Abelmann v. SmartLease USA, L.L.C.

• Decision Date: 18 December 2014
• Docket Number: No. 20130349.,20130349.
• Court: North Dakota Supreme Court
• Parties: Dan and Leanne ABELMANN, Plaintiffs and Appellants v. SMARTLEASE USA, L.L.C., Defendant and Appellee.

856 N.W.2d 747

Dan and Leanne ABELMANN, Plaintiffs and Appellants

v.SMARTLEASE USA, L.L.C., Defendant and Appellee.

No. 20130349.

Supreme Court of North Dakota.

Dec. 18, 2014.

Scott G. Harris (argued), Minneapolis, MN and Dante E. Tomassoni (appeared), Bismarck, ND, for plaintiffs and appellants.

Kent A. Reierson (argued), Williston, ND and Paul J. Forster (appeared), Bismarck, ND, for defendant and appellee.

Opinion

KAPSNER, Justice.

[¶ 1] Dan and Leanne Abelmann appeal from a judgment dismissing their eviction action against SmartLease USA, L.L.C. The Abelmanns argue the district court erred as a matter of law in construing their written lease with SmartLease and in determining any breaches of the lease by SmartLease were immaterial and of nonessential terms. We reverse and remand, concluding the district court erred in interpreting the purpose of the parties' lease and failed to make adequate findings to understand the basis for its decision.

I

[¶ 2] SmartLease is a limited liability company with three principals, Kent Guthrie, Tony Marshall, and Steve Furst, which described itself in a business proposal as an entity seeking “to capitalize on the demand for quality housing [in the Williston Basin] by providing a high quality, exceptionally clean and professionally managed RV/mobile park” in partnership with a landowner. The Abelmanns own farmland in the Williston Basin in McKenzie County.

[¶ 3] On December 18, 2011, the Abelmanns executed a written agreement to lease approximately 110 acres of their farmland to SmartLease for the stated purpose of “use as a short/long term RV (recreational vehicle), mobile home, cabin units, and truck parking.” Under the lease, SmartLease agreed “to use and occupy the Demised Premises for the purposes of operating a high quality, clean and professionally managed RV/mobile home/cabin park, truck parking and supporting services.” The lease initially authorized SmartLease to lease the Abelmanns' land from November 1, 2011, through October 30, 2016, and granted SmartLease an option to renew for successive 3 year terms for up to 39 years. On November 10, 2012, the parties executed a written addendum to the lease, which extended the lease renewal term for up to 99 years and granted SmartLease a three-year option to buy some or all of the land for $20,000 per acre.

[¶ 4] Under the lease, SmartLease agreed to pay the Abelmanns monthly rent consisting of fixed fees for each housing lot and truck parking space rented in the RV park and to pay a $25 monthly damage deposit for every housing unit rented in the RV park until the amount of $50,000 was paid. The lease described the parties' obligations:

Section 1. [SmartLease's] Obligations. [SmartLease] agrees to take good care of the Demised Premises and make as and when needed all repairs or replacements as necessary in and about the Demised Premises. [SmartLease] shall, at its sole expense, construct and maintain in good condition and repair all necessary structures/improvements, roads, sewer, sewer treatment systems, water, well(s), gas and electrical distribution systems and facilities that are now in or are to be installed by [SmartLease] on the Demised Premises and that are destroyed and/or damaged in any way by [SmartLease]. Should [SmartLease] fail to keep the Demised Premises in a good and orderly repair, the [Abelmanns] may perform such repairs which become necessary in and about the Demised Premises and add the costs of such repair to the rent due hereunder for the monthly period following the date of repairs. Such portion of the cost of the repairs shall constitute a part of the rent provided for herein.

Section 2. [The Abelmanns'] Obligations. The [Abelmanns] agree[ ] to allow use of well to service the first 50 units of the park. Additional units to be serviced by County Road 17 access and well(s) constructed at [SmartLease's] expense. [The Abelmanns] own[ ] a scoria/gravel quarry/pit approximately 3.5 miles east on county road 17, then north 3.4 miles from the Demised Premises. [The Abelmanns] to provide [SmartLease] material from said quarry, and right to barter material, at no charge to [SmartLease], for the development of the Demised Premises. [The Abelmanns] will retain ownership of scoria/gravel on the Demised Premises. [The Abelmanns] to allow [SmartLease] the right to process additional scoria/gravel material from said quarry/pit, to include both parallel ridges from the existing pit south through the top of the hill, for sale to 3rd parties during the term of this lease. [The Abelmanns] agree[ ] to a 50/50 split of net profit with [SmartLease] of sales to 3rd parties. [The Abelmanns] to allow [SmartLease] use of any future rural water rights.

Section 3. This Lease is contingent upon [SmartLease's] ability to obtain financing and permits.

[¶ 5] The lease required SmartLease to obtain public liability insurance naming the Abelmanns as an additional insured for its operations on the land during the entire term of the lease. The lease authorized SmartLease to construct a sewage treatment system on the premises, and SmartLease agreed to pay for all heat, gas, power, electricity, and utilities furnished to the premises during the term of the lease. The lease granted SmartLease peaceable and quiet enjoyment of the premises free from eviction if SmartLease paid the rent and other charges provided under the lease and otherwise fully and punctually performed the terms and conditions of the lease. The lease stated it represented the entire agreement between the parties with no other oral or collateral agreements or understandings between the parties.

[¶ 6] In April 2012, the Abelmanns and the three principals of SmartLease executed an agreement to form Ranger Rock, L.L.C., to mine all gravel, clay, and dirt in the quarry in or near the Abelmanns' existing gravel pit and to stockpile “rubble” brought to that site. The agreement authorized Ranger Rock to provide SmartLease material from the gravel pit at no charge for the development of SmartLease's “existing project.” Under that agreement, the Abelmanns received 56 percent of Ranger Rock's income from the gravel pit and the other three members of Ranger Rock received 44 percent of the income.

[¶ 7] According to the Abelmanns, SmartLease agreed to develop the leased land into a high quality, clean, and professionally managed full service RV and mobile home park for housing and accommodations for the labor force in northwestern North Dakota. They claimed SmartLease started to develop the land, but thereafter neglected its obligations under the written lease. They asserted SmartLease failed to pay them rent or the security deposits required by the lease and failed to provide proper management for the land. According to them, a property manager hired by SmartLease, Aaron Smith, failed to provide proper on-sight management for the property and eventually quit, which resulted in no on-site management for the property. They claimed SmartLease asked Leanne Abelmann to collect rent from tenants while SmartLease sorted out the management problems. They also asserted SmartLease failed to: (1) maintain roads for the property; (2) install and maintain appropriate sewage facilities; (3) install appropriate electrical service for the property; (4) maintain portable toilets; (5) maintain proper signage for the RV park; (6) obtain financing to properly develop the property; (7) obtain proper insurance; and (8) professionally manage and develop the property. They asserted they provided SmartLease with written notice of termination of the lease in February 2013, and claimed SmartLease refused to vacate the premises and attempted to transfer the lease to a third party.

[¶ 8] According to SmartLease, it never anticipated the RV park would become fully operational immediately and it diligently developed the property from farmland into an RV park, including investing more than $500,000 in the project, having the land rezoned from agricultural to residential use, generating income from camper and truck parking by February 2012, and arranging for sewage and water facilities on the land. SmartLease claimed Furst lived with the Abelmanns while he managed the property from the fall of 2011 until he became sick in September 2012, and Aaron Smith then managed the property until he quit working for SmartLease in January 2013. SmartLease asserted it had Leanne Abelmann assume management of the property after Aaron Smith quit in January 2013. SmartLease claimed it was current on its rent payments to the Abelmanns until Leanne Abelmann began collecting rent from the tenants and SmartLease asserted its efforts generated substantial income for the Abelmanns, including more than $43,000 in rent from the RV park and more than $270,000 in gravel sales. SmartLease asserted its efforts resulted in an offer to purchase the land in January 2013 for nearly 5 million dollars. SmartLease also claimed the Abelmanns attempted to terminate the lease only after learning the property, which was subject to SmartLease's option to purchase for $20,000 per acre, had substantially increased in value.

[¶ 9] In May 2013, the Abelmanns served SmartLease with a notice of intention to evict under N.D.C.C. ch. 47–32 and a subsequent complaint, alleging SmartLease failed to pay rent within three days after it was due and breached other material provisions of the lease. The Abelmanns complaint alleged SmartLease had not professionally managed the RV park as required under the lease, had not paid the Abelmanns the required rent or damage deposits, had not procured proper financing or insurance for the land, had not maintained a high quality, clean RV park, and had allowed the overall condition of the park to deteriorate.

[¶ 10] After an evidentiary hearing, the district court denied the Abelmanns' request for eviction, ruling:

After reviewing the evidence and post trial briefs I am not persuaded by the [Abelmanns] that there has been a material breach of

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