Casa D'Angelo, Inc. v. A & R Realty Co.

• Decision Date: 30 April 1990
• Docket Number: No. 01A04-8903-CV-93,01A04-8903-CV-93
• Citation: 553 N.E.2d 515
• Court: Indiana Appellate Court
• Parties: CASA D'ANGELO, INC., Appellant, v. A & R REALTY COMPANY, Appellee.

Page 515

553 N.E.2d 515

CASA D'ANGELO, INC., Appellant, v. A & R REALTY COMPANY, Appellee.

No. 01A04-8903-CV-93.

Court of Appeals of Indiana Fourth District.

April 30, 1990.

Daniel K. Leininger, Burt Blee Dixon & Sutton, Fort Wayne, for appellant.

Scott T. Niemann, Catherine C. Ediger, Rothberg Gallmeyer, Fruechtenicht & Logan, Fort Wayne, for appellee.

MILLER, Judge.

Tenant, Casa D'Angelo, Inc., decided to phase out its restaurant business in the last year of its five (5) year lease with A & R Realty Company, and did so, closing the establishment but paying its base rent during the last four (4) months of the lease. This was all much to the chagrin of landlord A & R which sued Casa D'Angelo claiming that such action breached the express terms of the lease and/or breached an implied covenant of good faith by failing to operate a restaurant at the leased premises in the same manner and during the same business hours that the restaurant had been operated during the earlier years of the lease. A & R claimed Casa D'Angelo thereby failing to generate percentage rent to which the lessor would have been entitled under the terms of the lease.

ISSUE

Casa D'Angelo raises a number of issues, however, one issue is dispositive:

Whether Casa D'Angelo was entitled to summary judgment because, as a matter of law, it violated no express or implied covenant of the lease.

We reverse and remand with instructions to enter summary judgment for Casa D'Angelo.

FACTS

Evidence before the trial court at the summary judgment hearing established that in 1977, Thomas Casaburo and James D'Angelo formed Casa D'Angelo, Inc., an Italian restaurant business. A & R owned property in Fort Wayne, Indiana, housing two tenants, who shared parking facilities.

One of the tenants was China House, a Chinese restaurant. The other tenant was a fabric store. China House was subleasing the building from King Henry VIII, another restaurant. Casa D'Angelo agreed to sublease the building from China House. The sublease provided for a base rent of $825.00 per month and additional rent in the amount of 5% of gross sales over $200,000.00 per year. The building was extensively repaired and remodeled and Casa D'Angelo began operation of its restaurant in October, 1977.

In 1978, Alexander Azar, one of the partners of A & R approached Casa D'Angelo about a lease between Casa D'Angelo and A & R. Azar was concerned that the existing sub-sublease was creating confusion. Casa D'Angelo agreed to lease the building directly from A & R and the parties entered into a lease between Casa D'Angelo and A & R. The term of the lease was from July 5, 1978 to November 1, 1982. Casa D'Angelo had an option to renew the lease for one successive five year term with all terms of the lease remaining the same. In 1982, Casa D'Angelo exercised its option and renewed the lease for an additional five year term.

Neither Casaburo nor D'Angelo had any experience in the restaurant business. Initially they performed all of the work associated with the restaurant themselves. Despite their lack of experience, the business prospered and sales steadily increased.

In 1978, Casa D'Angelo exceeded $200,000.00 in gross sales and paid $2,500.00 in percentage rent for the year. The parties stipulated that Casa D'Angelo paid the following amounts in percentage rent: ¹

In 1982, Casa D'Angelo opened a second restaurant on Fairfield Avenue in Fort Wayne. In 1985, Azar approached Casaburo and D'Angelo about taking over a restaurant operated by Azar's son. This restaurant was within a mile of the A & R property. At first, Casaburo and D'Angelo had some reservations about opening another restaurant in close proximity to their first restaurant but agreed to do so. The restaurant was re-opened under the name, T.J. Pasta's. ² Therefore, by the end of 1985, Casa D'Angelo was operating three restaurants in Fort Wayne.

In August, 1986, Casa D'Angelo entered into a lease for a fourth restaurant. This restaurant was also within one mile of the A & R property. It was larger than the A & R property and had better parking facilities. Casa D'Angelo intended to close its restaurant in the A & R property when its lease expired on November 1, 1987. Casa D'Angelo opened the new restaurant in December, 1986. At that time, Casa D'Angelo changed its operation of the A & R facility. Instead of offering a full dinner menu to walk-in customers, the menu was limited to soup, salad and sandwiches and full bar service. Casa D'Angelo also moved all of its banquet and carry out services to the A & R facility. These services constituted only a small portion of Casa D'Angelo's business. The staff at the A & R facility was cut from fifteen full time and fifteen part time employees to three or four full time employees with additional employees brought in to help with banquets. Customers who came to the A & R facility for a full meal were directed to Casa D'Angelo's other restaurants. In addition, table tents were placed in the other restaurants informing customers of the change in operation and a sign was placed in front of the A & R facility giving the same information. The business hours at the A & R facility were also reduced.

Gross sales at the A & R facility fell dramatically. In November, 1986 gross On December 8, 1986, A & R sent a notice of default to Casa D'Angelo claiming it was not operating a restaurant or keeping the restaurant open for normal business hours in violation of the lease provisions. Casa D'Angelo continued the down scaled operation of the restaurant. On July 1, 1987, A & R filed suit on the action before us. On July 16, 1987, Casa D'Angelo permanently closed the A & R facility. Total gross sales throughout 1987 did not exceed $200,000.00 and Casa D'Angelo paid no percentage rent for that year; however, it continued to pay the $825.00 base monthly rental until the lease terminated on November 1, 1987.

sales for the restaurant were $88,547.17. In December, 1986 gross sales dropped to $15,355.77 and continued to drop in 1987.

Additional facts will be given when necessary to our decision.

DECISION

Casa D'Angelo moved for summary judgment claiming there were no genuine issues of material fact and that it was entitled to summary judgment as a matter of law because the undisputed facts established that it had breached no express or implied covenant of the lease. The trial court denied the motion and the case was tried, resulting in a jury verdict for A & R. Casa D'Angelo argues the trial court erred in denying its motion for summary judgment. We agree.

In reviewing a denial of summary judgment, this court applies the same standards as the trial court. McMahan v. Snap On Tool Corp. (1985), Ind.App., 478 N.E.2d 116. Summary judgment is proper only if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits and testimony, if any, show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Ind.Trial Rule 56(C). All doubt as to the existence of a genuine issue of material fact must be resolved in favor of the nonmoving party and all reasonable inferences must be resolved against the moving party. Witham v. Norfolk and Western Railway Co. (1989), Ind.App., 535 N.E.2d 1197.

Casa D'Angelo claims that, as a matter of law, it has violated no express or implied covenant of the lease. It also argues that the substance of A & R's complaint was an allegation that Casa D'Angelo had violated an implied in fact covenant to generate percentage rent. A & R argues that it is not claiming that Casa D'Angelo violated an implied covenant to generate percentage rent, but rather, that it violated an implied in law covenant of good faith. We agree with Casa D'Angelo that the substance of A & R's complaint is that Casa D'Angelo violated an implied covenant to generate percentage rent. In its complaint, A & R's claimed damages rested solely upon Casa D'Angelo's failure to operate the restaurant in a manner so as to generate percentage rent. Unless Casa D'Angelo had a duty under the terms of the lease to generate percentage rent, A & R has no basis for its claim of damages. There is no question that Casa D'Angelo continued to pay the base rent ($825.00 per month) until the end of the lease. A & R does not claim that Casa D'Angelo's business enhanced the business of its only other tenant. On the contrary, the evidence establishes that the other tenant, a fabric store, competed with Casa D'Angelo for parking facilities. Therefore, the only basis for an award of damages was the failure to generate percentage rent. ³ We agree with the Massachusetts Supreme Court, which, when faced with a similar claim of violation of an implied covenant of good faith, ⁴ stated "The allegation 'not in good faith' adds nothing to the facts stated. In context, it says no more than that the plaintiff has acted in violation of implied obligations of the lease."

Stop & Shop, Inc. v. Ganem (1964), 347 Mass. 697, 200 N.E.2d 248, 253.

Although we agree that a lessee might violate the implied covenant of good faith without violating an implied in fact covenant or an express covenant, the facts before the court do not support such a conclusion. As this court explained in Stath v. Williams (1977), 174 Ind.App. 369, 367 N.E.2d 1120, 1124:

"Bad faith" is not simply bad judgment or negligence, rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity. It is different from the negative idea of negligence in that it contemplates a state of mind affirmatively operating with furtive design or ill will. Vickers v. Motte (1964), 109 Ga.App. 615, 137 S.E.2d 77.

In F.W. Woolworth Co. v. Plaza North, Inc. (1986), Ind.App., 493 N.E.2d 1304, 1311, this court, in discussing a similar allegation in a case involving a percentage rent lease, explained:

Plaza North argues that in a lease agreement to pay percentage rent, the lessee...