Sisters of St. Francis Health Services, Inc. v. Eon Properties, LLC

FOR PUBLICATION
ATTORNEYS FOR APPELLANT; ATTORNEY FOR APPELLEE:
STEVEN P. LAMMERS GLENN W. KUCHEL
ROBERT A. ANDERSON Green and Kuchel, P.C.
Krieg Devault LLP Schererville, Indiana
Schererville, Indiana
FILED
LIBBY Y. GOODKNIGHT
Krieg Devault LLP
Indianapolis, Indiana May 29 2012, 9:42 am
CLERK
IN THE of the supreme court,
court of appeals and
tax court
COURT OF APPEALS OF INDIANA
SISTERS OF ST. FRANCIS HEALTH )
SERVICES, INC., )
)
Appellant-Defendant, )
)
vs. ) No. 45A05-1110-PL-587
)
EON PROPERTIES, LLC, )
)
Appellee-Plaintiff. )
APPEAL FROM THE LAKE SUPERIOR COURT
The Honorable Gerald N. Svetanoff, Judge
Cause No. 45D04-1006-PL-53
May 29, 2012
OPINON – FOR PUBLICATION
BAKER, Judge
Here, a company that owns commercial property entered into a lease agreement
and a series of amendments with a hospital. The amendments reduced the hospital’s
space, thereby allowing a new tenant to lease that space under a separate lease and
reducing the hospital’s rent obligation. However, one amendment provided that if the
new tenant exercised its option to vacate after thirty-six months, then the hospital would
be responsible for the new tenant’s rent for the last two years of the new tenant’s five-
year lease. The new tenant exercised its option to vacate, thus triggering the hospital’s
responsibility to pay the last two years of rent. The hospital disputes this, claiming that
the new tenant failed to occupy the premises long enough or to properly exercise its
option to vacate. We conclude that the plain intent of the parties was to allocate the risk
that if the new tenant would vacate the premises early, then the property owner assumed
the risk for the first three years of the five-year lease and the hospital assumed the risk for
the last two years.
Appellant-defendant Sisters of St. Francis Health Services, Inc. (the “Hospital”)
appeals the trial court’s order granting summary judgment in favor of appellee-plaintiff
EON Properties, LLC, (EON), and denying its cross-motion for partial summary
judgment. More particularly, the Hospital argues that the trial court failed to give effect
to the clear and unambiguous terms of its lease agreements with EON. Additionally, the
Hospital contends that the trial court erred when it awarded EON $182,014.62 in
damages when there are genuine issues of material fact regarding EON’s alleged
damages. Concluding that the trial court did not err when it granted summary judgment
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in favor of EON regarding the Hospital’s liability under the lease agreements, but that
there are genuine issues of material fact regarding EON’s alleged damages, we affirm in
part, reverse in part, and remand to the trial court for the continuation of the underlying
litigation regarding damages.
FACTS1
The Lease Agreement
EON owns and provides property management services for the office suite
building known as the Plum Creek Center in Schererville. On July 10, 2000, EON and
the Hospital entered into a ten-year Office Lease Agreement (the Lease) for
approximately 9,277 square feet of medical office space (the Leased Premises) for ten
years, with the term of the Lease commencing on February 1, 2001, and ending in
February 2011.
Under the terms of the Lease, the minimum rent for the first year was $125,240
plus monthly common area maintenance fees, pro rata real estate taxes, and other
specified charges. Thereafter, the annual rent was to be increased according to Section
2.01(a)(2) of the Lease as follows:
Annual rent for each subsequent year of the original term of this Lease shall
be increased by the lesser of a) three percent (3%) of the annual rent due
and payable for the prior lease year, or b) the annual rent due and payable
for each prior lease year, multiplied by a percentage equal to the percentage
increase in the Consumer Price Index for . . . Chicago, Gary, [and] Lake
[Counties] . . . published by the Bureau of Labor Statistics of the United
States Department of Labor.
1
We heard oral argument on April 25, 2012, in Indianapolis. We thank counsel for their able
presentations.
3
Appellant’s App. p. 254.
The Amendments to the Lease
On May 19, 2004, EON and the Hospital entered into a lease amendment (the First
Amendment). The First Amendment provided that the Leased Premises would be
reduced by approximately 625 square feet so that EON could construct a hallway, at the
Hospital’s expense, for the purpose of marketing unused portions of the Leased Premises
to prospective tenants.
On August 11, 2004, EON and the Hospital entered into a second lease
amendment (the Second Amendment). Under the Second Amendment, the Hospital’s
leased space was reduced to 5,430 square feet to release an unused portion of the Leased
Premises so that EON could enter into a lease with a new tenant. The Hospital agreed to
pay EON monthly installments of $5,443 for forty-four months, in consideration of EON
agreeing to reduce the square footage of the Leased Premises.
On August 18, 2004, EON entered into a lease with Nykiel-Carlin (the Nykiel-
Carlin Lease) for the released portion of the Leased Premises that was the subject of the
Second Amendment. The term of the Nykiel-Carlin Lease was for six years and nine
months, with an annual rent of $103,000.
On March 14, 2005, EON and the Hospital entered into a third lease amendment
(the Third Amendment). Under the Third Amendment, the Hospital agreed to release an
additional unused portion of the Leased Premises so that EON could enter into another
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lease with a new tenant. Additionally, the Hospital’s rent was reduced; however, the
Hospital was required to make thirty-six monthly payments of $5,740 to EON in
consideration for EON agreeing to release the additional unused portion of the Leased
Premises. Furthermore, Section 7 of the Third Amendment stated:
Should the subsequent tenant for the Additional Released Premises exercise
its option to vacate after the initial 36 months of occupancy, [the Hospital ]
shall pay the rent and additional rent, which would be due and payable
under the terms of the Lease for the Additional Released Premises with the
subsequent tenant, for the balance of the Tenant’s initial five (5) year term
of the Lease.
Appellant’s App. p. 179.
Ameriquest Lease
On February 23, 2005, EON entered into a lease with Ameriquest 2 (the
Ameriquest Lease) for the released portion of the Leased Premises (Additional Released
Premises) that was the subject of the Third Amendment. The term of the Ameriquest
Lease was for five years commencing on June 1, 2005, with an annual rent of $57,814.15.
Before entering into the Ameriquest Lease, Ameriquest demanded an option that
would allow it to vacate the Additional Released Premises and end its rent obligations
after thirty-six months. These terms were less favorable to EON because under the
Lease, the Hospital was obligated to pay rent on the Additional Released Premises for six
more years, and the Hospital did not have an option to vacate. EON advised the Hospital
that it would agree to lease the space to Ameriquest if the Hospital would agree to pay the
2
The Hospital had suggested Ameriquest as a tenant.
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remainder of the lease after the first thirty-six months if Ameriquest stopped paying rent
under the option to vacate.
On or about March 24, 2005, during the time when EON and the Hospital were
executing the Third Amendment, EON and Ameriquest entered into an Addendum to the
Ameriquest Lease. Section 5(a) of the Addendum (Section 5(a)) granted Ameriquest
several tenant options, including an option to vacate the Additional Released Premises
and terminate the Ameriquest Lease as follows:
Option to Terminate. [Ameriquest] shall have the right to terminate this
[Ameriquest Lease] at anytime after the end of the thirty-sixth (36th) month
of the term of this [Ameriquest Lease] (“Termination Date”), upon ninety
(90) days written notice to [EON] (“Termination Option”). If [Ameriquest]
exercises its Termination Option, [Ameriquest] shall reimburse [EON] an
amount equal to the actual cost of the unamortized (i) [Ameriquest]
Improvements (minus any [EON] construction or supervision fees), and (ii)
the brokers’ commissions, amortized over a five (5) year period, and to the
extent [EON] provides [Ameriquest] with substantiated documentation of
such costs (“Termination Penalty”). [Ameriquest] shall pay [EON] the
Termination Penalty as of the Termination Date.
Appellant’s App. p. 204.
Pursuant to Section 1 of the Addendum, the commencement date was modified to
be the later of June 1, 2005, or the date EON substantially completed tenant
improvements for the premises Ameriquest was leasing. On March 30, 2005, EON sent
an email to Ameriquest indicating that the premises of the Ameriquest Lease would be
available on June 1, 2005. On May 12, 2005, EON sent another email to Ameriquest
reiterating, “[a]s we discussed, the [Ameriquest Lease] will start on June 1st.”
Appellant’s App. p. 212.
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Termination of the Ameriquest Lease
By May 2006, less than one year after the Ameriquest Lease had commenced,
Ameriquest began experiencing financial problems. On May 2, 2006, ACC Capital
Holdings, the holding company for Ameriquest, faxed a letter to EON indicating that as
of that date, Ameriquest would be closed. On June 29, 2006, Ameriquest faxed another
letter to EON reiterating that, “[a]s you are aware,” Ameriquest had closed its offices at
the Plum Creek Center. Appellant’s App. p. 215.
On November 7, 2007, EON and Ameriquest entered into a Lease Termination
Agreement in which EON fully released Ameriquest from “any and all claims, demands,
debts, liabilities, actions, lawsuits, causes of action, damages, compensation, obligations,
attorneys’ fees, costs or expenses of any kind, nature, character or description
whatsoever, whether known or unknown, past, present or future, existing or suspected to
exist arising in connection with the [Ameriquest] Lease.” Id. at 216. In exchange, EON
received some of Ameriquest’s office furniture and a one-time payment of $75,000. The
Lease Termination Agreement did not reference the option to terminate in Section 5(a)
nor did it mention that Ameriquest was exercising its option to terminate subject to its
notice requirements and penalties.
EON Seeks Rent from the Hospital
7
Subsequently, EON turned to the Hospital to satisfy the final two years of rent on
the Ameriquest Lease pursuant to the Third Amendment. The Hospital’s position was
that it was not responsible for Ameriquest’s lease payments.
On March 12, 2008, EON sent the Hospital a letter indicating that the annual rent
payment under the Lease, beginning with the February 2008 rent payment, would be
increased by 4.05%. This increase represented the increase in the applicable Consumer
Price Index, which was greater than the 3% increase expressly contemplated in Section
2.01(a)(2) of the Lease. In addition, EON does not dispute that it accepted fifty-one
monthly payments of $5,443 from the Hospital rather than the forty-four monthly
payments required under the terms of the Second Amendment. EON did not return the
seven extra installments, which totaled $38,001.
Procedural History
On November 19, 2009, EON filed a complaint against the Hospital alleging
breach of the Lease and quantum meruit. Specifically, EON alleged that the Hospital
owed under the Third Amendment because the subsequent tenant (Ameriquest) had
exercised its option to vacate.
On January 13, 2010, the Hospital answered and filed a counterclaim against EON
for breach of the Lease and quantum meruit arising out of EON’s increase of rent
payments and its acceptance of overpayments from the Hospital. Another counterclaim
against EON for conversion and punitive damages was dismissed with prejudice on
December 28, 2010.
8
On April 1, 2011, EON filed a motion for summary judgment on its complaint and
on the Hospital’s counterclaim. That same day, the Hospital filed a motion for partial
summary judgment on EON’s complaint, asserting that it was not liable to EON for the
final two years of Ameriquest’s lease payments. The trial court heard oral argument on
the motions and issued its summary judgment order on September 19, 2011.
In its September 19 order, the trial court concluded that:
The terms of the Third Lease Amendment are clear and unambiguous and
reflect an attempt by EON to protect itself from the possibility that
Ameriquest might not be able fulfill its obligations under its lease with
EON in the last two (2) years of that lease. This Court finds that the Third
Lease Agreement did provide EON that protection. This Court further
finds pivotal the fact that EON is not attempting to enforce its right against
[the Hospital] for any period of time other than that which is after the
initial thirty-six (36) month period that Ameriquest was leasing its space.
Appellant’s App. p. 14 (emphasis in original).
Accordingly, the trial court granted EON’s motion for summary judgment and
denied the Hospital’s motion for partial summary judgment. The trial court ordered EON
to file, within fourteen days, an updated itemization of amounts claimed to be due and
owing from the Hospital and evidence of attorney fees and costs that EON had incurred
through the summary judgment proceedings.
On September 30, 2011, EON filed an updated itemization of rent, charges, and
attorney fees, claiming that the Hospital owed EON a total of $182,014.60. On October
4, 2011, the Hospital filed a motion to suspend entry of judgment, objection to updated
itemization, and a motion to set remaining matters for jury trial or, in the alternative, a
9
motion to certify the September 19 order for interlocutory appeal. The Hospital argued
that there were genuine issues of material fact on the amount of damages.
On October 11, 2011, the trial court entered judgment in EON’s favor for
$182,014.60 plus post-judgment interest. The trial court denied the Hospital’s remaining
motions as moot in light of its order entering judgment for the payment of money against
the Hospital, noting that “under Appellate Rule 14A(1), [the Hospital] may take its
interlocutory appeal [from the trial court’s money judgment] as a matter of right without
certification by this Court.” Appellant’s App. p. 630. Additionally, the trial court
determined that the Hospital’s objection to the updated itemization and motion to set the
remaining matters for trial were moot “since the contemporaneous order of this date
provides that any ancillary issues can be addressed in subsequent proceedings” and
“makes provision for such a determination.” Id. at 629. The Hospital now appeals.
DISCUSSION AND DECISION
I. Liablity Under the Lease
A. Standard of Review
Our review of a motion for summary judgment is the same as the trial court;
namely, summary judgment is appropriate only where the evidence shows that there are
no genuine issues of material fact, and the moving party is entitled to judgment as a
matter of law. Wagner v. Yates, 912 N.E.2d 805, 808 (Ind. 2009); see also Ind. Trial
Rule 56(C). Nevertheless, the trial court’s grant of summary judgment “enters appellate
review clothed with a presumption of validity,” and the appellant bears the burden of
10
demonstrating that the trial court erred. Cnty. Council v. Northwest Ind. Reg’l. Dev.
Auth., 944 N.E.2d 519, 523-24 (Ind. Ct. App. 2011), trans. denied. We must construe all
factual inferences in favor of the nonmoving party, and all doubts as to the existence of a
material issue must be resolved against the moving party. Scribner v. Gibbs, 953 N.E.2d
475, 479 (Ind. Ct. App. 2011). The fact that the parties filed cross-motions for summary
judgment does not alter the standard of review on appeal. Deckler v. Zengler, 883
N.E.2d 839, 842 (Ind. Ct. App. 2008).
A court will construe a lease in the same manner as any other contract. Stout v.
Kokomo Manor Apartments, 677 N.E.2d 1060, 1064 (Ind. Ct. App. 1997). Construction
of written contracts is generally a question of law for which summary judgment is
particularly appropriate. Noble Roman’s Inc. v. Ward, 760 N.E.2d 1132, 1137 (Ind. Ct.
App. 2002). When interpreting a contract, we will read it as a whole to ascertain its
intended meaning. Stout, 677 N.E.2d at 1064. When the terms of a contract are clear and
unambiguous, those terms are conclusive, and the court will not construe the contract or
look at extrinsic evidence, but rather, will apply the contract provisions. Id.
Notwithstanding the above, if reasonable people would find the contract
susceptible to more than one construction, an ambiguity exists, and the trier of fact must
ascertain the extrinsic facts necessary to interpret the contract. Farmers Elevator Co. of
Oakville, Inc. v. Hamilton, 926 N.E.2d 68, 80 (Ind. Ct. App. 2010), trans. denied.
Conversely, if the ambiguity exists merely by the language used, construction of the
ambiguous contract is a question of law for the court. Id.
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B. Failure to Apply Clear and Unambiguous Language
The Hospital argues that the trial court erred by failing to apply the clear and
unambiguous language of the Third Amendment. More particularly, the Hospital asserts
that before it could be held liable under the Third Amendment, two conditions had to be
satisfied: Ameriquest had to occupy the Additional Released Premises for thirty-six
months, and it had to properly exercise its option to vacate under Section 5(a) by
satisfying applicable notice provisions. As stated above, Section 7 of the Third
Amendment provided in part:
Should the subsequent tenant for the Additional Released Premises exercise
its option to vacate after the initial 36 months of occupancy, [the Hospital ]
shall pay the rent and additional rent, which would be due and payable
under the terms of the Lease for the Additional Released Premises with the
subsequent tenant, for the balance of the Tenant’s initial five (5) year term
of the Lease.
Appellant’s App. p. 179 (emphasis added).
The Hospital points out that Ameriquest failed to occupy the Additional Released
Premises for thirty-six months. To be sure, after only twenty-nine months, EON and
Ameriquest terminated the Ameriquest Lease through the Lease Termination Agreement,
under which EON repossessed the Additional Leased Premises and collected $75,000
from Ameriquest. The Hospital alleges that the Lease Termination Agreement was a
12
settlement agreement for a breached lease between EON and Ameriquest rather than an
option to vacate as contemplated by the Third Amendment.
As further evidence that Ameriquest did not properly exercise its option to vacate
as contemplated by the Third Amendment, the Hospital points out that Ameriquest failed
to satisfy the notice requirements necessary to invoke its option to terminate under
Section 5(a). As stated above, Ameriquest’s option to terminate provided in relevant
part:
Option to Terminate. [Ameriquest] shall have the right to terminate this
[Ameriquest] Lease at anytime after the end of the thirty-sixth (36th) month
of the term of this [Ameriquest] Lease (“Termination Date”), upon ninety
(90) days written notice to [EON] (“Termination Option”).
Appellant’s App. p. 204 (emphasis added).
Here, in interpreting the Third Amendment, we will look to the Lease as a whole
to ascertain the parties’ intent. See Noble Roman’s, Inc. v. Pizza Boxes, Inc., 835 N.E.2d
1094, 1098 (Ind. Ct. App. 2005) (stating that “[p]articular words and phrases cannot be
read alone, and the parties’ intentions must be determined by reading the contract as a
whole”). Just before the Third Amendment was executed, the Hospital had six years
remaining on the Lease with no option to vacate, which were very favorable terms to
EON. The Third Amendment provided that the Hospital would give up additional space
so that EON could enter into a separate lease with a new tenant, which would benefit the
Hospital by reducing its rent obligation.
13
Notwithstanding this benefit, the Hospital was aware that the terms of the lease
with the new tenant, or the Ameriquest Lease, were less favorable to EON, inasmuch as
Ameriquest wanted an option to terminate after thirty-six months. Consequently, Section
7 of the Third Amendment was added, making it the Hospital’s duty to pay the rent on
the Additional Released Premises if Ameriquest exercised that option. Put another way,
the plain intent of the parties in executing the Third Amendment was to allocate risk
between EON and the Hospital, with EON bearing the risk for the first three years of the
Ameriquest Lease and the Hospital bearing the risk for the last two years of the five-year
Ameriquest Lease.
As for Section 5(a), we note at the outset that the option to terminate contained
therein was part of the Addendum to the Ameriquest Lease between EON and
Ameriquest; the Hospital was not a party to that agreement and, therefore, cannot seek to
enforce it. See OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314-15 (Ind. 1996)
(recognizing that “[g]enerally, only parties to a contract or those in privity with the
parties have rights under the contract”). To be sure, the Ameriquest Lease was not a
sublease of the Lease with the Hospital, but rather, a separate, independent lease.
Because EON allowed Ameriquest to terminate the Ameriquest Lease outside the
provisions of Section 5(a), EON had to absorb its share of the loss for the first thirty-six
months that Ameriquest did not pay rent. That said, EON sought to offset some of its
loss through the Lease Termination Agreement with Ameriquest, and did not seek
14
payment from the Hospital for any loss of rent that it incurred during the first thirty-six
months of the Ameriquest Lease.
As for the notice provisions in Section 5(a), those were also for the benefit of
EON. Consequently, the fact that EON did not insist upon strict adherence to the notice
requirements before allowing Ameriquest to terminate the Ameriquest Lease pursuant to
the Lease Terminate Agreement does not relieve the Hospital of its obligations under the
Third Amendment, and the trial court did not err by granting summary judgment in favor
of EON on the issue of the Hospital’s liability under the Third Amendment.
II. Damages
The Hospital argues that the trial court erred by entering summary judgment for
$182,014.60 plus statutory interest when there are genuine issues of material fact as to the
damages recoverable by EON. More particularly, the Hospital contends that there are
genuine issues of material fact in light of the $75,000 that EON received from
Ameriquest under the Lease Termination Agreement, the $5,000 security deposit that the
Hospital paid but was not credited as required under the Lease, overpayments the
Hospital made but not credited under the Second Amendment, and an improperly-inflated
rent increase beginning in February 2008.
In a breach of contract action, the measure of damages is the loss actually suffered
by the breach. Sheppard v. Stanich, 749 N.E.2d 609, 611 (Ind. Ct. App. 2001). That
said, the nonbreaching party is not entitled to be placed in a better position than he would
have been if the contract had not been broken. Id.
15
As for the $75,000 that EON received from Ameriquest, EON’s complaint against
the Hospital was a direct action to enforce the Lease with the Hospital rather than an
attempt to enforce the Ameriquest Lease. As stated above, the Ameriquest Lease was not
a sublease of the Lease but was an independent lease. Therefore, any resolution of the
breach of the Ameriquest Lease has no bearing on the Hospital’s obligations under a
separate and unrelated lease.
Regarding the $5,000 security deposit that the Hospital paid under the Lease and
applicable Amendments, Section 2.04 of the Lease states that “[t]he deposit shall be
returned to [the Hospital] by [EON] upon the termination of the Lease, after deducting
therefrom any sums owed to [EON] pursuant to provisions of this Lease.” Appellant’s
App. p. 126. However, it appears from the record and from oral argument that the
Hospital was never credited $5,000. Appellant’s App. p. 322-23; 611-23. Eon contends
that because the Hospital stopped paying rent and other obligations under the Lease, that
credit is now gone. Nevertheless, there is a genuine issue of material fact on this issue.
Moving forward to the Hospital’s claim that EON’s updated itemization failed to
credit it for $38,001 in overpayments, the Second Amendment provided that the Hospital
was required to make forty-four payments of $5,443. Appellant’s App. p. 150-51.
However, the Hospital claims that it made, and EON accepted, fifty-one payments of
$5,443.
In support of this contention, the Hospital submitted the affidavit of Kendra
Schuett, the financial analyst for the Hospital, who attested that she had personal
16
knowledge of the payments made by the Hospital to EON under the Lease and applicable
amendments and that she provided this information to Michael Lunn, who had a
brokerage agreement with the Hospital, to assist him with his analysis of the payments
made by the Hospital to EON. Appellant’s App. p. 438-39. Schuett’s affidavit further
represented that Lunn’s analysis “under the Lease and applicable amendments is accurate
and is consistent with the information I provided to Mr. Lunn and the spreadsheet created
by me showing all of the payments made . . . to EON.” Id. at 439. Lunn then used the
information provided by Schuett to prepare a spreadsheet showing that fifty-one
payments of $5,443 were made. Id. at 451, 453. We think this is sufficient to create a
material issue of fact, thereby precluding summary judgment on this issue. See Schrum
v. Moskaluk, 655 N.E.2d 561, 564 (Ind. Ct. App. 1995) (recognizing that where material
facts conflict or conflicting inferences arise, summary judgment should not be entered so
as to avoid “overkill in its use”).
Next, the Hospital maintains that EON increased the rent by the wrong percentage
rate beginning with the February 2008 rent payment. More particularly, as stated above,
on March 12, 2008, EON informed the Hospital of a rent increase of 4.05%, which
represented the Consumer Price Index. However, the Lease states that the annual rent
shall be the lesser of 3% of “the annual rent due and payable for the prior lease year, or . .
. the annual rent due and payable for each prior lease year, multiplied by a percentage
equal to the percentage increase in the Consumer Price Index. . . .” Appellant’s App. p.
254.
17
Here, EON does not dispute that it improperly increased the rent. Therefore, this
issue also precludes summary judgment regarding the damages that EON is entitled to
recover.
CONCLUSION
The trial court did not err in granting summary judgment in favor of EON on the
issue of the Hospital’s liability under the Third Amendment. However, the trial court did
err by granting summary in favor of EON with respect to the amount of damages owed
by the Hospital. Specifically, there are genuine issues of material fact regarding whether
the Hospital should receive credits for the $5,000 security deposit, its claimed
overpayments under the Second Amendment, and the improperly increased rent that EON
does not dispute. However, the Hospital is not entitled to a credit for the $75,000 that
EON received under the Lease Termination Agreement with Ameriquest, inasmuch as it
was a separate agreement involving a separate lease.
The judgment of the trial court is affirmed in part, reversed in part, and remanded
with instructions to continue the underlying litigation on the issue of damages consistent
with this opinion.
RILEY, J., and BAILEY, J., concur.
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