Carriere v. Bank of Louisiana

• Decision Date: 13 December 1996
• Parties: 95-3058 La
• Court: Louisiana Supreme Court

Page 648

702 So.2d 648

95-3058 La. 12/13/96

Shirley Hartmann, Wife of/and Richard P. CARRIERE, v. BANK OF LOUISIANA.

No. 95-C-3058.

Supreme Court of Louisiana.

Dec. 13, 1996.

Concurring Opinion of Chief Justice

Calogero Dec. 16, 1996.

Concurring Opinion of Justice Lemmon

Feb. 18, 1997.

Opinion on Rehearing Oct. 31, 1997.

Rehearing Denied Dec. 12, 1997.

Dissenting Opinion of Justice

Johnson Dec. 12, 1997.

Henry L. Klein, Mack E. Barham, Robert Elton Arceneaux, Barham & Arceneaux, New Orleans, for Applicant.

Mack E. Barham, Robert Elton Arceneaux, Julia Symon deKluiver, Barham & Arceneaux, New Orleans, Henry L. Klein, New Orleans for Applicant on Rehearing.

Clarence F. Favret, III, Marshall J. Favret, Favret, Demarest, Russo & Lutkewitte, New Orleans, for Respondent.

Mark Philip Folse, Baton Rouge, for Louisiana Bankers Association (Amicus Curiae).

ON WRIT OF CERTIORARI

[95-3058 La. 1] JOHNSON, Justice. ^*

We granted certiorari to determine whether the court of appeal properly reviewed the trial court's judgment rendered in favor of the plaintiffs. Pursuant to a lease agreement, the plaintiffs were awarded $398,032.05 for past rents, taxes and attorney's fees as compensation for the use of their immovable property upon which defendant's separately owned restaurant was constructed. On appeal, the damage award for past rents was affirmed, but that portion of the judgment for attorney's fees was vacated and the case was remanded so that a determination could be made regarding the reasonableness of the amount. For the reasons that follow, we affirm the appellate court's decision.

FACTS

Plaintiffs owned a commercial plot of land located in Metairie, Louisiana bearing Municipal No. 2712 N. Arnoult Road. In order to develop this plot, the plaintiffs entered into a ground lease with Frank Occhipinti, Inc. (hereinafter referred to as Occhipinti) on April 23, 1982. The lease contemplated the development of a restaurant on plaintiffs' land. Occhipinti built the restaurant with financing through Gulf Federal Savings and Loan Association (hereinafter referred to as Gulf Federal). The lease was then amended to accommodate financing on January 10, 1983, and again on March 1, 1983.

The loan was refinanced through Bank of the South in 1987 resulting in a further [95-3058 La. 2] amendment. At that time, a collateral mortgage in the amount of $1,200.000.00 was executed on behalf of Bank of the South. As security, Occhipinti used the leasehold interest along with the restaurant and improvements located on plaintiffs' property. The lease was again amended to protect Bank of the South's interest by substituting it in place of Gulf Federal. Plaintiffs' original lease with Occhipinti was for a five year period commencing on October 23, 1982 but contained an option to extend the lease for two additional five year periods, or until 1997. However, after the substitution involving Bank of the South, the lease contained an additional option to extend it until 2002. As successor in interest, Bank of Louisiana (hereinafter referred to as BOL) acquired the assets of Bank of the South and became the holder of the note secured by the collateral mortgage on the leasehold interest.

Occhipinti filed for relief from his creditors in Bankruptcy Court in 1988. These proceedings were eventually converted from a Chapter 11 to a Chapter 7 proceeding on March 28, 1989. The bankruptcy trustee found the leasehold improvements contained no equity over and above the mortgage or liens affecting this property, and alternatively that if there was any equity, it was insufficient to justify administration. He then rejected the ground lease with improvements and dismissed it from the proceedings. ¹

Occhipinti failed to pay the 1988 property taxes as stipulated within the lease, ² and in January 1988, he failed to make rent payments. The plaintiffs then issued a notice of default to Occhipinti. When the default was not cured, the plaintiffs declared the lease terminated and served Occhipinti with a notice to vacate the premises on July 7, 1989. BOL was provided with a copy of each notice. An eviction proceeding was then filed on July 19, 1989 in the 24th Judicial District Court in the Parish of Jefferson.

On July 25, 1989, BOL filed a petition for executory process for the Occhipinti note and collateral mortgage. At a sheriff's sale held on September 20, 1989, BOL purchased Occhipinti's [95-3058 La. 3] leasehold interest which included the building as well as the improvements located on plaintiffs' land. Subsequent to this acquisition, the plaintiffs amended their eviction proceeding and named BOL as a defendant demanding that the lease be terminated and the premises vacated. ³

In a judgement rendered on January 8, 1990, the trial court ordered the defendants to vacate the premises, found that the lease had terminated and granted plaintiffs a lessor's privilege. BOL appealed this decision and the court of appeal reversed. The appellate court held that: the lessors could not terminate the lease and evict BOL, which was Occhipinti's successor; the lease did not terminate due to the bankruptcy trustee's rejection as an asset; and, a dispute as to ownership could not be decided in a summary proceeding. Carriere v. Frank A. Occhipinti, Inc., 570 So.2d 43 (La.App. 5 Cir.1990), writ denied, 575 So.2d 392 (La.1991).

On March 7, 1991 plaintiffs filed suit against BOL asserting that the bank was liable to them for rental payments under the lease from the date of the judicial sale, property taxes from 1988 through 1993 which represented Occhipinti's default period, and necessary repairs to the building. Their petition was amended seeking relief for unjust enrichment. BOL filed an answer and reconventional demand for slander of title. BOL then filed for summary judgment which the trial court granted, dismissing plaintiffs' suit. On appeal, it was held that summary judgment was precluded because a genuine issue of material fact existed as to whether the ground lease continued to remain in effect after the building was purchased at the sheriff's sale. Carriere v. Bank of Louisiana, 602 So.2d 155 (La.App. 5 Cir.1992). Accordingly, the trial court's judgment was vacated and the case was remanded to determine whether the ground lease was still in effect and if so, did it contemplate the present situation and, if not, what is the nature of the relationship between the landowners and BOL. Id. at 157

After a trial on the merits, judgment was rendered in favor of the plaintiffs in the amount of $398,032.05 representing past rent from September 20, 1989 to February 23, 1994 for a total of $330,820.01; property taxes in the amount of $12,212.04; and, attorney's fees in the amount of $55,000.00. BOL appealed and the appellate court affirmed in part, vacated in part and remanded. It held that: (1) its prior holding that the ground lease survived the sheriff's sale was the law of the case; (2) in purchasing lessee's leasehold interest, including the building and the [95-3058 La. 4] improvements, BOL exercised its option under the lease and stepped into the shoes of lessee, thus obligating the bank to pay rent; (3) the record did not support an award of attorney's fees, and required remand for reconsideration of reasonableness. Carriere v. Bank of La. in New Orleans, 662 So.2d 491 (La.App. 5 Cir.1995). After a rehearing was denied by the court of appeal, BOL sought relief from this court. In a May 10, 1996 order, we granted relator's application for review. Shirley Hartmann, Wife of/and Richard P. Carriere v. Bank of Louisiana in New Orleans, 676 So.2d 99 (La.1996).

BOL'S CONTENTIONS

In its application, BOL contends that the fifth circuit's initial opinion in Carriere v. Occhipinti, supra properly reversed the eviction of BOL. BOL states that the appellate court lacked jurisdiction to reverse the trial court's ruling that the lease terminated and whatever that court said regarding termination was obiter dicta and cannot constitute the law of the case. Further, relator argues that the lease between plaintiffs and Occhipinti terminated in a number of ways. In June of 1989, it was terminated pursuant to default provisions. The lease provides that in the event of non-payment of rent, lessor may declare the said term ended and that is precisely what plaintiffs did on June 12, 1989. It also terminated when BOL acquired the building at the sheriff's sale. When BOL foreclosed, it acquired whatever right, title and interest Occhipinti had in the contract of lease. Occhipinti had no rights under the lease in September of 1989 when the building was acquired at the sale. BOL's only recovery was the building which plaintiffs argue is theirs and is consistent with the proposition that the lease terminated.

Next, BOL states that it never exercised an option to "step into the shoes" of Occhipinti. The appellate court erred when it penalized a foreclosing bank because it merely purchased whatever collateral it had at a sheriff's sale. By the time BOL was declared the adjudicatee at the sale, Occhipinti had declared bankruptcy.

Moreover, they allege that the court of appeal ignored multiple provisions in the lease. This lease was amended three times to assist Occhipinti in obtaining financing and to induce the lenders to advance construction funds with the expectation of being protected by the first mortgage. The court further erred in its application of the law.

PLAINTIFFS' ARGUMENT

The plaintiffs argue that BOL is liable for rent under the contract. The bank became a [95-3058 La. 5] party to the contract under paragraph 5 of the January, 1983 amendment which gave them the right to "step into the shoes" of the lessee and take over the lease. When this was done, BOL bound itself to pay rent as lessee. In simple and plain language of the lease, the lender had the right to step into the shoes, and the intent of the parties was that if BOL foreclosed and took over the property, it would...