the Halls for commercial space to run an automobile repair business, Fixx-A-Dent,2
starting in 2005. The current Lease was to expire on February 28, 2020.
According to R&R, the Halls had given R&R the potential for extending its
occupancy of the space. At one time, R&R had possessed a right of first refusal to purchase
the Property. When the Lease was renewed, the Halls did not want to give R&R the right
of first refusal; instead, as long as the Lease was not in default, a three-year option to renew
was offered. This option was critical to R&R, as the business had spent large sums of its
own money to improve the Property. R&R had installed a kitchen with new appliances,
blinds and tint for the windows, CAT 5 wiring, an alarm system, a new phone system, and
special flooring on the bay floors. During the build-out and renovation, the Halls had also
allowed R&R to install, at its own expense, two new signs for the Fixx-A-Dent business.
They were red, protruding block-letter signs, one on the front exterior of the building and
the other on the side of the building facing John Douglas Road. R&R asserts that the
agreement was memorialized with a handwritten note on the Lease signed on July 30, 2014.
However, despite the Lease requiring it, the Halls usually had not required any written
authorization, and they had always verbally approved requests by R&R.
In July 2016, the Halls agreed to sell the Property to C&C. The Halls provided C&C
with copies of the leases with all tenants. R&R’s Lease was assigned to C&C, binding
C&C to its terms.
It appears that C&C desired to force R&R out of the Property so it could operate a
used car business in the Fixx-A-Dent space. C&C took several steps to change the
Property. First, C&C removed both Fixx-A-Dent signs that had been previously affixed
with the consent of the Halls. These signs were never replaced. An arrow was added to
one sign pointing potential consumers away from the Fixx-A-Dent space. The other sign
was never replaced in any way. A new sign, advertising a rival repair shop, was put up in
its place.
Next, C&C restriped the Property’s parking lot3 and installed a metal railing through
the lot preventing direct vehicle access between the two sides of the divided lot. According
to R&R, “as [C&C] started putting cars out on the front lawn, in front of suites, and down
at the other end of the center, it looked like we were surrounded by a car lot. It took away
our visibility.” Following these changes to the Property, C&C sent an invoice for
maintenance and alteration expenses. The invoice included lawn service fees dating back
2
Fixx-A-Dent and R&R are the same company. Smart Dealer Solutions, a business
allowing customers to purchase the equivalent of an extended warranty covering Fixx-A-Dent
repairs, also operates out of R&R’s office at the Property.
3
C&C alleged that it owns the parking lot and that the Lease did not grant R&R any rights
to it.
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to 2013, several years prior to C&C’s ownership of the Property.
C&C filed its claim for declaratory judgment pursuant to Tennessee Code
Annotated section 29-14-101, et seq., asserting that the Lease is ambiguous and
unenforceable. Alternatively, C&C claimed that R&R had breached the Lease. It alleged
that R&R had operated another business at the location without authority under the Lease
and without permission from C&C. It also contended that R&R had not remitted payment
as required under the Lease for maintenance of the lawns and shrubbery and for garbage
disposal utilities. C&C additionally argued that R&R had not sought written permission
to maintain the “Fixx-A-Dent” signs on the building’s façade. C&C claimed that the oral
modifications and oral waivers were not binding. According to C&C, if R&R had wanted
all the terms to be binding, it could have recorded the Lease with the modifications.
C&C asserted that R&R had given oral notice in 2016 that it desired to terminate
the Lease immediately. C&C claimed that it had accepted the termination orally and
waived written notice. R&R disputed C&C’s assertion and maintained that it had no desire
to terminate the Lease and leave the Property. According to R&R, C&C had demanded
that it agree to be released from the Lease and go month-to-month.
R&R filed a counter-complaint to assert that C&C had breached the Lease and its
duty of good faith, fair dealing, and quiet enjoyment of the Property. R&R argued that
because C&C had received the demise of the lessors (transfer of the Hall lease interest),
the Lease did not have to be recorded to be binding. See Lee v. Stanfield, No. E2008-
02168-COA-R3-CV, 2009 WL 4250155 at *12 (Tenn. Ct. App. Nov. 30, 2009) (discussing
effect of unrecorded leases. Tenn. Code Ann. § 66-7-101).
At trial, nearly a dozen witnesses provided testimony. David Crane, 50% owner
and day-to-day manager of C&C, testified; he stated that he and his wife primarily managed
the daily operations. Larry Crane, a 50% owner of C&C and sole owner of C&C Motors,
never took the stand. He did sit at the counsel table and his failure to testify and demeanor
led the trial court to apply the “missing witness” rule.
The trial court suggested that the “skullduggery” of C&C led it to find in favor of
R&R. The court rejected C&C’s declaratory judgment claims, finding that the Lease and
its amendments were valid, enforceable, and controlling. The court determined that R&R
had not breached or defaulted on the Lease, whereas C&C had breached the quiet
enjoyment provision of the Lease by denying R&R’s customers access to the shop,
purposefully misdirecting them to the wrong section of the building, and replacing R&R’s
marquee signage with one for a competitor who was neither a present nor prospective
tenant. The trial court concluded that R&R, by more than a preponderance of the evidence,
established a sufficient claim for breach of contract by C&C and that damages resulted
from the breach. The court found that R&R was entitled to $27,706.15 in damages plus
attorneys’ fees.
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II. ISSUES
We restate the issues on appeal as follows:
i. Whether the trial court erred in finding that C&C’s conduct
breached the covenants of good faith, fair dealing, and quiet
enjoyment of the Property assured in the commercial Lease
agreement;
ii. Whether the trial court erred in rejecting C&C’s proposed
construction of the parties’ lease preventing the operation of a
separate business, Smart Dealer Solutions; and
iii. Whether the trial court erred in applying the negative
inference of the missing witness rule.
III. STANDARD OF REVIEW
In reviewing findings of fact and conclusions of law, we are bound to conduct a de
novo standard of review for the first two issues on appeal. Specifically, “review of findings
of fact by the trial court in civil actions shall be de novo upon the record of the trial court,
accompanied by a presumption of the correctness of the finding, unless the preponderance
of the evidence is otherwise.” Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721,
727 (Tenn. 2001).
The issue as to the missing witness rule requires a different standard or review.
Here, we are bound to use an abuse of discretion standard when considering the trial court’s
usage of the rule. In deciding whether the trial court erred in its application of the missing
witness rule, we presume the correctness of the decision and will consider the evidence in
the light most favorable to it. Wright ex rel. Wright v. Wright, 337 S.W.3d 166, 176 (Tenn.
2011). Elchlepp v. Hatfield, 294 S.W.3d 146, 154-55 (Tenn. Ct. App. 2008); Rice v. Rice,
983 S.W.2d 680, 685 (Tenn. Ct. App. 1998).
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IV. DISCUSSION
i. COVENANTS OF GOOD FAITH, FAIR DEALING,
AND QUIET ENJOYMENT
C&C asserts that the removal of the preexisting signage was not in fact a breach. It
argues that the plain language in the Lease gave it the unilateral right to take the signs
down.
The “Signs” clause of the Lease provides that the landlord has an exclusive interest
in the “roof, side, and rear walls” of the Property; that R&R could not construct any signs
without consent of the landlord; and that the landlord “shall not unreasonably” withhold
consent for tenants to build signs.
R&R constructed the signage at issue with the previous landlord’s express
permission before the term of the current Lease began. C&C knew the signage was there
when the building was purchased from the Halls. The plain and unambiguous terms of the
“Signs” clause govern only the construction of new signs, not the maintenance of
preexisting ones. (Emphasis added.). It also forbids a landlord from “unreasonably
withholding” permission from R&R to construct new signs. The Lease contains no
provision wherein C&C may retroactively deny approval given to R&R by the Halls.
The legal effect of the terms of a lease are governed by the general rules of contract
construction. Dick Broad. Co. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 659 (Tenn.
2013). Our Supreme Court has provided that “[i]n Tennessee, the common law imposes a
duty of good faith in the performance of contracts.” Wallace v. National Bank of
Commerce, 938 S.W.3d 684, 686 (Tenn. 1994). The Lease entered into by C&C and R&R
is subject to this duty of good faith and fair dealing as are all contracts in this state.
Additionally, our Supreme Court provides guidance on interpreting contracts. When the
contract is “clear and unambiguous, the literal meaning of the contract controls the dispute,
and the language used in the contract is construed using its ‘plain, ordinary, and popular
sense.’” West v. Shelby Cnty. Healthcare Corp., 459 S.W.3d 33, 42 (Tenn. 2014).
The trial court held that C&C’s
removal of [R&R]’s sign on the front of the building when
considered in conjunction with the skullduggery of replacing
[R&R]’s sign . . . with a sign for Fixx-A-Dent’s competitor
w[as] an intentional attempt to deprive [R&R] of its benefit
under the Lease-the right to operate a vehicle repair business at
the Property-in violation of the implied covenant of good faith
and fair dealing. Further, the court finds that C&C’s actions
represent an effort to force [R&R] out of the Property well
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before its lease period expires.
The court specifically observed that “the Lease does not provide that C&C reserves
exclusive right to the front of the building.” It concluded that R&R “has established, by
more than a preponderance of the evidence, an adequate claim for breach of contract. . . .”
In any ordinary lease “there is an implied covenant that the lessee will have the quiet
and peaceable possession and enjoyment of the leased premises.” Morrison v. Smith, 757
S.W.2d 678, 682-83 (Tenn. Ct. App. 1988). Extending C&C’s rights beyond the Lease is
not permitted. C&C did not offer proof of a reasonable ground for withholding consent to
reinstall the signs that the Halls had expressly permitted to be installed at R&R’s cost and
that were prominently displayed when C&C bought the building. We affirm the trial
court’s finding that C&C’s actions violated the covenants of good faith, fair dealing, and
quiet enjoyment.
ii. “USE” PROVISION
C&C contends that the sale of extended warranties was in breach of the “Use” clause
of the Lease. It argues that the plain language of the Lease restricted R&R’s use of the
shop to car repair alone. The business practice at issue is providing finance options for the
repairs performed at Fixx-A-Dent.
The Lease between C&C and R&R states in the “Use” provision that R&R may
exclusively operate an “automobile repair” business. C&C suggests that Fixx-A-Dent must
only transport vehicles to and from the store and “physically fix the cosmetic damage.”
R&R asserts instead that ancillary business practices are allowed under the “Use” provision
and that Smart Dealer Solutions is a business that allows customers to purchase the
equivalent of an extended warranty that will pay for any future repairs that Fixx-A-Dent
can fix.
Tennessee courts focus their attention upon the “ordinary and usual meaning” of the
language parties employ in contracts. Associated Press v. WGNS, Inc., 348 S.W.2d 507,
512 (Tenn. 1961). The courts must give contracts “a reasonable construction” that is “most
equitable to the parties, and which will not give one of them an unfair or unreasonable
advantage over the other.” Securities Inv. Co. v. White, 91 S.W.2d 2d 581, 583 (Tenn. Ct.
App. 1935).
Upon hearing all the evidence at trial, the court determined as follows:
Smart Dealer Solutions is essentially an extension of the car
repair business operated out of the suites leased by [R&R].
Accordingly, the court finds that the operation of Smart Dealer
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Solutions out of the suites is not a breach, as it is not a deviation
of the anticipated use of the space as set forth in Paragraph 3
of the Lease.
We, too, are unwilling to constrict the terms of the Lease as C&C would suggest. Our
Supreme Court instructs us to give “an interpretation which will accord with the presumed
intention of the contracting parties” and not lead to “absurd consequences” by being
unrelentingly strict in interpretation. Gaut v. American Legion of Honor, 64 S.W 1070,
1075 (Tenn. 1901). We agree that C&C’s argument about the Lease’s “use” provision is
grounded in an overly technical reading that would result in an absurd result. Therefore,
we affirm.
iii. MISSING WITNESS RULE
Finally, we address whether the trial court’s application of the missing witness rule
was appropriate. The negative inferences drawn from the rule’s affects were added to the
totality of evidence provided. C&C asserts that applying the missing witness rule was
improper and misinformed the trial court’s decisions. The missing witness rule provides
that
if a party has it peculiarly within his power to produce
witnesses whose testimony would elucidate the transaction, the
fact that he does not do it creates the presumption that the
testimony, if produced, would have been unfavorable.
Graves v. United States, 150 U.S. 118, 121 (1893). Our Supreme Court has held inferences
about the missing witness are applicable when evidence shows that:
[1] the witness had knowledge of material facts,
[2] that a relationship exists between the witness and the party
that would naturally incline the witness to favor the party, and
[3] that the missing witness was available to the process of the
court for trial.
Delk v. State, 590 S.W.2d 435, 440 (Tenn. 1979). These three elements are to be strictly
construed due to “potentially critical effect[s]” of the rule. State v. Francis, 669 S.W.2d
85 (Tenn. 1984).
The first element, Larry Crane’s knowledge of material facts, was met, as multiple
witnesses testified that he was the primary actor on C&C’s behalf. Mr. Crane was evidently
present, if not participating in, many of the events that resulted in the lawsuit.
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Next, Mr. Crane’s relationship with C&C would incline him to favor C&C, as it is
owned by Mr. Crane in conjunction with his son. His financial and personal involvement
with C&C ties him directly to the party. As one of the owners of C&C, his interests in the
case are directly aligned with it. C&C’s success or failure is his own success or failure
fiscally.
Finally, Mr. Crane was available to the process of the court. The trial court observed
that Mr. Crane sat at the counsel’s table for C&C for the entirety of the trial. The court
specifically noted:
[T]he testimony of Robert Burchfield and Thomas Moore [was
found] to be particularly persuasive and supportive of the
positions taken by [R&R].
The testimony of David Crane gave the Court the clear
impression that Larry Crane was the driving force of C&C in
its dealings with [R&R] and its other tenants. David Crane’s
deference to C&C Motors throughout trial was less than
persuasive, when the owner of C&C Motors, Larry Crane, was
sitting right next to him. This was further supported by the
testimony of Robert Burchfield, a former tenant at the
Property, particularly relating to certain expletive-laden
communications coming from Larry Crane.
C&C’s choice not to call Larry Crane, particularly in the face
of [R&R]’s and other witnesses’ assertions concerning his
overbearing conduct toward [R&R], its customers, and the
other tenants at the Property, speaks volumes. During the
course of the trial, it was clear that Larry Crane would have
knowledge of the material facts of this case, based on the fact
that Larry Crane was present during certain events at issue and
had communicated with both Karen Reeves and Mike Reeves
regarding the positions of the parties. Further, because Larry
Crane is one of the two owners of C&C, a relationship exists
between Larry Crane and C&C that would naturally incline
Larry Crane to favor C&C. Finally, not only was Larry Crane
available to the process of the court, Larry Crane was present
at counsel table throughout the entire trial. Therefore, the Court
finds “compelling” the failure of C&C to call Larry Crane as a
witness. See Gentry v. Gentry, No. E2000-02714-COA-R3-
CV 2001 WL 839714, at *4 (Tenn. Ct. App. July 25, 2001).
Specifically, the court determines that Larry Crane’s testimony
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would have been adverse to C&C had he been called as a
witness. Further, his less-than-cordial demeanor while sitting
at the counsel table throughout the trial did not go unnoticed
by the Court. As a result, the Court applies the permissible
negative inference discussed in the case cited above when
considering the positions taken by C&C.
The application of the missing person rule was valid for the case at hand, as C&C’s
contention is conclusory. Nowhere does C&C explain how the trial court misapplied any
of the factors that govern the missing witness rule, and the court applied the law exactly as
the case law requires.
Even if the trial court erred, the error was harmless. The imposition of a negative
inference against C&C in this case would be inconsequential given the weight of evidence
and the narrow scope of the material issues on appeal. We find that the trial court acted
well within its discretion to add the inference afforded by the missing witness rule to the
totality of evidence considered.
ATTORNEYS’ FEES
R&R requests a finding that it is entitled to recover the attorneys’ fees incurred in
this appeal. R&R notes that the trial court ruled that the Lease provides the prevailing party
“in litigation concerning the Property” may recover its attorneys’ fees. Paragraph 22 of the
Lease provides:
If any legal proceeding of any nature should become necessary
for recovery of the Premises or for any sum due hereunder, or
because of any act which may arise out of the possession of the
Premises by either party, the prevailing party shall be entitled
to all costs incurred in connection with such action, including
reasonable attorney’s fees.
This provision broadly provides for the recovery of attorneys’ fees in “any legal proceeding
of any nature.” R&R asks that we remand this matter to the trial court for a hearing to
determine the amount of reasonable fees.
“‘Courts have consistently held that issues must be included in the Statement of
Issues Presented for Review required by Tennessee Rules of Appellate Procedure 27(a)(4)’
in order to be properly before this Court.” Gibson v. Bikas, 556 S.W.3d 796, 810 (Tenn.
Ct. App. 2018) (quoting In re Estate of Burke, No. M2012-01735-COA-R3-CV, 2013 WL
2258045, at *6 (Tenn. Ct. App. May 21, 2013)). We note that our decision regarding
whether to award attorneys’ fees on appeal is a discretionary one. Banks v. St. Francis
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Hosp., 697 S.W.2d 340, 343 (Tenn. 1985); Young v. Barrow, 130 S.W.3d 59, 66-67 (Tenn.
Ct. App. 2003). An issue may be deemed waived when it is argued in the brief but is not
designated as an issue in accordance with Rule 27(a)(4) of the Tennessee Rules of
Appellate Procedure. See ABN AMRO Mortg. Grp., Inc. v. Southern Sec. Fed. Credit
Union, 372 S.W.3d 121, 132 (Tenn. Ct. App. 2011); Childress v. Union Realty Co., 97
S.W.3d 573, 578 (Tenn. Ct. App. 2002).
R&R included the request for fees in the index and discussed the issue in the
argument section of the principal brief; it emphatically declared that it was “entitled to
recover the attorneys’ fees it incurred in this appeal.” However, it neglected to include
attorneys’ fees on appeal in the issues section of its brief.
We are sympathetic to R&R and would have made the requested award in view of
the fact that the Lease provision before us provides for attorneys’ fees in “any legal
proceeding of any nature.” However, because R&R did not raise the issue of attorneys’
fees on appeal in the statement of the issues, we determine this issue to be waived. See
Champion v. CLC of Dyersburg, LLC, 359 S.W.3d 161, 163 (Tenn. Ct. App. 2011).
V. CONCLUSION
The judgment of the trial court is affirmed. The case is remanded for further
proceedings consistent with this opinion. Costs are assessed to the appellant, C&C Tenn.
Properties, LLC.
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JOHN W. MCCLARTY, JUDGE
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