Beverly Enterprises, Inc. v. Fredonia Haven, Inc.

• Decision Date: 25 August 1987
• Docket Number: No. 86-7472,86-7472
• Citation: 825 F.2d 374
• Parties: BEVERLY ENTERPRISES, INC., Plaintiff-Appellee, v. FREDONIA HAVEN, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 374

825 F.2d 374

BEVERLY ENTERPRISES, INC., Plaintiff-Appellee, v. FREDONIA HAVEN, INC., Defendant-Appellant.

No. 86-7472.

United States Court of Appeals, Eleventh Circuit.

Aug. 25, 1987.

James W. Gewin, Bradley, Arant, Rose & White, Birmingham, Ala., John J. Park, Jr., Howard W. Neiswender, Tanner & Guin, P.C., Tuscaloosa, Ala., for defendant-appellant.

Andrew P. Campbell, Leitman, Siegal & Payne, P.C., Birmingham, Ala., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before TJOFLAT and ANDERSON, Circuit Judges, and HENDERSON, Senior Circuit Judge.

HENDERSON, Senior Circuit Judge:

Fredonia Haven, Inc. (Fredonia) appeals from a decision of the United States District Court for the Northern District of Alabama binding Fredonia to the terms of a parol lease agreement with Beverly Enterprises, Inc. (Beverly). Finding that the district court gave proper effect to the oral lease agreement based on the part performance exception to the Alabama statute of frauds, we affirm.

The resolution of this appeal depends upon a proper understanding of the rather complicated history of the formation of the lessor/lessee relationship between the two parties. For this reason, we set out these facts in some detail.

The appellant, Fredonia, is a closely held Alabama corporation owned in equal parts by three shareholders, Dale Hendrix, president of the corporation, Thomas Edd Snoddy, attorney for Fredonia and Jane Laird, his sister. The corporation was formed in 1973 for the purpose of building and operating a nursing home in Double Springs, Alabama. As construction of the health care facility neared completion, however, Fredonia ran short of capital and was forced to lease the establishment to James Estes who provided the funds necessary to complete the nursing home. Fredonia and Estes executed a "Commercial Lease" dated September 24, 1974 reciting the rights and obligations of both parties. The document provided for an original five-year lease term with two successive five-year renewal options open to the lessee upon sixty days notice to the lessor, Fredonia. This resulted in Estes having the right to a leasehold estate for fifteen years from September 24, 1974 to September 23, 1989. As consideration for the lease, Estes agreed to pay Fredonia the sum of $90.00 per month multiplied by the total number of beds in the nursing home. The lease also obligated Fredonia to pay all taxes, insurance premiums and the cost of major maintenance and repairs.

In 1978, James Estes formed his own corporation, Estes Health Care Centers ("EHCC"), and the 1974 lease was assigned to EHCC with the consent of Fredonia. From 1974 to 1981, Estes and EHCC operated the nursing home without default. While that lease contained a provision for periodic rent increases as an allowable medicare-medicaid cost with state approval, there was no escalation as of 1981 over the $90.00 per bed rental since Estes was never able to obtain state approval for any increases.

In or about October 1981, Beverly, a nationwide operator of nursing homes, entered into an agreement for the purchase of the stock and subsequent merger of EHCC with Beverly. This agreement included Beverly's assumption of EHCC's rights under all outstanding leases, including the Fredonia lease. Concerned that the merger might, under Alabama law, constitute an assignment of the leases without lessor approval, Beverly insisted that James Estes obtain a written agreement to the assumption of the leases from the owner-lessors of the health care facilities occupied by EHCC.

Estes presented the proposed agreement to the owner-lessors in letter form explaining the upcoming stock purchase merger and Beverly's desire to assume the EHCC leases. The letter requested the lessors' written execution and acceptance of the letter agreement at the bottom of the document under language stating "Agreed to on this the ______ day of _____, 1981." It is undisputed that Dale Hendrix, as president of Fredonia, executed this letter agreement consenting to the merger on November 17, 1981.

Fredonia also prepared another document dated November 17, 1981 which purported to set out conditions for the corporation's consent to the merger. The handwritten memorandum recited that in the event of the assignment to Beverly, as agreed by all the parties, Beverly would pay Fredonia an additional rental fee of $5.00 per bed per month beginning January 1, 1982, with an additional $2.00 per bed escalation every second year thereafter. Furthermore, Beverly was to assume all costs of repairs and maintenance, all insurance costs, and all taxes due during the term of the 1974 lease and the terms of any amendments entered into between Fredonia and Beverly "including a two-year extension."

Apparently as a result of these demands, ¹ Charles Wright, Senior Vice President of Beverly, agreed to meet with the Fredonia shareholders. In late November, the parties met in the Birmingham, Alabama offices of James Estes, who continued to take an active role in placating Fredonia. There is a substantial conflict in the evidence concerning the precise agreement reached at this conference. All the participants concede that Beverly shouldered the responsibility for taxes, insurance and maintenance on the Double Springs nursing home, and committed to the increased rental payments contained in the handwritten memorandum. Fredonia and Beverly part company, however, with respect to the term of the new lease agreement. At trial, Charles Wright and James Estes contended that during the Birmingham meeting Fredonia agreed to a new five-year lease term beginning January 1, 1982 with two optional renewal terms of five years each. Hendrix and Snoddy maintained that they agreed to a two-year extension giving Beverly approximately a ten-year leasehold under the 1974 lease agreement.

After the Birmingham conclave, Beverly's attorneys prepared a letter, dated December 4, 1981, purporting to contain the terms of the new lease agreement with Fredonia. The letter set out the new rental fees and shift of tax, insurance and maintenance costs to Beverly, but was silent as to the duration of the lease under the new agreement. Beverly maintains that the five-year lease period with two optional five-year renewals agreed upon at the Birmingham meeting was omitted through oversight. The letter was signed as "agreed to and accepted" by Edward Snoddy on behalf of Fredonia. Following the merger with EHCC, Beverly took possession of the nursing home and increased the rent from $90.00 per bed per month to $95.00 per bed beginning in January 1982. Beverly began paying all taxes, insurance and maintenance costs on the nursing home. Beverly also made substantial and costly repairs and improvements to the health care facility, including the addition of a new roof, the repavement of the parking lot and the construction of a laundry building on the premises.

In March of 1982, William H. Kennedy, III, counsel for Beverly, sent a written lease agreement, drafted in accordance with the agreement made in Birmingham, to William Wright and Edward Snoddy. Kennedy had delayed the submission of the lease until Beverly received final regulatory approval for their operation of the Double Springs nursing home. The lease agreement essentially redrafted the 1974 lease with new provisions for the increased rental payments, assumption of other financial obligations by Beverly and a five-year lease term with two successive options to renew for five more years. On March 12, 1982, William Wright executed the lease on behalf of Beverly and mailed it to Snoddy.

On March 15, 1982, after receipt of the new lease, Snoddy called Kennedy's office to point out two small errors on the twelfth page of the lease documents. He made no objection to the duration of the new lease. Kennedy made the requested corrections and forwarded a revised page 12 to Snoddy for substitution in Fredonia's copy of the agreement. Kennedy called Snoddy during the first week of April to make sure that Fredonia had received the corrected page. Kennedy testified that Snoddy stated that he had no other problems with the lease and that he would execute the document and return it to Beverly. Although the parties continued to operate under the terms of the new lease, Fredonia never signed the agreement. In 1984, Fredonia informed Beverly of this fact but made no attempt to terminate the leasehold.

In early May 1986, Fredonia signed a Letter of Intent to sell the Double Springs facility to National Health Care, Inc. This sale was conditioned upon the termination of Beverly's leasehold interest in the property. Accordingly, on May 13, 1986, Fredonia gave Beverly notice that it was terminating the tenancy effective June 13, 1986. Fredonia maintained that the new lease agreement was void under the statute of frauds because it had never been signed by Fredonia as lessor. Since Beverly had failed to exercise the last option to renew under the 1974 lease, Fredonia contended that Beverly occupied the Double Springs facility as a tenant at will.

On May 23, 1986, Beverly filed this action seeking a declaratory judgment that it had a valid pending lease with the option to renew for two successive five-year terms. Beverly also sought preliminary and permanent injunctive relief prohibiting Fredonia from attempting to terminate the lease. The district court entered a preliminary injunction and held a bench trial on June 12 and 13, 1986.

After considering the extensive oral testimony and documentary evidence presented at the trial, the district court found that an oral lease agreement was effected between the parties as a result of the meeting in Birmingham, Alabama. Resolving credibility choices in favor of Beverly, the trial court determined that this agreement included a five-year lease term with two five-year options to renew.

In support of this factual finding the court noted...