Engenius Entertainment, Inc. v. Herenton

• Decision Date: 31 October 1997
• Citation: 971 S.W.2d 12
• Parties: ENGENIUS ENTERTAINMENT, INC. and Penczner Productions, Inc. Plaintiffs/Appellants, v. W.W. HERENTON, in his official capacity, the City of Memphis, Tennessee, Jim Route, in his official capacity, and Shelby County Tennessee, Defendants/Appellees.
• Court: Tennessee Court of Appeals

Page 12

971 S.W.2d 12

ENGENIUS ENTERTAINMENT, INC. and Penczner Productions, Inc. Plaintiffs/Appellants, v. W.W. HERENTON, in his official capacity, the City of Memphis, Tennessee, Jim Route, in his official capacity, and Shelby County Tennessee Defendants/Appellees.

Court of Appeals of Tennessee Western Section, at Jackson.

Oct. 31, 1997.

Application for Permission to Appeal

Denied by Supreme Court

May 11, 1998.

Mary L. Wolff, Thomas J. Walsh, Douglas A. Black, Wolff Ardis, P.C., Memphis, for Plaintiffs/Appellants.

Monice Hagler Tate, City Attorney, Patti C. Bowlan, Assistant City Attorney, for Defendants/Appellees W.W. Herenton and the City of Memphis, Tennessee.

Donnie E. Wilson, Shelby County Attorney, Robert B. Rolwing, Assistant County Attorney for Defendants/Appellees Jim Rout and Shelby County, Tennessee.

FARMER, Judge.

Plaintiffs EnGenius Entertainment, Inc., and Penczner Productions, Inc. (collectively, "EnGenius"), appeal the trial court's order which dismissed their complaint against Defendants/Appellees W.W. Herenton, the City of Memphis, Jim Rout, and Shelby County. We reverse in part the trial court's judgment based on our conclusion that EnGenius's complaint, when construed liberally in favor of EnGenius, states claims against the Defendants for breach of implied contract and promissory estoppel.

I. EnGenius's Complaint

EnGenius's 43-page complaint asserted claims for breach of contract (counts I and II), breach of implied contract (count III), promissory estoppel (count IV), "arbitrary and capricious conduct" (count V), and injunctive and declaratory relief (count VI). As pertinent to this appeal, the complaint contained the following allegations:

In 1993, the Defendants decided to seek a private developer to design, construct, and operate improvements to 121,000 square feet of undeveloped leasehold space in The Pyramid, a public arena in downtown Memphis. To this end, the Defendants prepared and issued a Request for Proposals ("RFP") for development of the space. The RFP provided that, upon selection of a developer, the specific rent structure would be negotiated between the parties. The RFP also provided that the term of the development contract would be negotiable but would "not exceed 20 years; a 10 year initial term with two renewal periods of 5 years each." The RFP required the selected developer to spend approximately $10 million on certain permanent improvements to the leasehold space, including an inclined elevator, which would become the property of the Defendants upon installation.

In June 1993, the Defendants sent RFP's to more than 200 potential developers across the nation, including EnGenius. EnGenius, along with two other potential developers, submitted proposals to develop the leasehold space by the August 30, 1993, deadline. EnGenius's proposal described a high-tech family entertainment theme park, to be known as the Island Earth EcoCenter. At the request of the Defendants, EnGenius formally presented its proposal to the Defendants' respective mayors, Herenton and then Mayor William N. Morris, at a meeting held on October 28, 1993.

By letter dated December 22, 1993, Mayors Herenton and Morris sent EnGenius a letter informing it that its proposal had been selected, provided that EnGenius could prove its financial capability to develop the project in accordance with its proposal:

Following presentations for development of the leasehold space at The Pyramid, our administrations have carefully weighed the benefits of each proposal, their creativity, and most of all, their potential to create a unique tourist attraction for Memphis and Shelby County.

As a result of this review, we have concluded that your partnership represents our best opportunity to achieve our goals for this space. Before making a final selection, we will give your partnership 60 days to prove your financial capability to develop this project in accordance with your proposal. If this financial benchmark can be reached, we shall begin immediately thereafter to prepare a contract between city and county governments and your company for the lease and development of this space.

In January 1994, the Defendants publicly announced that EnGenius had been chosen to develop the leasehold space in The Pyramid. The following month, EnGenius representatives attended a meeting with representatives of the Defendants at which EnGenius demonstrated its financial capability to complete the project.

Despite EnGenius's demonstration of its financial capability to develop the project, the Defendants refused or ignored EnGenius's repeated requests to discuss the terms of a lease agreement. Instead, in April 1994, Mayors Herenton and Morris decided to revive an entity known as the Public Building Authority ("PBA") and to delegate to the PBA the responsibility for developing the leasehold space in "a non-political, less bureaucratic manner." When EnGenius representatives expressed concern over this delay, City and County officials assured them that the Defendants did not intend to reopen the RFP process, that EnGenius's plan to develop The Pyramid had been chosen, and that EnGenius's plan was the only plan that the PBA would consider. Based upon these representations, EnGenius expended additional time and effort to make further presentations to the PBA.

EnGenius representatives first met with the chairman of the PBA in July 1994. At that time, the PBA chairman expressed his view that the City and the County, and not EnGenius, should fund the permanent improvements to The Pyramid. At the PBA's first public meeting in August 1994, EnGenius again made a formal presentation of its plan to develop a theme park in The Pyramid. In September 1994, Jim Rout was elected to replace William N. Morris as Mayor of Shelby County. EnGenius representatives also attended a PBA meeting held in October 1994 at which EnGenius presented the details of its plan to finance the development project, as well as technological aspects of the project.

Despite their representations to the contrary, during the fall of 1994 City and County officials began discussions with other developers regarding proposals to develop The Pyramid space. In February 1995, City and County attorneys recommended rejecting EnGenius's financing plan, ostensibly because the plan did not comply with the RFP's requirement that the development plan "not require any investment by city and county governments." In contrast to the attorneys' recommendation, EnGenius representatives maintained that EnGenius's financing plan did not require any investment by the City or the County. Nonetheless, at a March 1995 meeting, the PBA adopted a resolution rejecting EnGenius's development plan and recommending that the City and the County pursue and evaluate alternative proposals for development of the leasehold space in The Pyramid. Although the PBA's stated reason for rejecting EnGenius's development plan was that it might require some level of financial involvement of the City and the County, the PBA's recommendation that the City and the County pursue alternative development proposals called for the City and the County to make a $10 million capital investment in The Pyramid by funding the permanent improvements to the building.

In May 1995, the Defendants formally notified EnGenius that they were considering other proposals for development of the leasehold space and that EnGenius would be required to make another formal presentation in order to receive further consideration of its plan. The Defendants represented that this new process would culminate in the selection of a developer.

On July 10, 1995, EnGenius again made a formal presentation to the Mayors regarding its plan to develop a family-oriented indoor theme park called Island Earth EcoCenter. In addition to presenting detailed plans and a video presentation regarding its creative concept, EnGenius presented a comprehensive feasibility study of the project along with a draft of a proposed lease agreement. At the request of the City and the County, EnGenius later made another presentation at which it provided additional information.

In October 1995, the Defendants again notified EnGenius that it had been selected as the developer of The Pyramid space. In addition to both Mayors' verbal representations that EnGenius had been selected and that the Defendants would proceed to negotiate a lease with EnGenius, EnGenius received the following letter from Mayor Rout's assistant:

I am pleased that as a result of Mayor Herenton and Mayor Rout's deliberations, your company has been selected as the vehicle for development of The Pyramid's "attraction space." Your innovative concept and the strength of your management team were the critical factors in this decision and all of us who have worked on this project are confident that Island Earth will become a highly successful, entertaining, cutting edge attraction for our community. Beginning next week, we look forward to finalizing the contractual arrangement between your company and the City and County governments so that we can begin development of this project as soon as possible.

Based on these representations by the Defendants, EnGenius began to spend time and effort finalizing the lease, detailing plans for construction, and negotiating with various entities to provide the services needed to complete the project. The Defendants encouraged EnGenius to begin negotiations with third-party vendors in order to keep the project on a "fast track."

The Defendants, meanwhile, retained outside counsel to draft the lease agreement with EnGenius. In November 1995, the Defendants' counsel informed EnGenius that the Defendants were demanding a $50,000 "non-refundable fee" for the right to negotiate with the Defendants. Taking the position that it already had acquired the right to enter into a lease agreement with the Defendants by virtue of its selection as the developer of the leasehold...