Fleming Companies, Inc. v. Equitable Life Ins. Co. of Iowa

• Decision Date: 04 October 1991
• Docket Number: No. 66051,66051
• Parties: FLEMING COMPANIES, INC., Appellee, v. EQUITABLE LIFE INSURANCE COMPANY OF IOWA, Appellant.
• Court: Kansas Court of Appeals

Page 813

818 P.2d 813

16 Kan.App.2d 77

FLEMING COMPANIES, INC., Appellee, v. EQUITABLE LIFE INSURANCE COMPANY OF IOWA, Appellant.

No. 66051.

Court of Appeals of Kansas.

Oct. 4, 1991.

Syllabus by the Court

1. In order to preclude summary judgment, the facts subject to a dispute must be material to the conclusive issues of the case. A dispute regarding the characterization of a party's actions as negligent or simply mistaken must be material to the case, or the appellate court must find that summary judgment was properly granted.

2. Kansas cases prevent intervention of equitable principles only when a party's conduct was willful, intentional, indifferent, or grossly negligent.

3. A commercial lessee's failure to comply with a renewal option clause of a lease agreement that required it to give written notice of its intention to exercise the option one year prior to termination of the lease did not bar lessee from later effectively exercising the option in equity where the delay in giving notice was slight, the lessee would suffer unconscionable loss, the lessor was not prejudiced, and the lessee's failure to give notice was not the result of intentional, willful, or grossly negligent behavior.

4. In a situation involving an option to renew a commercial lease, time is not of such essence that failure by the lessee to properly renew cannot be equitably excused if the failure did not amount to intentional, willful, indifferent, or grossly negligent conduct or waiver and the lessor was not prejudiced by the delay.

Paul E. Vardeman and Mary Jo Shaney, of Polsinelli, White, Vardeman & Shalton, Kansas City, Mo., and Frank A. Caro, Jr., and Bruce W. Beye, of the same firm, Overland Park, for appellant.

Gordon E. Wells, Jr., Jim Tierney, John L. Vratil, and Laura J. Bond, of Lathrop & Norquist, Overland Park, for appellee.

Before ELLIOTT, P.J., PIERRON, J., and WILLIAM M. COOK, District Judge, Assigned.

PIERRON, Judge:

Equitable Life Insurance Company of Iowa (Equitable) appeals from the summary judgment granted to Fleming Companies, Inc., (Fleming) on Fleming's petition for declaratory judgment. Fleming had asked the district court to declare its exercise of an option to renew, contained in a certain lease agreement, effective notwithstanding it had given oral notice five weeks after the date expressed in the lease for the notice to have been given in writing.

The facts in this case are fairly detailed but generally uncontested by the parties. In August 1958, Fleming and Equitable began a series of financial transactions which culminated in a purchase/leaseback agreement. On April 30, 1959, Fleming entered into a Contract for Lease with Equitable whereby Fleming agreed to construct a warehouse facility on certain property and to sell it and the land to Equitable at a price equal to the cost Fleming paid for the land and the completed improvements. The contract further provided that Equitable would then lease the premises back to Fleming.

The parties entered into an Indenture of Lease (lease) on May 28, 1959, whereby Equitable agreed to lease 28.21 acres of land and a warehouse on the land to Fleming for 30 years. The lease term began on November 30, 1960, and ended on November 30, 1990. The lease costs were determined in advance and were calculated so that at the end of 30 years Equitable would have recovered the purchase price and a fixed rate of return on the funds it advanced for the purchase. The lease provided that all permanent additions to the building, except the cold room insulation and refrigeration equipment, would become part of the leased premises and belong to Equitable upon termination of the lease.

The lease provided Fleming with the right, at its option, to renew the lease after expiration of the original term of 30 years and one day by serving a written notice of renewal upon Equitable at least one year before the expiration of the lease. The key date for Fleming to exercise the option to renew the lease was thus on or before November 30, 1989. Neither party disputes the fact that Fleming did not give proper written notice of renewal to Equitable by November 30, 1989.

Leading up to November 1989, Ron Bond was the Fleming employee responsible for the day-to-day monitoring of Fleming's leases. Bond was a Senior Corporate Financial Analyst and had been with Fleming for approximately 10 years. The internal lease monitoring procedures which Bond had developed showed him in early 1989 that the lease with Equitable would be up for renewal in November 1989.

On June 15, 1989, Bond sent a memo, pursuant to his own standard operating procedure, to Bill Dougherty (controller, Mid-America Region), Jim Costello (president, Topeka Division), and Bob Wilson (controller, Topeka Division) advising them that the term of the lease expired November 30, 1990, and that notice of renewal was due to Equitable by November 30, 1989. Bond requested that they provide him with their intentions regarding renewal of the lease. Bond himself did not have the requisite authority to renew the lease on behalf of the corporation. On July 5, 1989, the Topeka Division advised its supervisors at the Mid-America Region level of its recommendation to renew the lease. The Regional Distribution Director of Fleming then contacted Bond and Steve Davis, one of Bond's supervisors who did have actual authority to renew the lease, to confirm that: "The Mid-America Region does want to exercise the option to extend the lease which 'expires November 30, 1990,' for the 5-year period from December 1, 1990, through November 30, 1995."

Fleming terminated Ron Bond's employment on November 10, 1989, due to a company-wide reduction in force. The parties dispute what, if anything, Bond told his supervisors at Fleming following his termination. Bond himself stated that prior to leaving the office on November 10, he met with John Thompson, his immediate supervisor and Fleming's treasurer, and provided him with a folder containing leases that required "immediate attention." Bond maintains that Thompson did not ask specifically about the lease in question and that Bond did not tell Thompson or Steve Davis that the lease had been renewed. In his deposition, Thompson stated that on November 1, 1989, he inquired of Bond as to the status of pending lease activity and that Bond replied the Topeka warehouse lease had been renewed. Both Thompson and David Levine, Assistant Treasurer of Fleming, stated Bond told them before he left on November 10 that nothing needed to be done on the Topeka warehouse lease and that it had been taken care of. However, it does not appear from the facts that any of Bond's superiors verified that renewal had actually been made.

David Levine assumed Bond's responsibilities for day-to-day monitoring of Fleming's leases and began a systematic, alphabetical audit of all Fleming's lease files. On January 4, 1990, Fleming discovered that written notice of exercise of the option under the lease had not been given by November 30, 1989. That same day Thompson called Equitable to express Fleming's intent to exercise the option and to request a waiver of the deadline. On January 5, 1990, Gary Swon of Equitable returned Thompson's call and indicated that the matter was under scrutiny and that Equitable would convey its position by January 12, 1990.

On January 10, 1990, Swon wrote Thompson and advised Fleming for the first time that Fleming had not given proper, timely notice of its intention to renew and that the lease term would expire on November 30, 1990, as the contract provided. Upon receipt of this letter, Fleming wrote Equitable on January 12, 1990, giving formal written notice of its intent to renew. Equitable responded by letter dated January 22, 1990, stating it considered the late notice of no effect.

Meanwhile, several employees of Equitable knew and had known that written renewal of the lease was required to be given by Fleming by November 30, 1989. These Equitable employees had discussed the issue of the renewal prior to its due date and elected not to take any action to assist or remind Fleming of its renewal option.

Under the lease, Fleming had been paying Equitable $88,958.76 per year as rent, but rent for the five-year renewal period would only be $48,000 per year, based on the terms of the original lease. Furthermore, market rental rate for the facility per year had been appraised at $580,000 to $720,000. Based on these economic considerations, Equitable determined, both prior to and after the deadline had passed, that the lease with Fleming would be allowed to expire and Equitable would then renegotiate with Fleming for a higher rental payment than the lease provided or, in the alternative, seek a new tenant for the property.

Fleming filed a Petition for Declaratory Judgment on April 16, 1990, asking the district court to find that Fleming had effectively exercised the renewal option and that the lease had been validly extended until November 30, 1995, at the contractual renewal rental rate of $48,000. Equitable filed a Counterclaim for Declaratory Judgment, asking the court to find that Fleming had failed to renew the lease, and that Equitable could properly terminate and negotiate new lease terms with Fleming. In a memorandum opinion and entry of judgment dated November 29, 1990, the district court entered summary judgment for plaintiff Fleming and against defendant Equitable, declaring the lease between the parties to have been renewed for an additional five years beginning December 1, 1990, by written notice transmitted January 12, 1990. The court further denied Equitable's motion for summary judgment and found that its counterclaim failed to state a claim upon which relief could be granted. Equitable filed a timely notice of appeal in district court on December 21, 1990.

The standard for summary judgment rulings is well established.

"Summary judgment is proper where the pleadings, depositions,...