HDRE Bus Partners Ltd Grp v. RARE Hospitality Intl , 834 F.3d 537 ( 2016 )

Case: 15-30487 Document: 00513644300 Page: 1 Date Filed: 08/19/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 15-30487
Fifth Circuit
FILED
August 19, 2016
HDRE BUSINESS PARTNERS LIMITED GROUP, L.L.C., Lyle W. Cayce
Clerk
Plaintiff - Appellant
v.
RARE HOSPITALITY INTERNATIONAL, INCORPORATED, doing business
as Longhorn Steakhouse,
Defendant - Appellee.
Appeal from the United States District Court
for the Western District of Louisiana
Before REAVLEY, JOLLY, and ELROD, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
HDRE Business Partners Limited Group, L.L.C., appeals the district
court’s award of attorneys’ fees for RARE Hospitality International, Inc., under
an attorneys’ fees provision in a lease agreement between the parties that was
subsequently novated by another agreement. Because the attorneys’ fees
provision was extinguished when the lease was novated, we REVERSE the
district court’s judgment awarding attorneys’ fees.
I.
This attorneys’ fees dispute arises out of an underlying lease dispute
between HDRE Business Partners Limited Group, L.L.C. (“HDRE”), and
RARE Hospitality International, Inc. (“RARE”). RARE became interested in
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developing a LongHorn Steakhouse restaurant in a shopping center being built
in Bossier City, Louisiana. RARE wanted to lease the property, but Stirling
Bossier L.L.C. (“Stirling”), the owner, wanted to sell it. RARE approached
HDRE and the parties agreed that HDRE would purchase the property from
Stirling and lease it to RARE. HDRE and Stirling entered into a purchase
agreement in August 2007, and HDRE and RARE entered into a lease
agreement (“the Lease”) in February 2008. The Lease contained an attorneys’
fees provision:
26.16 Right to Attorneys’ Fees. In the event of any suit, action
or proceeding at law or in equity, by either of the parties hereto
against the other by reason of any manner or thing arising out of
this Lease, the prevailing party shall have the right to recover, not
only its legal costs, but its Attorneys’ Fees.
The Lease did not expressly address the possibility of a future novation.
RARE later decided that it preferred purchasing the property directly
rather than leasing it. Consequently, in May 2008, RARE, HDRE, and Stirling
entered into an Amendment and Assignment of Contract agreement (“the
Assignment”). In the Assignment, HDRE assigned to RARE its rights and
duties under its August 2007 purchase agreement with Stirling, and RARE
agreed to pay HDRE $210,000 upon closing. The Assignment did not address
its effects on the Lease and did not contain an attorneys’ fees provision. The
Assignment gave RARE a one-week window within which it could terminate if
it was unable to obtain internal corporate approval for the purchase. RARE
could not obtain internal corporate approval and exercised its option to
terminate within the one-week window. HDRE then demanded that RARE
comply with its duty to rent the property under the Lease, and when RARE
refused, HDRE sued RARE for breach of contract.
The district court granted RARE’s motion for summary judgment,
determining that the parties clearly intended for the Assignment to novate,
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and thus extinguish, the Lease. We reversed on appeal, reasoning that it was
“not clear and equivocal” that the parties intended to novate the Lease. HDRE
Bus. Partners Ltd. Grp., L.L.C. v. RARE Hosp. Int’l, Inc. (HDRE I), 484 F.
App’x 875, 878 (5th Cir. 2012). The case then proceeded to a four-day jury trial,
after which the jury returned a verdict form providing as follows:
1. Has RARE proven by a preponderance of the evidence that both
RARE and HDRE clearly and unequivocally intended to substitute
the Assignment of HDRE’s obligation to purchase for RARE’s
obligation to lease under the Lease Agreement, so that RARE’s
obligation to lease was no longer enforceable?
_X_ YES ____ NO
The district court accordingly entered judgment for RARE, HDRE appealed,
and we affirmed. HDRE Bus. Partners Ltd. Grp., L.L.C. v. RARE Hosp. Int’l,
Inc. (HDRE II), 577 F. App’x 264 (5th Cir. 2014).
RARE then moved for attorneys’ fees under the novated Lease’s
prevailing party attorneys’ fees provision. The district court held that
attorneys’ fees were available because the attorneys’ fees provision had
survived the novation. Upon the magistrate judge’s recommendation, the
district court awarded RARE $750,000 in attorneys’ fees. HDRE appeals.
II.
The parties’ dispute over the Lease was a diversity case in which
Louisiana law supplied the rules of decision, and we consequently look to
Louisiana law to determine the availability and reasonableness of attorneys’
fees. Wal-Mart Stores, Inc. v. Qore, Inc., 647 F.3d 237, 242 (5th Cir. 2011). 1
We review an award of attorneys’ fees for abuse of discretion, reviewing
underlying legal determinations de novo and underlying factual
1 Both parties brief the issues in this case under Louisiana law. The Lease provides
that it “shall be construed under and enforced in accordance with the laws of the state in
which the Shopping Center is located,” which is Louisiana.
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determinations for manifest error. Covington v. McNeese State Univ., 119
So. 3d 343, 348 (La. 2013); Wooley v. Lucksinger, 61 So. 3d 507, 553–54 (La.
2011). Because the district court, in the ruling that is the subject of this appeal,
determined that the Lease was unambiguous and “address[ed] the legal
entitlement to attorneys’ fees under the Lease,” our review is de novo. See
Hoffman v. Travelers Indem. Co. of Am., 133 So. 3d 993, 997–98 (La. 2014)
(interpreting unambiguous contract as a matter of law).
The availability of attorneys’ fees in this case turns on the relationship
between the Lease and the Assignment, which relationship is governed by the
law of novation in Louisiana. We begin by briefly summarizing the relevant
law in that area.
“Novation is the extinguishment of an existing obligation by the
substitution of a new one.” La. Civ. Code art. 1789. When the Louisiana Civil
Code speaks of an “obligation,” it refers to “a legal relationship” between
multiple parties, not any particular right or duty owed by one party to another.
Id. art. 1756; accord id. cmt. b (“[A]n obligation is a legal relationship rather
than a mere duty to perform.”); Saul Litvinoff & Ronald J. Scalise Jr., 5 La.
Civ. L. Treatise: Law of Obligations § 1.1 Westlaw (database updated Nov.
2015) (“In the technical terminology of the civil codes, . . . the word ‘obligation’
means a legal bond that binds two persons in such a way that one of them, the
creditor or obligee, is entitled to demand from the other, the debtor or obligor,
a certain performance.”).
Accordingly, unless the parties express a clear intent to the contrary, a
novation typically extinguishes a legal relationship in its entirety rather than
surgically excising individual rights and duties. As we have explained:
It is important to distinguish the obligation from the rights and
duties derived therefrom, as this distinction bears on the concept
of novation, which is here at issue. When the Louisiana Civil Code
speaks of novation, it is referring to the substitution of a new
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obligation for an existing one, rather than any substitution of the
correlative rights and duties attendant on the old or new
obligations.
Langhoff Props., LLC v. BP Prods. N. Am. Inc., 519 F.3d 256, 260–61 (5th Cir.
2008); see also In re Bayhi, 528 F.3d 393, 404 & n.34 (5th Cir. 2008) (“By
definition, a novation extinguishes existing obligations—here, the Loan, not
the rights and duties of the parties inter se—by substituting a new obligation
for the old one . . . .”). In the specific context of leases, we have elaborated that
individual duties like the lessor’s duties of “delivering the Property” and
“protecting [the lessee’s] peaceful possession,” and the lessee’s duties of “paying
the rent” and “using the Property as prudent administrator,” “are correlative
to, and flow from, the overarching conventional or legal obligation”—i.e., “the
conventional obligation of contract or lease.” Langhoff Props., 519 F.3d at 260.
The novation of a lease typically results in the substitution of some new
obligation for the existing lessor-lessee relationship, “rather than any
substitution of the correlative rights and duties” such as the duty to pay rent.
Id. at 261.
We hold that the novation of the Lease extinguished the parties’ rights
under that agreement to prevailing-party attorneys’ fees and that the district
court consequently abused its discretion in awarding fees to RARE. The jury
found “that both RARE and HDRE clearly and unequivocally intended to
substitute [the Assignment] for RARE’s obligation to lease under the Lease
Agreement, so that RARE’s obligation to lease was no longer enforceable.” The
implication of that finding is not that the Assignment had the narrow effect of
excising RARE’s duty to pay rent while leaving the remainder of the Lease
intact. Rather, the jury’s finding of a novation means that the Assignment
extinguished the original lessor-lessee relationship in its entirety, including all
of its correlative rights and duties such as the right to prevailing party
attorneys’ fees. This result is consistent with the principle that “[t]he
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extinction of the original obligation also extinguishes its accessories.” Litvinoff
& Scalise, supra, § 17.44; see also Alain A. Levasseur, Louisiana Law of
Obligations: A Precis 209 (1993) (“The new obligation which emerges from the
juridicial act of novation is free of all the rights of action and exceptions which
were attached to the former and original obligation.”). 2
We disagree with the district court’s conclusion that several provisions
of the Lease evince the parties’ intent for the attorneys’ fees provision to
survive a future novation. Because novation turns on the parties’ intent,
parties can certainly limit the effects of a novation by expressly stating in their
subsequent agreement that they wish to novate a prior agreement without
wholly displacing it. Rebel Distributors Corp., Inc. v. LUBA Workers’ Comp.,
144 So. 3d 825, 839–40 (La. 2013). In this case, however, the parties’
subsequent agreement—the Assignment—“d[id] not address the issue of
novating the lease agreement” at all. HDRE I, 484 F. App’x at 877. We
conclude that the Lease did not address the issue of novation either.
The district court focused primarily on the attorneys’ fees provision
itself, which by its terms applies broadly to “any suit, action or proceeding . . .
arising out of this Lease.” While the district court was surely correct that this
broad language applies on its own terms to the parties’ underlying dispute in
this case, the attorneys’ fees provision reveals nothing about the circumstances
under which it will (or will not) cease to be operative. A broadly-worded
contract term is no less subject to being extinguished by novation than a
narrowly-worded one. The district court also focused on a term in the Lease
providing as follows:
2The parties have not cited, and we have not found, a single Louisiana case enforcing
an attorneys’ fees provision—or, indeed, any individual provision—of a subsequently novated
agreement.
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26.18 Invalidity of Provisions. If any term or provision of this
Lease or the application thereof to any person or circumstances
shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such term or provision to persons
whose circumstances are other than those as to which it is held
unenforceable, shall not be affected thereby.
This provision does not indicate that the parties to the Lease intended that any
future novation of the Lease would operate in piecemeal fashion. Rather, it is
simply a severability clause, instructing future courts not to disturb more of
the Lease than necessary if some portion of the Lease is invalid.
We are also not persuaded by RARE’s argument that the Lease provision
governing attorneys’ fees created conjunctive obligations that could survive
separately from the parties’ rights and duties as lessor and lessee. Regardless
of whether Louisiana’s default novation rules operate differently when the
original obligation is conjunctive, the Lease in this case did not contain
conjunctive obligations. The Civil Code provides that “[a]n obligation is
conjunctive when it binds the obligor to multiple items of performance that
may be separately rendered or enforced. In that case, each item is regarded as
the object of a separate obligation.” La. Civ. Code art. 1807. “A distinctive
characteristic of the conjunctive obligation is the possibility of piecemeal
discharge.” Id. cmt. f; accord, e.g., Jones v. City of New Orleans, 20 So. 3d 518,
523 (La. Ct. App. 2009); Stelly v. Guidroz, 838 So. 2d 900, 904 (La. Ct. App.
2003). The right to prevailing-party attorneys’ fees in any dispute about the
Lease was not capable of piecemeal discharge and did not arise from some
separate legal relationship apart from the lessor-lessee relationship itself.
Rather, it was part and parcel of the lessor-lessee relationship, the obligation
embodied by the Lease as a whole.
Finally, we do not share the district court’s concern that the parties could
not have intended for the availability of attorney’s fees to turn on which party
prevailed in the underlying dispute and on which defenses were raised. RARE
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frames this point in terms of symmetry, asserting that it would be “absurd” if
“the mutual obligations contained in the prevailing party provision [were to]
become unilateral in nature.” We readily acknowledge that attorneys’ fees
under the Lease would have been available in this case if HDRE had prevailed
at trial or if RARE had prevailed on some defense other than novation. But
that is no “absurd” result; rather, it simply reflects one risk of raising a
novation defense. It will almost always be the case that if one party
successfully defends a breach-of-contract lawsuit by arguing that the sued-
upon agreement has been novated, that party will not get the benefit of a
prevailing-party provision in the novated agreement. For instance, if the roles
in this case had been reversed from the beginning with RARE suing HDRE to
enforce the Lease and HDRE successfully defending the lawsuit by showing
that the Lease had been novated, HDRE likely would not have been entitled to
attorneys’ fees just as RARE is not entitled to them now. There is no
asymmetry here. RARE may not avoid the standard legal consequences of
novation simply because its other defenses at trial would have had different
legal consequences.
III.
Because the Lease was extinguished in its entirety by novation, we
REVERSE the district court’s judgment awarding attorneys’ fees to RARE
under the Lease.
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