Waf-2, LLC v. Lowry Bldg., LLC
| Decision Date | 27 December 2016 |
| Docket Number | A16-0531 |
| Parties | WAF-2, LLC, Appellant, v. Lowry Building, LLC, defendant and third party plaintiff, Respondent, v. John R. Rupp, third party defendant, Appellant. |
| Court | Minnesota Court of Appeals |
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).
Affirmed
Ramsey County District Court
Mark R. Bradford, Amie E. Penny Sayler, Bassford Remele, P.A., Minneapolis, Minnesota (for appellants)
Kelly S. Hadac, HKM, P.A., St. Paul, Minnesota (for respondent)
Considered and decided by Worke, Presiding Judge; Stauber, Judge; and Bratvold, Judge.
UNPUBLISHED OPINION
Following a court trial in this commercial-lease dispute, appellants challenge the district court's decision finding the tenant limited-liability company's principal liable for breach of the lease, awarding operating expenses as damages, and reforming the lease to provide for an award of attorney fees to the respondent landlord. We affirm.
Appellant WAF-2, LLC (WAF) sued respondent Lowry Building, LLC (Lowry), seeking specific performance and declaratory judgment of a restaurant lease, or, in the alternative, alleging a breach of the lease contract and requesting attorney fees. In its answer and counterclaim, Lowry brought a third-party complaint for breach of contract and attorney fees against appellant John Rupp, who is the "chief manager" and sole principal of WAF, alleging that Rupp was personally liable under the lease because WAF did not exist as a legal entity at the time the lease was executed. A court trial was held on March 9-11, 2015.
Rupp is a longtime real-estate developer in St. Paul. In 2012, Rupp experienced financial problems, and creditors threatened to foreclose on the single mortgage securing three of his properties, the St. Paul Building, the St. Paul Athletic Club, and the Lowry Building. Rupp placed the three properties in bankruptcy and attempted to work out an arrangement to pay off the discounted mortgage note. Rupp approached Jim Crockerall, another developer, and offered to sell him the Lowry Building.
Crockerall's wife and partner, Rosemary Kortgard, is also a real-estate developer. Kortgard formed respondent Lowry, a limited liability company (LLC); she is the sole owner and chief manager of Lowry, and Crockerall is its vice president. On June 8, 2012, Lowry purchased a 51% interest in the Lowry Building from Rupp for $5 million, with an option to purchase the remaining 49% interest after December 31, 2012. The purchase price exceeded the building's market value of $2 million, but Rupp, who owns the successful St. Paul restaurant W.A. Frost, agreed to lease space in the Lowry Building to establish a restaurant, with the intent that revenue generated from the restaurant would justify the higher sale price. At the same time, Lowry entered into a lease agreement with WAF for a restaurant that would be housed in the Lowry Building.
Rupp signed the lease agreement on behalf of WAF, but Lowry, Kortgard, and Crockerall were unaware that Rupp did not execute the articles of organization for WAF until July 31, 2012, six weeks later, and the secretary of state did not issue WAF's certificate of organization until August 1, 2012. At trial, Rupp admitted that WAF had "never been capitalized," had no bank accounts, had paid for expenses out of business accounts belonging to other entities, did not create annual account statements, and likely had not filed any tax returns, although WAF expenses may have appeared on Rupp's personal-income-tax returns as "Schedule E property."
According to the lease terms, WAF agreed to establish a restaurant and bar in the south and southeast portion of the first floor, the basement and sub-basement, and on the 11th and 12th floor roofs of the Lowry Building. The lease had a ten-year term, renewable for eight additional five-year terms. The rent was equal to five percent of theannual gross proceeds, "with monthly installments of $6,250.00 to be credited to such 5% of the annual gross proceeds." It also included the restaurant's share of the building operating expenses, as "mutually agreed upon by Lessor and Lessee." Rent was due beginning on June 1, 2013. As part of the sale of the building, WAF deposited $71,822.33 with Lowry to be used for tenant improvements. Of this amount, $24,000 was used to return a security deposit to a former Lowry Building tenant after Rupp failed to do so.
The lease anticipated that the first-floor restaurant would open by December 31, 2012, the basement by April 30, 2013, and the rooftops by September 30, 2013. Under the terms of the lease, Lowry and WAF were to agree on the floor plan of the restaurant and bars. WAF was responsible for all tenant improvements and was required to provide plans and specifications for review and approval by Lowry. Lowry agreed to supply "improvements customarily referred to as a 'vanilla shell' including but not limited to: fun[c]tional air handlers[,] supply heating and cooling but not ductwork[,] electrical service panel submetered, water and gas to the premises, and an external duct to the premises [in] a mutually agreeable location." The parties did not further define a "vanilla shell," a construction-industry term that means different things depending on the circumstances and the agreement of parties to a construction contract. The parties executed a lease amendment in August 2012, under which Lowry agreed to provide WAF with an additional $250,000 credit for tenant improvements.1
By December 2012, no restaurant construction had started and Rupp sent Crockerall two e-mails that suggested Rupp was no longer interested in the restaurant project. Rupp had not yet supplied any plans or specifications for Lowry's approval. Rupp claimed that he could not supply plans or specifications because the parties had not agreed on the exact square footage of the premises. Crockerall testified that Lowry had provided Rupp with the square footage calculated by Rupp's architect, but that Rupp disagreed with the number. In November 2013, Rupp provided some floor plans, but the plans lacked details as to restaurant concept, equipment, mechanical, electrical, and restaurant layout. According to an architect who was hired by Lowry to assist in the renovations, plans for owner approval in this type of project would generally include "a full set of design documents delineating technical detail of wall locations, finishes, mechanical-electrical systems." The floor plans provided by Rupp would allow the city to make a preliminary review, but would not meet the definition of "plans and specifications."
Rupp claimed that he was unable to begin the improvements because he had not been provided with the promised "vanilla shell." A great deal of disagreement ensued over what the parties meant by "vanilla shell." For example, the architect testified that the concept "var[ied] from project to project or building type to building type." The architect described it as including rock concrete floors, air supply, electricity, and paint-ready walls. Rupp described it as primed sheetrock, a finish-ready floor, lighting,functional air handlers, heating and air conditioning, and access to gas, water, and electrical. Kortgard described it as "unfinished cement floor, . . . unfinished walls, . . . unfinished ceiling and . . . electricity, water, mechanicals going into [the] space" but also stated that it depended on agreement between parties. Crockerall testified that the "vanilla shell" was in place the whole time because there were walls, floors, a ceiling, and gas, water, and electrical service; the only thing lacking was mechanical hookup of air handlers, which could not be done until the restaurant was laid out.
Crockerall testified that Rupp appeared to be financially unable to complete the required tenant improvements. Crockerall also stated that Rupp presented details on several different restaurant concepts and Lowry was "frustrated" because of the changing plans.
The district court issued its findings of fact, conclusions of law, and an order for judgment, concluding that (1) WAF was not a legal entity at the time the lease was signed and, in any event, had not sustained its burden of proving a breach of contract; (2) Lowry had sustained its burden of proving that Rupp was personally liable under the lease for a breach of contract; (3) Lowry had sustained its burden of proving damages in the amount of $245,567.76; and (4) Lowry was entitled to attorney fees under the contract.
In October 2015, the district court awarded attorney fees and costs to Lowry in the amount of $249,422.04. The district court denied Rupp's and WAF's joint motions for amended findings of fact, conclusions of law, and order for judgment on February 18, 2016. On March 14, 2016, the district court sua sponte corrected a statement in its original findings to reflect that damages were awarded to Lowry up to the date of trial,not the date on which the premises were surrendered. There was no change in the amount of the award. Appellants filed a notice of appeal on March 31, 2016.
"On appeal from judgment following a court trial, this court reviews whether the district court's findings were clearly erroneous and whether the district court erred as a matter of law." In re Distrib. of Attorney's Fees between Stowman Law Firm & Lori Peterson Law Firm, 855 N.W.2d 760, 761 (Minn. App. 2014), aff'd 870 N.W.2d 755 (Minn. Oct. 28, 2015). A finding is clearly erroneous if it is "manifestly contrary to the weight of the evidence or not reasonably supported by the evidence as a whole." Rogers v. Moore, 603 N.W.2d 650, 656 (Minn. 1999) (quotation omitted). Questions of law are reviewed de novo, but for a mixed question of fact and law, this court corrects erroneous applications of law but defers to the district court's ultimate conclusions, which are reviewed under an abuse of discretion...
To continue reading
Request your trial