St. Benedict's Development Co. v. St. Benedict's Hosp.

• Decision Date: 06 May 1991
• Docket Number: No. 890449,890449
• Citation: 811 P.2d 194
• Parties: ST. BENEDICT'S DEVELOPMENT COMPANY, a general partnership, Plaintiff and Appellant, v. ST. BENEDICT'S HOSPITAL, a Utah nonprofit corporation, and The Boyer Company, a Utah corporation, Defendants and Appellees.
• Court: Utah Supreme Court

Page 194

811 P.2d 194

ST. BENEDICT'S DEVELOPMENT COMPANY, a general partnership Plaintiff and Appellant, v. ST. BENEDICT'S HOSPITAL, a Utah nonprofit corporation, and The Boyer Company, a Utah corporation, Defendants and Appellees.

No. 890449.

Supreme Court of Utah.

May 6, 1991.

John K. Mangum, Arthur H. Nielsen, Salt Lake City, for plaintiff and appellant.

Thomas L. Kay, Steven J. Aeschbacher, Salt Lake City, for St. Benedict's Hosp.

Richard D. Burbidge, Stephen B. Mitchell, Salt Lake City, for The Boyer Co. DURHAM, Justice:

St. Benedict's Hospital (the hospital) leased certain property near its facility to St. Benedict's Development Company (the development company) on which the development company has built and now operates two professional office buildings serving doctors at the hospital. Subsequently, the hospital leased other property nearby to The Boyer Company (Boyer) to construct a third medical office building. The development company brought this action against the hospital, seeking damages and injunctive relief for breach of implied and express contract provisions, and against both the hospital and Boyer for damages for interference with present and prospective economic relations. Both defendants filed motions to dismiss pursuant to rule 12(b)(6) of the Utah Rules of Civil Procedure. After briefing and oral argument, the trial court granted the motions to dismiss. The development company appeals that action.

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. 61A Am.Jur.2d Pleading § 227 (1981). When determining whether a trial court properly granted a rule 12(b)(6) motion to dismiss, we accept the factual allegations in the complaint as true and consider them and all reasonable inferences to be drawn from them in a light most favorable to the plaintiff. Colman v. Utah State Land Board, 795 P.2d 622, 624 (Utah 1990); Lowe v. Sorenson Research Co., 779 P.2d 668, 669 (Utah 1989). In light of the standard of review, we state the facts in a light most favorable to the party against which the rule 12(b)(6) motion was brought. See State v. Verde, 770 P.2d 116, 117 (Utah 1989). Because the propriety of a 12(b)(6) dismissal is a question of law, we give the trial court's ruling no deference and review it under a correctness standard. Lowe, 779 P.2d at 669 (citing Atlas Corp. v. Clovis Nat'l Bank, 737 P.2d 225, 229 (Utah 1987); Kimball v. Campbell, 699 P.2d 714, 716 (Utah 1985)).

I. STATEMENT OF THE FACTS

The following facts are relevant to our consideration of this case. ¹ On July 6, 1977, the hospital, as lessor, and the predecessor in interest to the development company, as lessee, entered into a lease agreement (the original lease). The original lease calls for the lessee to construct, operate, and maintain a medical office building on land owned by and immediately adjacent to the hospital. The contemplated building is required to accommodate at least fourteen tenants. Provision is made for expansion "as required by tenant demand." The lease has a term of fifty-one years and gives the lessee an option to renew for two additional ten-year periods. Rent of one dollar is recited, the amount being nominal in recognition of the fact that the professional building is "essential to the success of the hospital."

The building was intended to provide office space for medical practitioners using hospital facilities. The original lease restricts the tenants to whom the lessee may sublease; tenancies are unqualifiedly limited to medical practitioners and, "[s]o far as practicable, in view of tenancy demand," to members of the professional staff of the hospital. It is alleged in the complaint that at all times since they entered into the original lease,

the parties acted upon the express and implied condition and understanding that the operation of the [hospital and the professional building] would be conducted for the mutual economic advantage and benefit of the parties, and that neither party would conduct itself in such a way as to cause diminution of patients of the hospital or tenants of the professional building, or economic loss to the other.

On June 22, 1979, the hospital and the development company entered into another agreement (the follow-up agreement) contemplating the construction of a second building (the new office building) adjacent to the building described in the original lease. The fourth "WHEREAS" clause of the follow-up agreement states, "[I]t is in the mutual interest of the parties to obtain and retain satisfactory professional tenants in the New Office Building." That agreement also expressly requires the hospital to help the development company obtain tenants for the new office building. Specifically, the hospital agrees to "actively assist the [development company] in acquiring and holding good tenants until such time as the New Office Building is completely occupied" and guarantees payment of rent for one-third of the net leasable area of the building until it is two-thirds occupied. In addition, the hospital agrees to "diligently endeavor" to obtain sublessees who will refer patients to the hospital. Only in the event such efforts fail does the agreement give the development company the right to sublease to "business services of professionals not directly related to the hospital."

Several years after the execution of the follow-up agreement, with several other agreements executed in between, ² the hospital and Boyer publicly announced the construction of a third professional building on hospital property near the buildings leased to the development company. Subsequently, certain tenants notified the development company that they did not intend to renew their leases, but would remain only on a month-to-month basis, with the intent of moving into the new building once it was completed. In June 1989, the development company brought this action seeking injunctive relief and damages against the hospital and Boyer.

In the first cause of action stated in the complaint, the development company seeks injunctive relief for breach of implied and expressed provisions of its several contracts with the hospital. The complaint alleges that the hospital breached its express duty to help the development company acquire and retain tenants for the new office building. In addition, there are two provisions which the development company seeks to have us imply into its contracts with the hospital. The first is a restrictive covenant preventing the hospital from constructing a new professional building on its property until the buildings leased by the development company are fully occupied and then only by first offering the development company the opportunity to construct the additional facility. The development company also seeks injunctive relief in its first cause of action for a breach of the implied covenant of good faith and fair dealing.

The second cause of action alleges that the development company is entitled to damages because the hospital's acts and conduct violated express provisions of the contracts between the parties. That claim also seeks damages for a breach of the implied covenant of good faith and fair dealing. The third cause of action seeks additional damages against both the hospital and Boyer for tortious interference with the development company's present and prospective economic relations with its sublessees.

The trial judge granted defendants' motions to dismiss the first and second causes of action with prejudice. The third cause of action was dismissed without prejudice. Although the development company was given the opportunity to amend its complaint as to the third cause of action, it chose instead to file this appeal.

II. IMPLIED RESTRICTIVE COVENANT

In its first cause of action, the development company alleges that the agreements between the hospital and the development company contain an implied covenant prohibiting the hospital from proceeding with the construction of a third professional building on its property until (1) the existing buildings are completely occupied, and (2) it has first offered the development company the opportunity to build the additional building. The trial court found that there was no implied covenant to that effect.

Where expressly stated, restrictive covenants are not favored in the law and are strictly construed in favor of the free and unrestricted use of property. Robbins v. Finlay, 645 P.2d 623, 627 (Utah 1982); Parrish v. Richards, 8 Utah 2d 419, 421, 336 P.2d 122, 123 (1959); Freeman v. Gee, 18 Utah 2d 339, 345, 423 P.2d 155, 159 (1967). Generally, express restrictive covenants are upheld only "where they are necessary for the protection of the business for the benefit of which the covenant was made and no greater restraint is imposed than is reasonably necessary to secure such protection." Allen v. Rose Park Pharmacy, 120 Utah 608, 614, 237 P.2d 823, 826 (1951). Under certain extreme circumstances, a restrictive covenant may arise by implication from the language of a deed or lease or from the conduct of the parties. 20 Am.Jur.2d Covenants, Conditions, and Restrictions § 173 (1965). As a general rule, however, implied covenants are not favored in the law. Id. at § 12; Brown v. Safeway Stores, Inc., 94 Wash.2d 359, 617 P.2d 704 (1980). In order for a restrictive covenant to be implied, the support for it must be "plain and unmistakable" or it must be "necessary" as a matter of law. 20 Am.Jur.2d at § 173.

In this case, there is no plain and unmistakable language in the relevant contracts which would support the restrictive covenant the development company seeks to have us imply. There is no language in the agreements between the development company and the hospital which prevents the hospital from using its own property to construct a new professional building or from dealing with Boyer or any other third party with respect...