Crossland Inv. Co., Inc. v. Rhodes

• Decision Date: 28 February 2003
• Docket Number: No. 4:00CV456-RH.,4:00CV456-RH.
• Citation: 274 F.Supp.2d 1302
• Parties: CROSSLAND INVESTMENT CO., INC., Plaintiff, v. F.J. RHODES; North Monroe Capital, Inc.; and Barrie B. Rhodes, individually and as trustee, Defendants.
• Court: U.S. District Court — Northern District of Florida

274 F.Supp.2d 1302

CROSSLAND INVESTMENT CO., INC., Plaintiff, v. F.J. RHODES; North Monroe Capital, Inc.; and Barrie B. Rhodes, individually and as trustee, Defendants.

No. 4:00CV456-RH.

United States District Court, N.D. Florida, Tallahassee Division.

February 28, 2003.

Carl R. Pennington, Jr., Esq, Pennington, Culpepper, Moore, etc., Tallahassee, FL, for plaintiff.

Martin Stephen Turner, Esq, Broad & Cassel, Tallahassee, FL, for defendants.

ORDER GRANTING SUMMARY JUDGMENT FOR DEFENDANTS

HINKLE, District Judge.

By this action a real estate broker seeks to recover amounts it would have received as compensation if certain renewal options under a long-term lease had been exercised. The options were not exercised, but the broker says that was the fault of the lessor and those acting in concert with her, who, the broker says, failed to act in good faith, thus defeating the broker's justifiable expectation that the options would be exercised.

Each side has moved for summary judgment. I conclude that the lessor acted in her own self-interest, in full compliance with the governing agreements and Florida law, as she was entitled to do, and that the broker had no right to expect either that the options would be exercised or that the amounts now at issue would be paid. I grant defendants' motion for summary judgment.¹

Background

The Three-Sided Arrangement

As of September 1, 1980, a three-sided arrangement was entered for development of approximately 18 acres near downtown Tallahassee, Florida. The participants were Eulalia Boone (the predecessor in interest to defendant Barrie B. Rhodes, individually and as trustee), who owned the property; plaintiff Crossland Investment Co., Inc., whose principal, Albert Lewis Buford, Jr., was a commercial realtor; and Scotty's, Inc., the well known retail chain. Under the arrangement, Scotty's was to occupy approximately four acres, and other tenants were to be solicited for the remaining 14 acres. The arrangement eventually was structured through three separate contracts: a "Lease" of the entire 18 acres from Ms. Boone to Scotty's; a "Consulting and Listing Agreement" between Scotty's and Crossland under which Crossland was to assist in the development and subleasing of the 14 acres;² and an "Escrow Agreement" under which Crossland was to collect sublease payments and distribute them to Scotty's, Crossland and Ms. Boone, in agreed amounts.

The Lease from Ms. Boone to Scotty's was for a term of just over 26 years, expiring December 31, 2006. In addition, the Lease afforded Scotty's four renewal options of five years each, so that, if Scotty's exercised all the options, the Lease would remain in place for a total of 46 years, through December 31, 2026.

Under the Lease, all taxes, insurance and other expenses, and all costs of developing the entire 18 acres, were to be borne by Scotty's. The entire arrangement thus was cost-free to Ms. Boone. After an initial delay while the property was developed, Scotty's was to pay Ms. Boone $60,000 per year.³ Ms. Boone also was to receive one-half of all revenue from the entire 18 acres exceeding that $60,000 per year (in effect, one-half of all rent received from subtenants). The Lease indicated that the other half of revenue exceeding $60,000 per year would be paid to Crossland.⁴

The "Consulting and Listing Agreement" between Scotty's and Crossland appointed Crossland as the exclusive leasing agent and broker for the purpose of subleasing the 14 acres, obligated Crossland actively to pursue the subleasing of that tract, and required Scotty's to pay Crossland precisely the amount referred to in the Lease from Ms. Boone to Scotty's: one-half of the amount by which the income from the entire 18 acres exceeded $60,000 per year. This amount was to be paid monthly, for "each month during which the above-described lease is in effect." Consulting and Listing Agreement at 2 ¶ 3. The "above-described lease" was the Lease from Ms. Boone to Scotty's.

The Escrow Agreement required Crossland to collect all rental payments and to disburse them in accordance with the other documents (the Lease between Ms. Boone and Scotty's and the Consulting and Listing Agreement between Scotty's and Crossland). Thus for each year, Crossland was to disburse to itself and to Ms. Boone one-half each of the amount by which total income from the entire 18 acres exceeded $60,000. Crossland was to receive a nominal fee for its escrow services.

Notably absent from these documents was any obligation running from Ms. Boone to Crossland. To the contrary, the Lease specifically provided that only Scotty's, not Ms. Boone, was obligated to pay Crossland the agreed amounts, and that Ms. Boone herself had no obligation to Crossland.⁵

The arrangement was implemented exactly as intended. A Scotty's store was built and opened on the four-acre parcel. Through Crossland's efforts, the 14 acres were successfully developed and subleased to some 10 or 11 subtenants. (F. Rhodes deposition at 17.) Crossland and Ms. Boone's successor in interest (her daughter, defendant Barrie B. Rhodes, individually and as trustee for her two sons) split the substantial rents paid by the subtenants. For its part, Scotty's occupied the four acres for net rent that came to be significantly below (indeed, no more than half) the market rate. All was well.

Replacing Scotty's with Staples

But alas, business is not static. In the late 1990s, Scotty's closed this store. In 1999, for reasons unrelated to this case, Scotty's struck a deal with Staples the Office Superstore East, Inc. ("Staples"), an affiliate of the well known national retailer, under which Staples would take over some 20 Scotty's sites, through purchase or lease or sublease of the various properties. One of the 20 sites was the one at issue in the case at bar.

Scotty's asked Ms. Rhodes (through her attorney husband, defendant F.J. Rhodes) to consent to a sublease from Scotty's to Staples. Under the original Lease, the lessor's approval of any such sublease was required and was not to be unreasonably withheld.

The original Lease said the four acres would be used only for a Scotty's store. Any sublease to Staples would require modification of that provision. Staples requested, however, a modification allowing the property to be used not just for a Staples store, but also for any other legal purpose. (Kennon deposition Pl.Ex. 1.) Staples also requested other modifications of the original Lease, including, apparently, a change that would allow Staples to continue to hold the property after expiration of the original Lease term. (Id.) Ms. Rhodes (still acting through Mr. Rhodes) was willing to consent to a modification allowing the site to be used for a Staples store. (Kennon deposition Def. Ex. 1.) Ms. Rhodes also was willing to consent to some (but not all) of the other proposed modifications. The proposed modifications were not a deal breaker. (Id.; see also F. Rhodes deposition at 34, 49.)

There was, however, a substantial unresolved issue. Under the proposed sublease, as one would expect, Staples would pay substantially more rent than Scotty's had been paying. Under the deal Scotty's had struck with Staples, Staples would pay $120,000 per year for the first five years of the sublease, and more thereafter. (Kennon deposition Pl.Ex. 3.) Scotty's proposed to keep this increase for itself. Thus, during the first five years, Scotty's proposed to keep $60,000 per year, calculated as the difference between Staples' rent of $120,000 per year and the preexisting Scotty's rent of $60,000. Ms. Rhodes disagreed, asserting that under the parties' original Lease, Ms. Rhodes and Crossland were to split all income from the entire 18 acres exceeding $60,000 per year (including any such income received from Staples or any other subtenant), with Scotty's receiving none of this excess. This was a $60,000 per year disagreement for the first five years, and more thereafter, continuing for the life of the arrangement.

Ms. Rhodes' position on this was far from frivolous. The original Lease said that the "Lessor shall receive one-half (½) of all rental, lease payments, overages, fees, charges and income of any description received from both Tracts [that is, the four acres and the 14 acres] after said rental reaches $60,000 annually." (Lease at 5) (emphasis added). Payments to be received from Staples constituted, at least literally, "rental, lease payments [or] income of any description" from the property. Scotty's was free to argue that this was not what the Lease actually meant, but it was by no means certain that any such argument ultimately would have prevailed.⁶

When this disagreement arose, it was suggested by Scotty's that an alternative way of dealing with the situation would be for Ms. Rhodes to buy out the interest of Scotty's under the Lease, and then for Ms. Rhodes to lease the four acres directly to Staples. (F. Rhodes deposition at 33; Mallett deposition at 11, 21; Kennon deposition at 18.) This approach offered substantial advantages to both Scotty's and Ms. Rhodes.

For Scotty's, the advantage was that its obligations with respect to both the four acres and the 14 acres ended, and it received a cash payment as compensation for its favorable (below-market) leasehold. (See Mallett deposition at 11-12.) This was consistent with Scotty's overriding goal with respect to all 20 stores involved in the Staples deal: Scotty's wanted to get out from under its lease obligations and to receive compensation for its interests. (Mallett deposition at 25; Kennon deposition at 25.) And by selling out its interest, Scotty's also could avoid litigation over who was entitled to the rent paid by Staples. In short, Scotty's could receive any agreed sales price for its leasehold interest and also could walk away clean from a site where it had closed its store, where it was paying rent and receiving nothing in return, and where it had obligations with respect to 14...