H D R E Bus Partners Ltd. Grp v. R A R E Hospitali

Case: 11-30970 Document: 00511938164 Page: 1 Date Filed: 07/30/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 30, 2012
No. 11-30970 Lyle W. Cayce
Clerk
HDRE BUSINESS PARTNERS LIMITED GROUP, L.L.C.,
Plaintiff-Appellant
v.
RARE HOSPITALITY INTERNATIONAL, INCORPORATED, doing business
as Longhorn Steakhouse,
Defendant-Appellee
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 5:09-CV-977
Before REAVLEY, PRADO, and OWEN, Circuit Judges.
PER CURIAM:*
The main issue in this appeal is whether an assignment of a purchase
agreement was intended to novate a lease agreement. The district court held
that the parties’ intent to novate the lease was clear from the assignment, and
it granted summary judgment to the Defendant-Appellee RARE Hospitality
International (“RARE”). Plaintiff-Appellant HDRE Business Partners Limited
Group, L.L.C. (“HDRE”) appeals. Reviewing the district court’s judgment de
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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novo, Langhoff Props., LLC v. BP Prods. N. Am., Inc., 519 F.3d 256, 260 (5th Cir.
2008), we conclude that the parties’ intent presents a fact issue, and we therefore
REVERSE the district court’s judgment.
In February 2008, HDRE and RARE executed a lease agreement whereby
HDRE agreed to lease to RARE commercial property that it did not yet own so
that RARE could operate a restaurant on the property. This arrangement was
permissible under Louisiana law. The lease contained a feasibility period that
afforded RARE sixty days to walk away from the agreement if it determined that
the property was not suitable for its purposes. The lease also provided that
HDRE would acquire title to the property within thirty days of RARE obtaining
necessary building permits. HDRE separately entered into a purchase
agreement with Stirling Bossier, L.L.C. (“Stirling”) to buy the property that was
the subject of the lease agreement. Both the feasibility period of the lease and
the closing date of the purchase agreement were extended several times as the
parties’ engaged in negotiations.
On May 5, 2008, before the feasibility period was set to expire on May 9,
RARE notified HDRE’s principal Wesley Dingler that it would prefer to buy the
Stirling property rather than lease it. RARE asked if HDRE would assign
HDRE’s right to purchase the property to RARE, but RARE did not expressly
exercise its right to terminate the lease agreement. HDRE agreed to the
assignment request, and on May 16, 2008, HDRE, RARE, and Stirling executed
an assignment agreement giving RARE the right to buy the property. The
assignment provided that if RARE closed on the transaction and acquired the
property, it would pay HDRE a fee of $210,000, which represented compensation
for the assignment and reimbursement of certain deposits and expenses. Similar
to the original lease agreement, the assignment also allowed RARE to terminate
the agreement if it did not obtain internal corporate approval for the purchase
within a specified time.
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When RARE did not obtain corporate approval, it notified HDRE and
Stirling on May 28, 2008, that it would not be going forward with the purchase.
HDRE then sought enforcement of the original lease agreement and instituted
this action for breach of contract after RARE claimed that the lease had been
novated. The district court granted RARE summary judgment, holding that the
assignment was a novation of the lease. HDRE now appeals.
A novation is “the extinguishment of an existing obligation by the
substitution of a new one.” LA. CIV. CODE ANN. art. 1879. “The most important
factor in determining whether a novation has been effected is the intent of the
parties.” Scott v. Bank of Coushatta, 512 So. 2d 356, 360 (La. 1987). “[A]
novation may occur where the intent of the parties, the character of the
transaction, the facts and circumstances surrounding the transaction and the
terms of the agreement reveal a desire to effect a novation.” Id. The parties’
intent to extinguish an existing obligation “must be clear and unequivocal.
Novation may not be presumed.” LA. CIV. CODE ANN. art. 1880. Therefore, the
burden of proving a novation is borne by the party asserting it. Scott, 512 So. 2d
at 360 (citing Placid Oil Co. v. Taylor, 325 So. 2d 313 (La. Ct. App. 1975)).
In this case, HDRE argues that the district court erroneously granted
summary judgment and ignored its evidence that it did not intend for the
assignment to novate the lease agreement. RARE argues in response, and the
district court held in part, that the assignment was a novation because it could
not coexist simultaneously with the lease agreement. The district court believed
that the intent to novate was clear from a “four-corners” analysis of the
documents, and that once HDRE assigned its right to buy the Stirling property
it could not also be a party to the lease insofar as the lease required HDRE to
have good title to the property. We disagree with the district court’s analysis.
As an initial matter, the assignment agreement does not address the issue
of novating the lease agreement, and other evidence in the record controverts a
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finding of novation. Specifically, deposition testimony from both Wesley Dingler
and HDRE’s attorney, Cody Cowan, disputed that HDRE intended to substitute
the assignment agreement for the lease agreement. They explained that HDRE
agreed to assign its right to purchase the property because RARE agreed to pay
an assignment fee if the transaction was complete, but that HDRE also believed
that if the transaction did not go through, the original lease would act as a
“safety net” for HDRE. In other words, HDRE had conditional protection for the
assignment. If RARE purchased the property, HDRE would receive the
assignment fee, thereby obtaining a profit and reimbursement of costs; but if
RARE did not purchase the property, HDRE could fall back on the original lease
for compensation because RARE had never exercised its right to terminate the
lease under the feasibility provision.
The district court believed that HDRE was already on notice that RARE
had changed its mind about leasing the property, but the record shows only that
RARE notified HDRE that it preferred ownership of the property over the
original lease agreement. As noted above, the evidence does not show an
unequivocal termination of the lease agreement by RARE, and Dingler testified
that RARE never advised him that it wanted to terminate the lease. The district
court disregarded the depositions of Dingler and Cowan as “self-serving,” but
their testimony about HDRE’s intent provided an explanation for how the lease
and assignment could simultaneously coexist, and it contradicted RARE’s
position on novation. Thus, the testimony about intent presented a fact issue.
Furthermore, we do not believe that the character of the transaction here
made it “inconceivable” that the parties intended for the lease agreement to
survive the assignment. See Placid Oil, 325 So. 2d at 317 (finding a novation
where it was inconceivable under the facts of that case for the parties to have
intended for an earlier obligation to continue without mentioning that fact).
Initially, HDRE had proposed that RARE pay $210,000 immediately upon
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HDRE’s execution of the assignment. Under that arrangement, the fee would
have covered HDRE’s non-refundable purchase deposit that had been paid to
Stirling. But in subsequent negotiations, HDRE agreed to condition the fee on
RARE’s completing the purchase. Because this conditioning of the assignment
fee risked loss of HDRE’s purchase deposit if RARE did not complete the
purchase, it is consistent with Dingler and Cowan’s testimony that HDRE
believed that the lease agreement remained as a viable alternative to recover its
costs. Moreover, it is also plausible that RARE desired to leave the lease
agreement in place as a hedge in case its efforts to purchase the property were
unsuccessful. That would explain why RARE never terminated the lease during
the feasibility period.1 We conclude that an intent to novate is therefore not
clear and unequivocal here. See LA. CIV. CODE ANN. art. 1880.
The district court was also incorrect in holding that the lease required
HDRE to have good title to the property. Under Louisiana law, “[a] lease of a
thing that does not belong to the lessor may nevertheless be binding on the
parties.” LA. CIV. CODE ANN. art. 2674 . The lease specifically contemplated that
at the time of execution HDRE did not have title to the property and that HDRE
would have a defined period in which to obtain title.
Similarly, the district court incorrectly determined, as an alternative to its
holding on novation, that the purchase assignment made it impossible for HDRE
to perform its obligation under the lease. The Louisiana doctrine of impossibility
will not extinguish an obligation unless performance under the contract is
absolutely incapable of occurring. See Payne v. Hurwitz, 978 So. 2d 1000, 1005
(La. Ct. App. 2008). The assignment agreement may have reduced the
1
We acknowledge that HDRE would have lost its purchase deposit under the lease
agreement had RARE exercised its right to terminate the agreement during the feasibility
period. That possibility may bear on the credibility of HDRE’s explanation for entering into
the assignment, but it does not remove the fact issue to be decided by the factfinder.
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possibility of HDRE’s performance but it did not render HDRE absolutely
incapable of acquiring the property for purposes of the lease after RARE declined
to continue with the purchase.2 See id. (“[T]he mere fact that such performance
has been made more difficult or more burdensome by a fortuitous event” does not
relieve an obligor of the duty to perform.).
As alternative bases for affirming the district court, RARE raises two
issues. First, it argues that the lease agreement should be considered
extinguished by the doctrine of confusion, pursuant to which a lease will cease
to operate “when the lessor’s interest and the lessee’s interest are consolidated
in the same person.” In re Dibert, Bancroft & Ross Co., 117 F.3d 160, 171–72
(5th Cir. 1997); see also LA. CIV. CODE ANN. art. 1903. “For confusion to occur
the same person must acquire the full and perfect ownership of both sides of the
obligation by a conveyance which is translative of title.” Langley v. Police Jury
of Calcasieu Parish, 201 So. 2d 300, 305 (La. Ct. App. 1967) (internal quotation
marks omitted). RARE never purchased the Stirling property and therefore
never assumed the qualities of both lessor and lessee.
Second, RARE argues that it may not be held liable for breach of contract
because HDRE itself breached the lease agreement by failing to obtain a surety
bond. See LA. CIV. CODE ANN. art. 2013 (“When the obligor fails to perform, the
2
The district court also held in the alternative that because a separate legal entity
known as HDRE Business Partners Limited had actually entered into the purchase agreement
with Stirling, and that entity never transferred its rights to the plaintiff—i.e., the HDRE
limited liability company—HDRE never held a right to lease the property, and RARE could
not have breached the lease agreement. The parties agreed in the district court, however, that
the name of the entity on the purchase agreement had been a mistake and should have had
no effect on the litigation. In fact, at all times, every interested party in the property,
including Stirling as the seller, treated HDRE as the real party in interest despite the name
on the purchase agreement. Stirling’s acceptance of HDRE as the real purchaser is evident
because its grant of extensions on the purchase agreement, and the assignment agreement,
all named HDRE as the party at issue. In light of these circumstances, we conclude that the
incorrect name on the purchase agreement is not outcome determinative. Cf. Reynaud v.
Bullock, 196 So. 29, 34 (La. 1940) (holding that contracts may be reformed when a mutual
mistake or error fails to account for the parties’ true intent).
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obligee has a right to the judicial dissolution of the contract or, according to the
circumstances, to regard the contract as dissolved.”). We are unpersuaded,
however, because the terms of the lease specifically required that RARE give
HDRE written notice of any breach and thirty days in which to cure a default
before allowing RARE the option of declaring the lease terminated. Although
RARE contends that HDRE was aware of the breach of the surety clause, it does
not point to sufficient evidence of written notice and declaration that the lease
was terminated for reason of the breach. Therefore, summary judgment is not
appropriate on this basis.
This case presents an unusual set of circumstances among these
commercial parties but we conclude that competing evidence as to the intended
effect of the assignment on the lease agreement, as well as a reasonable
explanation for the coexistence of those two obligations, created a fact issue as
to the parties’ intent. It was error for the district court to disregard Dingler’s
and Cowan’s testimony at the summary judgment stage when all inferences are
to be resolved in favor of HDRE. The district court’s judgment is therefore
reversed and the cause remanded for further proceedings.
REVERSED and REMANDED.
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OWEN, Circuit Judge, dissenting.
Because I would affirm the district court’s judgment, I respectfully dissent.
I agree with the district court that there is no material fact issue and that when
RARE and HDRE entered into the Assignment of HDRE’s right to purchase the
property at issue from Stirling, both RARE and HDRE clearly expressed the
intent to novate the prior Ground Lease agreement under which RARE and
HDRE had agreed that, subject to certain contingencies, HDRE would purchase
the property from Stirling and lease it to RARE. When HDRE and RARE
entered into the Assignment agreement, HDRE no longer had the means of
performing the prior Ground Lease agreement. It is clear that the new
agreement, the Assignment agreement, was to supersede entirely the earlier
Ground Lease agreement.
The panel majority’s reasoning cannot withstand analysis. After RARE
decided not to purchase the Stirling property and therefore was not obligated to
pay HDRE under the Assignment agreement, it is at least conceivable that
HDRE might have been able to negotiate a new purchase agreement with
Stirling. However, that would not have been done within the contemplation of
the Ground Lease agreement. Even if HDRE were able to purchase the Stirling
property and to purchase it on terms similar to those under the original
purchase option it had with Stirling that it later assigned to RARE, it is clear
that RARE would not have been entitled to sue HDRE if HDRE was
unsuccessful in acquiring the Stirling property. RARE’s rights to enforce the
Ground Lease agreement were extinguished once HDRE and RARE agreed to
restructure their transaction and HDRE assigned its option to purchase the
Stirling property to RARE. RARE could not thereafter claim that HDRE
remained obligated to purchase the Stirling property and that HDRE would have
to pay damages if it could not perform under the Ground Lease agreement. For
the same reasons, after the parties entered into the Assignment agreement,
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HDRE could not thereafter claim that RARE remained obligated to lease the
property from HDRE. There was a novation of the Ground Lease agreement.
If no novation was intended, then there was no novation of either party’s rights
under the Ground Lease agreement. But that is certainly not a viable
proposition in light of the facts of this case. The panel majority strains to find
a possible agreement between HDRE and RARE that neither the facts nor the
law can support.
I
RARE desired to build a steakhouse on a parcel of land owned by Stirling
that was part of a shopping center. RARE approached HDRE to arrange for
HDRE to purchase the property from Stirling, and RARE would then lease the
property from HDRE. HDRE subsequently entered into a Purchase Agreement
with Stirling under which HDRE had the exclusive option to purchase the
property at issue. During the negotiations between HDRE and RARE of the
specific terms of their agreement, RARE was acquired by a larger restaurant
chain. Eventually, the Ground Lease was signed between RARE and HDRE
under which RARE could opt out with no penalty during a feasibility period.
HDRE made several non-refundable payments to Stirling to secure and later
extend the exclusive option to purchase the property while RARE continued to
study the feasibility of the project.
Before the Ground Lease agreement was fully effectuated, RARE informed
HDRE that it would rather buy the Stirling property outright instead of leasing
it from HDRE. RARE asked HDRE to assign its exclusive purchase option to
RARE, which HDRE agreed to do. Under that Assignment agreement, RARE
agreed to pay HDRE $210,000 if it purchased the property from Stirling, but
HDRE would receive nothing if RARE decided against purchasing. Consistent
with the change in the nature and structure of the deal between HDRE and
RARE, HDRE and Stirling executed a third and final extension agreement of the
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purchase option that also required HDRE to assign its exclusive purchase option
to RARE. The Assignment agreement between RARE and HDRE was
subsequently executed. RARE ultimately chose not to purchase the Stirling
property, as it had the right to do. HDRE recognized that it had no recourse
against RARE under the Assignment agreement, and HDRE instituted this suit
seeking damages for breach of the Ground Lease agreement, even though HDRE
never acquired the property from Stirling and therefore never had the ability to
lease the property to RARE.
II
RARE contends, and the district court held, that when HDRE and RARE
entered into the Assignment agreement, and HDRE assigned its right to
purchase the Stirling property to RARE, HDRE and RARE intended for there to
be a novation of the original Ground Lease agreement. Under Louisiana law,
which governs this dispute, a court may consider “the character of the
transaction, the facts and circumstances surrounding the transaction and the
terms of the agreement” in deciding whether the parties intended to effect a
novation by substituting a new obligation for a former one.1 Novation may not
be presumed, but it also need not be expressly declared in the written
agreement.2 In this case, the terms of the Assignment agreement are silent on
its effect on the Ground Lease agreement, but the character of the transaction
as a whole and the facts and circumstances surrounding it leave no doubt that
the parties intended to replace the Ground Lease when they executed the
Assignment agreement.
1
Scott v. Bank of Coushatta, 512 So. 2d 356, 360 (La. 1987).
2
Placid Oil Co. v. Taylor, 325 So. 2d 313, 316 (La. App. 3d Cir. 1976), writ denied, 329
So. 2d 455 (La. 1976).
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The decision in Placid Oil Company v. Taylor is instructive.3 In that case,
Taylor owned a portion of the mineral interests in two tracts of land and leased
his interest to an oil company in 1964 in exchange for a one-eighth royalty.4
Those mineral interests were later sold through mesne conveyances to Johnson.
Johnson also acquired other mineral interests in the two tracts of land in
addition to the mineral interests that Taylor had owned. Johnson entered into
a lease with the oil company in 1965 purporting to cover all of his mineral
interests in the two tracts of land.5 The latter lease provided for a one-fourth
royalty, and made no reference to the previous lease.6 The court of appeals
noted that there were three conceivable arguments regarding the intent of
Johnson and the oil company in entering into the 1965 lease, which were (1) the
1964 lease was extinguished and the 1965 lease substituted; (2) the 1964 lease
continued in effect as to the Taylor interests and the 1965 lease covered only
those interests that Johnson acquired in addition to the Taylor interests; and (3)
the 1964 leases were to co-exist, with the result that the oil company owed a
three-eights royalty as to the Taylor interests.7 None of the parties advocated
for the third possibility.8 The oil company urged the court to embrace the second
possibility and argued that it owed only a one-eighth royalty on the Taylor
mineral interests. The Louisiana court rejected that argument and held that as
a matter of law, “a novation clearly was effected by the execution of the 1965
3
Id.4
Id. at 314.
5
Id. at 315.
6
Id.7
Id. at 316-17.
8
Id. at 317.
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lease.”9 The Louisiana Court of Appeal concluded that it was “inconceivable”
that the parties would fail to mention the prior lease if they had intended to
continue to enforce its terms in spite of the new lease.10
The same logic applies here. There are three possible scenarios. One is
that the Ground Lease agreement and subsequent Assignment agreement
coexist, with no novation at all. Neither party argues that this was its intent.
HDRE candidly acknowledged at oral argument that if RARE had purchased the
Stirling property and paid HDRE $210,000, the Ground Lease agreement would
have been extinguished. The second possibility, according to HDRE, is that the
parties intended a novation only if RARE decided to purchase the property from
Stirling. HDRE contends that RARE was obligated to either lease the property
or purchase it, but not to walk away from the proposed restaurant project. This
is entirely at odds with every written document executed by the parties and by
Stirling. The original Ground Lease agreement allowed RARE to terminate
within the feasibility period. RARE had the option of choosing not to proceed
with leasing the property. The Assignment agreement was already under
negotiation by the time the feasibility period under the Ground Lease agreement
expired, and HDRE had failed to meet certain obligations it had under the
Ground Lease agreement at that time.
On the date that the feasibility period in the Ground Lease agreement
expired, HDRE executed a third extension agreement with Stirling which
required HDRE to assign its exclusive option to purchase the Stirling property
to RARE. When HDRE then assigned the option to purchase to RARE, the
Assignment agreement did nothing to obligate RARE unconditionally to
purchase, much less lease, the Stirling property. Nothing in the Assignment
9
Id.10
Id.12
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agreement indicates that the parties intended a novation of the Ground Lease
agreement only if RARE actually consummated the purchase of the Stirling
property. Instead, the record shows that HDRE originally asked RARE to pay
$210,000 at the time the Assignment agreement was executed, regardless of
whether RARE completed the purchase from Stirling. RARE rebuffed that
request, and the parties expressly agreed in writing as part of the Assignment
agreement that HDRE would be paid by RARE if and only if RARE purchased
the property from Stirling.
The third possible scenario regarding novation is that RARE and HDRE
intended for the Assignment agreement to replace the Ground Lease agreement
entirely. This is the only possibility that is supported by competent evidence.
Testimony from HDRE’s principal and its attorney regarding subjective intent
or an oral agreement is insufficient to raise a fact issue regarding intent when
that testimony contradicts the written Assignment agreement and all
contemporaneous written documentation and agreements.
When HDRE assigned its exclusive right to purchase Stirling’s property
to RARE, HDRE no longer had the ability to lease to RARE. The Ground Lease
agreement between HDRE and RARE was subject to contingencies that never
occurred, one of which was that HDRE would exercise its option with Stirling
and purchase Stirling’s property. Once HDRE assigned its right to purchase to
RARE, the sequence of events contemplated by the Ground Lease agreement,
including HDRE’s exercise of its option to purchase the Stirling property, could
not occur. After the Assignment, HDRE no longer had the right to purchase the
Stirling property.
Instead, HDRE and RARE both agreed, in writing, that the right to
purchase the Stirling property would be conveyed by HDRE to RARE. HDRE
and RARE further expressly agreed in writing that although RARE had the
right to purchase the Stirling property, it did not have the obligation to do so.
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Both HDRE and RARE agreed in writing that HDRE would be compensated if
and only if RARE actually exercised the right to purchase the Stirling property.
No vestige of the Ground Lease agreement remained.
*****
I would affirm the district court’s grant of summary judgment and
therefore dissent.
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