Kotis Properties, Inc. v. Casey's, Inc.

• Decision Date: 05 June 2007
• Docket Number: No. COA06-680.,COA06-680.
• Citation: 645 S.E.2d 138
• Parties: KOTIS PROPERTIES, INC., Plaintiff, v. CASEY'S, INC., a NC Corporation; Phases, L.L.C., a NC Limited Liability Company; Robert L. Casey, Jr.; Lauren D. Casey; Andrew K. Parker; Cynthia M. Estes; and Donna McNeal, Defendants.
• Court: North Carolina Court of Appeals

645 S.E.2d 138

KOTIS PROPERTIES, INC., Plaintiff, v. CASEY'S, INC., a NC Corporation; Phases, L.L.C., a NC Limited Liability Company; Robert L. Casey, Jr.; Lauren D. Casey; Andrew K. Parker; Cynthia M. Estes; and Donna McNeal, Defendants.

No. COA06-680.

Court of Appeals of North Carolina.

June 5, 2007.

Appeal by defendants from orders entered 2 December 2005 by Judge W. Douglas Albright and 13 December 2005 by Judge Lindsay R. Davis in Guilford County Superior Court. Heard in the Court of Appeals 11 January 2007.

Winfree & Winfree, by Charles Winfree, Greensboro, for plaintiff-appellee.

Pinto Coates Kyre & Brown, P.L.L.C., by Brady A. Yntema, Greensboro, for Phases, L.L.C., Cynthia M. Estes, and Donna McNeal, defendants-appellants.

GEER, Judge.

Defendants Phases, L.L.C., Cynthia M. Estes, and Donna McNeal (collectively the "Phases defendants") appeal from orders granting summary judgment and attorneys' fees to their former landlord, plaintiff Kotis Properties, Inc., for breach of a commercial lease agreement. While the Phases defendants do not dispute that Phases breached its lease with Kotis, they argue that Kotis failed to mitigate its damages.

In Sylva Shops Ltd. P'ship v. Hibbard, 175 N.C.App. 423, 623 S.E.2d 785 (2006), we recognized the enforceability of commercial lease provisions that expressly exempt a landlord from mitigating its damages in the event of a tenant's breach. Because the record establishes that the parties' lease contains such a provision, and the Phases defendants failed to demonstrate that this provision was inapplicable to their circumstances, we hold that the trial court did not err in granting summary judgment to Kotis and awarding the landlord attorneys' fees in accordance with the terms of the lease.

Facts

In April 2002, Kotis entered into a commercial lease agreement (the "Lease") with Casey's, Inc. for property owned by Kotis in Greensboro, North Carolina. Under the Lease, Casey's agreed to rent the property for a five-year term, beginning 1 May 2002, for $3,237.05 per month. The performance of the Lease was guaranteed by Robert L. Casey, Jr., Lauren D. Casey, and Andrew K. Parker.¹

Although the Lease prohibited Casey's from assigning or subleasing the property to another party, Kotis consented in July 2003 to a proposed assignment of the Lease by Casey's to Phases, which intended to operate a restaurant on the property. Casey's and its guarantors "remain[ed] bound to perform all of the Tenant's obligations under the Lease. . . ." Under a separate agreement, entitled "Assignment of Tenant's Interest in Lease," Phases "assume[d] all rights and obligations of [Casey's] under the Lease and agree[d] to comply with all terms of the Lease, including any provision requiring that the Premises be used for a specific purpose." Defendants Cynthia M. Estes and Donna McNeal guaranteed performance of Phases' obligations as the new tenant. Both Casey's and Phases agreed to be held jointly and severally liable in the event of a breach of the Lease.

Phases defaulted on rent payments beginning in May 2004, with three years still remaining on the Lease. Casey's did not cover the lapsed payments. That same month, Phases began negotiating to sell its assets to a businessman, Anthony Quick. Phases and Mr. Quick entered into an agreement under which Mr. Quick not only purchased Phases' assets, but also agreed to assume Phases' lease obligations from June 2004 through the expiration of the Lease, provided that Kotis approved the lease assignment.

Although Mr. Quick, who intended to operate a restaurant and bar on the premises, met with Kotis representatives and believed Kotis was "fine" with his plan to take over the Lease, Kotis ultimately refused to consent to the lease assignment. On the same date, in early June 2004, Kotis also formally placed both tenants—Casey's and Phases—in default. Kotis began to market the property to prospective tenants sometime in June or July 2004. The space, however, remained vacant for over a year until a new restaurant moved in and began paying rent in August 2005. Unpaid rents totaling $56,534.84 and unpaid interest totaling $10,136.23 accrued during this period.

On 11 August 2004, Kotis filed suit against the Casey's defendants and the Phases defendants for breach of the Lease. Kotis sought the accrued unpaid rent together with interest and attorneys' fees. The Casey's defendants and Phases defendants answered and asserted claims against each other. On 17 November 2005, Kotis filed a motion for summary judgment. Prior to the hearing on its motion, Kotis voluntarily dismissed its claims against the Casey's defendants with prejudice.

On 2 December 2005, the trial court granted summary judgment in favor of Kotis and against the Phases defendants. The court entered judgment in the amount of $44,671.07, the total past due rent less $22,000.00 that Kotis had received from the Casey's defendants. On 13 December 2005, the trial court also awarded Kotis $6,700.66 in attorneys' fees pursuant to the terms of the Lease. The Phases defendants and the Casey's defendants filed voluntary dismissals without prejudice of their still pending claims against each other. Thereafter, the Phases defendants filed a timely appeal to this Court from the trial court's summary judgment and attorneys' fees orders.

Discussion

Summary judgment is appropriate "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 any party is entitled to a judgment as a matter of law." N.C.R. Civ. P. 56(c). The party moving for summary judgment has the burden of establishing the lack of any triable issues. Collingwood v. Gen. Elec. Real Estate Equities, Inc., 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989). Once the moving party meets its burden, then the non-moving party must "produce a forecast of evidence demonstrating that [it] will be able to make out at least a prima facie case at trial." Id. In opposing a motion for summary judgment, the non-moving party "may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." N.C.R. Civ. P. 56(e). This Court reviews de novo a trial court's decision to grant summary judgment. Howerton v. Arai Helmet, Ltd., 358 N.C. 440, 470, 597 S.E.2d 674, 693 (2004).

On appeal, the Phases defendants do not dispute their liability for breach of the Lease, but rather argue that the trial court erred in granting summary judgment on the issue of damages because a genuine issue of material fact exists with respect to whether Kotis adequately mitigated its damages. See Isbey v. Crews, 55 N.C.App. 47, 51, 284 S.E.2d 534, 537 (1981) ("With respect to the question of mitigation of damages, the law in North Carolina is that the nonbreaching party to a lease contract has a duty to mitigate his damages upon breach of such contract."). Specifically, the Phases defendants point to Kotis' rejection of Mr. Quick's offer as evidence of its failure to mitigate the damages that ensued when the property remained vacant for approximately another year.

Both Kotis and the Phases defendants acknowledge Sylva Shops, in which this Court held "that a clause in a commercial lease that relieves the landlord from its duty to mitigate damages is not against public policy and is enforceable." 175 N.C.App. at 430, 623 S.E.2d at 791. The Phases defendants claim that the Lease in this case contains no such clause and, as a result, Kotis was not relieved of its duty to mitigate. Kotis, however, contends that the Lease specifically waived the landlord's duty to mitigate damages upon a tenant's breach and, therefore, it is unnecessary to consider the Phases defendants' arguments as to whether Kotis properly mitigated its damages. Based upon our review of the Lease, we believe that the parties did agree to waive Kotis' duty to mitigate, but only if Kotis reentered the premises without termination of the Lease.

Under Section 21 of the Lease, addressing the tenant's default, the parties agreed to the following pertinent provisions:

If Tenant defaults, then without further notice or demand, Landlord also may:

(1) Termination. Declare the Lease terminated, in which event Tenant's right to possess the Premises ceases and this Lease terminates as if Lease expired on the date set by Landlord for such termination. If this Lease so terminates, Tenant remains liable to Landlord for Tenant's accrued, but unperformed obligations under this Lease, plus damages equal to the rent and other sums that would have been due for the balance of the Lease Term, less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to the termination, after deducting all of Landlord's expenses in connection with the reletting, including the expenses in 2(ii) below. Tenant shall pay those damages monthly on the days on which the rent and other amounts were payable under this Lease.

However, in lieu of such damages, Landlord...