Chinon Developments, LLC v. Farnsworth Office Products, LLC

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
April 18, 2006 Session
CHINON DEVELOPMENTS, LLC v. FARNSWORTH OFFICE
PRODUCTS, LLC, ET AL.
Appeal from the Chancery Court for Shelby County
No. 99-0776-2 Arnold B. Goldin, Chancellor
No. W2005-01821-COA-R3-CV - Filed June 30, 2006
This is an action for breach of contract to pay commissions for arranging a lease on commercial
property. The brokerage firm insisted that Pam-Am, the tenant, maliciously induced the Landlord,
not to pay additional commission. The Chancellor disagreed. We affirm the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
WILLIAM H. INMAN , SP . J., delivered the opinion of the court, in which ALAN E. HIGHERS and DAVID
R. FARMER , J.J., joined.
Scott J. Crosby, Memphis, Tennessee, attorney for Appellant, Chinon Developments, LLC.
Robert F. Miller and Nicole Gibson Davison, Memphis Tennessee, attorney for Appellee, Pan Am
International Flight Academy, Inc.
James R. Newsom III, Memphis, Tennessee, attorney for Appellees, Farmsworth Office Properties,
LLC and Farnsworth Investment Company.
OPINION
The Pleadings
This is an action for damages founded upon two (2) contracts: a Commission Agreement,
and a written Lease, with amendments.
In June 1998, Farmsworth Investment Company [hereinafter “FIC”] as Landlord, and
Plaintiff, Chinon Developments LLC [[hereinafter “Chinon”], entered into a Commission Agreement
which, as relevant, provided that if a Lease is consummated between the Landlord and Pan Am
International Flight Academy [hereinafter “Pan Am”], a brokerage commission will be paid by
Landlord to Chinon1 based upon a schedule for commissions for lease transactions. The term
“Landlord” is defined to include any subsidiaries, successors, assigns, and nominees. The
Commission Agreement provided that the commission rate is “four percent of the aggregate rental
for the entire lease term,” and that one-half of the commission for the initial term of the lease payable
at the time of the execution and delivery of the lease, with the remaining one-half of the commission
shall be payable upon the commencement of the lease or occupancy of the premises by the tenant,
which first occurs.
A Lease was entered into on October 12, 1998, between Farnsworth Office Properties LLC
[hereinafter “FOP”] as Landlord, and Pan Am as tenant. This Lease was amended and re-stated on
February 11, 1999. The space to be leased was expanded which, concomittantly, increased the rate.
There was a third amendment to re-lease involving tenant-specific items which required Pan Am to
pay increased rent during year six through year fifteen, subject to a cap. Chinon did not participate
in these negotiations. Property owned by FOP in the T & B Boulevard in Shelby County was the
subject of the Lease as amended and re-stated. The Lease provided, as relevant, that the Landlord
will pay a commission to Chinon pursuant to the Commission Agreement.
In June 1999, before the Lease term commenced or the tenant occupied the premises, FOP
and Pan Am executed an amendment to the Lease by defining its initial term as fifteen years from
the date of the commencement of the Lease.
Chinon alleged that it invoiced FOP for the amounts owed as its commission and that the
“defendants have thus breached the Commission Agreement and the Lease.” Chinon further alleged
that Thomas C. Farnsworth III, an officer of FIC and a member of FOP, informed it by letter dated
July 16, 1999, that Pan Am refused to pay Farnsworth for the aggregate gross rental.
Chinon sued FOP and Pan Am to recover the brokerage commissions, alleging breach of
contract and inducement to breach. Chinon alleged that Pan Am was aware of the brokerage
Agreement and “intended to induce FIC and FOP to breach the Agreement, acted maliciously in
doing so, and should respond in damages, actual and punitive.
FOP and FIC filed a joint answer asserting that FIC is not a separate entity but merely a trade
name of FOP, and denied that Chinon “has any rights under said lease agreement.” Defendant FOP
averred that it has paid Chinon $139,153.00, which represents one-half of the claimed commissions,
and that it stands ready to pay the remaining one-half at the proper time, which was tendered to
Chinon. It averred that Chinon was not entitled to additional commissions as a result of the
amendments to the Lease because Chinon was not involved in the negotiation of the amendments
or the extension of the Lease, citing paragraph 4 of the Commission Agreement which provides:
If a lease is renewed or extended, whether pursuant to any option or
right contained in the lease or otherwise, Landlord shall pay
1
A licensed real estate broker.
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additional commission to Chinon provided that Chinon is actively
involved in the negotiations of such renewals or extentions. The
amount for such renewal or extension shall be two percent (2%) of
the aggregate rental of the entire renewal or extension. [Emphasis
added].
The Defendant Landlord, inter alia, sought to quiet its title to the leased property by seeking
a discharge of the lis pendens, and its attorney fees.
Defendant Pan-Am answered the complaint, generally averring that the Commission
Agreement and the Lease speak for themselves; that it is in the process of occupying the leased
premises; that Chinon mischaracterized the contents of the letter referenced in its complaint, and that
the letter speaks for itself. Pan-Am denied that Chinon provided any brokerage services regarding
the leasing of the FOP property except initially, and denied that Chinon is a beneficiary of the Lease
as it alleged.
The Judgment
After “years of discovery,” a bench trial resulted in a judgment, pursuant to findings that:
(1) Chinon was not actively involved in the negotiations for the
extension of the terms of the Lease for five years and thus was
not entitled to the additional claimed commission for the
eleven through fifteen years;
(2) Chinon is entitled to a commission in the amount of
$28,828.00 for the increase in rent for the years six through
ten resulting from the First Amendment to the Lease, together
with four percent (4%) pre-judgment interest from June 25,
1999 to the date of judgment and attorney fees and expenses
of $44,098.15;
(3) Chinon failed to prove its claim for procurement of breach of
contract against Pan Am, because of the lack of proof that Pan
Am acted with malice;
(4) Attorney fees incurred by Chinon on the procurement of
breach claim were not allowed;
(5) Costs are assessed against FOP.
Chinon appeals and presents for review these issues:
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(1) Whether Pan Am procured the breach of the Commission
Agreement by insisting that FOP not pay certain commissions
to Chinon which had the indirect purpose of injuring Chinon
and benefitting Pan-Am;
(2) Whether Chinon is entitled to a commission for the entire
initial term of the Lease when the initial term was re-defined
from ten years to fifteen years before the Lease commenced.
Pan Am presents these issues for review:
(1) Whether the court erred in holding that the increase in rent
from years six through ten was not a part of the extension in
the Third Lease so that Chinon would not be entitled to a
commission on the increased rental payments;
(2) Whether the court erred in awarding attorney fees of
$44,098.00 to Chinon.
“FOP doing business as FIC” presents these issues for review:
(1) Whether Chinon established that FOP breached the
Commission Agreement because Chinon was only entitled to
receive commissions for services rendered in negotiations in
which it was actively involved;
(2) Whether FOP is entitled to recover its attorney fees under the
Commission Agreement as the prevailing party.
Analysis
The standard of review is de novo on the record accompanied by the presumption that the
judgment is correct unless the evidence otherwise preponderates. Tenn. R. App. P. 13(d). There is
no presumption of correctness with respect to questions of law.
We first consider Chinon’s argument that Pan Am procurred a breach of the Commission
Agreement by insisting that FOP not pay Chinon any additional commission for years six through
ten of the Lease, citing Tennessee Code Annotated section 47-50-109 which declares it unlawful for
any person to induce or procure the breach of any lawful contract by any party thereto.
There are several elements Chinon must prove, by clear and convincing evidence, that Pan
Am procured the breach of the Commission Agreement. These elements include (1) the existence
of a legal contract; (2) that Pan Am had knowledge of the contract; (3) that Pan Am intended to
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induce its breach; (4) that Pan Am acted with malice; (5) that there was a breach of the contract; (6)
that the act(s) of Pan Am were the proximate cause of the breach, and (7) that damages resulted. See,
Buddy Lee Attractions, Inc. v. William Morris Agency, Inc., 13 S.W.3d 343 (Tenn. Ct. App. 1999).
Farnsworth, of FOP, testified on discovery that he believed Chinon was entitled to the additional
commission [of $28,820.00] based upon the increased rent for years six through ten of the Lease.
The Chancellor awarded this amount to Chinon, with interest and fees, for FOP’s breach of the
Commission Agreement. In light of Farnsworth’s testimony, the question naturally occurs as to why
FOP did not pay this additional commission. Chinon argues that Farnsworth testified that he would
have paid the additional amount had not one Bob Grove, a Pan Am employee, urged him not to do
so. This argument is apparently incorrect; it was not Grove who advised Farnsworth not to pay the
additional commission, but rather, two other employees of Pan Am - Ladner and Harvey - who
separately studied the Commission Agreement and concluded that Chinon was not entitled to the
additional commission because it [through Mr. Speake, its official] had not actively participated in
the negotiations.
The Chancellor was content to find only that Chinon failed to prove that Pan Am acted with
malice, and thus cannot recover treble damages for the increase in rent for years six through ten.
Proof of malice by clear and convincing evidence is required, and we agree with the Chancellor that
malice is not shown.
Chinon next presents for review the issue of whether it is entitled to a commission for the
entire term of the lease when the initial term was redefined from ten years to fifteen years before the
lease commenced.2
As noted, the Chancellor found that Chinon was entitled to recover a commission in the
amount of $28,826.00 for the increase in rent for the years six through ten resulting from the first
amendment to the Lease, presumably owing to the provision in the Commission Agreement that
specifically provides for a commission of “four (4%) percent of the aggregate rental for the entire
lease term.” The Lease was amended before it commenced, and the language “aggregate rental for
the entire lease term” appears to be concise and readily understandable.
By the second amendment, Pan Am and FOP increased the rent for years six through ten, and
extended the Lease from ten years to fifteen years. The sole purpose of the extension was to include
$300,000.00 in tenant-specific (benefitting Pan Am) items described in the second amendment.
Chinon concedes that it was not involved in the negotiations resulting in the second amendment; Pan
Am argues that “an entitlement to an extension commission requires Chinon’s active involvement.”
We agree.
2
Chinon argues that “there is no dispute that FOP did not pay 4 percent of the full aggregate rental owed by
Pan Am for the first ten years of the initial term,” and “there is no dispute that the amount of commission unpaid for years
six through ten of the lease is in the amount of $28,820.00.” These assertions appear to be incorrect. W hether a
commission is payable on the rent increase for years six through ten is an issue on appeal. The “years of discovery”
involved a plethora of witnesses, and a great deal of “he said, I said” testimony, all giving rise to much convolution and
advocacy.
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The issues presented by Pan Am have heretofore been discussed except for the allowance of
attorney fees to Chinon. The Chancellor found that the award of $44,098.15 for attorney fees was
reasonable, and we find no abuse of discretion to award these fees. Pan Am recognized this standard
in its brief.
The relevant issue presented by FOP is whether it is entitled to recover its attorney fees “as
the prevailing party.” The Lease so provides.
FOP was not the “prevailing party’ and, contractually, is not entitled to recover its attorney
fees.
We cannot find that the evidence preponderates against the judgment, or that the Chancellor
erred as a matter of law on any issue. The judgment is accordingly affirmed at the cost of the
Appellant and its surety.
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WILLIAM H. INMAN, SPECIAL JUDGE
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