Car-X Service Systems, Inc. v. Kidd-Heller

• Decision Date: 05 March 1991
• Docket Number: No. 89-3219,KIDD-HELLE,CAR-X,D,89-3219
• Citation: 927 F.2d 511
• Parties: SERVICE SYSTEMS, INC. and Mufflers of Kansas City, Inc., Plaintiffs-Appellees, v. Olivette G.efendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 511

927 F.2d 511

CAR-X SERVICE SYSTEMS, INC. and Mufflers of Kansas City Inc., Plaintiffs-Appellees, v. Olivette G. KIDD-HELLER, Defendant-Appellant.

No. 89-3219.

United States Court of Appeals Tenth Circuit.

March 5, 1991.

J. Nick Badgerow (Nancy M. Landis of Spencer Fane Britt & Browne, and Frank M. Lewis, with him on the brief), Overland Park, Kan., for plaintiffs-appellees.

Ronald L. Gold, Shawnee Mission, Kan., for defendant-appellant.

Before HOLLOWAY, Chief Judge, and McKAY and McWILLIAMS, Circuit Judges.

McWILLIAMS, Circuit Judge.

The principal issue in this appeal is whether the district court erred in granting equitable relief to a lessee who failed to timely exercise its right to renew a five-year lease of commercial property for an additional five years. Our jurisdiction is based on 28 U.S.C. Sec. 1291. The district court's jurisdiction was based on diversity of citizenship. 28 U.S.C. Sec. 1332. Venue was based on 28 U.S.C. Sec. 1391(a). Some background facts are necessary to an understanding of the matter.

On September 27, 1967, Jacob G. Heller and Olivette G. Kidd-Heller, husband and wife and residents of Kansas, entered into a lease with a Mr. and Mrs. Tanquary by which the Hellers were entitled to use and possess a parcel of real estate located at 7540 Metcalf Avenue, Overland Park, Kansas. The lease was for a ten-year period with three five-year options which, if exercised, would extend the lease to September 30, 1992. On March 31, 1977, Car-X Service Systems, Inc., a Delaware corporation, entered into a lease agreement with Kidd-Heller for the subject property, which by that time contained a structure erected by Kidd-Heller suitable for use as an automotive repair business, for a five-year term with two five-year options. The initial five-year term was from May 1, 1977 through April 30, 1982. The initial rent was $1,550.00 per month which increased to $1,800.00 per month on October 1, 1977, through the end of the initial five-year term. Rent for the first additional five-year term was increased to $1,900.00 per month, and to $2,000.00 per month for the final five-year term. On April 7, 1977, Car-X entered into a sublease of the subject property with its franchisee, Mufflers of Kansas City, Inc., a Missouri corporation, whose business consists primarily in the installation of exhaust units, brakes, and shock absorbers. The sublease agreement between Mufflers and Car-X made Mufflers subject to the terms and conditions of the lease agreement between Car-X and Kidd-Heller.

The Hellers' lease with the Tanquarys provided, inter alia, that the tenant had the right to make such alterations, changes, and improvements to the interior of the building located on the subject premises as it deemed necessary or desirable, and that no alterations, changes, or improvements costing more than $10,000.00 would be made without the written approval of the landlord. This provision was incorporated by reference into the lease agreement between Kidd-Heller and Car-X. In addition, the lease agreement between Kidd-Heller and Car-X provided that the lessee could make such improvements to the premises as it deemed desirable but not to exceed $20,000.00 aggregate cost, and that additional improvements beyond $20,000.00 required the written approval of Kidd-Heller.

In May, 1977, Mufflers, Car-X's sublessee, built an attached storage building next to Kidd-Heller's automotive structure at a cost of $7,140.00. At the same time, Mufflers removed certain improvements belonging to Kidd-Heller, namely guttering, outside lights, and a chain link fence worth $4,700.00. Mufflers did not get Kidd-Heller's permission to make this addition or the removals. In May, 1979, Kidd-Heller learned of the changes and asked the president of Mufflers to remove the new building and restore the fence, lights, and guttering since she had never given her permission for the changes. The president of Mufflers advised Kidd-Heller that he could not restore the fence, lights, or guttering because they had been disposed of. A dispute ensued wherein Kidd-Heller threatened to file suit against Mufflers because the alterations and removals were made without her permission, as, she contended, was required by the two leases in question, i.e., the Hellers' lease with the Tanquarys and Car-X's lease with Kidd-Heller.

Mufflers and Kidd-Heller resolved this dispute in May, 1979, when Kidd-Heller agreed not to bring suit and Mufflers agreed to pay Kidd-Heller an additional $100.00 for one month, and an additional $75.00 per month for the balance of the lease. The president of Mufflers stated that he agreed to pay these additional sums to avoid a lawsuit and that it was cheaper than hiring an attorney to resist a court challenge. Kidd-Heller's position was that the extra payments were to compensate her for her loss of the improvements, i.e., guttering, lights, and a chain link fence.

The lease agreement between Kidd-Heller and Car-X required the lessee to exercise its option to renew at least six months prior to the termination of the then current term, and that such notice be in writing and delivered personally to Kidd-Heller or sent to her by certified mail at the place where rent payments were due. As indicated, the initial five-year term was to expire on April 30, 1982. Car-X did not exercise its option to renew the lease for the first additional term until February 26, 1982. It recognized that the exercise of its option was untimely, and explained that it had "inadvertently failed" to extend the lease in timely fashion. Kidd-Heller initially refused to recognize the belated exercise by Car-X of its right to renew. Later, on April 23, 1982, Kidd-Heller and Car-X signed a new lease agreement which stated that although Car-X had failed to timely exercise its option, the lease would nevertheless be extended for a second five-year period, with the rent being raised to $2,000.00 for the first additional five-year term and $2,100.00 for the second additional five-year term.

The lease agreement required Car-X to keep in force public liability insurance and property damage insurance on the subject property. Also, Car-X was required to furnish Kidd-Heller with a certificate of insurance evidencing such insurance coverage. Apparently, during certain periods of 1985 and 1986, Car-X obtained the required insurance but did not furnish Kidd-Heller with a certificate evidencing such insurance. In any event, in April, 1986, Kidd-Heller purchased insurance for property damage for the subject property for a premium of $486.00.

In May, 1986, Kidd-Heller retained an attorney to represent her in the dispute with Car-X over insurance. On May 10, 1986, that attorney sent Car-X a registered letter advising Car-X that the lease was being terminated for failure to comply with the insurance provisions of the lease agreement. On June 3, 1986, Car-X's attorney responded to that letter, in the course of which he stated that Car-X wished "to continue [leasing the property] through the end of [the] last option term in 1992 and beyond." It is apparently agreed that Kidd-Heller was apprised by her attorney of the contents of this letter. Later, on December 8, 1986, Kidd-Heller purchased a liability insurance policy for the subject property for a premium of $1,896.00.

On February 19, 1987, Kidd-Heller gave Car-X notice by registered mail that she was terminating the lease as of April 30, 1987. On March 16, 1987, Car-X's attorney wrote Kidd-Heller's attorney again concerning the insurance dispute. In that same letter counsel for Car-X also stated that it was Car-X's position that the lease it had with Kidd-Heller was "intended to run concurrent with the underlying Ground Lease" the Hellers had with the Tanquarys, to the end that the current leasehold term would expire on September 30, 1987, not April 30, 1987. On March 19, 1987, Kidd-Heller was given notice, by registered mail, of Car-X's intent to exercise its option to renew the lease for the second additional five-year term.

In this general setting, Car-X and Mufflers filed the present proceeding in United States District Court for the District of Kansas on April 30, 1987. In Count I, Car-X sought a temporary restraining order prohibiting Kidd-Heller from terminating its lease with Car-X. In Count II, Car-X sought a declaratory judgment that Car-X had exercised its option to renew the lease in timely fashion. As indicated, in this regard Car-X alleged that it was the intent of the parties that the initial five-year lease expire on September 30, 1982, not April 30, 1982, and that the ensuing five-year renewal period terminate on September 30, 1987, not April 30, 1987. In Count III, Car-X, on a theory of unjust enrichment, sought damages in excess of $20,000.00, an amount which it alleged had been received by Kidd-Heller from Car-X. In Count IV, Car-X alleged that it had prepaid Kidd-Heller five months' rent for which it sought reimbursement.

On May 4, 1987, after a hearing, the district court entered a temporary restraining order prohibiting Kidd-Heller from terminating the lease between the parties. In the present proceeding, Kidd-Heller appeals that order.

On May 6, 1987, Car-X and Mufflers filed an amended complaint. The principal change was in Count III where they reduced their claim for unjust enrichment to an amount in excess of $18,000.00.

By an amended counterclaim Kidd-Heller sought damages in the total amount of $2,382.00 for premiums paid by her for insurance on the subject property. In addition, Kidd-Heller also alleged that Mufflers in 1977 had made certain changes and alterations to the premises and had destroyed, damaged, or removed certain personal property belonging to her without first obtaining her approval. In this connection, Kidd-Heller sought a declaratory judgment that she and Mufflers entered into a verbal agreement in 1979 whereby in return for her forebearance of filing an action...