JTM Enters. v. Oddello Indus.

• Docket Number: E2022-00855-COA-R3-CV
• Decision Date: 30 November 2023
• Parties: JTM ENTERPRISES v. ODDELLO INDUSTRIES, LLC
• Court: Tennessee Court of Appeals

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JTM ENTERPRISES
v.
ODDELLO INDUSTRIES, LLC

No. E2022-00855-COA-R3-CV

Court of Appeals of Tennessee, Knoxville

November 30, 2023

Session February 16, 2023

Appeal from the Chancery Court for Hamblen County No. 2019-CV-583 Douglas T. Jenkins, Chancellor

The parties' dispute centers upon whether a tenant is required to pay rent for a particular ten-month period. The landlord asserts that it delayed but did not waive payment. The tenant counters that the landlord's agent waived rent and that the tenant forbore terminating the lease based on the agent's representations. The trial court, after setting aside a default judgment, concluded that the landlord's agent did not have the authority to waive rent but had the authority to modify the lease to reduce rent for three of the ten months. The tenant appeals, arguing that the trial court erred in its determination as to the agent's authority, the issue of estoppel, and the issue of waiver. The landlord asserts that the trial court erred in setting aside the default judgment and in reducing the rent for the three-month period. After a review of the record, we affirm the setting aside of the default judgment but reverse the trial court's ruling on the agent's authority and remand for further proceedings.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part; Reversed in Part; Case Remanded

Ronald S. Range, Jr., and Catherine A. Karczmarczyk, Johnson City, Tennessee, for the appellant, Oddello Industries, LLC.

Lauren Armstrong Carroll, Morristown, Tennessee, for the appellee, JTM Enterprises.

JEFFREY USMAN, J., delivered the opinion of the court, in which D. MICHAEL SWINEY, C.J., and KRISTI M. DAVIS, J., joined.

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OPINION

JEFFREY USMAN, JUDGE

I.

In September 2014, tenant Oddello Industries, LLC, (Oddello) agreed to lease a 408,000 square foot facility from landlord JTM Enterprises (JTM). The lease was for an eight-year period and provided that Oddello would pay $61,200 per month in rent, that the facility was to be improved, and that, upon completion of the improvements, Oddello would pay an unspecified monthly sum toward the costs of the improvements. Oddello drew seventy percent of its business from a contract with Tempur Sealy, and the lease provided that if Oddello's contract with Tempur Sealy were terminated, Oddello would have the option of early termination of the lease but would remain liable for the full cost of the remodeling. A second lease was executed in January 2015 that was to run through January 2023. This second lease provided that the monthly payments on construction costs would be $8,144.69, contributing to a total monthly payment of $69,344.69 for rent and construction costs. The early termination provision hinging on the loss of the Tempur Sealy contract remained intact.

The signatories to the leases were Gene Jolley, Managing Partner^[1] of JTM, and Telia Otto, Chief Managing Member of Oddello. Mr. Jolley and Ms. Otto had a longstanding and amicable working relationship spanning multiple businesses and years. In late 2017, the unfortunate event anticipated by the contract - the loss of a contract with Tempur Sealy - took place. Oddello does not dispute that from November 2017 through August 2018, it did not pay any rent. However, Ms. Otto testified that Oddello could have exercised its option to terminate when it lost the contract with Tempur Sealy. She stated that Oddello attempted to terminate the lease and "did make JTM aware that we were going to move out," but that Oddello did not do so because she had a "good working relationship" with Mr. Jolley. According to Ms. Otto, Mr. Jolley forgave the rent for the ten-month period. She testified, "It was just an understanding and communicated between us in informal conversations that [rent] was forgiven for me to get back on my feet." She confirmed that Mr. Jolley used the word "forgiven" and said he did not use the word "waive." According to Ms. Otto, these conversations took place in early 2018. In addition to refraining from exercising the right to terminate, Oddello downsized its footprint to half the facility and attempted to get a new tenant for the remaining space. Oddello incurred costs in moving its equipment to the new space and in adding a $30,000 desk pad in the divided space.

On May 4, 2018, during the period of nonpayment, the parties executed a third lease. Under the third lease, Oddello would occupy 200,000 square feet of the 408,000-square-

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foot space and would pay $25,000 per month in rent. The term of the third lease began September 1, 2018, and the lease was for period of three years. Pursuant to a Lease Amendment executed on June 28, 2018, Oddello was to pay $4,500 per month for the balance of the construction costs. No provisions were made for the repayment of any past-due rent, although Oddello had not paid rent since the previous November.

The parties executed certain documents on May 29, 2018, related to a line of credit and a loan that Oddello sought from a financial institution. In these documents, the parties represented that Oddello was not in default under the lease. An agreement entitled "Landlord, Tenant and Lender Agreement" provided: "Landlord represents that, to the best of its knowledge, there are no Tenant defaults under the Lease as of the date hereof. Landlord agrees and Tenant consents that any default notice which is sent to Tenant shall also be sent to Lender." The Landlord's Waiver similarly represented that Oddello was not in default: "Landlord and Tenant each hereby ratify the Lease and represent and warrant to Lender that as of the date hereof (a) the Lease is in full force and effect in accordance with its terms, (b) neither Landlord nor Tenant is in default under the Lease, and (c) no event has occurred that, upon the giving of notice or the passage of time (or both), would become a default under the Lease."

JTM filed suit on December 30, 2019. According to the complaint, Oddello began missing payments about a year into the third lease, in November and December 2019. JTM sought possession of the premises, construction costs, and judgments for unpaid rent from November 2017 to August 2018 and from November and December 2019. JTM moved for default judgment on February 6, 2020, alleging that Oddello was served with the complaint on January 6, 2020, but that it had not filed an answer or other pleading. The trial court entered a default judgment on February 13, 2020, granting JTM possession of the premises and a judgment of $1,171,009.52, representing the unpaid rent and construction costs claimed by JTM.

On March 3, 2020, Oddello filed a motion to vacate the default judgment and an answer. In support of the motion to vacate, Oddello averred that after Ms. Otto learned of the lawsuit, she spoke numerous times on the telephone with Mr. Jolley, and that he several times told her "not to be concerned about it" and "that it could be worked out." Included as an exhibit was a log of numerous telephone calls Oddello stated occurred between Ms. Otto and Mr. Jolley. The motion asserted that Oddello had meritorious defenses based on the amounts owed and on JTM's failure to notify Oddello's lenders of default. JTM opposed the motion to vacate, noting that, although it acknowledged discussions between JTM's members and Oddello, the default motion was properly served and Odello failed to defend it. The trial court entered an order taking the motion to vacate under advisement, urging the parties to come to an agreement, and staying any action to enforce the judgment.

During a two-year pause in the proceedings, the parties settled the issues of possession, construction costs, and the 2019 rent, but they proceeded to trial over the

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unpaid rent from November 2017 to August 2018. Before trial, the parties addressed the motion to vacate the default judgment, with Oddello noting that a judgment could be vacated when the default was unintentional, there was a meritorious defense, and no prejudice to the other party, and asking for the default to be set aside. The chancery court determined that it would set aside the default judgment, and trial proceeded on the issue of outstanding rent.

Unfortunately, Mr. Jolley had passed away by the time of trial. Mr. Jolley's son, Randall Jolley,^[2] testified at trial as the trustee for Mr. Jolley's estate, which remained part owner of JTM. Mr. Jolley's son testified that he was present when Mr. Jolley signed the Landlord's Waiver and Landlord, Tenant and Lender Agreement in May 2018. He stated that the $2.5 million in loans referenced in the agreement was a "cash influx in the business to get them caught up on payments" and that he believed the money was to be used to pay the rent owed to JTM. Mr. Jolley's son testified that Oddello was behind on payments at the time that the Landlord, Tenant and Lender Agreement was executed. Nevertheless, Mr. Jolley signed the agreement because Mr. Jolley thought that, without the loan, Oddello would not be able to "stay open" and that "this was the best way for us to be able to get our rent paid back." Mr. Jolley's son believed Oddello would not have been able to obtain the loan if the lender had been aware that Oddello was approximately $500,000 behind on rent but stated that JTM did not intend to waive the rent owed at the time. Fascinatingly, Mr. Jolley's son stated that the representation in the Landlord's Waiver that Oddello was not in default was "not a true statement" and that the representation that there was no default in the Landlord, Tenant and Lender Agreement was likewise "not a true statement."^[3] He testified that Mr. Jolley signed the documents because he was worried that JTM "wouldn't get any money" if Oddello went out of business. On redirect examination, he agreed that the third lease, which went into effect in September 2018, was not in default at the time the May 2018...