Nola Ventures, LLC v. Upshaw Ins. Agency, Inc.

• Decision Date: 22 September 2014
• Docket Number: CIVIL ACTION CASE NO. 12-1026 SECTION: G(2)
• Parties: NOLA VENTURES, LLC ET AL v. UPSHAW INSURANCE AGENCY, INC. ET AL
• Court: U.S. District Court — Eastern District of Louisiana

NOLA VENTURES, LLC ET AL v. UPSHAW INSURANCE AGENCY, INC. ET AL

CIVIL ACTION CASE NO. 12-1026 SECTION: G(2)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

September 22, 2014

ORDER

This litigation involves an insurance dispute arising out of a May 2011 tornado in Joplin, Missouri that destroyed two Arby's restaurants owned and/or operated by Nola Ventures LLC, Nola Restaurant Group LLC, and Critical Mass Holdings LLC (collectively, "Plaintiffs"). Plaintiffs allege that Defendants Upshaw Insurance Agency, Inc. ("Upshaw") and Upshaw agent Robert Bentley ("Bentley") (collectively, "Defendants") negligently misrepresented the type of coverage provided by the insurance policy that Upshaw procured for them.

Before the Court is Defendants' "Motion for Summary Judgment on the Issue of Damages,"¹ wherein Defendants move for summary judgment with regard to all damages and, in the alternative, for partial summary judgment with regard to each item of damage.² Having considered the motion, the memoranda, the record, and the applicable law, the Court denies the motion in part and grants the motion in part.

I. Background

A. Factual Background

NOLA Ventures, LLC ("NOLA Ventures") is an "Arby's Roast Beef" restaurant franchisee. Critical Mass Holdings, LLC ("CMH") owns certain property from which some NOLA Ventures restaurants operate. NOLA Restaurant Group, LLC manages all of NOLA Ventures' restaurants. In 2007, Plaintiffs acquired two Arby's restaurants in Joplin, Missouri (the "Main Street" and "Range Line" properties) (collectively, the "Joplin properties") and asked Robert Bentley, agent for Upshaw Insurance, to procure commercial insurance for both locations.³ Upshaw procured insurance for Plaintiffs for the following four years. On March 23, 2011, during a meeting with Bentley to discuss insurance options for the 2011-2012 insurance year, Plaintiffs selected the "Lexington Option"⁴ with the Axis excess layer policy.⁵

In their complaint, Plaintiffs allege that Defendants represented the 2011-2012 Lexington property policy to be a "blanket" policy, in which "the pool of monies available to cover a physical loss occurrence at any of the plaintiffs' restaurants consisted of the $10,000,000 Primary Layer of insurance and the $13,152,000 Excess Layer of insurance and that the policies would cover the cost to replace the insured property without other limits."⁶ The Lexington policy was actually a scheduled policy, whereby the coverage of each property was limited to a dollar amount which the insurer made applicable to each location. The dollar limit for each location was insufficient for rebuildingthe Joplin properties.⁷ Plaintiffs have recovered the total insured value for each Joplin property, totaling $1.19 million, from Lexington.⁸

On September 9, 2013, Plaintiffs submitted the report of Dr. Kenneth J. Boudreaux ("Boudreaux") on the issue of damages. According to Boudreaux's report, Plaintiffs allege damages arising from: (1) the loss of the Main Street and Range Line properties; (2) the necessary sale of the Main Street land "in an untimely manner and at a distress price," with associated adverse tax effects; (3) settlement of the lease on the Range Line property; (4) the required partial paying down of a loan from General Electric Capital ("GE")'s financing subsidiary, with associated adverse tax effects; (5) the effects of cash flow shortages, increased overheads, and other deleterious business effects on NOLA Ventures' business operations; (6) reduced lease payments by NOLA Ventures to CMH; (7) loss of the opportunity to acquire additional Arby's restaurants in Ft. Lauderdale, Florida; (8) the cost of Axis excess insurance coverage that produced no benefits to Plaintiffs; and (9) the "inappropriateness of using insurance proceeds received by [P]laintiffs as offsets to their economic losses."⁹ The resulting "Net Loss Before Interactions," according to Boudreaux, is $10,946,898.¹⁰ Defendants now seek summary judgment on several of these damages items.

B. Procedural Background

On April 23, 2012, Plaintiffs filed suit in 24th Judicial District Court, Jefferson Parish, for damages "which resulted from the defendants' negligence, misrepresentation, want of care, fault and breach of fiduciary duty."¹¹ Defendants removed to this Court on the grounds of diversity jurisdiction.¹² Defendants filed the pending motion on September 9, 2013.¹³ Plaintiffs filed a memorandum in opposition on September 23, 2013.¹⁴ On September 25, 2013, Defendants filed a reply.¹⁵ Defendants filed a supplemental memorandum on November 12, 2013,¹⁶ and Plaintiffs filed a sur-reply on March 11, 2014.¹⁷

II. Parties' Arguments

A. Defendants' Arguments in Support

Defendants move for summary judgment with respect to the following items of damage: (1) CMH's claim for loss of future rent of the Main Street property in the amount of $626,0253; (2) NOLA Ventures' settlement of the Range Line lease for $250,000; (3) NOLA Ventures' loss valuation of $900,000; (4) Plaintiffs' income taxes of $383,700 and loan modification fee of $45,000 related to its loan from GE (the "GE loan"); (5) NOLA Ventures' lost business value calculation of$2,225,495; (6) CMH's lost lease values; (7) NOLA Ventures' alleged lost business opportunity in Ft. Lauderdale; (8) "Worthless Axis Policy" damages; and (9) all other damages claims.¹⁸

1. CMH's claim for lost rent of the Main Street property in the amount of $626,0253

Defendants argue that summary judgment is appropriate with respect to the damages identified in Boudreaux's opinion that "because the restaurant was not rebuilt, plaintiff/insured CMH lost future lease payments over the life of the lease (through 2026 from plaintiff/insured NOLA Ventures) in the amount of $626,025."¹⁹ First, Defendants contend that CMH has no claim for future lost rentals as a matter of law because it never placed NOLA Ventures in default or provided NOLA Ventures with a written notice of termination, which Defendants claim are both required under the terms of the CMH-NOLA Ventures lease for the Main Street property.²⁰

Next, Defendants argue that CMH has no right of action because it "has been made whole."²¹ Defendants contend that NOLA was required to carry rebuilding insurance and name CMH as a payee, so NOLA was entitled to the insurance proceeds for rebuilding and CMH was "simply entitled to insurance proceeds as a loss payee."²² Therefore, Defendants argue, CMH has already received all amounts owed to a loss payee and is not entitled to recover for failure to rebuild.²³ According to Defendants, to allow CMH to recover future rentals for the Main Street property wouldbe akin to allowing a "double recovery" because "only one of the plaintiffs would be entitled to insurance proceeds for rebuilding costs."²⁴

Defendants further contend that CMH's and NOLA Ventures' damages and credits "offset" each other. Specifically,

CMH is claiming that it lost future rentals in the amount of $626,025. However, at the same time, NOLA Ventures has a corresponding benefit in that exact same amount. NOLA does not have to pay rent in the amount of $626,025. There is no damage here. It is a complete wash.²⁵

Defendant moreover avers that if the Court finds that CMH is entitled to recover future loss rentals, "then necessarily Upshaw is entitled to a credit in the exact same amount against any damages claimed by NOLA."²⁶ Defendants argue that Plaintiffs' expert failed to offset the amount of insurance received by CMH, $383,760.25, and any damages CMH obtains should be offset by that amount.²⁷ Finally, Defendants aver that CMH sold the property in 2012, and therefore cannot collect rents on a property that it does not own.²⁸

2. NOLA's settlement of Range Line lease in the amount of $250,000

Defendants argue that NOLA Ventures paid $250,000 to settle its lease on the Range Line property, but that $226,340 of this sum was paid directly out of settlement proceeds.²⁹ Defendants aver that "there is no evidence that the remaining $23,760 was not also paid out of the $1.19 millioninsurance proceeds received by NOLA. Necessarily, this amount of damages must be dismissed. There is no evidence that insurance proceeds did not pay this entire amount."³⁰

3. NOLA's loss valuation of $900,000 based on the U.S. Beef offer

Defendants aver that Boudreaux erroneously calculated a $900,000 loss of valuation based on an offer to purchase the two restaurants by U.S. Beef in 2008.³¹ Defendants argue that "[i]t is well settled that a mere offer, unaccepted, to buy or sell is inadmissible to establish market value."³² Moreover, Defendants argue, the offer is not reliable as a matter of law because (1) Plaintiffs do not offer evidence as to why the sale did not go through, and cannot establish whether that price was viable;³³ and (2) "[i]t is undisputed that the sales for these restaurants went down 18% from 2008 to 2010, thereby making any offer from 2008 completely unreliable as a matter of law according to plaintiffs' own economist."³⁴

Under Louisiana law, Defendants contend, the proper measure of valuation must be performed at the time the business was destroyed and "based on profits."³⁵ Defendants rely on Achee v. National Tea Co., wherein, according to Defendants, "the court took the profit from theprior year and multiplied it by three to obtain loss valuation damages."³⁶ Defendants argue that the Joplin restaurants

had no profits and indeed were losing money. In 2010[,] Range Line was showing a net loss for the year of $4,303. Up until the time of the tornado in 2011, Range Line was showing a net loss of $4,025. Similarly, in 2010 Main Street was showing a net loss of $6,594 for the year and a net loss of $6,559 through the time of the tornado in 2011. There were no profits.³⁷

According to Defendants, Boudreaux did not try to calculate whether the Joplin stores were making or losing money.³⁸ However, Defendants aver that the Joplin restaurants were unprofitable during the year and a half...