LUCKY JACKS, LLC v. Jopat Bldg. Corp.

• Decision Date: 18 September 2009
• Docket Number: 1071648.
• Citation: 32 So.3d 565
• Parties: LUCKY JACKS ENTERTAINMENT CENTER, LLC, and NEW GAMING SYSTEMS, INC. v. JOPAT BUILDING CORPORATION et al.
• Court: Alabama Supreme Court

32 So.3d 565

LUCKY JACKS ENTERTAINMENT CENTER, LLC, and NEW GAMING SYSTEMS, INC. v. JOPAT BUILDING CORPORATION et al.

1071648.

Supreme Court of Alabama.

July 10, 2009.

Rehearing Denied September 18, 2009.

Donald E. Blankenship of Blankenship & Company, Birmingham, for appellants.

William Kent Upshaw of Comer & Upshaw, LLP, Birmingham, for appellee.

LYONS, Justice.

Lucky Jacks Entertainment Center, LLC ("Lucky Jacks Entertainment"), and New Gaming Systems, Inc. ("NGS"), appeal from a judgment awarding approximately $216,000 in damages to Jopat Building Corporation, Pajia Realty Corporation, Natural Bridge Development Corporation, and Birges Land Corporation (hereinafter referred to collectively as "Jopat"). We reverse and remand.

Factual Background and Procedural History

Jopat owns and manages a shopping center in Roebuck. NGS operates gaming businesses in several states. Beginning in April 2006, NGS negotiated an agreement to lease from Jopat part of the shopping center. On June 7, 2006, Lucky Jacks Entertainment, an independent company owned by an NGS employee, executed the lease agreement as lessee. By separate agreement with Jopat, NGS guaranteed the lease on behalf of Lucky Jacks Entertainment. The lease agreement provided: "The Premises shall be used and occupied for the purpose of operating a video sweepstakes center and for no other purpose without the prior written consent of Lessor." (Emphasis added.) Lucky Jacks Entertainment was formed specifically to operate the video-sweepstakes center in the leased premises pursuant to the lease; it did not engage in any other business in Alabama.

It is undisputed that, at the time the lease agreement was negotiated and signed, the parties were aware that litigation was pending in the Jefferson Circuit Court regarding the legality of video-sweepstakes operations such as the one required by the lease. It is also undisputed that the parties "hoped" that this Court would eventually determine that such operations were legal.

The lease agreement included a termination provision, which provided: "Lessee may terminate the Lease at any time after twelve (12) full months of paying rent, provided Lessee gives Lessor ninety (90) days advance written notice and paid a sum equal to four (4) months of the then monthly rent with the termination notice." Jopat's agent, Matt Renner, testified that the termination provision was inserted into the lease agreement at NGS's request because NGS knew that the required use — for a video-sweepstakes center — could be declared illegal. The owner of Lucky Jacks Entertainment, Nathan Freels, testified that the termination provision was inserted into the lease agreement so that Lucky Jacks Entertainment could terminate the lease if the video-sweepstakes operation was not profitable.

Pursuant to the lease agreement as ultimately amended, Lucky Jacks Entertainment began operating a video-sweepstakes center on the property in September 2006. Lucky Jacks Entertainment paid rent as required by the lease agreement for each month it occupied the premises, including December 2006. On December 1, 2006, this Court determined that video-sweepstakes operations were unlawful under § 13A-12-27, Ala.Code 1975.¹ See Barber v. Jefferson County Racing Ass'n, 960 So.2d 599 (Ala.2006). It is undisputed that Lucky Jacks Entertainment vacated the premises and did not pay rent after December 2006.

On January 3, 2007, through counsel, Lucky Jacks Entertainment wrote Jopat's agent noting this Court's decision in Barber; in that letter, counsel mistakenly presumed that the lease term expired on January 4, 2007. In that same letter, Lucky Jacks Entertainment proposed to extend the lease on a month-to-month basis until this Court's decision became "final." In response, Renner wrote Lucky Jacks Entertainment explaining that the expiration date of the lease was September 30, 2009; demanding that Lucky Jacks Entertainment pay the rent owed for January 2007 within five days or be in default of the lease agreement; and offering to help Lucky Jacks Entertainment sublet or assign the lease if it wished to vacate the premises before the expiration date. The record does not show that Lucky Jacks Entertainment requested permission to use the premises for another purpose or that it responded to Jopat's demand for payment of rent.

On March 23, 2007, Jopat sued Lucky Jacks Entertainment and NGS, as guarantor (hereinafter referred to collectively as "Lucky Jacks"), in the Jefferson Circuit Court seeking damages for breach of the lease agreement and recovery under the guaranty agreement. Jopat later amended the complaint to state a claim for attorney fees and to demand $82,000 in damages on the breach-of-lease claim. Lucky Jacks answered both the complaint and the amended complaint.

At a bench trial, Jopat argued that Lucky Jacks Entertainment had breached the lease agreement by failing to comply with the termination provision in the agreement when it vacated the premises and ceased paying rent. Lucky Jacks argued that the lease was illegal and that it was, therefore, void and unenforceable in its entirety — including the termination provision. Specifically, citing this Court's decision in Walker v. Southern Trucking Corp., 283 Ala. 551, 219 So.2d 379 (1969), Lucky Jacks contended that Lucky Jacks Entertainment was relieved of its duty to perform because the single use for the leased premises required by the lease agreement — a video-sweepstakes operation — had been determined to be unlawful. Jopat argued that this Court's decision in Barber rendered the lease agreement merely impossible to perform, not void, and that, therefore, Lucky Jacks Entertainment was required to comply with the termination provision if it desired to terminate the lease.²

On May 13, 2008, the trial court entered a judgment detailing its findings of fact and conclusions of law. Based on the Court of Civil Appeals' decision in Lucas v. Lyle, 807 So.2d 546 (2001), the trial court concluded that the lease was voidable, and it awarded Jopat approximately $216,000 in damages, the amount Lucky Jacks Entertainment would have had to pay if the lease agreement had been terminated pursuant to the termination provision. Lucky Jacks moved to alter, amend, or vacate the judgment pursuant to Rule 59, Ala. R. Civ. P. The trial court denied Lucky Jacks's motion on July 24, 2008. Lucky Jacks appealed.

Standard of Review

"In reviewing a trial court's findings of fact based on ore tenus evidence, this Court presumes those findings to be correct." Hensley v. Poole, 910 So.2d 96, 100 (Ala.2005). "Nevertheless, this principle is not applicable where the evidence is undisputed, or where the material facts are established by the undisputed evidence." Salter v. Hamiter, 887 So.2d 230, 234 (Ala.2004); see also Kershaw v. Kershaw, 848 So.2d 942, 949 (Ala.2002). Furthermore, "on appeal, the ruling on a question of law carries no presumption of correctness, and this Court's review is de novo." Ex parte Graham, 702 So.2d 1215, 1221 (Ala.1997).

Analysis

On appeal, Lucky Jacks contends that the trial court erred in concluding that the lease agreement was voidable and not illegal and void. As it did before the trial court, Lucky Jacks bases its argument on this Court's decision in Walker, supra. In Walker, the parties entered into a lease agreement by which the lessees were to use the leased premises to operate an office, warehouse, and trucking terminal "`and for no other different object or purpose.'" 283 Ala. at 552, 219 So.2d at 380. At the time the lease was executed, the parties did not know that the required use was prohibited by local zoning laws. Upon discovering the restriction, the parties unsuccessfully attempted to have the property rezoned. The lessees then vacated the premises, and the lessor sued for uncollected rent.

After noting that "the entire property was rendered useless because of the lease's terms and the zoning of the property," this Court explained:

"The general rule in a case such as we have here is stated most clearly in 32 Am.Jur., Landlord & Tenant, s 229, p. 212:

"`. . . Where, however, the lease permits the lessee to use the premises for only a single purpose, a prohibition of law against such use will, according to the weight of authority, annul or terminate the contract and relieve the tenant of obligation thereunder. . . .'"

283 Ala. at 553, 219 So.2d at 381. This Court in Walker went on to quote Wilson v. McKleroy, 206 Ala. 342, 89 So. 584 (1921), overruled on other grounds by Cross v. Rudder, 380 So.2d 766 (Ala.1979), which involved the improper sale of the property of a minor. This Court stated:

"`When both parties, acting under a mistake of law, make a contract which the law forbids, then the principals are not liable thereunder. . . . It is a mistake of law, known in law, yet probably unknown in fact, to the parties to the contract at the time of its execution.'"

283 Ala. at 553-54, 219 So.2d at 381 (quoting Wilson, 206 Ala. at 348, 89 So. at 588-89). Based on these rules, this Court in Walker affirmed the trial court's judgment for the defendant, concluding that the plaintiff was not entitled to recover on the lease agreement.

Consistent with the rules stated in Walker and Wilson, this Court has also explained: "We believe that it is a sound principle that when premises are leased for the express purpose of enabling the lessee to accomplish an unlawful purpose, the agreement is void and there can be no recovery at the suit of either party against the other." Ex parte Rice, 258 Ala. 132, 136, 61 So.2d 7, 9 (1952).³ In Rice, this Court determined that this rule was a valid defense to an action seeking the specific performance of a lease agreement that allegedly furthered an unlawful restraint of trade. Under the facts presented, however, this Court concluded that the defendant had not sufficiently pleaded the defense.

In this case, it is undisputed that the lease agreement...