Roche Diagnostics Operations, Inc. v. Marsh Supermarkets, LLC

• Decision Date: 01 April 2013
• Docket Number: No. 29A02–1201–PL–4.,29A02–1201–PL–4.
• Citation: 987 N.E.2d 72
• Parties: ROCHE DIAGNOSTICS OPERATIONS, INC., Appellant–Defendant, v. MARSH SUPERMARKETS, LLC, Appellee–Plaintiff.
• Court: Indiana Appellate Court

987 N.E.2d 72

ROCHE DIAGNOSTICS OPERATIONS, INC., Appellant–Defendant,

v.MARSH SUPERMARKETS, LLC, Appellee–Plaintiff.

No. 29A02–1201–PL–4.

Court of Appeals of Indiana.

April 1, 2013.

George T. Patton, Jr., Bryan H. Babb, Bose McKinney & Evans, LLP, Indianapolis, IN, Attorneys for Appellant.

Robert F. Wagner, A. Richard M. Blaiklock, Jason M. Lee, Wandini B. Riggins, Lewis Wagner, LLP, Indianapolis, IN, Attorneys for Appellee.

OPINION

RILEY, Judge.

STATEMENT OF THE CASE

Appellant–Defendant, Roche Diagnostics Operation, Inc. (Roche), appeals the trial court's judgment in favor of Appellee–Plaintiff, Marsh Supermarkets, LLC (Marsh).¹

We affirm.

ISSUES

Roche raises three issues on appeal, which we restate as:

(1) Whether the trial court erred by denying its cross-motion for summary judgment.

(2) Whether the trial court erred in granting judgment to Marsh based upon its conclusion that Roche breached the parties' sublease.

(3) Whether the trial court's award of damages to Marsh was based on speculation.

FACTS AND PROCEDURAL HISTORY

Marsh is a wholly owned subsidiary of MSI Crosspoint Indianapolis Grocery, LLC (MSI). Marsh has its headquarters at 9800 Crosspoint Boulevard, a four-story office building located in Fishers, Indiana (the Building). MSI owns the Building and the land (the Premises). Pursuant to a lease dated November 22, 2006 (Prime Lease), Marsh leases the Premises from MSI, with a right to possess and sublease the Building until 2026. In 2006, MSI mortgaged the Premises to the Bank of America (BOA).

In 2007, Roche Diagnostics Corporation, a subsidiary of Roche located in Fishers, Indiana, sought additional space and issued a request for proposals (RFP). Marsh responded to the RFP and offered to sublease the Premises. Its term sheet disclosed that it leased the Premises, which was subject to a mortgage. Marsh also offered to use “commercially reasonable efforts” to provide a non-disturbance and attornment agreement. (Appellant's App. 657). On January 31, 2008, the parties executed a letter of intent, which contained Marsh's agreement to provide “an acceptable, Subordination, Non–Disturbance and Attornment Agreement (SNDA) as an exhibit to the Sublease.” (Appellant's App. pp. 664–65).

On March 28, 2008, the parties executed a sublease (Sublease) wherein Roche subleased the second through fourth floors of the Building as well as non-exclusive use of other parts of the Building. Section 1.02 of the Sublease specified the term as commencing on April 1 and expiring on November 21, 2026. Section 1.03 ² provided Roche with options to terminate at five-year anniversaries of the term, with twelve months' prior written notice and if Roche was not in default.

Pursuant to Section 2.01, Roche's obligation to pay rent commenced on January 1, 2009. In addition to other costs, operating expenses, and fees, Roche agreed to pay an annual base rent in equal monthly installments. The amount of annual base rent was $2,513,841 from January 1, 2009 to December 31, 2013; $2,587,777.50 from January 1, 2014 to December 31, 2018; and $2,735,650.50 from January 1, 2019 to November 21, 2026.

Section 17.01 concerned two key ancillary documents: a subtenant recognition agreement (SRA) and an SNDA. Generally, an SRA is an agreement between the landlord and the subtenant, wherein the landlord agrees to honor the subtenant's rights in the event that the sublessor defaults under its lease with the landlord. The SNDA is an agreement between the subtenant and a mortgagee, whereby the mortgagee recognizes the subtenant's rights in the event that the landlord defaults on its obligations under the mortgage.³ In this particular case, Roche would agree to be bound to the terms of the Prime Lease. It should be noted that although Marsh consented to the SRA, it is not a party to the SNDA; both documents are essentially between third parties to the Sublease.

The relevant text of Section 17.01 provides:

17.01 Subordination. [...]. [Marsh] shall use commercially reasonable efforts to obtain a subordination, non-disturbance and attornment agreement in form as may be reasonably approved by [Roche] and [Marsh], from [BOA]. [...].

[Marsh] and Roche shall cooperate in order to obtain a Subtenant Recognition Agreement (“SRA”) from [MSI] and a Non–Disturbance and Attornment Agreement [“SNDA”] from [BOA]. [Roche] agrees that it shall be a condition of such SRA and such [S]NDA that [Roche] agrees to be bound by the provision of the Prime Lease in the event of a termination of the Prime Lease or a foreclosure of the Mortgage. In the event that the SRA and the [S]NDA, in form and substance reasonably acceptable to Landlord, Tenant, and Prime Landlord or Prime Landlord's Mortgagee, as the case may be, is not fully executed and delivered to Tenant on or before April 25, 2008, Tenant shall have the right, exercisable on or before May 15, 2008 to terminate the Lease upon prior written notice to Landlord.

(Appellant's App. p. 119).

The parties engaged in efforts to obtain the SRA ⁴ and the SNDA. Roche's outside counsel, Jeffrey Abrams (Abrams), exchanged drafts of the SNDA with Marsh's outside counsel, Stephen Sussman (Sussman). Marsh's general counsel, Laura Gretencord (Gretencord), and Roche's general counsel, Steve Oldham (Oldham), also participated in the process. On March 26, 2008, Abrams provided markups after rejecting Marsh's proposed draft SNDA. On April 14, 2008, Abrams checked on the status of the SNDA. Gretencord replied that she would send the marked up SNDA to BOA. Because the SNDA would not be obtained by April 25, 2008, the parties agreed to extend the deadline.

On April 24, 2008, the parties executed the following letter amendment to the Sublease (First Extension) with the following language:

The second paragraph of Section 17.01[ ] provides that [Marsh] and [Roche] shall cooperate in order to obtain a[SRA] from [MSI] and a [SNDA] from [BOA], on or before April 25, 2008, failing which [Roche] shall have the right, exercisable on or before May 15, 2008, to terminate the [Sublease] as of such date.

[Marsh] and [Roche] have agreed that the date by which the SRA and the [S]NDA shall be obtained is hereby extended to May 15[ ], which date shall remain as the date on or before which the [Sublease] may be terminated. All other terms, covenants and conditions of the [Sublease] shall remain in full force and effect and unchanged hereby.

(Appellant's App. p. 160).

On May 2, 2008, the draft SNDA was sent by MSI's attorney to BOA's legal department.⁵ On May 14, 2008, Marsh requested another extension, and on May 15, 2008, the parties executed a second extension letter (Second Extension), containing the following:

The second paragraph of Section 17.01[ ] provides that [Marsh] and [Roche] shall cooperate in order to obtain a[SRA] from [MSI] and a [SNDA] from [BOA], on or before April 25, 2008, failing which [Roche] shall have the right, exercisable on or before May 15, 2008, to terminate the [Sublease] as of such date.

[Marsh] and [Roche] have agreed that the date by which the SRA and the [S]NDA shall be obtained is hereby extended to May 30[ ], which date shall be the date on or before which the [Sublease] may be terminated if said SRA and the [S]NDA are not obtained. All other terms, covenants and conditions of the [Sublease] shall remain in full force and effect and unchanged hereby.

(Appellant's App. p. 162).

On May 16, 2008, BOA's representative sent a revised SNDA (the May 16 SNDA) to Marsh. BOA had removed Roche's twelve month liability limit from the draft and would execute the SNDA as revised. On May 20, 2008, Abrams said this was unacceptable and Gretencord suggested that Abrams negotiate with BOA to obtain its desired terms. On May 22, 2008, Abrams reported to all parties that he had contacted BOA regarding the twelve-month liability limit.

On May 28, 2008, Abrams emailed Gretencord to follow up and suggested that the parties execute a further extension; however, Abrams noted that Roche could not continue waiting for the SNDA. On May 29, 2008, Gretencord prepared another extension. Meanwhile, Roche internally decided it no longer wanted to sublease the Building and Oldham prepared a termination letter. On May 29, 2008, Oldham sent Roche's termination letter to Marsh via overnight courier. The termination letter was received in the Marsh mailroom at 10 a.m. the following day. After learning Roche's position from Oldham directly, Gretencord contacted BOA to obtain a SNDA containing a twelve month liability limit. BOA and CW Capital Asset Management, LLC, the special servicer, agreed and the SNDA (the May 30 SNDA) was executed and forwarded to Marsh, which hand delivered it to Roche at 4:57 p.m., along with a cover letter stating that Roche's termination was null and void.

On June 12, 2008, Roche sent Marsh its response, denying that it was in default and asserting that it had validly exercised its right to terminate. On June 24, 2008, Gretencord sent Roche a letter advising that Roche was in default of the sublease.

On July 8, 2008, Marsh filed its Complaint against Roche alleging breach of contract, which it later amended. On September 18, 2008, Roche filed its Answer and Counterclaim, which it later amended. On February 23, 2009 and March 30, 2009, Marsh and Roche, respectively, moved for summary judgment. On October 19, 2009, the trial court denied both parties' motions for summary judgment. Although the trial court declined to rule on the parties' differing interpretations of Section 17.01 and the Extensions, it found that a genuine issue of material fact “whether each party discharged its half of the mutual obligation to cooperate in acquiring the [S]NDA.” (Appellant's App. p. 28).

From September 26, 2011 through October 4, 2011, a bench trial was held. On December 6, 2011, the trial court granted Judgment to Marsh. The trial court concluded that the Sublease and Extensions were valid and that the Extensions eliminated Roche's...