Kroger Co. v. Malease Foods Corp.

• Citation: 437 F.3d 506
• Decision Date: 09 February 2006
• Docket Number: No. 04-4512.,04-4512.
• Parties: THE KROGER COMPANY, Plaintiff-Appellee, v. MALEASE FOODS CORP., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

437 F.3d 506

THE KROGER COMPANY, Plaintiff-Appellee, v. MALEASE FOODS CORP., Defendant-Appellant.

No. 04-4512.

United States Court of Appeals, Sixth Circuit.

Argued: December 8, 2005.

Decided and Filed: February 9, 2006.

ARGUED: Robert W. Cinque, Cinque & Cinque, New York, New York, for Appellant. Scott D. Phillips, Frost, Brown & Todd, Cincinnati, Ohio, for Appellee. ON BRIEF: Robert W. Cinque, Cinque & Cinque, New York, New York, R. Gary Winters, McCaslin, Imbus & McCaslin, Cincinnati, Ohio, for Appellant. Douglas R. Dennis, Frost, Brown & Todd, Cincinnati, Ohio, for Appellee.

Before: MOORE, ROGERS, and McKEAGUE, Circuit Judges.

McKEAGUE, Circuit Judge.

Defendant Malease Foods Corporation appeals the district court's November 23, 2004, order requiring Malease to convey its leasehold interest in certain properties to plaintiff, The Kroger Company, or in the alternative, to post an appropriate bond pending appeal. This order followed the partial grant of Kroger's motion for summary judgment, wherein the district court found that Kroger had properly exercised purchase options on the subject properties.

Prior to the September 23, 2004, order, Malease had filed an unsuccessful motion to dismiss under Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. Because the exercise of personal jurisdiction was integral to the order on appeal, the panel has reviewed this issue and concludes that the district court erred in its denial of defendant's motion to dismiss. Therefore, this case is remanded to the district court for entry of an order to dismiss, without prejudice, for lack of personal jurisdiction pursuant to the Ohio long-arm statute. Further, it follows that the order for injunctive relief must be vacated.

I. FACTUAL AND PROCEDURAL HISTORY

A. Facts

The facts underlying this controversy are complex. On April 1, 1983, The Kroger Company ("Kroger"), an Ohio corporation, entered into three sale-leaseback transactions with Balkhouse Properties Corporation ("Balkhouse Properties"), a Tennessee corporation. Sale-leaseback transactions involve the sale of a piece of real property, usually by a high credit owner to an investor. The original owner then leases the property back. The properties involved in this case are three industrial facilities located in Bowling Green, Kentucky; Murfreesboro, Tennessee; and San Marcos, Texas. As a result of the transactions, Balkhouse Properties became the fee-simple owner of the properties and Kroger was the lessee.

The three lease agreements were essentially identical, with variances based only on square footage and other specifics relevant to the individual properties. Each lease was for a twenty-year term, with possible extension for a total of thirty years. Each lease included an option for Kroger to purchase the real property at the end of the twenty-year term.

On June 1, 1983, Balkhouse Properties conveyed fee simple interests in the properties to Balkhouse Associates. Then, Balkhouse Properties entered into a lease agreement wherein it leased the properties back from Balkhouse Associates. On the same occasion, Balkhouse Properties assigned all its rights under the lease agreements with Balkhouse Associates to Malease Foods Corporation ("Malease"), a Delaware corporation with its principal place of business in New York City. Malease and Balkhouse Associates then entered into three separate "Two-Party Agreements" which were identical in form, relating to each piece of property. Each Two-Party Agreement divided the respective property interests, with Malease having the rights as master lessee and Balkhouse Associates being the fee simple owner.

The Two-Party Agreements also acknowledged Kroger's purchase options. Each agreement allocated the rights and responsibilities with respect to the option between Balkhouse Associates and Malease, in the event that Kroger exercised the option. Each agreement states:

If a Purchase Option is exercised pursuant to Article XXXV of the Occupancy Lease, Partnership [Balkhouse Associates] shall be obligated to sell and convey Partnership's interest in the Premises to Occupancy Tenant [Kroger] simultaneously with the sale of the Master Lessee's [Malease's] Interest in the Premises to Occupancy Tenant by the Master Lessee. Partnership and Master Lessee shall execute and deliver a partial surrender of lease to release the Premises from the Master Lease. Partnership's Interest and Master Lessee's Interest in the Premises shall be sold and conveyed in accordance with Article XIX of the Occupancy Lease, subject however, to compliance with the following . . . [the rest discusses the determination and pay out of the purchase price].

Two-Party Agreement, June 1, 1983.

As a result of these transactions, Balkhouse Associates held fee simple title to each property, Malease held the Master lessee interest and was the primary tenant, and Kroger was Malease's subtenant. This relationship continued until 2001, when Kroger purchased the fee simple interest in each of the properties from Balkhouse Associates. Along with the properties, Kroger was assigned the leases and the Two-Party Agreements between Malease and Balkhouse Associates. This purchase was not conducted under the terms of the option, but was negotiated separately two years ahead of the time provided for under the purchase options. This resulted in Kroger becoming the lessor to Malease, who continued to be the master lessee to its tenant, Kroger. Kroger paid rent to Malease, and Malease, in turn, paid rent to Kroger. On February 18, 2002, Kroger notified Malease by letter that it intended to purchase the master lessee's rights under the terms of the original lease between Kroger and Balkhouse Properties at the expiration of the lease term on April 1, 2003. Malease refused to allow Kroger to exercise the option, contending that Kroger's purchase of the property from Balkhouse Associates rendered the purchase options void:

As noted in your notice letter, and in the `Notice dated July 24, 2001' to which you refer, The Kroger Co., is already the owner of the subject properties, having purchased the same outside the scope of the `Purchase Options.' By your actions in purchasing these properties, and without regard to and outside the scope of the Purchase Options and in disregard of the interests of Malease Foods Corp., you negated and repudiated and rendered the Purchase Options meaningless, null and void.

Malease letter to Kroger, March 14, 2002. Malease's refusal to honor the lease purchase options precipitated this litigation.

B. Procedural History

On June 14, 2002, Kroger filed a complaint in the Southern District of Ohio seeking a declaratory judgment that it had validly exercised its rights under the purchase options to acquire the leases at issue. Kroger relied on 28 U.S.C. § 1332 for jurisdiction over Malease, stating that all parties are diverse and the amount in controversy exceeds $75,000. The complaint also alleged anticipatory breach and requested an order for specific performance of the options. Malease filed a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction on January 27, 2003. An order denying the motion was entered on September 22, 2003.

Malease filed an answer with counterclaims on October 3, 2003. Malease requested a declaratory judgment that Kroger's attempt to exercise the options was invalid. The counterclaim also alleged that Kroger's purchase of the properties from Associates was null and void, requiring that the transaction be rescinded. Finally, Malease sought money damages for the rent it claims was due because of an automatic renewal of the leaseholds.

The parties then filed cross-motions for summary judgment. Kroger moved for summary judgment on its claims for declaratory judgment, breach of contract, and specific performance, as well as each of Malease's counterclaims.¹ Malease moved for summary judgment on its declaratory judgment claim, requesting that the court find that Kroger did not validly exercise its purchase options, and that the master leases automatically renewed. Malease also moved to recover the back rent due as a result of the alleged automatic renewal of the leases.

The district court granted in part and denied in part Kroger's motion for summary judgment on July 27, 2004. The court awarded Kroger declaratory judgment, finding that Kroger had properly exercised its rights under the agreements, and denied Malease's corresponding request for a declaratory judgment. The court also granted Kroger's request for specific performance of the purchase options, and held that Malease's actions amounted to a breach of its obligation to convey the leases in accordance with the purchase options. Rather than granting Kroger's motion for a calculation of damages, the court ordered the matter set for trial.

In response to the district court order, Malease filed a motion to dismiss Kroger's damages claim on July 27, 2004. Kroger filed a motion to show cause, or for injunctive relief on September 19, 2004. The district court granted Kroger's motion on November 23, 2004, finding that Malease's motion was untimely, and requiring the parties to submit memoranda concerning the amount of bond Malease was to provide while pursuing its appellate rights. However, Malease elected to convey its leaseholds to Kroger, but requested that Kroger post a bond pending appeal. The district court denied this request. The court ordered a closing date for the leaseholds within sixty days of the order dated December 7, 2004.

Malease filed this interlocutory appeal on December 2, 2004, appealing the district court's November 23, 2004, order which granted Kroger's motion to show cause, or in the alternative for leave to request injunctive relief, and denied Malease's motion for leave to file a motion to dismiss Kroger's damages claim. As part of this appeal, both parties have briefed and argued the district court's denial of Malease's Rule 12(b)(2) ...