HealthSouth Rehab. Corp. v. FALCON MGMT. COMPANY

• Decision Date: 20 April 2001
• Citation: 799 So.2d 177
• Parties: HealthSOUTH REHABILITATION CORPORATION v. FALCON MANAGEMENT COMPANY.
• Court: Alabama Supreme Court

799 So.2d 177

HealthSOUTH REHABILITATION CORPORATION v. FALCON MANAGEMENT COMPANY.

1990995.

Supreme Court of Alabama.

April 20, 2001.

Jonathan H. Waller and Charles A. McCallum III of Campbell, Waller & McCallum, L.L.C., Birmingham; John A. Owens of Owens & Almond, L.L.P., Tuscaloosa; Frank Corley Ellis, Jr., of Wallace, Ellis, Fowler & Head, Columbiana, for appellant.

Wilbor J. Hust, Jr., of Zeanah, Hust, Summerford, Davis & Williamson, Tuscaloosa, for appellee.

PER CURIAM.

This case arises out of a lease dispute between HealthSouth Rehabilitation Corporation ("HealthSouth") and Falcon Management Company ("Falcon"). We affirm in part, reverse in part, and remand with instructions.

Facts and Procedural History

On May 27, 1994, Falcon subleased property in Tuscaloosa to HealthSouth.¹ The sublease provided that within 90 days of the signing of the sublease, HealthSouth, as sublessee, would furnish the plans and specifications for construction of a medical office building on the leased premises. The sublease required Falcon to begin construction of the building as soon as HealthSouth furnished the plans and specifications.

Because no building existed on the premises at the time the sublease was signed, the sublease provided for two kinds of rent: ground rent and improvements rent. Although the ground rent began when the lease term commenced on February 1, 1995, the improvements rent was not to commence until the construction of the medical office was completed to the extent that the building was ready for occupancy according to Tuscaloosa municipal ordinances. The sublease stated that the parties agreed that the size of the building was to be decided by HealthSouth, and that the applicable improvements rent would depend upon the size of the building actually constructed. The sublease further provided that the estimated costs of the construction would be $82 per square foot. However, the sublease provided that in the event the actual costs were more or less than the estimated costs, then the beginning rent would be adjusted according to the actual costs and the costs would be reflected in an addendum to the original sublease. Although the lease contemplated that the actual costs might differ from the estimated costs of construction, it contained no provision excusing HealthSouth's performance under the lease if the actual costs escalated.

On the same date HealthSouth and Falcon entered into the sublease, Dr. Leslie Fowler entered into a "Clinic Service Agreement" ("the CSA") with MedPartners, a physician-management company. The CSA required MedPartners to sublease approximately 11,000 square feet of the proposed building from HealthSouth on behalf of Dr. Fowler and possibly other physicians who had similarly contracted with MedPartners. Although the CSA permitted Dr. Fowler to cancel it, he testified at trial that he was at all times willing to lease his portion of the proposed building.

After the sublease was signed, Health-South's in-house architect presented some schematic drawings for Falcon's review. Because the architect was already working on a different project, he was unable to complete any additional drawings. Thus, HealthSouth and Falcon mutually selected Gould Turner, an architectural firm from Nashville, to prepare the plans and specifications for the proposed building. Falcon contracted with Gould Turner and was the party responsible for paying the architects' fees in connection with the construction of the proposed building.

In May 1995, HealthSouth decided to construct a 24,000 square foot building. By August 1995, Gould Turner had presented final plans and specifications for a shell building. Although HealthSouth believed that these drawings were adequate for full construction of the building except for the tenant build-outs (the space to be subleased by MedPartners), Falcon insisted that the drawings were insufficient to construct the building because they lacked certain steel-shop drawings and bar-joist drawings. Additionally, HealthSouth never provided plans for the part of the building that it intended to occupy.

Once the plans and specifications were initially completed in August 1995, the estimated costs for the improvements had increased from $82 per square foot to $119 per square foot. Because of the increase in rent that would result from the higher costs, MedPartners was no longer willing to sublease space from HealthSouth in the proposed building.

At trial, Falcon asserted that, after receiving the new cost estimates, HealthSouth ceased working on the project. Conversely, HealthSouth presented testimony by one of the Gould Turner architects indicating that Falcon instructed Gould Turner that the project was not moving forward and to stop working until the architects were notified otherwise.

In December 1995, Falcon's lawyer wrote a letter to Darryl Brown, one of the project managers with HealthSouth, in which he inquired about the status of the plans and specifications for the building. Brown responded to Falcon in a December 15, 1995, letter, stating that HealthSouth's ability to move forward was dependent upon its having tenants willing to lease and occupy the additional space.

On August 26, 1996, Falcon's lawyer wrote Rick Byrd, HealthSouth's vice president of real estate, notifying him that HealthSouth was in default for failing to provide the requisite plans and specifications for construction of the building. In that same letter, Falcon agreed to give HealthSouth an additional 90 days within which to complete the plans and specifications and present them to Falcon. The letter made no demand for "improvements rent."

On October 25, 1996, HealthSouth responded to the default letter, stating that it could not agree to lease any space from Falcon until HealthSouth had secured a sublease with MedPartners for the additional space in the building.² Because no plans had been furnished, Falcon wrote HealthSouth again on November 27, 1996, formally notifying HealthSouth of the default and giving HealthSouth 45 days within which to cure the default. Again, this letter made no demand for "improvements rent."

Representatives of HealthSouth and Falcon met in January 1997; at that meeting, HealthSouth stated that it would not go forward with the building without first securing a subtenant agreement. On January 24, 1997, Falcon wrote a letter to HealthSouth in which it declared HealthSouth to be in default and demanded over $7 million in accelerated improvements rent under the provisions in the sublease. From the time of default through the trial of this case, HealthSouth continued to pay the ground rent on the property.

Falcon sued HealthSouth on June 4, 1997, claiming that HealthSouth owed $7,167,724.24 for breaching the contract by failing to provide plans and specifications and an additional $7,167,724.24 on an "account stated." The case was tried to a jury. HealthSouth moved for a judgment as a matter of law ("JML") on both counts at the close of the plaintiff's evidence. The trial court granted the motion as to the "account-stated" count of Falcon's complaint; however, it denied the motion as to the remaining count. HealthSouth renewed its motion for a JML at the close of all the evidence; the court denied the renewed motion. The jury returned a verdict in favor of Falcon in the amount of $2,228,727. The trial court entered a judgment upon that verdict. HealthSouth timely moved for a JML, or, in the alternative, a new trial. The trial court denied the motion, and HealthSouth appealed.

Analysis

Because this appeal arises from a judgment based on a jury verdict, we "must consider the evidence in a light most favorable to the prevailing party and must set aside the verdict only if it is shown to be plainly and palpably wrong." Cobb v. MacMillan Bloedel, Inc., 604 So.2d 344, 345 (Ala.1992) (citation omitted). A jury's verdict is presumed to be correct, and that presumption of correctness is strengthened by the trial court's denial of a motion for a new trial. Transport Acceptance Corp. v. Vincent, 521 So.2d 976 (Ala.1988).

HealthSouth asserts (1) that HealthSouth was entitled to a JML on Falcon's claim that HealthSouth breached the sublease by failing to provide plans and specifications; (2) that Falcon's claim that HealthSouth had repudiated the contract cannot be maintained absent a clear, unqualified refusal by HealthSouth to perform and evidence of compensable damage; (3) that Falcon failed to prove any damage for which it could recover; (4) that Falcon could not maintain its claim of default without having strictly complied with the applicable default provisions of the sublease contract; (5) that the trial court erred in holding that Falcon was not required to reduce its claim for accelerated improvements rent to present value; (6) that the accelerated rent provision constituted a penalty and, therefore, was void and unenforceable; (7) that the trial court erroneously charged the jury on the issue of mitigation of damages regarding the future use of the land; and (8) that the trial court committed prejudicial error in allowing the introduction of evidence concerning offers of compromise and settlement.

First, HealthSouth argues that it was entitled to a JML because, it says, it did not breach the sublease agreement by failing to provide plans and specifications. We disagree. To establish a breach of contract, Falcon was required to prove (1) a valid contract that bound the parties in the action, (2) Falcon's performance under the contract, (3) HealthSouth's nonperformance, and (4) damage. See Southern Med. Health Sys. v. Vaughn, 669 So.2d 98, 99 (Ala.1995).

The parties do not seem to dispute that the sublease was a valid contract. Rather, HealthSouth argues that nonperformance by Falcon led it not to provide the plans and specifications as required under the contract. The evidence at trial was undisputed that Falcon, not HealthSouth, was the party that...