Plaza Dev. Co. v. W. Cooper Ents., L.L.C.

[Cite as Plaza Dev. Co. v. W. Cooper Ents., L.L.C., 2014-Ohio-2418.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Plaza Development Company, :
Plaintiff-Appellant, :
Cross-Appellee,
v. : No. 13AP-234
(C.P.C. No. 11CVH03-3226)
W. Cooper Enterprises, LLC :
c/o statutory agent William A. Cooper, Jr. (REGULAR CALENDAR)
et al., :
Defendants-Appellees, :
Cross-Appellants,
:
SCCIP, Inc. c/o statutory agent
Christopher T. Scott, :
Defendant-Appellee. :
D E C I S I O N
Rendered on June 5, 2014
Law Office of Jeffrey H. Jordan, and Jeffery H. Jordan; The
Behal Law Group LLC, and Jack D'Aurora, for Plaza
Development Company.
Dinsmore & Shohl LLP, Karen S. Hockstad, and Gregory P.
Mathews; Timothy D. Kelly, P.A., and Timothy D. Kelly, for
W. Cooper Enterprises, LLC, and Baja Sol Ohio, LLC.
APPEAL from the Franklin County Court of Common Pleas.
BROWN, J.
{¶ 1} This is an appeal by plaintiff-appellant, Plaza Development Company
("Plaza"), from an entry of the Franklin County Court of Common Pleas granting
No. 13AP-234 2
summary judgment in favor of defendants-appellees, W. Cooper Enterprises, LLC
("WCE"), and Baja Sol Ohio, LLC ("Baja Sol"), and denying Plaza's motion for summary
judgment. WCE and Baja Sol (collectively "appellees") have filed a cross-appeal.
{¶ 2} In 1994, Plaza, as landlord, and DF&R Restaurants, as tenant, entered into a
20-year "Ground Lease Agreement" (hereafter "ground lease") for commercial property
located at 1200 Noe Bixby Road, Columbus. The commencement date of the ground lease
was October 1, 1994, and the ground lease provided for tenant to "use the Premises for the
operation of a full-service Mexican restaurant, serving alcoholic beverages."
{¶ 3} On May 12, 1995, DF&R Restaurants assigned the lease to DF&R Operating
Company ("DF&R"). On December 13, 2007, following a bankruptcy proceeding, DF&R
assigned its interest in the ground lease to WCE. WCE simultaneously subleased the
property to SCCIP, Inc. ("SCCIP"), which reopened the restaurant as "Don Pablo's." On
February 26, 2009, WCE assigned its interest in the lease to Baja Sol, an affiliate of WCE,
and Baja Sol began operating a Mexican restaurant on the premises.
{¶ 4} By letter dated November 24, 2009, Baja Sol notified Plaza that it "has
ceased the restaurant operations at the * * * premises as of today. * * * It is Tenant's
desire that the premises be re-let as soon as possible." The correspondence by Baja Sol
further stated: "For now, Tenant intends to continue to pay rent and utilities, maintain its
current insurance coverage * * * and maintain the security and alarm system."
{¶ 5} On May 15, 2010, El Triunfo, LLC ("El Triunfo") entered the premises and
began to use, and make improvements to, the property. On May 27, 2010, Baja Sol and El
Triunfo entered into a "sublease agreement." The agreement had a commencement date
of June 1, 2010, and a termination date of September 30, 2014. Jose Fuentes ("Fuentes")
personally guaranteed the agreement on behalf of El Triunfo.
{¶ 6} On November 5, 2010, an attorney for Plaza contacted counsel for appellees,
indicating that a default balance was due under the lease. On November 24, 2010, Plaza
commenced eviction proceedings in the Franklin County Municipal Court against
appellees and El Triunfo for non-payment of rent and other costs due. In December
2010, appellees relinquished possession of the property, and Plaza dismissed the eviction
proceedings.
No. 13AP-234 3
{¶ 7} On January 27, 2011, Plaza entered into a lease agreement ("the 2011 lease
agreement") with El Triunfo, with rent obligation commencing on January 1, 2011. The
term of the lease was five years, with an option to renew.
{¶ 8} On March 11, 2011, Plaza filed a complaint, naming as defendants WCE,
SCCIP, and Baja Sol, and asserting causes of action for breach of contract or lease,
promissory estoppel, and quasi-contract. On December 16, 2011, Plaza filed an amended
complaint, alleging causes of action for breach of contract, quasi-contract, fraudulent
transfer, and alter ego/piercing the corporate veil. Appellees subsequently filed a third-
party complaint against El Triunfo and Fuentes.
{¶ 9} On December 29, 2011, appellees filed a joint answer to the amended
complaint, as well as a counterclaim. In the counterclaim, appellees alleged causes of
action for tortious interference with contractual relationship and civil conspiracy. On
April 6, 2012, the parties entered into a stipulation and order, whereby appellees agreed
to pay "Partial Plaza Claims" in the amount of $47,343 for rents due under the ground
lease prior to December 31, 2010.
{¶ 10} On May 9, 2012, appellees filed a motion for summary judgment, arguing in
part that Plaza, by entering into the 2011 lease agreement with El Triunfo, terminated the
ground lease with appellees by operation of law. On June 11, 2012, Plaza filed a motion
for partial summary judgment and a memorandum in opposition to appellees' motion for
summary judgment. In its memorandum in support, Plaza argued that appellees had
breached the terms of the ground lease and that Plaza had made reasonable efforts to
lease the property to another tenant and use the rents received from the new tenant to
mitigate its damages. Plaza sought to recover the rent owed by the tenants for the
remainder of the term of the ground lease, with an offset for the amount of rent received
by Plaza from the replacement tenant (El Triunfo). On June 21, 2012, appellees filed a
motion for default judgment against El Triunfo and Fuentes, asserting that neither third-
party defendant had filed a responsive pleading. El Triunfo and Fuentes subsequently
filed an answer and a counterclaim against Baja Sol. On June 29, 2012, appellees filed a
memorandum in opposition to Plaza's motion for partial summary judgment.
{¶ 11} On August 22, 2012, the trial court filed a judgment entry conditionally
granting appellees' motion for default judgment, granting appellees' motion for summary
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judgment, and denying Plaza's motion for partial summary judgment. In its decision, the
trial determined that the May 27, 2010 agreement between Baja Sol and El Triunfo was a
sublease and not an assignment; further, once Plaza entered into the 2011 lease
agreement with El Triunfo, "it eliminated Plaza's right to further rent after January 1, 2011
from WCE and Baja."
{¶ 12} On September 5, 2012, Plaza filed a motion for reconsideration, which the
trial court denied by entry filed September 11, 2012. Plaza and appellees subsequently
filed cross-motions for attorneys' fees. On December 19, 2012, the parties filed an agreed
entry in which appellees dismissed all claims against El Triunfo and Fuentes with
prejudice, and El Triunfo and Fuentes dismissed their counterclaim with prejudice. The
trial court filed an entry February 11, 2013, denying the parties' cross-motions for
attorneys' fees.
{¶ 13} On appeal, Plaza sets forth the following three assignments of error for this
court's review:
I. The Trial Court Erred, To Plaintiff-Appellant Plaza
Development Company's Prejudice, By Overruling Its Motion
For Partial Summary Judgment.
II. The Trial Court Erred, To Plaintiff-Appellant Plaza
Development Company's Prejudice, By Sustaining
Defendants-Appellees' Summary Judgment.
III. The Trial Court Erred, To Plaintiff-Appellant Plaza
Development Company's Prejudice, By Overruling Its Motion
For Award Of Attorney Fees.
{¶ 14} On cross-appeal, appellees assert the following assignment of error:
The trial court erred in finding that the agreement between
Baja Sol Ohio, LLC and El Triunfo, LLC was a sublease instead
of an assignment.
{¶ 15} On appeal, Plaza challenges rulings by the trial court denying its motion for
partial summary judgment and granting appellees' motion for summary judgment.
Pursuant to Civ.R. 56(C), a trial court shall grant summary judgment if the filings in the
action, including pleadings and affidavits, "show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law." This
No. 13AP-234 5
court's review of a trial court's decision on summary judgment is de novo. Bonacorsi v.
Wheeling & Lake Erie Ry. Co., 95 Ohio St.3d 314, 2002-Ohio-2220, ¶ 24.
{¶ 16} As noted under the facts, several different tenants have operated a
restaurant on the commercial property at issue since the original parties executed the
ground lease in 1994. In 2009, with approximately five years remaining on the original
term of the ground lease, Baja Sol advised Plaza of its intention to cease its restaurant
operations and expressed a desire for Plaza to relet the premises. Baja Sol continued to
pay rent and other charges for a period of time. On May 27, 2010, Baja Sol entered into
an agreement with El Triunfo (with Plaza's consent) for El Triunfo to operate a restaurant
on the premises. However, in November 2010, El Triunfo fell behind on its rent
obligations under its agreement with Baja Sol. Plaza subsequently entered into a five-year
lease agreement with El Triunfo, effective January 1, 2011.
{¶ 17} In granting summary judgment in favor of appellees and denying Plaza's
motion for partial summary judgment, the trial court addressed two primary issues:
(1) whether the May 2010 agreement between Baja Sol and El Triunfo constituted a
sublease or an assignment, and (2) whether appellees' liability to Plaza for rent and other
obligations under the ground lease terminated as of the effective date (January 1, 2011) of
the 2011 lease agreement between Plaza and El Triunfo.
{¶ 18} In its decision, the trial court first addressed the issue of the May 2010
agreement between Baja Sol and El Triunfo, which is the subject of appellees' cross-
assignment of error. Appellees argued before the trial court that Baja Sol assigned its
entire rights for the last four years of the ground lease to El Triunfo. For purposes of the
instant appeal, we initially address the cross-assignment of error, in which appellees
argue that the trial court erred in finding that the 2010 agreement between Baja Sol and
El Triunfo was a sublease and not an assignment. Appellees argue that, notwithstanding
the fact the parties' titled the May 27, 2010 document as "Sublease Agreement," the trial
court erred in its analysis. According to appellees, the terms of that agreement show that
the scope of El Triunfo's leasehold interest was just as broad as Baja Sol's interest, making
the agreement an assignment.
{¶ 19} In general, the "distinction between an assignment of a lease and a sublease
is that the former conveys the whole term, leaving no interest or reversionary interest in
No. 13AP-234 6
the assignor, while the latter grants the subtenant an interest in the lease premises less
than the lessee's or reserves to the lessee a reversionary interest in the term." House of
LaRose Cleveland, Inc. v. Lakeshore Power Boats, Inc., 8th Dist. No. 60904 (June 18,
1992). Under Ohio law, privity of contract does not exist between a lessor and sublessee.
Solomon Realty Co. v. Tim Donut U.S., Ltd., Inc., No. 2:08-CV-561 (S.D.Ohio Dec. 21,
2009). Thus, "a subtenant owes no responsibility to the original lessor because there is
neither privity of contract nor privity of estate between the two." House of LaRose. See
also Zevchik v. Kassai, 8th Dist. No. 71823 (Dec. 24, 1997) (noting that, "in a sublease,
there is no privity of contract between the sublessee and the landlord—the lessee and the
landlord continue their contractual relationship under the lease and lessee remains liable
to the landlord for anything done by sublessee").
{¶ 20} In finding that the 2010 sublease agreement was not an assignment, the
trial court held in part:
While Baja has arguments that this was an assignment, the
structure of the Sublease Agreement, repeated references in it
to the 1994 "Prime Lease," and references to Baja as merely
the "Sublessor" are among the points that tip the decision the
other way. The Prime Lease still governed in May 2010 on
most matters of substance, such as appropriate care for the
premises. * * * Baja – not Plaza – retained "all rights and
privileges as 'landlord' under the Prime Lease * * * and may
enforce the same against Sublessee" under ¶ 2.2(b).
Conversely, "Sublessee has all rights and privileges as 'tenant'
under the Prime Lease with respect to the Premises and may
enforce the same [only] against Sublessor." * * * As a matter
of law this was a sublease.
{¶ 21} Upon review, we agree with the trial court that the contractual agreement
entered into between Baja Sol and El Triunfo did not constitute an assignment but, rather,
a sublease. The May 27, 2010 agreement, titled "Sublease Agreement" (hereafter "the
2010 agreement"), identifies Baja Sol as "Sublessor" and El Triunfo as "Sublessee," and
references the February 26, 2009 assignment between WCE and Baja Sol. As noted by
the trial court, pursuant to Section 2.2(b) of the 2010 agreement, the "Sublessor has all
rights and privileges as 'landlord,' " while under Section 2.2(c) the "Sublessee has all
rights and privileges as 'tenant.' " Pursuant to Section 2.2(e), the "Sublessee obtains * * *
no more rights and privileges hereunder than Sublessor has as 'tenant' under the Prime
No. 13AP-234 7
Lease with respect to the Premises." Further, in accordance with Section 4.2, the
sublessee made rent payments to the sublessor (and not the lessee-landlord, i.e., Plaza).
On the last page of the 2010 agreement, the signature of a Plaza representative appears
beneath the following language: "THE UNDERSIGNED Landlord hereby consents to the
terms of this Sublease." We note at least one Ohio court has found similar language and
circumstances "precludes any claim that the transaction was an assignment of the original
lease." Stein Dev. Co. v. Franks, 12th Dist. No. 7 (Sept. 1, 1982) (document that
(1) identified parties as sublessors and sublessees, (2) required payment of rent by
sublessee to sublessor (and not the original lessor), and (3) did not contain any clause
whereby original lessor released the sublessor from his obligation to pay rent, but instead
provided for lessor's "consent to the SUBLEASE of the premises," constituted a sublease
agreement and not an assignment).
{¶ 22} Significantly, Baja Sol also reserved the right, in the event of a default by the
sublessee, to "terminate this Agreement and Sublessee's right of possession of the
Premises." Section 12.2(a). See Restatement of the Law 2d, Property, Landlord & Tenant,
Section 15.1, Comment i ("The tenant has made a sublease, even though the transfer is
initially for the balance of the term, if the right to possession of the leased property may
return to him upon the occurrence of some event"); Powder v. Neiss, 18 Ohio Dec. 766(C.P.1908) (lease agreement providing that property be "redelivered to [party who let the
premises] if the rents were not paid" constituted a sublease and not an assignment).
Here, the trial court did not err in characterizing the parties' agreement as a sublease and
not an assignment.
{¶ 23} Accordingly, appellees' cross-assignment of error is not well-taken and is
overruled.
{¶ 24} In considering Plaza's assignments of error, we initially address the second
assignment of error, in which Plaza asserts the trial court erred in granting summary
judgment in favor of appellees. More specifically, Plaza maintains that the trial court
erred by failing to employ the parties' contracted damages formula as set forth under the
ground lease.
{¶ 25} Under Ohio law, "leases are contracts and, as such, are subject to traditional
rules governing contract interpretation." Heritage Court L.L.C. v. Merritt, 187 Ohio
No. 13AP-234 8
App.3d 117, 2010-Ohio-1711, ¶ 14 (3d Dist.). A court's fundamental purpose in interpreting
a contract is to "determine and carry out the intention of the parties, and the intention of
the parties is presumed to lie in the language used in the lease agreement." Id., citing
Mark-It Place Foods, Inc. v. New Plan Excel Realty Trust, 156 Ohio App.3d 65, 2004-
Ohio-411, ¶ 29 (4th Dist.). Further, "[i]n interpreting the language of a lease agreement,
common words are presumed to hold their ordinary meaning unless '(1) manifest
absurdity results, or (2) some other meaning is clearly evidenced from the instrument.' "
Id. at ¶ 14.
{¶ 26} The Supreme Court of Ohio has held "[a] lessor has a duty to mitigate
damages caused by a lessee's breach of a commercial lease." Frenchtown Square
Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 2003-Ohio-3648, syllabus. This "duty
to mitigate arises in all commercial leases of real property." Id. at ¶ 18. A lessor's efforts
to mitigate "must be reasonable, and the reasonableness should be determined by the trial
court." Id. at ¶ 21. With respect to the issue of damages, where a "breaching tenant
caused harm such that the lessor's profitability is affected, then that harm is compensable
to the extent it is proved." Id. at ¶ 19. Further, "the damage award should put the injured
party in as good a position had the contract not been breached at the least cost to the
defaulting party." F. Ent., Inc. v. Kentucky Fried Chicken Corp., 47 Ohio St.2d 154, 159
(1976).
{¶ 27} Plaza argues that the parties in this case agreed, in the event of a breach, to
calculate damages according to their own formula as provided under the terms of the
ground lease. Specifically, Section 25(a) of the ground lease defines "Events of Default" to
include "[a]ny failure by Tenant to pay the rental." Further, Section 25(b) of the ground
lease agreement states in part:
Remedies. In the event of any such default by Tenant,
Landlord shall have all of the remedies available to it at law or
in equity and Landlord shall also have the right, with or
without terminating this Lease, to reenter the Premises and to
remove all persons and property from the Premises. If
Landlord shall so relet, without it being under any obligation
to do so, then any rentals received by Landlord from such
reletting shall be applied, first, to the payment of any
reasonable cost of such reletting; second, to the payment of
the cost of any reasonably necessary alterations and repairs to
the Premises (excluding costs of redecorating for a new
No. 13AP-234 9
tenant); and third, to the payment of rent and any other
amount due and unpaid from Tenant hereunder.
Notwithstanding any reletting without termination by
Landlord because of any default by Tenant, Landlord may at
any time after such reletting elect to terminate this Lease for
any such default.
{¶ 28} Plaza argued before the trial court that, pursuant to the above provision of
the ground lease, WCE's obligation to pay rent continued through the expiration of that
lease, subject to an offset (i.e., payments received by Plaza from reletting to be credited
against WCE's continuing obligation). By contrast, in their motion for summary
judgment, appellees argued that Plaza's decision to enter into a new lease with El Triunfo
terminated the ground lease by operation of law, thereby extinguishing any liability for
further rent as of the effective date of the new lease. Appellees argue on appeal that Plaza,
in reentering and reletting the premises to the existing tenant (El Triunfo), did not relet
for appellees' account but, instead, for its own account.
{¶ 29} In its decision granting summary judgment in favor of appellees, the trial
court determined that the 2011 lease agreement between Plaza and El Triunfo arose
because Plaza "had a legal obligation to minimize or mitigate damages caused by their
tenant's breach of the Prime Lease." The court further found, however, that "once the new
Lease with El Triunfo was made it eliminated Plaza's right to further rent after January 1,
2011 from WCE and Baja." The trial court thus agreed with appellees' contention that
Plaza's reletting of the premises via a new lease agreement " 'terminated the Old Lease by
operation of law.' "
{¶ 30} In so holding, the trial court relied in part upon Frenchtown Square and
Dennis v. Morgan, 89 Ohio St.3d 417 (Aug. 9, 2000). In Frenchtown Square, the
Supreme Court noted that "certain real property leases are susceptible of contract-law
principles." Id. at ¶ 16. Those cases recognize, in general, that landlords have a duty to
mitigate their damages caused by a breach and that " '[l]essees are potentially liable for
rents coming due under the agreement as long as the property remains unrented.' " Id. at
¶ 15, quoting Dennis at 417.
{¶ 31} We note that neither Dennis nor Frenchtown Square involve a lease
provision, such as in the instant case, allowing reentry and reletting by a landlord
following an event of default. The decision in Frenchtown Square recognizes, however,
No. 13AP-234 10
that the common-law duty with respect to mitigation of damages, "like many others, may
be changed by negotiation between the parties." B&G Props. Ltd. Partnership v.
OfficeMax, Inc., 8th Dist. No. 99741, 2013-Ohio-5255, ¶ 23, citing Frenchtown Square at
¶ 20 ("barring contrary contract provisions, a duty to mitigate damages applies to all
leases"). See also Dennis at 417 (addressing "whether, absent specific provisions in the
lease, a landlord's election to terminate a lease agreement releases a tenant from liability
for rent not yet due at the time of eviction"). (Emphasis added.) Thus, Ohio courts will
give effect to a lease provision whereby a tenant agrees to remain liable for rent owed for
the duration of the lease regardless of reletting. B&G Props. at ¶ 26.
{¶ 32} In the instant case, in light of specific language in the ground lease
permitting Plaza to reenter the premises and relet in the event of default, we disagree with
the trial court's conclusion that appellees' liability terminated at the time Plaza relet the
premises in January 2011. Specifically, under Section 25 of the ground lease, Plaza
reserved the right, "with or without terminating" the lease, to reenter the premises and
relet, applying "any rentals received" from such reletting "to the payment or rent and any
other amount due and unpaid from Tenant hereunder." Notwithstanding common-law
doctrine as to whether a landlord's act of reletting may constitute a surrender by
operation of law, Plaza acted in accordance with the terms of the ground lease in reletting
the premises and seeking to avail itself of the damages remedies under Section 25. Where
a landlord "relets pursuant to a power reserved in the lease, the reletting cannot constitute
a surrender by operation of law." 2-17 Powell on Real Property, Section 17.05[1]. See also
Yates v. Reid, 36 Cal.2d 383, 385 (1950) (where provision in lease allowed reentry by
landlord and reletting upon tenant's abandonment, the reletting of the premises by the
landlord "did not result in a surrender of the lease by operation of law. The provision in
the lease was valid and controlling"); Song Lee v. Ferguson, 795 P.2d 1220, 1222
(Wyo.1990) ("There being a provision in the lease for payment of any deficiency by the
lessee/appellant upon reletting, appellees did not surrender."). The issue as to whether
Plaza relet for its own account, as asserted by appellees, is not dispositive in light of the
remedies provision in the ground lease which permitted such reletting by the landlord.
See Yates at 385 ("It is immaterial that the plaintiff reentered and relet for his own
account [where] [t]he terms of the lease gave him the right to do so if he desired.").
No. 13AP-234 11
{¶ 33} Because Plaza's conduct in reentering and reletting the premises was not
inconsistent with the terms of the ground lease, we conclude that the trial court erred in
its determination that the remedies afforded under Section 25 were not available to Plaza
under Ohio law. Accordingly, the trial court erred in granting summary judgment in favor
of appellees. We, therefore, sustain Plaza's second assignment of error and remand this
matter to the trial court to apply, in the first instance, the remedies provision set forth in
the ground lease.
{¶ 34} Under its remaining assignments of error, Plaza contends the trial court
erred in denying its motion for partial summary judgment and in denying its motion for
attorneys' fees, i.e., Plaza argues that the trial court erred in failing to find, pursuant to
Section 41(d) of the ground lease, it was the "successful party" for purposes of being
reimbursed for reasonable attorneys' fees and disbursements. In light of our disposition
of the second assignment of error, remanding this matter for the trial court to address the
remedies provision of the ground lease, the issues raised by Plaza under the first and third
assignments of error are moot.
{¶ 35} Based upon the foregoing, Plaza's second assignment of error is sustained,
Plaza's first and third assignments of error are rendered moot, and appellees' cross-
assignment of error is overruled. The judgment of the Franklin County Court of Common
Pleas is affirmed in part and reversed in part, and this matter is remanded to that court
for further proceedings in accordance with law, consistent with this decision.
Judgment affirmed in part and reversed in part;
cause remanded with instructions.
SADLER, P.J., and T. BRYANT, J., concur.
T. BRYANT, J., retired of the Third Appellate District,
assigned to active duty under authority of the Ohio
Constitution, Article IV, Section 6(C).
_______________________