1998 -NMCA- 5, Cafeteria Operators, L.P. v. Coronado-Santa Fe Associates, L.P.

• Decision Date: 10 October 1997
• Docket Number: CORONADO-SANTA,No. 16726,16726
• Citation: 1998 NMCA 5,952 P.2d 435,124 N.M. 440
• Parties: , 1998 -NMCA- 5 CAFETERIA OPERATORS, L.P., Plaintiff-Appellee/Cross-Appellant, v.FE ASSOCIATES, L.P. and A.P. Century II, Defendants-Appellants/Cross-Appellees.
• Court: Court of Appeals of New Mexico

Page 435

952 P.2d 435

124 N.M. 440, 1998 -NMCA- 5

CAFETERIA OPERATORS, L.P., Plaintiff-Appellee/Cross-Appellant, v. CORONADO-SANTA FE ASSOCIATES, L.P. and A.P. Century II Defendants-Appellants/Cross-Appellees.

No. 16726.

Court of Appeals of New Mexico.

Oct. 10, 1997.

Certiorari Denied Dec. 30, 1997.

[124 N.M. 442] Kurt A. Sommer, Cheryl Pick Sommer, MacDonnell Gordon, Sommer, Fox, Udall, Othmer, Hardwick & Wise, P.A., Santa Fe, J. Samuel Tenenbaum, Sachnoff & Weaver, Ltd., Chicago, IL, for Plaintiff-Appellee/Cross-Appellant.

Bill Chappell, Jr., Frances C. Bassett, Chappell & Barlow, P.A., Albuquerque, for Defendants-Appellants/Cross-Appellees.

OPINION

ALARID, Judge.

¶1 Coronado--Santa Fe Associates (Landlord) appeals and Cafeteria Operators (Tenant) cross-appeals from a district court judgment interpreting provisions of a commercial shopping center lease and awarding money damages and injunctive relief. On appeal, Landlord contends that (1) Tenant should be prohibited from enforcing a "configuration agreement" that was violated when Landlord constructed a building in the shopping center parking lot; (2) imposition of a mandatory injunction to destroy the building was an inappropriate remedy given Tenant's limited commercial leasehold interest; (3) the trial court improperly determined that Landlord overcharged for common area maintenance fees; (4) punitive damages were improperly awarded; and (5) Landlord should have received its proportionate share of attorney's fees and costs for prevailing on the other disputed lease provisions. Landlord abandoned the attorney's fees issue at oral argument. In its cross-appeal, Tenant contends that the lease unambiguously prohibited Landlord from leasing space to another restaurant. Tenant also maintains that it was entitled to costs because it substantially prevailed on its complaint. We affirm on all issues raised in the appeal and the cross-appeal.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Tenant owns and operates Furr's Cafeteria in the Coronado Shopping Center in Santa Fe. In 1983 Tenant's predecessor-in-interest, Furr's Cafeterias, Inc., entered into a lease agreement with Landlord's predecessor-in-interest, Senlic Corporation. The lease contains three provisions central to this appeal; (1) a "configuration agreement" limiting the physical layout of the shopping center to dimensions set forth in an attached schematic; (2) an "exclusivity" or non-compete clause limiting food vendor competition to facilities existing at the time the lease was executed; and (3) an agreement defining "common area maintenance" (CAM) fees. Landlord purchased the shopping center in 1990 and became subject to the terms and conditions of the lease agreement.

¶3 In June 1990 Landlord indicated to Tenant its desire to construct a building in the corner of the shopping center parking lot, and Tenant agreed to consider a modification of the lease. The parties commenced negotiations, but did not reach an agreement on how the lease should be modified. In 1991 Tenant learned that Landlord intended to construct the building and lease it to Dairy Queen. Tenant filed the present action in September 1991, seeking to enjoin Landlord from constructing a building in violation of the configuration agreement or leasing out space to a food vendor in violation of the exclusivity clause, and requesting money damages for breach of the CAM agreement.

¶4 While the complaint was pending, Tenant learned that Landlord intended to lease a renovated portion of the shopping center to the Santa Fe Baking Company. The area in question was formerly leased to a restaurant called the "Estrada Room" and to a snack bar, both of which had been operated in conjunction with a bowling alley. In November 1992 Tenant filed an application for a temporary restraining order and for preliminary injunction. A temporary restraining order was issued and a hearing was set on the preliminary injunction.

¶5 Tenant took the position that the language of the non-compete clause restricted any food vendor facilities to those operated in conjunction with the bowling alley, which had ceased operations shortly after Landlord took control. Landlord claimed that it was much broader, allowing this space to be leased to food vendors irrespective of the existence or non-existence of the bowling alley. The trial court concluded that the clause was ambiguous in that it did not contemplate what would happen if the bowling alley ceased to exist. The trial court construed the ambiguity against the restriction and stated that Tenant could have drafted more precise language if it desired such a restriction. The trial court instructed Landlord's counsel to draft an order denying the application for a preliminary injunction, but there is no indication from the record that this was ever done. In January 1993 the parties requested that the underlying action be continued while they engaged in settlement negotiations, and the matter was continued until further notice. During this period, Tenant amended its original complaint to add the issue addressed in the application for preliminary injunction.

¶6 In September 1993 Tenant applied for a temporary restraining order and preliminary injunction after discovering that Landlord was about to begin construction of the building that was the subject of their original complaint. A temporary restraining order was issued and a hearing on the preliminary injunction commenced on October 1, 1993. Tenant indicated its willingness to agree to the construction of the building if certain conditions were met. Like the earlier preliminary injunction hearing involving the Santa Fe Baking Company, the trial court seized on the possibility of settlement and encouraged the parties to continue negotiations. The trial court issued an order in January 1994 quashing the temporary restraining order and denying the preliminary injunction on the condition that, on or before construction would begin. Landlord would place a new sign advertising Tenant's business. The trial court indicated that its order would not prejudice the parties' rights with respect to the permanent injunction hearing. On appeal, Landlord relies on Tenant's representations during this hearing to argue that it implicitly agreed to modify the lease.

¶7 Landlord indicates that it gave the go-ahead for construction based on its belief that it had satisfied most of the conditions identified by Tenant during the preliminary injunction hearing. It claims that it was under the impression that the only matter left unresolved was the issue of attorney's fees and costs claimed by Tenant. Construction began after the January 1994 order denying the preliminary injunction request and was completed in November 1994. The parties dispute whether or not Tenant indicated during construction that it still opposed the building. It appears that the parties continued to negotiate during this period and, unable to reach a settlement, proceeded to trial. Tenant filed a second amended supplemental complaint in March 1995.

¶8 After a five-day bench trial in May 1995, the trial court entered extensive findings and conclusions. The trial court concluded that the lease unambiguously prohibited the construction of the building. It found that "[Landlord] constructed the new building in the face of objections and following the initiation and continuation of litigation by [Tenant] to enjoin [Landlord] from doing so and knowing that [Landlord] had not established a legal right to construct the new building and had no such right." Finding that damages flowing from the breach were difficult to calculate, the trial court ordered the removal of the building. The trial court further found that the common area maintenance charges were excessive and that this breach of the lease as well as the breach of the configuration agreement constituted outrageous, intentional, and malicious conduct. Based on this conduct, the trial court awarded punitive damages in the amount of $100,000. The trial court also determined that the lease permitted a food services business to occupy the space formerly occupied by the Estrada Room and snack vendors operating in conjunction with the bowling alley. Finally, the trial court ruled that each party should bear its own costs.

LANDLORD'S APPEAL

A. Good Faith/Estoppel

¶9 Landlord does not contend that the building constructed in the parking lot was permitted under the express terms of the lease. Instead, it argues that Tenant's conduct gave rise to two alternative grounds for prohibiting Tenant from enforcing its rights under the lease. First, Landlord contends that Tenant did not act in good faith in conducting negotiations to modify the lease to permit construction in the parking lot. Second, Landlord contends that it detrimentally relied on Tenant's representations and conduct, which led to an implied waiver (what Landlord terms "estoppel by waiver") of any right tenant had to object to the construction.

¶10 Landlord's arguments are based on Tenant's willingness to negotiate a settlement during the period leading up to construction, and Tenant's purported silence once construction began. Tenant argues that Landlord blurs the distinction between discussions to modify the lease and enforceable promises; Tenant also maintains that its legal challenge to the building preserved its rights and that it continued to communicate to Landlord its objection to the building after construction began.

¶11 The centerpiece of Landlord's argument is that Tenant's counsel "stipulated" to four settlement conditions at the October 1, 1993 preliminary injunction hearing. At the hearing, the trial court was attempting to get the parties to negotiate and recessed while Tenant's attorney sought authorization from his client. After the recess, Tenant's counsel indicated that his client would settle if: (1) the new building was not leased to another restaurant; (2) Tenant's name appeared on a...