Hand Cut Steaks Acquisitions, Inc. v. Lone Star Steakhouse & Saloon of Neb., Inc.

Citation298 Neb. 705,905 N.W.2d 644
Decision Date19 January 2018
Docket NumberNo. S-16-1005,S-16-1005
Parties HAND CUT STEAKS ACQUISITIONS, INC., an Arkansas corporation, appellant and cross-appellee, v. LONE STAR STEAKHOUSE & SALOON OF NEBRASKA, INC., a Nebraska corporation, appellee and cross-appellant, and LSF5 Cactus, L.L.C., a Delaware limited liability company, appellee.
CourtSupreme Court of Nebraska

David L. Welch and Jeffrey A. Nix, of Pansing, Hogan, Ernst & Bachman, L.L.P., Omaha, for appellant.

Michael S. Degan, of Kutak Rock, L.L.P., Omaha, for appellees.

Heavican, C.J., Cassel, Stacy, Kelch, and Funke, JJ.

Cassel, J.

I. INTRODUCTION

When a tenant abandons leased property, a landlord may either accept the abandonment, thereby terminating the lease, or attempt to relet or sell the property. Here, after the tenant stopped paying rent and the landlord sued, the tenant surrendered the property. The landlord rejected offers by prospective tenants and instead, after lengthy negotiations, sold the property.

Following a bench trial on stipulated facts, the district court awarded damages to the date the landlord reached a tentative agreement to sell rather than to an actual sale date. And the court dismissed the tenant's out-of-state guarantor for lack of jurisdiction.

On appeal, we affirm the district court's damages award because, although the landlord did not terminate the lease, the duration of finalizing the sale was not reasonable. But because the guaranty established sufficient connections to Nebraska, we reverse the dismissal of the guarantor.

II. BACKGROUND
1. PARTIES

The tenant, Lone Star Steakhouse & Saloon of Nebraska, Inc. (Lone Star), is a Nebraska corporation. Lone Star leased property in west Omaha, Nebraska, to use for the operation of a steakhouse restaurant from the landlord, Hand Cut Steaks Acquisitions, Inc. (HCS), an Arkansas corporation. LSF5 Cactus L.L.C. (Cactus), a Delaware limited liability company doing business in Texas, is a subsidiary of Lone Star's parent company. Cactus guaranteed the performance of Lone Star's obligations under the lease.

2. PROPERTY AND LEASE TO LONE STAR

In 2010, HCS hired an agent to list and market the property. He did so, eventually securing Lone Star as a tenant. Lone Star leased the property for a 66-month term, to run from 2010 through 2016. The lease began with 6 months of free rent, followed by rent increasing incrementally. Lone Star was also responsible for paying property taxes, property insurance, and common area maintenance costs.

The lease contained an attorney fee provision: "In the event of litigation between the parties to enforce this Lease, the prevailing party in any such action shall be entitled to recover reasonable costs and expenses of suit, including, without limitation, court costs, attorneys' fees, and discovery costs."

The lease also contained a choice-of-law provision: "This Lease shall be construed, interpreted, and enforced pursuant to the applicable laws of the state in which the Premises are located."

Cactus executed a guaranty of the lease which provided that

[Cactus], in consideration of the direct and material benefits that will accrue to [it], and for the purpose of inducing [HCS] to enter into [the lease] with Lone Star ..., a subsidiary of [Cactus], absolutely and unconditionally guarantees the payment and performance of, and agrees to pay and perform as primary obligor, all liabilities, obligations, and duties (including but not limited to payment of rent) imposed upon [Lone Star] under the terms of the ... Lease.

And the lease acknowledged the guaranty signed by Cactus: "As an inducement to [HCS] to enter into this Lease, [Lone Star] agrees and acknowledges that its obligations under this Lease shall be guaranteed ... by its parent corporation, [Cactus], a Delaware limited liability company...." Cactus was also an insured under a general liability and workers' compensation and employers' liability insurance policy covering Lone Star's restaurant in Omaha.

3. RESTAURANT CLOSES AND HCS SUES

In October 2012, Lone Star notified HCS that it planned to shut down its restaurant in 3 weeks. Lone Star continued paying rent through February 2013, but then stopped. In March 2013, HCS served a notice of default on Lone Star. In April, HCS filed suit against Lone Star and Cactus. Later in April, HCS demanded that Lone Star surrender the premises. Its demand letter stated, "This Notice shall in no way be construed as a termination of [the] Lease or as a relinquishment or waiver by [HCS] as to any rental amounts or other amounts due under [the] Lease...." Lone Star surrendered the premises in early May, and the parties executed an acknowledgment of tender and receipt of premises agreement.

4. INTEREST FROM PROSPECTIVE TENANTS

Shortly after Lone Star notified HCS that it planned to close the restaurant, HCS began receiving inquiries about the availability of the property.

According to the parties' trial stipulation, "[HCS] relied upon [the agent] to relay communications for purposes of selling or reletting the Premises." But the parties also stipulated that HCS did not hire the agent or anyone else as a broker for the purpose of reletting the premises, before or after HCS regained control of the premises in May 2013. The agent did not do any marketing or list the property for HCS as was done in 2010, when he secured Lone Star's tenancy.

From October 2012 through February 2013, the agent and HCS' owner, Pat Boyd, corresponded with a broker representing a pizza firm about leasing or purchasing the property. The broker told HCS that the pizza firm "[w]ants the [p]roperty" and made multiple offers for a sale or lease. Boyd said in his deposition that he was not interested in the pizza firm because he did not find any of its offers acceptable and because he "was not interested in their concept." Boyd also said that he made up his mind that he was not interested in the pizza firm as a tenant as early as November 2012.

HCS also received two offers in May 2013 from a broker on behalf of a restaurant proprietor interested in starting a crab restaurant. Regarding the crab restaurant, Boyd testified, "This particular concept, wewe weren't interested in putting in our building." Boyd also said that he was not interested because he learned that the proprietor previously had several other restaurant concepts that failed.

5. NEGOTIATIONS WITH ULTIMATE BUYER

Discussions with the ultimate buyer began in December 2012. In January 2013, the buyer sent HCS an offer to purchase the property. HCS rejected the offer and expressed its interest in negotiating a lease rather than a sale. They continued to negotiate, and in May, the buyer made another offer to purchase the property. Boyd told the buyer he was more interested in a lease than a sale of the property. The buyer told Boyd, " 'We are too far apart to make a ground lease work here[, but w]e can be much more aggressive ...' " in negotiating a purchase. The buyer asked HCS to make a counteroffer for the sale of the property. After further negotiations, a letter of intent (LOI) outlining the terms of the sale of the property for $1.715 million was executed in June 2013. However, it took until September 2013 for the parties to finalize the purchase agreement for the property and, due to some issues with title insurance, until April 2014 to close on the sale.

6. PRETRIAL MOTIONS AND ORDERS

Before trial, the district court granted a motion of Cactus, the guarantor of Lone Star's lease, to dismiss it for lack of personal jurisdiction. But the court later granted HCS' motion to reconsider its order and allowed limited discovery with regard to Cactus' contacts with Nebraska. After discovery was conducted, the court denied Cactus' renewed motion to dismiss and reserved ruling on the issue until trial. The district court also granted in part and denied in part HCS' pretrial motion for summary judgment, granting summary judgment on the issue of Lone Star's breach of the lease.

A bench trial was held on stipulated facts on the issue of damages, after which the district court issued a "Bench Trial Order." The court concluded that HCS had not accepted Lone Star's surrender of the lease, because HCS' "actions were consistent with a landlord attempting to mitigate its damages." The court also concluded that "[HCS] took reasonable steps to mitigate its damages after Lone Star's breach of the Lease."

The district court also addressed the issue of whether a landlord may mitigate its damages by selling, rather than reletting, the property:

The Court does not find it reasonable to fault Lone Star for the lengthy closing process in the negotiations between [HCS] and [the buyer]. Under the theory of contracts, the breaching party is not to be punished for [its] breach, but rather, the non-breaching party is to be made whole. It would indeed be a punishment for Lone Star to pay nearly a year's worth of damages because the closing period between [HCS] and [the buyer] was such a drawn-out negotiation. Therefore, for purposes of mitigation and damages, the Court finds that the accrual of damages ended when [HCS] signed its [LOI] to sell the Premises to [the buyer] on June 13, 2013.

The district court awarded money damages against Lone Star in the amount of $49,415.27.

The district court also concluded that it lacked personal jurisdiction over Cactus and dismissed HCS' claims against it. The district court's order reserved the issue of attorney fees for a later hearing. After the order, HCS moved for attorney fees, based on the provision in the lease that attorney fees be awarded to the prevailing party in the event of litigation over the lease, and moved for a new trial. Lone Star also moved for a new trial. The district court overruled HCS' motions and overruled Lone Star's motion as untimely. HCS filed a timely appeal, and Lone Star asserted a cross-appeal.

III. ASSIGNMENTS OF ERROR

HCS claims that the district court erred by (1) "overruling the Motion for New Trial and awarding an insufficient...

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