N & L Enterprises, LLC v. Lioce Properties, LLP

• Decision Date: 18 June 2010
• Docket Number: 1081516.
• Citation: 51 So.3d 273
• Court: Alabama Supreme Court
• Parties: N & L ENTERPRISES, LLC v. LIOCE PROPERTIES, LLP.

51 So.3d 273

N & L ENTERPRISES, LLC

v.LIOCE PROPERTIES, LLP.

1081516.

Supreme Court of Alabama.

May 7, 2010.

Rehearing Denied June 18, 2010.

Alex L. Holtsford, Jr., and S. Mark Dukes of Holtsford Gilliland Higgins Hitson & Howard, P.C., Montgomery, for appellant.

Morris J. "Mo" Brooks, Jr., of Leo & Brooks, LLC, Huntsville, for appellee.

WOODALL, Justice.

N & L Enterprises, LLC ("N & L"), entered into a lease with Lioce Properties, LLP, in January 2006 for office and warehouse space in a building owned by Lioce Properties. Lioce Properties later sued N & L, alleging that N & L had defaulted on its obligations under the lease. The trial court entered a summary judgment in favor of Lioce Properties, finding that N & L had breached the lease and awarding Lioce Properties $939,845.14. N & L appealed. We affirm in part, reverse in part, and remand.

Facts and Procedural History

N & L, whose primary business involves copier sales and service, was originally owned by Nicholas Lioce, Jr.; his wife, Louise Lioce; and their sons, Nick Lioce ("Nick") and Harry Lioce ("Harry"). In 2000, the Lioces sold N & L to Berney, Inc., a division of Global Imaging, Inc. Berney, Inc., retained Nick as the president of N & L.

According to N & L, while Nick was managing N & L, he suggested to Harry, who was the chief operating officer of Interconnect Systems Corporation ("Interconnect"), that N & L and Interconnect work together to obtain a copier-service contract with the United States Army at Redstone Arsenal ("the AMCOM contract"). N & L could not pursue the AMCOM contract on its own, because the contract was set aside for small businesses, i.e., a small-business set-aside contract, and N & L was too large to qualify for the contract. On the other hand, Interconnect qualified as a small business forpurposes of the AMCOM contract but, according to N & L, Interconnect did not, at that time, have the ability to provide copier service. In January 2004, N & L and Interconnect entered into a partnering agreement, and Interconnect was successful in obtaining the AMCOM contract. N & L and Interconnect jointly worked on the AMCOM contract until August 2006. Interconnect paid N & L approximately 90% of the revenue it collected under the AMCOM contract.

In January 2006, N & L entered into a commercial lease agreement ("the lease agreement") with Lioce Properties pursuant to which N & L leased from Lioce Properties 20,565 square feet of office and warehouse space in a building located at 2950 Drake Avenue in Huntsville ("the building"). At that time, Interconnect was already a tenant in the building.

The events underlying this dispute began on August 4, 2006, when N & L terminated Nick's employment as its president. On August 25, 2006, Interconnect terminated its partnering agreement with N & L and took over the copier-service work under the AMCOM contract. On August 30, 2006, N & L informed Lioce Properties that

"under the terms of the lease covering the space leased by N & L from [Nick's] family, N & L may terminate the lease if any competitive business is operated out of the building in which N & L is located. It now appears [Nick] and/or his family were in fact operating a competitive business in the building. Accordingly, we are evaluating all our options, including, without limitation, the termination of the lease."

On May 2, 2007, Lioce Properties informed N & L that it considered N & L's failure to pay some of the rent owed for January 2007 a default under the terms of the lease, and it demanded payment of $2,746.77 plus a late charge and an attorney fee. On May 31, 2007, N & L informed Lioce Properties that it was terminating the lease pursuant to § 3.8 ¹ of the lease and that N & L would vacate the property immediately. Lioce Properties admits that N & L vacated the premises on or about May 31, 2007, but says that it could not access the building for a short while thereafter because N & L retained some building-security-system codes and keys.

On June 29, 2007, N & L again told Lioce Properties that it was terminating the lease pursuant to § 3.8 because, it said, Interconnect, a tenant in the building, was engaging in activities that directly competed with N & L's business. On July 5, 2007, Lioce Properties informed N & L that, based on N & L's alleged default for failure to pay rent, Lioce Properties had elected to accelerate "rents and other sums due."

Meanwhile, on July 1, 2007, Lioce Properties rented space in the building to The Lioce Group, Inc., formed by Nicholas Lioce, Jr., and Louise Lioce in April 2007 to provide copier sales and service. According to Lioce Properties,

"[t]he Lioce Group rented 1,400 square feet of warehouse space and 308 square feet of office space of the 20,565 squarefeet formerly rented by N & L (a total of 1,708 square feet, or 8.3% of N & L's former Building space). In December 2007, The Lioce Group rented another $180.00/month in additional Building space."

Lioce Properties' brief, at 10-11. According to Lioce Properties, the remainder of the space formerly occupied by N & L remains unleased despite what it describes as "considerable, ongoing efforts by Lioce [Properties]" to lease the space. Id. at 11.

On June 18, 2007, Lioce Properties sued N & L, alleging "that N & L was in default of the Lease [agreement] and seeking damages in the nature of past due rent, accelerated future rent, additional rent for operating expenses, late fees, interest, and legal fees pursuant to the Lease terms." N & L's brief, at 3. N & L filed a counterclaim seeking a judgment, declaring that N & L was legally entitled to terminate the lease under § 3.8.

Lioce Properties filed a motion for a partial summary judgment on the issue of N & L's alleged breach of the lease agreement and later moved for a summary judgment on the issue of damages. N & L moved for a summary judgment on its counterclaim.

On December 16, 2008, the trial court granted Lioce Properties' motion for a summary judgment regarding N & L's claim alleging breach of the lease agreement and denied N & L's motion for a summary judgment on its counterclaim. The trial court found:

"Interconnect cannot be deemed a competitor. While Interconnect terminated a business relationship with [N & L] and assumed [N & L's] duties with regard to a government contract, [N & L] was legally precluded from competing for that contract since it did not qualify for small business set-aside work. Further, [N & L] was generally in the business of selling and servicing copiers, scanners, printers and fax machines. No evidence suggests that Interconnect was engaged in this line of business, with its work limited to the government contract in question along with sales and service of certain telecommunication equipment."

Subsequently, the trial court entered a summary judgment in favor of Lioce Properties on the issue of damages, resulting in a final judgment against N & L in the amount of $939,845.14. N & L appeals from that judgment.

Issues

N & L identifies three issues this Court must address: (1) "[w]hether the trial court erred by finding that ... there was no competition between Interconnect and N & L that would justify N & L terminating the lease"; (2) "[w]hether the trial court erred by not finding a legal abandonment of the lease by N & L, and a termination of the lease by Lioce [Properties]"; and (3) "[w]hether the trial court erred by finding that the terms of the lease superceded Alabama law on the remedies available to a lessor in the event of an abandonment." N & L's brief, at 6.

Standard of Review

"This Court's review of a summary judgment is de novo. We apply the same standard of review as the trial court applied. Specifically, we must determine whether the movant has made a prima facie showing that no genuine issue of material fact exists and that the movant is entitled to a judgment as a matter of law. In making such a determination, we must review the evidence in the light most favorable to the nonmovant. Once the movant makes a prima facie showing that there is no genuine issue of material fact, the burden then shifts to the nonmovant to produce' substantial evidence' as to the existence of a genuine issue of material fact. '[S]ubstantial evidence is evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' "

Dow v. Alabama Democratic Party, 897 So.2d 1035, 1038-39 (Ala.2004) (quoting West v. Founders Life Assur. Co. of Florida, 547 So.2d 870, 871 (Ala.1989)) (citations omitted).

Analysis

I.

N & L first argues that the trial court erred in finding as a matter of law that Interconnect was not competing with N & L's business and that, therefore, N & L did not have the legal right to terminate the lease agreement pursuant to § 3.8. Section 3.8 provides:

"Landlord shall not lease to or otherwise permit any other office equipment dealer or similar business to occupy any space in the Building. Any violation of this Section 3.8 shall constitute a breach of this Lease [agreement] and, in addition to any other remedy to which Tenant may be entitled, Tenant may immediately terminate this Lease [agreement]. This clause does not apply to current tenants of the Building so long as any current tenants of the Building do not directly compete with Tenant's business."

N & L argues that Interconnect was clearly in competition with it for purposes of § 3.8 because, after the termination of the partnering agreement between N & L and Interconnect, Interconnect took over N & L's business as the copier-service provider under the AMCOM contract. According to N & L, "[w]hen Interconnect became the new provider of copier service to AMCOM it unquestionably went into competition with N & L." N & L's brief, at 19.

The only authority N & L cites in support of its arguments are definitions of the word "competition" it has taken from Lioce Properties' motion for a partial summary judgment:

" '[Competition

...