Singing River Mob, LLC v. Jackson Cnty.

• Decision Date: 18 November 2021
• Docket Number: 2019-IA-01630-SCT, NO. 2019-IA-01653-SCT
• Citation: 342 So.3d 140
• Parties: SINGING RIVER MOB, LLC v. JACKSON COUNTY, Mississippi, and Singing River Health System Singing River Health System d/b/a Ocean Springs Hospital d/b/a Singing River Hospital v. Singing River MOB, LLC, an Alabama Limited Liability Company
• Court: Mississippi Supreme Court

342 So.3d 140

SINGING RIVER MOB, LLC

v.JACKSON COUNTY, Mississippi, and Singing River Health System

Singing River Health System d/b/a Ocean Springs Hospital d/b/a Singing River Hospital

v.Singing River MOB, LLC, an Alabama Limited Liability Company

NO. 2019-IA-01630-SCT

NO. 2019-IA-01653-SCT

Supreme Court of Mississippi.

November 18, 2021

ATTORNEYS FOR APPELLANT: JOHN N. BOLUS, PETER C. ABIDE, Biloxi

ATTORNEYS FOR APPELLEES: WILLIAM LEE GUICE, III, Biloxi, MARIA MARTINEZ, G. TODD BUTLER, MALLORY K. BLAND, Jackson, PATRICK R. BUCHANAN, Pascagoula, MICHAEL E. BRUFFEY

EN BANC.

CHAMBERLIN, JUSTICE, FOR THE COURT:

¶1. This matter comes before the Court as a consolidation of two appeals from a partial summary-judgment order by the Chancery Court of Jackson County. In the first appeal, Singing River MOB, LLC, an Alabama Limited Liability Company (MOB), argues that the leases between itself and Singing River Health System (SRHS) and the lease between Jackson County, Mississippi (County), and SRHS are valid and that the chancery court erred by finding the leases invalid under Mississippi's "minutes rule." KPMG, LLP v. Singing River Health Sys. , 283 So. 3d 662, 669 (Miss. 2018). In the second appeal, Jackson County and SRHS contend that the chancery court erred by fashioning its own equitable relief as a result of the first ruling. MOB also raised its own objection as to the manner in which the equitable relief was fashioned. After careful review, we affirm and remand the partial summary-judgment order of the Chancery Court of Jackson County as to the first appeal (No. 2019-IA-01630-SCT); however, we reverse and remand that order as to the second appeal (No. 2019-IA-01653-SCT).

FACTS AND PROCEDURAL HISTORY

¶2. SRHS is a community hospital owned by Jackson County, established under community-hospital statutes and governed by a board of trustees. Miss. Code Ann. §§ 41-13-10 to -107 (Rev. 2018). The question before the Court involves the validity of certain leases between the County, SRHS and MOB. At the heart of this case is a medical office building project dependant upon those leases.

¶3. In the late 2000s, SRHS began to consider the prospect of building a medical office building on its medical campus, located in Pascagoula, Mississippi. The purpose of this project would be to provide a modern medical space to serve the Pascagoula area that would, among other things, enhance the medical community's image, provide a competitive advantage in physician recruiting, add space for a neuroscience center and develop an outpatient center. To that end, the parties came together for the purpose of forming the necessary leases for this project.

¶4. On March 16, 2009, the Board of Supervisors of Jackson County (County Board) unanimously passed a resolution, included in its minutes, that authorized the execution of a lease of real property to SRHS for the purpose of constructing the medical office building. The resolution included certain conditions, including that SRHS may not encumber the property without approval by the County Board, that SRHS is authorized to sublease the property to Johnson Development, LLC (Johnson Development), and that any other sublease of the property by SRHS must be approved by the County Board.

¶5. The County and SRHS then entered into their lease on March 26, 2009. The County Board ratified by resolution, included in the minutes, the execution of this lease on April 6, 2009. The April 6, 2009 minutes of the County Board also included, by attachment, this lease between the County and SRHS. Specifically, the minutes show that "the Lease Agreement, a copy of which is attached hereto, has been finalized and the Board of Supervisors desires to ratify said Lease Agreement and spread upon its Minutes ." (Emphasis added.) This lease between the County and SRHS is known as the Prime Ground Lease.

¶6. The Board of Trustees of Singing River Health System (SRHS Board) also convened to discuss the medical office building project and, specifically, the terms of an agreement for such a project with MOB. The first board meeting was held on January 13, 2009, as shown on the minutes.¹ At this meeting, the SRHS Board received presentations regarding the medical office building project that included, among other things, the project's history and objectives, the project's financial impact, a review of the project's financing and leasing plans and a review of the SRHS campus plan that included specific placement of the medical office building. During this time, the members of the SRHS Board received the following summary of terms of the project, verbatim:

Structure. Ground lease will be between SRHS and a Singing River MOB LLC. The LLC will make ground lease payments to SRHS. SRHS will be the master lessor of the building and will make occupancy lease payments to the LLC. The LLC will be completely owned by Johnson Development, LLC.

Ground Lease Financials. Ground lease will be based on fair market value (FMV) of property. Square footage quantity will be equal to the footprint of the building (estimated at 35,000 square feet). Ground lease payments will not be less than $14,000 per year (based on value of $300,000 per acre and 6% return). A 3% annual escalator will be applied.

Occupancy Lease Financials. Will not exceed $19.50 per square foot per MOB space, $26.60 for radiology space and $28.50 for wellness center space. Expenses are estimated at $8.00 per square foot. Lease is triple net with a 3% escalator. Square footage lease rates based on buildout allowance of $85 per square foot for office space $130 for radiology and wellness areas.

Exceeding buildout allowance. SRHS will have option of renegotiating occupancy lease rates or paying overage out of cash directly to the contractor/builder.

Easements. SRHS will make sure that appropriate utilities are available "at the road". The building budget includes any expenses related to getting utilities to the building site. SRHS will also grant a parking easement to Singing River MOB, LLC. The building budget includes monies to construct parking and lighting. SRH will maintain parking and lighting once constructed.

Term. Ground lease will have an initial term of 25 years. SRHS will have the option of extending for another 25 year term. Reversion Terms. If SRHS chooses not to renew the ground lease for an additional 25 year term, SRHS will purchase the leasehold interest at FMV of building (based on appraisal of building). If ground lease is extended for an additional 25 year term, at the end of the second 25-year term SRHS will be able to purchase the leasehold interest at 50% of FMV of building providing, that SRHS has been a majority tenant during the second ground lease period. Majority is defined as more then 50%.

Expenses. Singing River MOB, LLC[ ] will "direct pay" all expenses (taxes, utilities, insurance, maintenance, etc.).

Use of premises. There are a number of restrictions on how the building can be used. For example, SRHS must give permission if the building is to ever be used as anything other than what the building will be used for when it opens. Any physician occupying the building must be on staff with SRHS. Physicians cannot perform surgical procedures without SRHS consent.

Right to sell. Singing River MOB, LLC[ ] can sell or transfer its leasehold interest in the building. However, all "use of premises" restrictions follow any such sell or transfer. SRHS will have right of first refusal.

Right of first refusal. SRHS always has first right of refusal. Language included specifying that any offers must be within reasonable market ranges.

Right to purchase. Terms are being negotiated so that SRHS has the option of purchasing the building at FMV after a specified time period.

Assingments/subleases. Singing River MOB, LLC may sublease or assign any portion of the building not leased by SRHS (subject to ground lease terms and restrictions).

Occupancy Lease Term: One term at 25 years.

Property Management. SRHS can manage property internally or could contract with a firm such as Johnson Development, or other property management firm. Estimated expenses of $8.00 per sq. ft. include allowance for property management services.

Refurbishment Allowance. Occupancy leases include $5.00 per square foot allowance for carpet, paint, wall covering etc. Allowance is available in 12.6 years and is indexed to the CPI.

Major Mechanical Replacement. Singing River MOB, LLC[ ] agrees to a one-time replacement of any major mechanical equipment due to failure during the occupancy lease term.

This summary provided the foundation of the sublease arrangement between SRHS and MOB that would ultimately result in a separate written Secondary Ground Lease and Occupancy Subleases. Under these leases, SRHS would receive ground payments from MOB. The purpose of these payments was for MOB to build the medical office building. In return, MOB would receive occupancy payments from SRHS for SRHS's use of the medical office building. This January 13, 2009 summary was spread upon the minutes of the SRHS Board.

¶7. At this juncture, it is necessary to recognize two important facts. First, as indicated previously, while the SRHS Board discussed the medical office building project as it relates to discussions between SRHS and MOB, the record does not show that the SRHS Board minutes ever mentioned, or attached, the Prime Ground Lease between SRHS and the County. Second, Johnson Development was the original and intended sublessor in the medical office building project, particularly in the eyes of the County. This company's purpose was to develop the medical office building project by subleasing the property from SRHS that SRHS was in turn leasing from the County. As evidenced by the summary provided at the January 13, 2009 SRHS Board meeting, Johnson Development was ultimately replaced by MOB, one of the parties to this action. According to the record, "affiliates of Johnson Development established [MOB]." Specifically, James Milton...