Mountain Bus. Ctr. v. Fork Rd.

• Decision Date: 23 November 2022
• Docket Number: S-22-0090
• Citation: 2022 WY 147
• Parties: MOUNTAIN BUSINESS CENTER, LLC, a Wyoming limited liability company, Appellant (Applicant), v. FORK ROAD, LLC, a Wyoming limited liability company, Appellee (Respondent).
• Court: Wyoming Supreme Court

2022 WY 147

MOUNTAIN BUSINESS CENTER, LLC, a Wyoming limited liability company, Appellant (Applicant), v. FORK ROAD, LLC, a Wyoming limited liability company, Appellee (Respondent).

No. S-22-0090

Supreme Court of Wyoming

November 23, 2022

Appeal from the District Court of Teton County The Honorable Timothy C. Day, Judge

Representing Appellant: Richard R. Thomas, Smith LC, Jackson Wyoming.

Representing Appellee: Mark D. Sullivan, Mark D. Sullivan P.C., Wilson, Wyoming; Kevin P. Gregory, Lubing, Gregory &Rectanus, LLC, Jackson, Wyoming. Argument by Mark D. Sullivan.

Before FOX, C.J., and KAUTZ, BOOMGAARDEN, GRAY, and FENN, JJ.

FOX CHIEF JUSTICE.

[¶1] This appeal stems from an arbitration award involving a breach of a lease agreement. Mountain Business Center, LLC (MBC) won a $23,998 arbitration award against Fork Road, LLC (Fork Road). MBC appealed the award to the district court, arguing the arbitrator exceeded his authority by determining issues not submitted to him, and that he committed two manifest errors of law regarding the first-to-breach rule and determining which party prevailed for purposes of a fee award. The district court confirmed the award, holding the arbitrator's determinations were not manifest error and were within his authority. We affirm.

ISSUES

[¶2] 1. Did the arbitrator exceed his authority by determining issues that were not presented to him?

2. Did the arbitrator commit manifest error by determining MBC was not the prevailing party and thus not entitled to attorney fees?

3. Did the arbitrator commit manifest error in refusing to apply the first-to-breach rule?

FACTS

[¶3] Fork Road is the owner of the top floor of a building at 690 South Highway 89, Jackson, Wyoming, which it purchased from JAMD, LLC on April 10, 2018. At the time of Fork Road's purchase, MBC, a tenant of the building, was in the middle of a five-year lease executed in 2016. MBC leased the top floor, conducting business in a portion of the space and subleasing the remaining office space.

[¶4] Prior to Fork Road's purchase, JAMD requested an estoppel certificate^[1] from MBC listing subtenant and sublease information so JAMD could provide the information to Fork Road. MBC returned the certificate, but withheld portions of the requested information, including subtenant identities and subtenant rental payment amounts. Both JAMD and Fork Road objected to the estoppel certificate, yet Fork Road elected to purchase the property. By April 23, 2018, Fork Road gave MBC notice of default and demanded MBC vacate the premises for MBC's failure to provide the requested information. It also hand-delivered notice to MBC's subtenants that Fork Road would be taking over the subleases. MBC refused to vacate the premises.

[¶5] On May 14, 2018, Fork Road filed a forceable entry and detainer (FED) action in circuit court to evict MBC from the building. MBC appealed the FED action to the district court, which determined the parties were bound by the arbitration clause. On June 18, 2019, Fork Road demanded that MBC leave the premises by June 21, 2019, for failure to pay rent.

[¶6] Almost two years later, the parties presented their cases in a five-day arbitration hearing. Prior to the hearing, the parties submitted a "Stipulated List of Issues to be Determined by the Arbitrator," in which Fork Road presented ten issues and MBC presented sixteen. The arbitrator consolidated and summarized the claims, articulating seven claims by Fork Road and eight by MBC:

Fork Road's Claims Against MBC

[¶7] MBC breached the lease by:

1. Failing to provide an adequate estoppel certificate that did not set forth sublease information;

2. Failing to name Fork Road as an insured on the MBC liability and property damage insurance policy; [ ]

3. Failing to insert a clause in the insurance policy which would inform Fork Road of a notice of termination of the policy[;]

. . . .

[4.] Failing to comply with the abandonment terms of the lease;

[5.] Failing to pay rent as required by the lease;

[6.] Damaging the office space during the move out and removing Fork Road's fixtures; and

[7.] Failing to maintain the office space in good repair.

MBC's Claims Against Fork Road

[¶8] Fork Road breached the lease by:

1. Refusing to accept a proper estoppel certificate;

2. Insisting MBC disclose confidential trade secrets;

3. Breaching the landlord covenant in the lease;

4. Failing to account for CAM [Common Area Maintenance] charges;

5. Filing an FED action instead of proceeding to arbitration; and

6. Unlawfully entering the office space on June 19, 2019, and April 23, 2018.

MBC also alleged Fork Road breached the implied covenant of good faith and fair dealing and interfered with its contractual relationships and business opportunities. In a fortyseven-page decision, the arbitrator made determinations on all issues presented and found for and against both MBC and Fork Road on certain claims and crossclaims, as follows:

Estoppel Certificate

[¶9] The arbitrator concluded that Fork Road was not entitled to disclosure of the terms of each sublease, particularly rental payment amounts, and that the demand for such information and the attempt to evict MBC due to its failure to provide the information was a material breach of the lease. The arbitrator relied on expert witnesses from both parties to understand common industry practice and interpreted the plain meaning of the words in the lease. He held the estoppel certificate was governed by the lease agreement which had no clear language requiring MBC to include rental terms of its subleases in the estoppel certificate. He concluded such information was confidential and unnecessary to Fork Road. The arbitrator determined that MBC breached the lease by withholding the identities of the sublessees, and Fork Road materially breached the lease by rejecting MBC's estoppel certificate.

Insurance Coverage

[¶10] Fork Road alleged that MBC's insurance policy lapsed, and MBC failed to include Fork Road as a named insured, both material breaches of the lease agreement. The arbitrator found MBC breached, but based on expert testimony, disagreed with Fork Road's claim the breach was material. In both instances, the issues were timely cured, and no harm occurred to Fork Road. If a claim had arisen during the lapse, Fork Road would still have been insured under the policy. MBC's breach was technical, and Fork Road was not subject to harm or risk of harm, therefore Fork Road was not awarded damages for the insurance claim.

Property Damage

[¶11] The arbitrator's findings on this issue were mixed. Fork Road alleged that MBC did not adequately maintain the premises and damaged the office space when moving out. The arbitrator found Fork Road, which retained the ability to inspect the property even after attempting to evict MBC, made no mention of property damages in any communications with MBC in the months preceding the FED action. He considered the small holes in the wall and floor scratches normal wear and tear and did not award damages. He found MBC liable for phone and internet wire damage, concluding the cut wires caused Fork Road damages of $5,952.

Wrongful Entry/Breach of Covenants

[¶12] The arbitrator again made mixed findings on the issues related to Fork Road's entry into the premises on April 23, 2018, and June 19, 2019. Fork Road first entered the property on April 23, 2018, to give MBC's subtenants notice of MBC's departure and to encourage each subtenant to remain in the space under new leases with Fork Road. The arbitrator found this entry wrongful because MBC had not materially breached the lease at that time. Fork Road entered the premises again on June 19, 2019, upon MBC's failure to pay rent. The arbitrator found MBC's failure to pay rent was a material breach that justified Fork Road's entry to ensure its property was not being damaged or removed. Regarding MBC's claims, the arbitrator found Fork Road breached the landlord covenant that promised MBC quiet enjoyment of the property when it wrongfully entered the property in April of 2018. Nonetheless, the arbitrator concluded Fork Road did not breach the covenant of good faith and fair dealing because it reasonably believed it was pursuing its contractual rights by entering the premises. Several other minor issues were addressed with mixed outcomes and minimal impact on MBC's claims on appeal.

Damages

[¶13] After parsing all issues, the arbitrator concluded that MBC sustained damages of $35,750 and Fork Road sustained damages of $11,752, entitling MBC to a $23,998 damage award. The arbitrator determined that MBC could not assert the first-to-breach rule because of its continued performance under the contract; therefore, Fork Road was entitled to offset MBC's damages with the damage it incurred.

[¶14] MBC also asserted a claim for attorney fees as the prevailing party. The arbitrator found that because of the mixed outcome, neither party improved its position through litigation and therefore neither was a prevailing party entitled to attorney fees or costs. MBC appealed the arbitration award to the district court, and the court confirmed the award in all respects.

STANDARD OF REVIEW

[¶15] "[T]he determination of whether the arbitrator exceeded its authority involves a question of law that we review de novo." Vogt v. MBNA Am. Bank, 2008 WY 26, ¶ 12, 178 P.3d 405, 409 (Wyo. 2008) (citing Welty v. Brady, 2005 WY 157, ¶ 12, 123 P.3d 920, 925 (Wyo. 2005)). This Court reviews "de novo a district court's decision to confirm, vacate or modify an arbitration award....without deference to the views of the trial court. At the same time, this Court, like the district court, shows substantial deference to the decision of the arbitrator." Skaf...