Fundus America (Atlanta) Ltd. P'ship v. RHOC Consolidation, LLC

• Decision Date: 01 December 2011
• Docket Number: No. A11A1496.,A11A1496.
• Citation: 720 S.E.2d 176,11 FCDR 3333,313 Ga.App. 118
• Parties: FUNDUS AMERICA (ATLANTA) LIMITED PARTNERSHIP v. RHOC CONSOLIDATION, LLC et al.
• Court: Georgia Court of Appeals

11 FCDR 3333

313 Ga.App. 118

720 S.E.2d 176

FUNDUS AMERICA (ATLANTA) LIMITED PARTNERSHIP

v.RHOC CONSOLIDATION, LLC et al.

No. A11A1496.

Court of Appeals of Georgia.

Oct. 26, 2011.Reconsideration Denied Dec. 1, 2011.

Alston & Bird, John C. Weitnauer, William Clay Massey, Candace Noelle Smith, Meaghan Goodwin Boyd, RobbinsFreed, Richard L. Robbins, Alexa R. Ross, Jason Alloy, Atlanta, for appellant.

Bondurant, Mixson & Elmore, Michael Brian Terry, Timothy Scot Rigsbee, Ronan Patrick Doherty, Atlanta, for appellees.

MIKELL, Judge.

Commercial landlord, Fundus America (Atlanta) Limited Partnership (“Fundus”), sued tenants, RHOC Consolidation LLC (“RHOC”) and its parent company Marriott International, Inc. (“Marriott”) (collectively “ appellees”), for a writ of possession, breach of contract, and attorney fees, arising from the assignment of a lease for a hotel in downtown Atlanta. Appellees filed counterclaims for a declaratory judgment that appellees were not in violation of the lease, breach of lease, negligent misrepresentation and attorney fees. Both parties moved for summary judgment after discovery. Following a hearing, the trial court granted the motions in favor of appellees, and Fundus appeals. Finding no error, we affirm.

Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” ¹ A defendant may establish entitlement to summary judgment either by “presenting evidence negating an essential element of the plaintiff's claims or establishing from the record an absence of evidence to support [those] claims.” ² If the defendant establishes those requirements, the plaintiff must point to specific evidence giving rise to a triable issue.³ When reviewing the grant or denial of a motion for summary judgment, we conduct a de novo review of the law and the evidence,⁴ and we view the evidence in the light most favorable to the nonmovant. “When a question of law is at issue ... we owe no deference to the trial court's ruling and apply the ‘plain legal error’ standard of review.” ⁵

So viewed, the evidence shows that Fundus is the owner of a hotel property located in downtown Atlanta (the “Hotel”). After acquiring the property in 1990, Fundus completed a multi-million dollar renovation of the Hotel. In October 1990, Fundus leased the Hotel to Penta Hotels Georgia, Inc. (“Penta”), pursuant to a lease with a 20–year term (the “Lease”). Penta had multiple obligations under the Lease, including that it use the Hotel solely as a “first class hotel,” keep the Hotel in good repair, pay for all capital improvements and repairs needed, keep the Hotel in compliance with all government regulations, and not commit waste. The management and operations of the Hotel switched hands several times until Penta engaged Renaissance to manage the Hotel. Marriott acquired the Renaissance brand in 1997, and operated the Hotel under that brand until 2005. In 2005, Penta's ⁶ obligations under the Lease were assigned to Marriott's wholly-owned subsidiary, RHOC. In connection with this assignment, Marriott executed an Unconditional Guaranty of Payment and Performance (the “Marriott Guaranty”) and Fundus executed an estoppel certificate ⁷ (the “Estoppel Certificate”) asserting that the Lease had not been breached by prior tenants.

Less than two years after the assignment, the parties began to negotiate for an early termination of the Lease. During these negotiations, Fundus commissioned an inspection of the Hotel by Herbert Mascha and Michael Regner (“M & R Report”) to determine the condition of the Hotel. The M & R Report identified $35 million worth of repairs, improvements and renovations needed to bring the Hotel up to the status of a “first class hotel,” as required by the Lease. Fundus sent a Notice of Default under the Lease to Marriott based on the M & R Report outlining the alleged breaches, and Marriott rejected these findings. Fundus then terminated the Lease, demanded that Marriott vacate the Hotel, and filed this lawsuit. The trial court granted summary judgment in favor of appellees, holding that Fundus's claims were barred by the execution of the estoppel certificate and that the term “first class hotel” was unenforceable as a matter of law.

1. Fundus argues that the trial court erred in granting summary judgment to appellees on the theory that Fundus's breach of contract claims against appellees were foreclosed by the execution of the estoppel certificate. Finding no error, we affirm.

The contract memorializing the assignment is comprised of several contemporaneous documents signed by Fundus and appellees, including a Consent to Assignment, the Assignment and Assumption of Lease, the Marriott Guaranty, and the Estoppel Certificate.⁸ The Consent to Assignment contains an integration clause, which provides:

This Consent, the Marriott Guaranty, the Estoppel Certificates and exhibits hereto constitutes [sic] the entire agreement of the parties concerning the transactions contemplated by this Consent. All prior understandings and agreements among the parties are merged into this Consent, which alone fully and completely expresses their understanding.

In the Marriott Guaranty, Marriott replaced Penta as the guarantor of the lessee's performance under the Lease. Marriott guaranteed “the full and prompt performance of any and all obligations of Assignor and Assignee to Lessor under the Lease” and agreed that its liability extended to “all Obligations of either Assignor or Assignee, as ‘Lessee’ under the Lease, whether such Obligations arose to [sic], on or after, the Effective Date hereof.”

In exchange for the Guaranty, Marriott asked Fundus to execute an Estoppel Certificate assuring that there was no breach or default of the Lease at the time of assignment. Paragraph 2 of the Estoppel Certificate provides the following:

Landlord has not delivered or received any notices of a breach or a default under the Lease, and to the best of knowledge of Landlord, there is no breach or default by Tenant or Landlord under the Lease, nor has any fact, act, event or omission occurred which, with the giving of notice or lapse of time, or both, would constitute a breach or default thereunder. Landlord, and to the best knowledge of Landlord, Tenant, have performed all their obligations under the Lease.

(a) Fundus argues that estoppels are disfavored under Georgia law, and that appellees are required to prove the elements of equitable estoppel, including proof of some concealment or false representation, in order to prevail on a motion for summary judgment.⁹ None of the cases relied upon by Fundus, however, involves a written estoppel certificate in which a party expressly agreed to be estopped. Georgia law recognizes, “on grounds of public policy and good faith,” ¹⁰ that the execution of an estoppel certificate can create an estoppel effect against future claims for damages.¹¹ In Virginia Highland Assoc. v. Allen ¹², this Court reversed the trial court's failure to enforce an estoppel certificate because “ [a]dmissions which have been acted on by others, are conclusive against the party making them, in all cases, between him and the person whose conduct he has thus influenced.” ¹³ Similarly, this Court in Office Depot v. The District at Howell Mill¹⁴ held that Office Depot was precluded from claiming a breach of its lease by the terms of an estoppel certificate it executed at the time the District sold a majority interest in a commercial shopping center to ELPF Howell, LLC, and upon which ELPF Howell, LLC reasonably relied.¹⁵ Neither of these cases included evidence of concealment or false representation.

Accordingly, it follows that a party can agree to be estopped under circumstances that might not otherwise constitute an estoppel under common law, as Fundus has in this case by executing the Consent to Assignment, which incorporated the Estoppel Certificate as part of its contractual terms.

(b) Fundus argues that the Estoppel Certificate does not preclude its claims because appellees were in a better position to know that the Lease had been breached at the time of assignment, and so they could not reasonably rely upon it.

Fundus is a Georgia limited partnership, but almost all of Fundus's limited partners and decision-making representatives reside in Europe. Fundus argues that it had limited knowledge of the Hotel's condition through infrequent visits to the Hotel from Europe and from the annual reports provided by its asset manager, Prudential Real Estate Investors, and that Marriott, who was currently providing the Hotel's management services, was in a better position to know the condition of the Hotel. However, Marriott does not dispute that it had knowledge of the Hotel's condition at the time of assignment. Instead, Marriott argues that it was that very knowledge that led them to insist upon the Estoppel Certificate before it would assume any liability for the Lease. Marriott's representative testified that “[w]e were being asked to step into a tenant position, we simply would not do it, period, without getting an estoppel certificate that said the lease was in full force ... [and] there were no outstanding breaches.”

Although it is a general rule of law that an estoppel cannot result “where both parties have equal knowledge or equal means of knowing the truth [,]” ¹⁶ parties can contract around “this rule of law, so as to prevent lack of knowledge of a fact from avoiding ... estoppel.” ¹⁷ By executing the Estoppel Certificate and the Consent to Assignment, which specifically provided that appellees “shall have the right to rely on the certifications and representations of Lessor [Fundus] set forth in the Lessor's Lease Estoppel Certificate,” Fundus contracted around this common law element of...