Consolidated Realty Group v. Sizzling Platter, Inc.

• Decision Date: 27 December 1996
• Docket Number: No. 950761-CA,950761-CA
• Parties: 306 Utah Adv. Rep. 12 CONSOLIDATED REALTY GROUP, Plaintiff and Appellee, v. SIZZLING PLATTER, INC., dba Sizzler, Defendant and Appellant.
• Court: Utah Court of Appeals

Page 268

930 P.2d 268

306 Utah Adv. Rep. 12

CONSOLIDATED REALTY GROUP, Plaintiff and Appellee, v. SIZZLING PLATTER, INC., dba Sizzler, Defendant and Appellant.

No. 950761-CA.

Court of Appeals of Utah.

Dec. 27, 1996.

Certiorari Denied April 2, 1997.

Thomas R. Karrenberg and Kate A. Toomey, Salt Lake City, for Appellant.

Michael L. Deamer, Salt Lake City, for Appellee.

Before GREENWOOD, HOWE ¹ and JACKSON, JJ.

HOWE, Justice.

Sizzling Platter, Inc. ("SPI") appeals from a judgment entered in favor of Consolidated Realty Group ("Consolidated") and seeks judgment as a matter of law in its favor, or in the alternative a new trial on the issues of liability and damages.

I. FACTS

This appeal stems from a suit filed by Consolidated, a licensed real estate broker, against SPI to recover a commission for a lease entered into by Hewlett Packard ("Hewlett") for space in a commercial building to be erected on property then owned by SPI and located at approximately 380 East 6400 South in Murray, Utah (the "Property").

In early 1992, Hewlett was renting space at a different location from Keith Romney. Consolidated contacted Hewlett and offered its services to help Hewlett relocate to a new building, but Hewlett declined in favor of maintaining its relationship with Romney. On March 26, 1992, Hewlett entered into a written lease with Compark VII Partnership ("Compark"), which was owned and controlled by Romney and a partner, Kent Buie, for space in a building to be constructed on the Property which Compark then owned. The lease (hereinafter the 1992 lease) did not contain an attornment agreement ² and was subject to a prior mortgage on the Property held by First Security Bank. Consolidated had no role in these negotiations.

In May 1992, before the planned building was constructed, First Security Bank commenced a foreclosure on the Property. In lieu of foreclosure, Compark conveyed the Property by deed to First Security. ³ After First Security had acquired title, Consolidated arranged for a client, Lou Haynie, to enter into an Earnest Money Purchase Agreement with First Security for the Property. On June 18, 1992, this purchase agreement was assigned by Haynie to SPI which owns and operates restaurants in Utah, Idaho, Nevada, and Washington. One week later, SPI finalized the purchase of the Property from First Security Bank.

Following the purchase, Consolidated proposed to SPI that SPI build an office building on the Property and attempt to lease a portion of the space to Hewlett. The proposal was rejected by SPI because its primary interest was to build a restaurant on the Property. Despite SPI's rejection, Consolidated presented an "Exclusive Authorization to Lease Agreement" for the proposed office buildings to SPI, which it refused to sign. However, on August 3, 1992, Steve Lowe, executive vice-president, secretary, and general counsel for SPI, wrote and signed a letter to Consolidated (the "Letter Agreement") that contained the following:

This letter will acknowledge the commitment of [SPI] to engage Consolidated Realty Group as its exclusive agent in leasing any development on the east portion of our recently acquired real property....

....

We are considering office building developments on the east portion [of the Property]. You have arranged an introductory meeting with Keith Romney, who is the current landlord for Hewlett-Packard. We are planning to meet with Hewlett-Packard in Los Angeles later in this week. We may determine to build office space only for Sizzling Platter, Inc. My preference is a larger office building which would include space for prime tenants such as Hewlett-Packard.

If the Hewlett-Packard development and lease is consummated, Sizzling Platter, Inc. will pay to Consolidated Realty Group a lease commission which will be determined in accordance with reasonable and standard market rates for similar projects in Salt Lake County....

Please accept this letter with assurances and my appreciation for all of your professional services.

As indicated by the Letter Agreement, Lowe and Romney flew to Los Angeles a few days later to meet with officers of Hewlett. At that time, SPI learned for the first time of the 1992 lease between Compark and Hewlett. Following the meeting, Romney and SPI took steps to substitute themselves into the 1992 lease which they considered to be still valid. First, the lease was assigned by Compark to Romney who in turn assigned it to RRW Partners ("RRW"). RRW was a partnership to be formed between Rockin' Robin, Inc., a company owned by the same principals as SPI, and Wonder Industries, Inc., a company owned and controlled by Romney. ⁴

On March 3, 1993, Hewlett and Romney, acting on behalf of RRW, executed an addendum that altered several provisions of the 1992 lease and added some new terms. ⁵ Specifically, it substituted RRW as the landlord, added a clause that required delivery of the premises to Hewlett by December 31 1993, gave Hewlett the right to erect two signs on the Property, and provided Hewlett with an option to expand into the balance of the first floor space after four years. In addition, it changed the address and square footage calculations to comply with the design of the building, the base rent to $18,848.76 per month, the method of calculating operating expenses, and the payment schedule. Each of these changes was made by reference to provisions in the 1992 lease.

The lease (including the new addendum) was then assigned by RRW to Rockin Robin, L.C. ("Rockin Robin"), a Utah limited liability company. The members of Rockin Robin are the same as the shareholders of SPI, although the ownership percentage that each shareholder owns in SPI is not the same as the percentage each owns as a member of Rockin Robin. SPI obtained construction and permanent financing to build the building and had the lease pledged as security for repayment of the loans. SPI thereafter conveyed the Property to Rockin Robin. In 1994, after completion of construction, Hewlett took possession of the space in the building with Rockin Robin as landlord and has continuously occupied it since. Hewlett pays a yearly rent of $226,185.12. The total rent to be paid under the seven-year term of the lease and addendum is approximately $1.6 million.

After Hewlett moved into the building, Consolidated requested its fee pursuant to the Letter Agreement, which SPI refused to pay. In response, Consolidated brought this suit against SPI. After discovery, SPI moved for summary judgment. Consolidated made a cross-motion for partial summary judgment on the issue of liability, reserving the issue of damages for trial. The trial court denied SPI's motion for complete summary judgment and granted partial summary judgment on the issue of liability in favor of Consolidated. Although the trial court's theory of liability is not completely clear, it explicitly found that an implied in fact contract was created by the parties' performance under the 1992 lease.

After a trial on the amount of damages, the court entered judgment in the amount of $82,242.90, plus post-judgment interest and costs in favor of Consolidated. The lease and addendum were used as a basis for the judgment, equal to six percent of the first five years' rent and three percent of the final two years' rent as specified in the lease. SPI appeals from the judgment and seeks judgment as a matter of law in its favor or in the alternative, a new trial.

II. STANDARD OF REVIEW

"We accord conclusions of law no particular deference, but review them for correctness." Scharf v. BMG Corp., 700 P.2d 1068, 1070 (Utah 1985). In reviewing the grant of summary judgment by the trial court, "we accept the facts and inferences in the light most favorable to the losing party. Because summary judgment is granted as a matter of law, we may reconsider the trial court's legal conclusions." Winegar v. Froerer Corp., 813 P.2d 104, 107 (Utah 1991) (citation omitted). See also Mountain States Tel. & Tel. Co. v. Garfield County, 811 P.2d 184, 192 (Utah 1991) ("In reviewing a grant of summary judgment, we view the facts in a light most favorable to the losing party.").

III. ANALYSIS

A. The Status of the Original Lease

The fundamental issues are whether the 1992 lease between Hewlett and Compark was terminated by First Security's foreclosure, and if so, whether a new lease was thereafter created. They are fundamental because the Letter Agreement required that a lease be consummated in the future and this requirement was not met if, as SPI argues, the 1992 lease was not terminated by the foreclosure but was assigned to Rockin Robin without creating a new lease. As to these issues, Consolidated maintains that the foreclosure by First Security terminated the 1992 lease and that a new lease came into existence through the execution of the addendum. As to whether the foreclosure terminated the 1992 lease, the trial court concluded that

in the absence of an attornment agreement, the lease between Hewlett and Compark VII ceased to exist when First Security obtained title to the property....

Since the parties' tenancy was for a term of years, Hewlett's rights under the lease could not have continued to exist unless Compark VII had terminated its estate through a voluntary transfer to a successor.

We agree. A mortgage that antedates a lease is a superior security interest to that lease. "If the sale of the landlord's interest is forced by one having a paramount title to that of the tenant, such as a mortgagee whose interest existed at the time the lease was made, the tenant's interest will be defeated by the sale." Restatement (Second) of Property § 15.1 (1981).

Whether the lease addresses the matter or not, the estate for years cannot last longer than the estate from which it is carved. Thus a term of years ends whenever the landlord's estate ends.... [T]he subordinate tenant, while losing the right to possession in favor of the paramount titleholder, may...