Lena Petroleum, Inc. v. Kennedy, No. 2008-CA-000657-MR (Ky. App. 3/20/2009)
| Decision Date | 20 March 2009 |
| Docket Number | No. 2008-CA-000657-MR.,2008-CA-000657-MR. |
| Parties | LENA PETROLEUM, INC. and Zeiad Shouman, Appellants, v. Jere P. KENNEDY; Sarah M. Kennedy; Margaret K. Ellis; and Jess L. Ellis, Appellees. |
| Court | Kentucky Court of Appeals |
Appeal from Jefferson Circuit Court, Honorable Kathleen V. Montano, Judge, Action No. 07-CI-009702.
Kyle T. Hubbard, Louisville, Kentucky, Briefs for Appellant.
Norman W. Graham, Louisville, Kentucky, Brief for Appellee.
Before: ACREE and Nickell, Judges; KNOPF,1 Senior Judge.
Not to be Published
Lena Petroleum, Inc. and Zeiad Shouman (hereinafter referred to collectively as "Lena") appeal from separate orders of the Jefferson Circuit Court dismissing all claims against Jere P. Kennedy, Sarah M. Kennedy, Margaret K. Ellis, and Jess L. Ellis (hereinafter referred to collectively as "Kennedy/Ellis"). At issue is the interpretation and application of a "right of first refusal" provision in a commercial lease agreement. The trial court granted summary judgment to Kennedy/Ellis as to Lena's declaratory judgment claim and dismissed Lena's claim under the doctrines of equitable and promissory estoppel. Upon review, we affirm.
The facts of this case are not in dispute. On April 25, 1979, John and Elsa Kennedy, the parents of appellees Jere P. Kennedy and Margaret K. Ellis, leased approximately one-half acre of land to the Shell Oil Company pursuant to a "Lease Agreement." The subject property, which is referred to as the "Premises" in the agreement, is part of a 2.96-acre tract located at the corner of Bardstown Road and Hikes Lane in Louisville, Kentucky. Pursuant to the agreement, Shell constructed and operated a service station with underground pumps and equipment.
Shell eventually assigned its interest in the Lease Agreement to Equilon Enterprises, LLC and Thoroughbred Energy, LLC. On or about July 1, 2002, Lena began leasing the subject Premises from Thoroughbred. On or about March 1, 2003, the Lease Agreement was assigned outright to Lena, who ultimately converted the business into a Chevron service station.
The primary term of the Lease Agreement was for eight years, from January 1, 1980 to December 31, 1987, but it allowed for four subsequent option periods of five years each. The Lease Agreement was ultimately set to expire on December 31, 2007. The parties entered into negotiations to either extend the original agreement or to execute a new lease sometime in 2006. In August 2006, Kennedy/Ellis tendered a proposed Lease Agreement to Lena, but the parties were apparently unable to resolve the matter at that time.
On June 12, 2007, Kennedy/Ellis gave notice to Lena of an offer to lease that they had received from White/Reach, LLC that would involve the construction of a Rite Aid drugstore on the subject property. This was followed up with another letter on July 11, 2007, along with copies of an executed White/Reach "Intent to Lease Agreement." This agreement proposed that White/Reach would lease 1.7 acres of the Kennedy/Ellis property — including the subject one-half-acre parcel then being leased by Lena — at a rate of $4,000.00 per month for the first seven months of the agreement or until the opening of the Rite Aid. Afterwards, the rate would be $10,500.00 per month.
By letter dated July 25, 2007, Lena attempted to exercise a "right of first refusal" pursuant to Paragraph 12 of the Shell Lease Agreement by submitting a new "Proposed Lease Agreement" to Kennedy/Ellis to counter the offer made by White/Reach. Paragraph 12, a provision that lies at the heart of this appeal, provides in relevant part as follows:
12. LEASE REFUSAL. If at any time during the primary term, any extension period or any tenancy after either, Lessor receives from a ready, willing and able lessee an acceptable bona fide offer, or makes a bona fide offer to such a lessee, to lease the Premises or any part thereof or any property which includes all or part of the Premises, for a term beginning after the termination of this Lease, Lessor shall give Shell notice thereof, specifying the name and address of the lessee and the term, rent and other provisions of the proposed lease, accompanied by Lessor's affidavit that such lease is in good faith. Shell shall thereupon have the prior option to lease the Premises or the part thereof or the entire property covered by the offer, for the term, at the rent and on the other provisions specified in such notice[.]
Lena proposed to match the terms of the White/Reach "Intent to Lease Agreement," but only as to the subject one-half acre of land on which its service station stood. In other words, it made no offer with respect to the remaining 1.2 acres that White/Reach sought to lease. Lena's offer estimated a pro-rated fair rental amount of $3,465.00 per month — instead of the $10,500.00-per-month amount set forth in the White/Reach agreement — and failed to include the non-refundable deposit provision set forth in the White/Reach agreement.
Kennedy/Ellis rejected Lena's proposal in a letter dated August 10, 2007. They contended that Lena did not have the right to exercise its right of first refusal under Paragraph 12 of the Shell Lease Agreement as to only one-half acre of land. Instead, Lena was entitled only to "the right to execute a first refusal as to the entire piece of property (the 1.7 acres) covered by the Rite Aid proposal under the terms, at the rent and on the other provisions specified" in that offer.
On October 3, 2007, Lena and its president, Zeiad Shouman, filed a verified complaint against the Kennedy/Ellis heirs in the Jefferson Circuit Court. The complaint alleged two alternative causes of action: (1) a declaration of rights action pursuant to KRS 418.040 alleging that Lena's right of first refusal was valid under Paragraph 12 of the Shell Lease Agreement; and (2) a claim for judgment under the doctrines of equitable and/or promissory estoppel. Lena ultimately wanted the court to put its proposed lease into effect for a five-year term with two additional five-year option periods.
On October 30, 2007 and November 20, 2007, Lena and Kennedy/Ellis filed separate motions for summary judgment as to Lena's declaration of rights claim. Each motion presented a different interpretation of Paragraph 12 of the Lease Agreement, with both parties claiming that the language of this provision was "unambiguous" yet disagreeing as to how it should be interpreted.
Lena claimed that despite the fact that White/Reach's offer was for 1.7 acres of the Kennedy/Ellis property, Paragraph 12 allowed it to exercise its right of first refusal only as to the one-half acre containing the Premises. Lena specifically contended that the language in Paragraph 12 stating that "Shell shall thereupon have the prior option to lease the Premises or the part thereof or the entire property covered by the offer" allowed Lena the option of leasing the Premises, a portion of the Premises, or the property covered by the White/Reach offer. In other words, Lena was not obligated to match the White/Reach offer by proposing to lease the entire 1.7-acre tract covered by the offer; instead, it could choose from three different alternatives. Lena further argued that it was not required to match White/Reach's offer of a $10,000.00 non-refundable deposit.
Kennedy/Ellis also maintained that the language of Paragraph 12 was "unambiguous," but they contended that Lena's efforts to exercise its right of first refusal did not meet the requirements of that provision because its offer did not match the exact terms of the White/Reach proposal. They specifically argued that Lena was required to lease the property covered by the White/Reach offer, i.e., the full 1.7 acres, even though Lena was only interested in leasing the Premises. They further noted that — unlike the White/Reach offer — Lena's proposed new lease agreement did not provide for a non-refundable deposit. Kennedy/Ellis contended that Lena's attempt to exercise its right of first refusal failed because its offer included a number of material variations from the White/Reach proposal.
On December 17, 2007, the trial court entered an interlocutory order denying Lena's motion for summary judgment and granting Kennedy/Ellis a partial summary judgment. The court concluded that Paragraph 12 was ambiguous as to whether Lena could propose to lease the Premises only or if it had to match the White/Reach offer in its entirety in exercising its right of first refusal. With this established, the court then explained its decision in favor of Kennedy/Ellis.
The court first noted Kennedy/Ellis' argument that the language of Paragraph 12 was essentially repeated in Paragraph 10 of an Addendum to the Lease Agreement and that it therefore should be interpreted in the same manner. Paragraph 10, entitled "Purchase Refusal," provides in relevant part as follows:
10. PURCHASE REFUSAL. If at any time during the primary term, any extension period or any tenancy after either, Lessor receives from a ready, willing and able purchaser (other than a member of Lessor's immediate family or a corporation whose stock is wholly owned by Lessor and/or members of such family) an acceptable bona fide offer to purchase, or makes a bona fide offer to sell to such purchaser, the Premises or any part thereof: Lessor shall give Shell notice, specifying the name and address of the purchaser and the price and terms of the offer, accompanied by Lessor's affidavit that the proposed sale is in good faith. Shell shall thereupon have the prior option to purchase the Premises or the part thereof or the entire property covered by such offer at the price and on the terms of the offer[.]
Kennedy/Ellis contended that a property owner would not allow a holder of a right of first refusal to carve out a portion of a property for purchase when a third-party offered to purchase the property in its entirety because of the obvious risk that such a carving-out would diminish...
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