Elderberry of Weber City, LLC v. Living Centers-Southeast, Inc.

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2176
ELDERBERRY OF WEBER CITY, LLC, a Virginia limited liability
company,
Plaintiff - Appellee,
v.
LIVING CENTERS – SOUTHEAST, INCORPORATED, a North Carolina
corporation; FMSC WEBER CITY OPERATING COMPANY, LLC, a
Delaware limited liability company; CONTINIUMCARE OF WEBER
CITY, LLC, a Florida limited liability company; MARINER HEALTH
CARE, INCORPORATED, a Delaware corporation,
Defendants - Appellants.
Appeal from the United States District Court for the Western
District of Virginia, at Lynchburg. Norman K. Moon, Senior
District Judge. (6:12-cv-00052-NKM-RSB)
Argued: January 28, 2015 Decided: July 21, 2015
Before MOTZ, GREGORY, and WYNN, Circuit Judges.
Affirmed in part, vacated in part, and remanded with instructions
by published opinion. Judge Gregory wrote the opinion, in which
Judge Motz and Judge Wynn joined.
ARGUED: James F. Segroves, HOOPER, LUNDY & BOOKMAN, PC,
Washington, D.C., for Appellants. James Strother Crockett, Jr.,
SPILMAN THOMAS & BATTLE, PLLC, Charleston, West Virginia, for
Appellee. ON BRIEF: Lori D. Thompson, LECLAIRRYAN, PC,
Roanoke, Virginia, for Appellants. Travis A. Knobbe,
M. Mallory Mantiply, SPILMAN THOMAS & BATTLE, PLLC, Roanoke,
Virginia, for Appellee.
GREGORY, Circuit Judge:
Plaintiff-appellee Elderberry of Weber City, LLC
(“Elderberry”) filed this civil action in the Western District of
Virginia alleging breach of a lease for a skilled nursing facility
against defendants-appellants Living Centers – Southeast, Inc.
(“Living Centers”), FMSC Weber City Operating Company, LLC
(“FMSC”), and ContiniumCare of Weber City (“Continium”), and
breach of a guaranty contract against defendant-appellant Mariner
Health Care, Inc. (“Mariner”). Separately, in the Northern
District of Georgia, Mariner filed a declaratory judgment action
against Elderberry, seeking a declaration that it had no
obligations under the guaranty. The two actions were consolidated
in the Western District of Virginia. The district court denied
the parties’ cross motions for summary judgment but held that the
guaranty was enforceable against Mariner. Following a bench trial,
the district court entered judgment in favor of Elderberry on all
counts, and found the appellants jointly and severally liable for
accrued and future damages amounting to $2,742,029.50, plus pre-
and post-judgment interest at the rate of 0.13%. Because the
district court erred in awarding damages that accrued after the
termination of the lease, we vacate in part and remand for the
district court to recalculate damages for the appropriate time
period.
2
I.
At the center of this lease and contract dispute is a skilled
nursing facility located in Weber City, Virginia. Elderberry
leased the facility to Living Centers in November 2000 for a 10-
year term. Initially, Living Centers was not permitted to assign
the lease without prior written permission from Elderberry.
However, in 2006, the lease was amended to allow Living Centers to
assign the lease to FMSC or any of its subsidiaries or affiliates
without prior approval from Elderberry so long as Living Centers
first obtained a guaranty from Mariner. 1 In accordance with the
amendment, the lease reset for a new 10-year term commencing at
the completion of certain construction and improvements to the
facility, and thus a new lease expiration date was set for April
2017. The required guaranty was attached as Exhibit E to the lease
amendment, and was signed by then Executive Vice President and
Chief Financial Officer of Mariner, Boyd P. Gentry.
On January 18, 2007, Living Centers assigned the lease to
FMSC. FMSC, in turn, reassigned it to Continium in November 2011. 2
In the midst of the assignments and amendments, the facility was
1Living Centers is a wholly owned subsidiary of Mariner,
while FMSC is 75% owned by Mariner through subsidiaries.
2Continium is owned and controlled by Avi Klein who was at
the time a manager of FMSC.
3
subject to numerous problems, including being listed as a “Special
Focus Facility,” 3 nonpayment of utility vendors, and interruptions
of gas and phone service.
Continium ceased making rent payments after March 2012.
Although Elderberry and Continium thereafter attempted to
negotiate rent reductions, Continium indicated in May 2012 that it
was no longer able to make rent payments. Elderberry’s attempts
to locate a new tenant were initially unsuccessful because of,
among other problems, the facility’s placement on the Special Focus
Facility list.
Eventually, Elderberry hired Smith/Packett Med-Com, LLC
(“Smith/Packett”) to locate a new tenant, conduct lease
negotiations, and provide asset management services. The two
entities signed an August 8, 2012 asset management agreement, under
which Elderberry agreed to pay Smith/Packett a $150,000 signing
fee for securing a new tenant, a $375,000 value fee on June 1,
2015, so long as the new tenant was not then in default under the
new lease, and a monthly management fee of 10% of the new tenant’s
rent payable.
Subsequent to signing the asset management agreement, on
August 15, 2015, Elderberry sent Living Centers, Continium,
3 Special Focus Facilities are “subject to more frequent
health and safety inspections.” J.A. 781.
4
Mariner, and their attorneys at the Bernstein Law Firm a letter
demanding immediate payment of past due rent. The letter indicated
that if the payments were not made, Elderberry would “be entitled
to proceed with pursuit of its remedies under the Lease, including,
but not limited to, seeking damages in court, termination of the
Lease, and/or taking possession of the Property.” J.A. 201-02.
The requested past due rent payments were not made. Rather, on
August 17, 2012, Continium discharged the remaining residents and
abandoned the facility.
On August 24, 2012, Elderberry mailed the appellants a letter
bearing the subject line, “LEASE TERMINATION NOTICE.” J.A. 607.
The letter stated: “this letter shall serve as notice that the
Lease is hereby terminated, effective 12:00 midnight EST on August
24, 2012. [Elderberry] reserves all rights and remedies related
to Tenant’s default whether under the Lease, at law or in equity.”
J.A. 607.
Elderberry rehabilitated the nursing facility with
Smith/Packett’s help and eventually entered into a new lease with
Nova Healthcare Group, LLC (“Nova”) for a new 10-year term
beginning January 1, 2013. During the course of lease
negotiations, Nova secured from Elderberry a renovation budget and
working capital totaling $1.25 million.
One week after Elderberry sent the termination letter to the
appellants, Mariner filed suit against Elderberry in the Northern
5
District of Georgia, seeking a declaration that the guaranty was
unenforceable. Thereafter, Elderberry filed a breach of lease and
breach of contract action against the appellants in the Western
District of Virginia. Elderberry sought damages for accrued and
future rent, as well as “costs, fees and expenses incurred by
Elderberry to preserve and rehabilitate the property; fees and
expenses incurred by Elderberry in hiring [Smith/Packett] . . . to
locate a replacement tenant; sums expended by Elderberry to pay
utilities, insurance premiums, and real property taxes; and
attorney’s fees and expenses.” J.A. 7. This consolidated civil
action followed.
The parties filed cross motions for summary judgment on
Elderberry’s breach of lease and breach of contract claims, and on
Mariner’s claim that the guaranty issued in connection with the
lease assignments to FMSC and Continium was void under the Georgia
statute of frauds. Although the district court denied both summary
judgment motions, it held that the guaranty was valid. After the
subsequent bench trial, the district court ruled in favor of
Elderberry on all claims, and concluded that Elderberry is entitled
to damages in the amount of $2,742,029.50, plus pre- and post-
judgment interest at the rate of 0.13%. J.A. 803-06. The damages
award includes:
(1) unpaid rent for the period from April 2012 through
August 2012 . . . ; (2) unpaid rent from the period
September 2012 though February 2013 . . . ; (3) a rent
6
shortfall from March 2013 though April 2017; (4) unpaid
taxes, utilities, and insurance premiums for the period
from August 2012 through February 2013 . . . ; (5)
maintenance fees paid during that same period . . . ;
(6) payments for architectural and construction
services. . . to bring the Facility up to the fire code
standards required by the fire marshal; (7). . . payments
to Nova [for renovations and working capital] . . . ;
(8) [the signing fee to Smith/Packett] . . . ; and (9)
[the value fee to Smith/Packett].
J.A. 793 (footnote omitted).
The appellants timely appealed.
II.
Our review of a district court’s grant of summary judgment is
de novo. French v. Assurance Co. of Am., 448 F.3d 693, 700 (4th
Cir. 2006). “Summary judgment is appropriate when there is no
genuine issue of material fact and the moving party is entitled to
judgment as a matter of law.” Id. And, “[w]e review a district
court’s judgment entered after a bench trial under a ‘mixed
standard of review.’ Under this standard, we review the district
court’s findings of fact for clear error and conclusions of law de
novo.” Perez v. Montaire Farms, Inc., 650 F.3d 350, 363 (4th Cir.
2011) (citation omitted). Our review of the district court’s
conclusions of law extends to its interpretations of written
contracts. See FindWhere Holdings, Inc. v. Sys. Env’t
Optimization, LLC, 626 F.3d 752, 755 (4th Cir. 2010).
7
The appellants make three arguments. First, they argue that
the district court erred in awarding damages that accrued after
Elderberry terminated the Lease. 4 Second, they contend that
Virginia law precludes awards for speculative damages, and thus
the district court’s inclusion of the $375,000 value fee in the
damage award was erroneous. Finally, the appellants challenge the
district court’s legal conclusion that the guaranty satisfies the
Georgia statute of frauds.
III.
The lease states, and the parties agree, that it is governed
by Virginia law. We thus look to Virginia law to construe the
lease. In doing so, we consider two broad categories of damages
flowing from the lease: rent, and non-rent damages.
A.
We first address what portion of accrued or future rent
Elderberry is entitled to receive as part of its damages award.
This Circuit has previously observed that
when a tenant abandons leased property during the term,
the Supreme Court of Appeals of Virginia has held that
the landlord is permitted, at his option, either (1) to
refuse to accept the tenant’s surrender, do nothing and
sue for accrued rents, or (2) to re-enter the premises
and accept the tenant’s surrender, thereby terminating
4 “[Appellants] concede that Living Centers is liable for
unpaid rent for the period from April 2012 though August 24, 2012.”
J.A. 794 n.14.
8
the lease and releasing the tenant from further
liability on the lease.
tenBraak v. Waffle Shops, Inc., 542 F.2d 919, 924 (4th Cir. 1976)
(footnote omitted) (citing Crowder v. Virginian Bank of Commerce,
103 S.E. 578 (Va. 1920)). In other words, when a tenant abandons
a lease, a landlord may sue for rent due on the balance of the
lease term only if the landlord does not terminate the lease. See
id.; Crowder, 103 S.E. at 579. The choice belongs to the landlord.
Crowder, 103 S.E. at 579 (“The landlord [is] under no obligation
to resume possession of the premises which ha[ve] been wrongfully
abandoned, and ha[s] the right to refuse such possession and to
hold the tenant liable under the contract.”).
Although Virginia law “thus does not provide for recovery of
future damages for the lessor’s losses arising from the abandonment
of a contract of lease, . . . the parties are not barred from
providing for such a recovery through forfeiture provisions in the
lease.” tenBraak, 542 F.2d at 924-25. Any such provisions “must
be strictly construed.” Id. at 925. As the Virginia Supreme Court
has stated, “[t]he prevailing rule is that parties to a contract
may provide the remedy that will be available to them in case a
breach occurs so long as the remedy provided is not contrary to
the law or against public policy.” Bender-Miller Co. v. Thomwood
Farms, Inc., 179 S.E.2d 636, 638 (Va. 1971). And “the remedy
provided will be exclusive of other possible remedies only where
9
the language employed in the contract clearly shows an intent that
the remedy be exclusive.” Id. Additionally, “the intent of the
parties as expressed in their contract controls,” and “[i]t is the
court’s responsibility to determine the intent of the parties from
the language they employ.” Id. at 639.
Here, the relevant provision of the lease, ¶ 7(3), reads as
follows:
7. RIGHTS IN DEFAULT.
. . . .
(3) The remedies of the Lessor for any Default by
the Lessee shall include the following:
(a) Upon any Default by the Lessee and at any
time thereafter, the Lessor may give written notice to
the Lessee that the Lessor elects to terminate this Lease
upon a specific date not less than thirty (30) days after
mailing of such notice. This Lease shall then be
terminated on the date so specified.
(b) Upon an uncured Default by the Lessee,
and notice from the Lessor, the Lessor may reenter the
and resume possession of the Property. The Lessor, at
the Lessor’s option, may remove persons and property
from the Property and may store the property in a public
warehouse or elsewhere at the expense or for the account
of the Lessee without liability for any damage on such
removal. The Lessor’s reentry shall not be deemed either
an acceptance or a surrender of this Lease or a
termination thereof. It is expressly understood and
agreed that in the event of the reentry by the Lessor by
reason of a default of the Lessee, the Lessee shall
nevertheless remain liable for the Rent and also for the
taxes and insurance premiums payable by the Lessee as
provided in this Lease, for the balance of the term
herein originally demised.
. . . .
(d) The rights given to the Lessor herein are
in addition to any rights which may be given to the
Lessor by statute or otherwise.
10
J.A. 172. Elderberry urges us to conclude that its rights under
the above provision are cumulative and that it thus had the right
to simultaneously (1) reenter and relet the facility, and (2)
terminate the lease and seek from the appellants rent due for the
balance of the term. To be sure, the above excerpt provides that
Elderberry’s rights in the event of a default “shall include the
following.” Id. There is no language suggesting that Elderberry
must choose either to terminate the lease as provided by ¶ 7(3)(a),
or to reenter the premises and hold the tenant liable for future
rent and other fees as provided by ¶ 7(3)(b). Nor are the various
subparagraphs under lease ¶ 7 separated by the disjunctive word
“or.”
That said, Elderberry’s reading of the lease is not
convincing. First, remedy provisions providing for future rent
“must be strictly construed.” tenBraak, 542 F.2d at 925. And in
construing remedy provisions, courts must have “due regard for the
rule that [the lease] must be construed most strongly against the
lessor.” Va. Lumber & Extract Co. v. O.D. McHenry Lumber Co., 94
S.E. 173, 174 (Va. 1917). Here, ¶ 7(3) of the lease does not
affirmatively state that the remedial provisions are cumulative.
Rather, ¶ 7(3)(b) explicitly provides: “The Lessor’s reentry shall
not be deemed . . . a termination” of the lease. J.A. 172 (emphasis
supplied). And it is only under ¶ 7(3)(b), “in the event of the
reentry,” that the lessee remains liable for future rent and fees.
11
This language puts ¶ 7(3)(a) and ¶ 7(3)(b) in tension with one
another. Whereas ¶ 7(3)(a) explicitly terminates the lease
contract, ¶ 7(3)(b) explicitly leaves the terms of the lease
contract and the possibility of receiving future rent and fees in
place. It does not make sense to allow simultaneously the
termination of the lease and continued application of the lease.
The better reading, and the one we adopt here, is that upon
exercising its right to terminate the lease, Elderberry
extinguished any right that it had to future rent.
Elderberry argues that we should follow the Virginia rule
that a remedy provided for breach of a contract “will be exclusive
of other possible remedies only where the language employed in the
contract clearly shows an intent that the remedy be exclusive.”
Bender-Miller, 179 S.E.2d at 638. In advancing its argument,
Elderberry focuses on whether the remedies provided within the
lease are exclusive of one another. Bender-Miller, by contrast,
focuses on whether the remedies provided in a contract are
exclusive of extra-contractual remedies. In that case, the
Virginia Supreme Court addressed whether the parties “intended by
virtue of” a certain contract provision “that the remedy provided
therein be exclusive of other remedies allowed by law.” Id. at
639 (emphasis added); see also Va. Dynamics Co. v. Payne, 421
S.E.2d 421, 423 (Va. 1992) (observing that even if a lessor could
“contract[] away” a statutory right, “the lessor’s statutorily
12
created right . . . would have to be expressly waived”); Atlas
Mach. & Iron Works, Inc. v. Bethlehem Steel Corp., 986 F.2d 709,
713 (4th Cir. 1993) (permitting bankruptcy as a remedy to a breach
of contract where the contract did not explicitly state that the
remedy stated therein was exclusive). Our reading of Virginia
case law suggests that there is a presumption against excluding
statutory or legal rights absent a clear waiver of such rights,
and our construction of the lease here comports with that
presumption. Although our reading of the lease proscribes the
collection of future rent and other fees in the event of
termination, it does not proscribe the pursuit of any rights that
Elderberry might have outside of those provided in the lease
itself. Indeed, as quoted above, ¶ 7(3)(d) provides that “[t]he
rights given to the Lessor herein are in addition to any rights
which may be given to the Lessor by statute or otherwise.” J.A.
172.
In light of the foregoing, we hold that Elderberry lost its
right to rent that accrued after it terminated the lease on August
24, 2012. Elderberry is, however, entitled to any rent that
accrued prior to termination of the lease.
B.
We turn next to non-rent damages. A landlord may, as
Elderberry does here, seek compensation for a tenant’s failure to
return a leased facility in the required condition. See, e.g.,
13
Sharlin v. Neighborhood Theatre Inc., 167 S.E.2d 334 (Va. 1969).
And the Supreme Court of Virginia long ago stated that when an
action for breach of lease covenant “is brought after the end of
the term, the measure of damages is still held to be such a sum as
will put the premises in the condition in which the tenant is bound
to leave them.” Vaughan v. Mayo Milling Co., 102 S.E. 597, 601
(Va. 1920) (quoting Watriss v. First Nat’l Bank of Cambridge, 130
Mass. 343, 345 (1879)). “[T]his is true even if the repairs have
not been made by the landlord.” Sharlin, 167 S.E.2d at 338 (citing
Vaughan, 102 S.E. at 602). Virginia’s rule is in line with the
general rule that
where a lease contains a provision or option giving the
right or privilege of cancellation and the agreement is
canceled in pursuance of the right or privilege thus
given, such cancellation does not extinguish liabilities
that have already accrued under the lease, regardless of
whether the liability is that of the party who exercised
the option to cancel the agreement or is the liability
of the party against whom cancellation was made. Such
cancellation of the lease does, however, terminate
liabilities to accrue in the future, such as rent, except
where by express provision in the lease termination is
not to affect the accrual of such liabilities.
49 Am. Jur. 2d Landlord and Tenant § 204 (emphasis added) (footnote
omitted). Accordingly, upon termination of a lease, a landlord is
entitled to recover liabilities accrued up to the point of
termination.
Aside from rent payments, the lease here includes covenants
requiring the lessee to pay for utility services, sales and use
14
taxes, general real estate taxes and special assessments, and
insurance premiums. See J.A. 165 (Lease ¶ 3). Moreover, the lease
provides:
Lessee will keep the Property and any and all buildings
and improvements (including inside and outside) which
are now or may be erected or placed on said Property, in
good order and repair subject to reasonable wear and
tear at its sole cost and expense. All repairs and
replacements shall be in quality and class at least equal
to the original work. Lessee will pay when due all costs
associated with any such repairs, replacements or other
work undertaken by it, and will not suffer any mechanic’s
and/or materialmen’s liens to be maintained against the
Property.
J.A. 166 (Lease ¶ 4(2)). The lease additionally requires that the
premises be returned to Elderberry “in the same condition as when
demised to the Lessee, reasonable wear and tear and damage by fire
or other casualty insured against being excepted.” J.A. 167 (Lease
¶ 4(5)). Another provision states that the lessee “will comply
with all lawful requirements of the Board of Health, Police
Department, Fire Department, Municipal, State and Federal
authorities.” J.A. 167 (Lease ¶ 4(6)). Each of these covenants
serves as a source of damages that potentially accrued prior to
the termination of the lease. Indeed, the district court relied
on these provisions in determining several portions of the damages
award.
Curiously, the appellants do not directly address whether
they challenge the district court’s inclusion of utility fees,
maintenance fees, and the like in the damages award. They merely
15
ask this Court to reduce the judgment to $220,576.94, the amount
of unpaid rent that accrued prior to the termination of the lease.
While this request could be seen as an indirect challenge to the
award of damages flowing from their breach of the covenants listed
above and their failure to return the nursing facility in the
required conditions, the appellants did not set forth arguments
challenging the district court’s factual findings or legal
conclusions concerning accrued non-rent damages. They have thus
waived any argument with respect to those non-rent damages. See
Carter v. Lee, 283 F.3d 240, 252 n.11 (4th Cir. 2002) (“[T]his
Court normally views contentions not raised in an opening brief to
be waived.”).
In light of the foregoing, we hold that Elderberry is entitled
to non-rent damages that accrued prior to termination of the lease.
We therefore remand this case for the district court to recalculate
rent and non-rent damages that accrued prior to August 24, 2012. 5
IV.
5 Because damages are restricted to those accruing prior to
termination of the lease, we need not address the appellants’
contention that the Smith/Packett $375,000 value fee is
speculative. By its terms, that payment necessarily accrued after
termination of the lease and therefore cannot be part of the
damages award. Indeed, Elderberry itself categorizes the value
fee as future damages. See Resp. Br. of Appellee 25 n.9.
16
The appellants argue that the district court erred in finding
that the guaranty satisfies the Georgia statute of frauds. 6 Under
Georgia law, “[t]he statute of frauds requires that a promise to
answer for another’s debt, to be binding on the promisor, ‘must be
in writing and signed by the party to be charged therewith.’” John
Deere Co. v. Haralson, 599 S.E.2d 164, 166 (Ga. 2004) (citation
omitted). “This requirement has been interpreted to mandate
further that a guaranty identify the debt, the principal debtor,
6 The choice of law provision in the guaranty at issue here
is blank. Because we are exercising diversity jurisdiction in
this case, we must apply the choice of law principles of the state
in which the case was filed. Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496-97 (1941). While Mariner’s declaratory
judgment claims regarding the guaranty were filed in the Northern
District of Georgia, those claims were transferred to the Western
District of Virginia, and Elderberry’s claims concerning the
guaranty were also filed in Virginia. We need not concern
ourselves with whether Virginia or Georgia choice of law rules
apply, because under either analysis, we would conclude that
Georgia law applies. This is because each state applies the rule
of lex loci contractus. See Seabulk Offshore Ltd. v. Am. Home
Assurance Co., 377 F.3d 408, 419 (4th Cir. 2004) (observing that
in Virginia, questions of “interpretation of a contract are
resolved according to the law of the state where the contract was
made”); Ferrero v. Associated Materials Inc., 923 F.2d 1441, 1444
(11th Cir. 1991) (“[T]he Georgia conflict of laws rule for
contracts . . . is lex loci contractus.”). And the final act
necessary to effectuate the guaranty under either state’s law, the
signature by Mariner’s representative, took place in Georgia. See
Seabulk Offshore, Ltd., 377 F.3d at 419 (“Under Virginia law, a
contract is made when the last act to complete it is performed.”);
Christian v. Bullock, 205 S.E.2d 635, 638 (Va. 1974) (applying law
of state in which contract was executed); Gen. Tel. Co. of the Se.
v. Trimm, 311 S.E.2d 460, 461 (Ga. 1984) (“In order to determine
where a contract was made, the court must determine where the last
act essential to the completion of the contract was done.”).
Neither party disputes the application of Georgia law.
17
the promisor, and the promisee.” Id.; see also Lafarge Bldg.
Materials, Inc. v. Thompson, 763 S.E.2d 444, 445 (Ga. 2014). The
guaranty here identifies and is signed by the promisor: Mariner.
However, as noted by the appellants, the guaranty includes several
blanks where the parties were to have identified the landlord,
original tenant, tenant, and the lease:
FOR VALUE RECEIVED, and in connection with the
assignment and transfer of the rights of tenant under a
certain Lease agreement, dated [_________], between
[LANDLORD] (“Landlord”) and [TENANT] (“Original
Tenant”), as the same was assigned by Original Tenant to
[NEW TENANT] (“Tenant”), pursuant to an Assumption and
Assignment Agreement, dated [__________] (as further
amended, modified or assigned, the “Lease”), covering
certain premises known as [FACILITY NAME AND ADDRESS],
Mariner Health Care, Inc., a Delaware corporation, the
undersigned (hereinafter referred to as “Guarantor,”
whether one or more) hereby guarantees unto Landlord the
full and prompt payment of the rent and all other sums
and charges payable by Tenant under the Lease (hereafter
collectively referred to as “Obligations”). Guarantor
hereby covenants that if Tenant shall default in the
payment of any of the Obligations, Guarantor shall pay
the amount due to Landlord.
J.A. 196 (emphasis and blanks in original). The question is thus
whether the guaranty nonetheless sufficiently identifies the debt,
principal debtor, and promisee.
The Supreme Court of Georgia’s recent decision in Lafarge
Building Materials examined a situation in which a guaranty was
“set off in a box at the bottom of the second page” of a credit
application. 763 S.E.2d at 445. The guaranty identified the
principal debtor simply as “the Applicant identified on page 1 of
18
this Application for Credit.” Id. The guaranty, however,
incorporated the credit application by reference. Id. In
reversing the Georgia Court of Appeals’ conclusion that the
guaranty did not satisfy the statue of frauds, the Georgia Supreme
Court read the guaranty “in conjunction with the incorporated
application, and with the word ‘applicant’ bearing its usual and
common meaning.” Id. at 447. While the court noted that “the
better practice for lenders—the approach that can forestall
extended litigation like this case—is to simply name the principal
debtor directly in the guaranty,” the court nonetheless concluded
that the guaranty satisfied the statute of frauds. Id.
In addition to approving the use of incorporated documents to
sufficiently identify the terms of a guaranty, id. at 447, the
Georgia Supreme Court has also recognized that § 24-3-3(a) of the
Georgia code 7 “authorizes the use of contemporaneously executed
writings to provide necessary terms not contained in the document
at issue, or to correct obvious errors in the document at issue.”
White House Inn & Suites, Inc. v. City of Warm Springs, 676 S.E.2d
178, 179 (Ga. 2009) (“[A] contemporaneously executed document can
provide a property description missing from a contract for the
sale of real property; establish the terms of a purportedly vague
option agreement; establish and correct a misnomer; correct an
7 Formerly Ga. Code Ann. § 24-6-3.
19
‘obvious error’; or establish that the acceptance of an offer was
conditional.” (citations omitted)). In discussing the
contemporaneous writings rule, the White House Inn court cited
with approval C.L.D.F., Inc. v. The Aramore, LLC, 659 S.E.2d 695(Ga. Ct. App. 2008). Id. There, the Georgia Court of Appeals
construed a lease and guaranty together to correct a scrivener’s
error where “the Lease and the Guaranty were executed on the same
date, at the same time, and at the same location” and “[t]he
Guaranty was physically attached to the Lease and was identified
as a ‘special provision[] . . . attached . . . as [an] exhibit and
. . . made a part of th[e] Lease.’” C.L.D.F., Inc., 659 S.E.2d at
696.
These cases and Georgia’s contemporaneous writings rule
suggest that omitting a required name or piece of information from
a guaranty does not render the guaranty unenforceable if the
omitted name or information can be readily ascertained when the
guaranty is read in conjunction with documents incorporated by
reference, or with documents physically attached to and
contemporaneously executed with the guaranty. The guaranty in
this case, though containing a significant number of blanks, is
attached as Exhibit E to the lease amendment. Thus, we can
construe the guaranty together with the lease amendment. And in
the lease amendment, the parties agreed that Living Centers would
be permitted to assign the lease to “Family Senior Care Holdings
20
LLC or any of its subsidiaries or affiliates” without prior written
permission from Elderberry so long as Mariner agreed to guarantee
the lessee’s obligations. J.A. 180. Reading the blanks in the
guaranty together with the lease and the lease amendment, and
giving the terms landlord, original tenant, and tenant their usual
and common meanings, the guaranty sufficiently identifies
Elderberry as the landlord and Living Centers as the original
tenant. 8 See Lafarge Bldg. Materials, 763 S.E.2d at 447.
However, the blank in the guaranty representing the tenant
(i.e., principal debtor) is not filled in with a specific entity,
but rather with the descriptive phrase “Family Senior Care Holdings
LLC or any of its subsidiaries or affiliates.” Because the phrase
“Family Senior Care Holdings LLC or any of its subsidiaries or
affiliates” is, on its face, susceptible to more than one meaning,
we find it to be ambiguous. See Horwitz v. Weil, 569 S.E.2d 515,
516 (Ga. 2002) (“Ambiguity in a contract is defined as duplicity,
indistinctness or an uncertainty of meaning or expression.”). And
under Georgia law, we are permitted to consult parol evidence “to
explain ambiguities in descriptions.” L. Henry Enters., Ltd. v.
8
We find it noteworthy that the appellants “volunteered or
offered to provide a guaranty of Mariner Health” and wanted to
“add that to the amendment in order to procure [Elderberry’s]
agreement to the assignment.” J.A. 660; see also J.A. 663 (“A
guaranty was offered by Mr. Gentry.”). Not only that, but there
is uncontradicted testimony in the record that the guaranty was
actually “provided by Mr. Gentry” of Living Centers as part of the
lease amendment negotiations. J.A. 663.
21
Verifone, Inc., 614 S.E.2d 841, 844 (Ga. Ct. App. 2005) (“[W]hile
the Statute of Frauds prohibits using parol evidence to supply
completely missing terms, it does not prohibit using parol evidence
to explain ambiguities in descriptions.”).
Using the parol evidence rule here to consult extrinsic
evidence, it is clear that the principal debtor at the relevant
time was Continium. Living Centers first assigned the lease to
FMSC, evidenced by a document entitled “Assignment and Assumption
Agreement.” J.A. 203. A document cited and quoted by the district
court entitled “Assignment and Assumption of Contracts” then
demonstrates that FMSC assigned the lease to Continium on November
1, 2011. 9 Elderberry of Weber City, LLC v. Living Centers-Se.,
Inc., 958 F. Supp. 2d 623, 633 (W.D. Va. 2013). As shown above,
Continium stopped paying rent after March 2012 until Elderberry
terminated the lease on August 24, 2012. These are the relevant
rent payments for which Continium was the principal debtor and for
which Mariner guaranteed. Indeed, a September 9, 2011 letter sent
to Elderberry by the appellants’ attorneys reflects exactly that
understanding. See J.A. 199 (“Notwithstanding this proposed
9 We note that the parol evidence rule, unlike the
contemporaneous writings rule, does not require the extrinsic
evidence to have been prepared at the same time. See, e.g.,
McKinley v. Coliseum Health Grp., LLC, 708 S.E.2d 682, 684–85 (Ga.
Ct. App. 2011) (affirming the trial judge’s use of parol evidence
to grant summary judgment where parol evidence consisted of
deposition testimony taken subsequent to the execution of the
contract).
22
assignment [from FMSC to Continium], it is intended that the
Mariner Health Care, Inc. Lease Guaranty executed in conjunction
with the First Amendment to the Lease Agreement dated June 19,
2006, shall remain in full force and effect to guaranty the
obligations of assignee Continium[].”).
Given the Georgia Supreme Court’s most recent pronouncement
on that state’s statute of frauds, combined with Georgia’s parol
evidence rule, we hold that the guaranty satisfies the Georgia
statue of frauds.
V.
For the foregoing reasons, the judgment of the district court
is
AFFIRMED IN PART, VACATED IN PART, AND
REMANDED WITH INSTRUCTIONS.
23