94TH Aero Squadron v. County Airport Auth.

• Decision Date: 02 November 2004
• Citation: 169 S.W.3d 627
• Parties: 94TH AERO SQUADRON OF MEMPHIS, INC. v. MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY v. Specialty Restaurant Corporation.
• Court: Tennessee Supreme Court

Page 627

169 S.W.3d 627

94TH AERO SQUADRON OF MEMPHIS, INC. v. MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY v. Specialty Restaurant Corporation.

Court of Appeals of Tennessee, at Jackson.

July 20, 2004 Session.

November 2, 2004.

Application for Permission to Appeal Denied by Supreme Court May 23, 2005.

COPYRIGHT MATERIAL OMITTED

Larry E. Parrish, Memphis, Tennessee, for the appellants, 94th Aero Squadron of Memphis, Inc. and Specialty Restaurant Corporation.

R. Grattan Brown, Jr., William L. Hendricks, Jr., and Jeremy G. Alpert, Memphis, Tennessee, for the appellee, Memphis-Shelby County Airport Authority.

OPINION

DAVID R. FARMER, J., delivered the opinion of the court, in which W. FRANK CRAWFORD, P.J., W.S., and HOLLY M. KIRBY, J., joined.

This appeal involves the termination of a commercial real estate lease agreement. Among a multitude of other claims, Plaintiff, Lessee, contends that Defendant, Lessor, breached the lease by failing to provide lessee with notice of default, sufficient to satisfy the terms of the lease. Additionally, Lessee argues that Lessor violated section 29-18-101, et seq. of the Tennessee Code Annotated (Forcible Entry and Detainer) by re-entering the leased premises without first obtaining a writ of possession. Lessee appeals from the trial court's final judgment in favor of Lessor. We affirm as modified.

On January 4, 1978, Memphis-Shelby County Airport Authority ("Lessor") and 94th Aero Squadron of Memphis, Inc. ("Lessee") entered into a long-term lease agreement for premises located at the Memphis International Airport. Under the lease, Lessee agreed to construct, at its own cost, a restaurant complex, including parking, landscaping, and an access road. The lease also provided that, upon the termination of the lease, "any buildings and improvements remaining on the demised premises. . . shall ipso facto . . . vest in and become the property of Lessor, free and clear of all liens and encumbrances, subject only to Lessee's rights of removal of trade equipment. . . ." The lease had a base term of twenty years, with two options for renewal periods of ten years each. Minimum rent was set at $2,000 per month.

From 1980 to March, 1988, Lessee built, operated, and maintained on the leased premises a restaurant facility known as the "91st Bomb Group Restaurant." Specialty Restaurants Corporation ("Specialty"), Lessee's parent company and third-party defendant, joined in the execution of the lease for the purpose of guaranteeing the obligations of Lessee from the inception of the lease and continuing for a two-year period following the date the restaurant opened for business. Specialty is a corporation organized under the laws of California.

The 91st Bomb Group Restaurant is best characterized as an "airport theme restaurant," consisting of a free standing restaurant located on an airport adjacent to a runway. David Tallichet (Mr. Tallichet) is the founder and president of Specialty and, since 1959, has either operated or leased up to eighty-four restaurants throughout the United States. Arthur Longoria (Mr. Longoria), a licensed, practicing attorney, was employed by Specialty from 1988 to 1995. Mr. Longoria served as "manager of transactions," and, in that role, was directly in charge of handling the lease at issue in this case. Jerry McMichael (Mr. McMichael) began working for Lessor in 1988 and was responsible for all matters pertinent to this appeal. He testified at trial on behalf of Lessor.

Pursuant to the lease agreement, Lessee covenanted to, inter alia, maintain the premises in good order and repair and keep the restaurant open for business. These specific covenants were found in Articles 10 and 11 of the lease. Article 24 of the lease contained a termination clause and right of reentry clause. Under Article 24.(4) of the lease, Lessor had the "right to terminate this agreement in its entirety immediately upon the happening of . . . [t]he abandonment or discontinuance of the operation and services by the Lessee." In addition, this power of termination clause gave Lessor the right to terminate the lease upon the "failure by the Lessee to perform, keep and observe any other of the terms, covenants and conditions in [the lease] . . . after the expiration of thirty (30) days from the date written notice ha[d] been given to the Lessee by the Lessor to correct such default or breach." Lessor's right of reentry under the lease provided as follows:

In the event of the cancellation or termination of this Lease by the Lessor the Lessor may immediately or at any time thereafter re-enter the demised premises or any part thereof in the name of the whole and repossess and have the same as of Lessor's former estate and remove therefrom all goods and chattels not properly belonging, and expel said Lessee and all other persons who may be in possession of said demised premises, and that, too, without demand or notice.

Under the lease, all notices were to be in writing and sent by registered mail to the addresses specified in the lease or to such address as was designated thereafter by either party. Pursuant to the lease, notice was effective on the date of dispatch.

The restaurant opened for business in 1980, but, due to a salmonella incident that occurred in 1981, the restaurant never achieved continued success. According to Mr. Tallichet, the salmonella incident "destroyed" the restaurant. In March 1988, due to a lack of profitability, Lessee closed the restaurant. Lessee neither requested nor received authorization from Lessor before discontinuing restaurant operations. Between March 1988 and June 27, 1991, the date the lease was officially terminated, the restaurant remained closed and vacant. Despite continued assurances from Lessee that it was progressing towards finding an assignee or sublessee, the restaurant remained closed. During these three years, Lessee made no attempt to reopen and operate the restaurant. From the time Lessee discontinued restaurant operations until June, 1991, Lessee continued to make rental payments, albeit sometimes delinquent, and Lessor accepted those rental payments. Meanwhile, Lessor cooperated with Lessee's efforts in transferring the lease, and on occasion Lessor itself sought potential subtenants for the premises.

By April, 1991, the restaurant and surrounding area were in a state of disrepair. A section of ceiling had collapsed as a result of flooding from a burst pipe. Overgrown grass, weeds, shrubs and debris covered the grounds. The military aircraft relics located about the premises had been neglected and were missing parts. Security fencing around the facility was not in compliance with FAA and Airport Safety Regulations. The structure had been vandalized, and there was evidence that homeless persons were using the building for shelter. In sum, the premises appeared dilapidated and abandoned.

By early April, 1991, in addition to the unkempt condition of the premises and closure of the business, Lessee's rent was in arrears. Further, Lessee had failed to maintain a current certificate of insurance coverage as required by the lease. On April 8, 1991, Lessor mailed a letter to Lessee, via certified mail, giving notice of these defaults and demanding Lessee correct the defaults within the time provided under the lease. In this letter, Lessor stated, in all capital letters, "PLEASE CONSIDER THIS YOUR NOTICE TO CORRECT THE DEFAULTS ENUMERATED ABOVE."

Between April 23 and June 27, 1991, Lessor and Lessee corresponded by telephone and letter. Lessee made repeated representations indicating it would cure all the breaches and maintaining confidence in finding a successor to the lease. On May 17, 1991, thirty-nine days after the April 8 default notice, Lessee mailed a current certificate of insurance to Lessor. In its accompanying letter, Lessee represented that it had "commenced to make arrangements in order to clean up the debris and make repairs to the security fencing." Additionally, in the May 17 letter, Lessee stated that it hoped to have an executed sublease agreement ready for Lessor's approval during the week of May 20th. Lessee, however, never executed the sublease and never completed any transaction for the transfer of the lease. On May 24, 1991, Lessor faxed to Lessee six pages of landscaping contractors copied from the Memphis area yellow pages. Despite this assistance, the run-down condition of the premises was never remedied.

On June 27, 1991, eighty days after the notice of default, Lessor mailed to Lessee a notice of termination of the lease, effective immediately. On or about that date, Lessor placed a padlock on the gate to the facility. Despite notice of termination, Lessee mailed and Lessor inadvertently deposited a rent check for the month of July. When Lessor became aware of this mistake, Lessor returned a check in the same amount to Lessee. Lessee continued to make rental payments for the months of August and September, each of which was returned by Lessor without depositing.

Procedural History

To describe the thirteen years of litigation preceding this appeal as "protracted" would be an understatement. The record on appeal is congested with a myriad of pre-trial motions, discovery motions, trial memoranda, post-trial motions, and the like. Lessee commenced this case on January 24, 1992. In its complaint for declaratory judgment, filed in the Shelby County Chancery Court, Lessee alleged that Lessor breached the termination provisions of the lease, and Lessee sought specific performance of the lease. On April 28, 1992, Lessor answered and counter-claimed, averring that Lessee in fact breached the lease through multiple defaults. Lessor also included a third-party complaint against Specialty, asking the court to hold Specialty responsible as successor to the duties and responsibilities of Lessee under the lease. On August 26, 1992, the trial court granted Lessor's Motion to Require an Election of Remedies, estopping Lessee...