Oakwood Village LLC v. Albertsons, Inc., No. 20030339.

• Court: Utah Supreme Court
• Writing for the Court: DURHAM, Chief Justice
• Citation: 104 P.3d 1226,2004 UT 101
• Parties: OAKWOOD VILLAGE LLC, a Delaware limited liability company, Plaintiff and Appellant, v. ALBERTSONS, INC., a Delaware corporation, and One Hamilton Associates Limited Partnership, a Massachusetts limited partnership, Defendants and Appellees.
• Decision Date: 03 December 2004
• Docket Number: No. 20030339.

104 P.3d 1226
2004 UT 101

OAKWOOD VILLAGE LLC, a Delaware limited liability company, Plaintiff and Appellant,
v.
ALBERTSONS, INC., a Delaware corporation, and One Hamilton Associates Limited Partnership, a Massachusetts limited partnership, Defendants and Appellees

No. 20030339.

Supreme Court of Utah.

December 3, 2004.

104 P.3d 1229

Brent V. Manning, LeGrand R. Curtis, Jr., Robin L. Wolkoff, Daniel S. Hefter, Salt Lake, for plaintiffs

Deno G. Himonas, Bruce Wycoff, Salt Lake, for defendants.

DURHAM, Chief Justice:

BACKGROUND

¶ 1 Plaintiff Oakwood Village, LLC (Oakwood), a commercial real estate developer, appeals the trial court's dismissal of its suit for "failure to state a claim upon which relief can be granted." Utah R. Civ. P. 12(b)(6). Oakwood claims that the trial court erred when it held that a covenant of continuous operation does not inhere in every ground lease as a matter of law. Additionally, Oakwood appeals the court's order that it pay defendants' reasonable attorney fees pursuant to paragraph 20 of the lease between Oakwood and Albertsons, Inc. (Albertsons), in which the parties agreed that the losing party in any suit relating to the lease would pay all of the prevailing party's reasonable attorney fees.

¶ 2 The three issues in this appeal are whether the trial court erred in (1) holding that a covenant of continuous operation does not inhere in every ground lease as a matter of law; (2) dismissing this case without addressing Oakwood's claim for breach of an implied covenant of good faith and fair dealing, notwithstanding this court's decision in St. Benedict's Development Co. v. St. Benedict's Hospital, 811 P.2d 194, 201 (Utah 1991); and (3) dismissing Oakwood's suit based on a factual determination made from material attached to the pleadings that contradicted the averments in the complaint. After considering all materials in the pleadings, we find that the lease between Oakwood and Albertsons contains no implied covenant of continuous operation and that Albertsons conduct, while perhaps not nice, did not violate the implied covenant of good faith and fair dealing inherent in the lease. We also find that the trial court properly disposed of this case under a motion to dismiss, as opposed to converting the motion to dismiss into a motion for summary judgment, as defendants argue the trial court should have done.

FACTS

¶ 3 On May 23, 1978, defendant Albertsons, a retail supermarket, entered into a ground lease with plaintiff Oakwood Village LLC's predecessor-in-interest, Oakwood Development Company (collectively referred to as Oakwood). On April 1, 1979, Albertsons assigned its leasehold interest in Oakwood Village Shopping Center (Oakwood Village) to One Hamilton Associates Limited Partnership (One Hamilton), also a defendant in this suit. However, under the original lease between Oakwood and Albertsons, Albertsons remains liable for One Hamilton's "full performance of Tenant's obligations."

¶ 4 Pursuant to the original contract, Albertsons leased a 42,800-square-foot plot in the 123,900-square-foot Oakwood Village Shopping Center that Oakwood was then developing in Murray, Utah. Oakwood Village consists of twenty-six stores located on the center's property, and Albertsons was to function as the center's anchor tenant. The initial term of the ground lease was twenty-five years, with the option of eight five-year renewal terms, for a total of sixty-five years if Albertsons so desired. Under the lease

104 P.3d 1230

and three subsequent amendments to it, Albertsons was to pay a monthly rental fee of $1667 ($20,000 per year) with no escalations in price, and all taxes, assessments, and utility charges on the leased premises for the duration of the lease. Among other terms, the lease contained an exclusive business provision precluding Oakwood from leasing space in the center to other supermarket tenants. The parties recorded the terms of their agreement in three documents: a ground lease (the lease), a development agreement (the agreement), and a declaration of restrictions and rights of easement (the declaration)

¶ 5 After completing lease negotiations with Oakwood, Albertsons constructed and paid for a building on the leased premises. Upon completion of the building in January 1980, Albertsons occupied the space where it had operated a grocery store for more than twenty-one years. In May 2001, after perceiving a better opportunity in a new shopping center across the street, Albertsons ceased operating on the leased premises and moved one block south to become the anchor tenant in the Marketplace on Ninth shopping center (Marketplace on Ninth).

¶ 6 After it relocated, Albertsons "went dark" at its location in Oakwood Village while continuing to pay the monthly rent on the now vacant building. Oakwood alleged, and defendants' counsel admitted at trial, that Albertsons intentionally kept the old building unoccupied in order to restrict competition with its new store. Oakwood attributes Albertsons departure from Oakwood Village as the cause of the decline in sales of its remaining stores and the current vacancy of four stores, the occupants of three of which followed Albertsons to the new center.

¶ 7 On April 18, 2002, Oakwood advised Albertsons that it had breached its obligation under the lease to operate continuously and to act in good faith and deal fairly, and demanded that Albertsons remedy its breach within thirty days pursuant to the lease. Albertsons responded on May 3, 2002, refusing to acknowledge breach of the lease or to take any curative action. Thereafter, Oakwood filed suit against Albertsons for breach of the aforementioned covenants. For Albertsons alleged contractual breaches, Oakwood sought declaratory relief allowing it to terminate the lease and to re-enter and re-let the premises, and damages in excess of $1,000,000.

STANDARD OF REVIEW

¶ 8 "`A Rule 12(b)(6) motion to dismiss admits the facts alleged in the complaint but challenges the plaintiff's right to relief based on those facts.'" Russell v. Standard Corp., 898 P.2d 263, 264 (Utah 1995) (quoting St. Benedict's Dev. Co. v. St. Benedict's Hosp., 811 P.2d 194, 196 (Utah 1991)). Under a rule 12(b)(6) dismissal, our inquiry is concerned solely with "the sufficiency of the pleadings, [and] not the underlying merits of [the] case." Alvarez v. Galetka, 933 P.2d 987, 989 (Utah 1997).

¶ 9 In reviewing the trial court's decision, we accept the factual allegations in the complaint as true and interpret those facts and all inferences drawn from them in the light most favorable to the plaintiff as the non-moving party. Krouse v. Bower, 2001 UT 28, ¶ 2, 20 P.3d 895. A trial court's decision granting a rule 12(b)(6) motion to dismiss a complaint for lack of a remedy is a question of law that we review for correctness, giving no deference to the trial court's ruling. St. Benedict's, 811 P.2d at 196.

ANALYSIS

I. PROCEDURAL ISSUES

¶ 10 We begin by addressing the procedural issues raised by the parties. Oakwood argues that the trial court failed to accept the well-pled allegations of the complaint as true and to construe those allegations in the light most favorable to Oakwood as the nonmoving party. Oakwood contends that the trial court failed in this respect by looking beyond Oakwood's averments to consider materials attached to and incorporated

104 P.3d 1231

into the complaint pursuant to rule 10(c) in order to reach its decision. See Utah R. Civ. P. 10(c). Oakwood's interpretation of the Utah Rules of Civil Procedure would allow this court to consider only the averments in the complaint and would exclude from judicial consideration anything in the documents attached to the pleadings not in harmony with those averments. However, Oakwood's exceedingly narrow reading of the Rules of Civil Procedure is incorrect. The rules are clear that documents attached to a complaint are incorporated into the pleadings for purposes of judicial notice and are fair game for this court to consider in addition to the complaint's averments. Id.; see also 11 James Wm. Moore et al., Moore's Federal Practice § 10.04[1] (3d ed.2004) [hereinafter Moore's et al.]

¶ 11 In their response, defendants present a similarly tenuous procedural argument. They contend that Oakwood's submission of three documents — the declaration, a marketing brochure for Albertsons at the Marketplace on Ninth, and a memorandum of a shopping center lease between Albertsons and a different landlord — after defendants filed a motion to dismiss converted the motion to dismiss into a motion for summary judgment. While this argument at least demonstrates familiarity with the Rules of Civil Procedure, we do not find it convincing.

¶ 12 Rule 12(b) mandates that a motion to dismiss shall be converted into one for summary judgment if "matters outside the pleadings are presented to and not excluded by the court" and all parties receive "reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Utah R. Civ. P. 12(b).¹" `Matters outside the pleading' include any written or oral evidence ... which ... substantiat[es] ... and does not merely reiterate what is said in the pleadings." Moore's Federal Practice § 56.30[4]. If a court does not exclude material outside the pleadings and fails to convert a rule 12(b)(6) motion to one for summary judgment, it is reversible error unless the dismissal can be justified without considering the outside documents. See GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.1997).

¶ 13 Notwithstanding these general principles, the majority of federal circuits recognize two exceptions. First, if "a plaintiff does not incorporate by reference or attach a document to its complaint, but the document is referred to in the complaint and is central to the plaintiff's claim, a defendant may submit an indisputably authentic copy to the court to be considered on a motion to dismiss."...