West Asset Management, Inc. v. Nw Parkway, LLC , 336 Ga. App. 775 ( 2016 )

WHOLE COURT
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules
March 30, 2016
In the Court of Appeals of Georgia
A15A1830, A15A1831. WEST ASSET MANAGEMENT, INC. v. JE-087, JE-
NW PARKWAY, LLC; and vice versa. 088
ELLINGTON, Presiding Judge.
NW Parkway, LLC, brought this action in the Superior Court of Cobb County
against West Asset Management, Inc. for claims arising from a commercial property
lease agreement. West filed counterclaims arising out of the same lease. Both parties
moved for summary judgment, which the trial court granted in part and denied in part.
In Case No. A15A1830, West Asset appeals the trial court’s rulings in various
respects, and in Case No. A15A1831, NW Parkway cross-appeals. For the reasons
explained below, we affirm in part and reverse in part.
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled
to judgment as a matter of law[.]” OCGA § 9-11-56 (c).
Summary judgments enjoy no presumption of correctness on appeal, and
an appellate court must satisfy itself de novo that the requirements of
OCGA § 9-11-56 (c) have been met. In our de novo review of the grant
[or denial] of a motion for summary judgment, we must view the
evidence, and all reasonable inferences drawn therefrom, in the light
most favorable to the nonmovant.
(Citations and punctuation omitted.) Cowart v. Widener, 287 Ga. 622, 624 (1) (a)
(697 SE2d 779) (2010). When, as in this case, the parties file cross-motions for
summary judgment, “each party must show [that] there is no genuine issue of material
fact regarding the resolution of [the essential] points of inquiry and that each,
respectively, is entitled to summary judgment; either party, to prevail by summary
judgment, must bear its burden of proof.” Morgan Enterprises, Inc. v. Gordon Gillett
Business Realty, 196 Ga. App. 112 (395 SE2d 303) (1990). See also Wells Fargo
Bank v. Twenty Six Properties, LLC, 325 Ga. App. 662 (754 SE2d 630) (2014)
(accord). A grant of summary judgment must be affirmed if it is right for any reason,
including for an alternate ground that the trial court chose not to address in granting
summary judgment, so long as the movant raised the issue in the trial court and the
2
nonmovant had a fair opportunity to respond. Georgia-Pacific, LLC v. Fields, 293 Ga.
499, 504 (2) (748 SE2d 407) (2013); City of Gainesville v. Dodd, 275 Ga. 834, 839
(573 SE2d 369) (2002); Abellera v. Williamson, 274 Ga. 324, 326 (2) (553 SE2d 806)
(2001). The relevant facts that follow are undisputed unless otherwise noted.
On July 20, 2004, NW Parkway, as lessor, and Worldwide Asset Management,
LLC (“Worldwide”), West’s predecessor-in-interest, as lessee, executed the lease at
issue for 70,000 square feet of office space for a 20-year term from August 1, 2004,
to July 31, 2024. The lease was a so-called “triple net lease”1 that (in “Special
Stipulation 3”) made West responsible for “all expenses for the entire property and
building[ ] of any nature whatsoever during the term of this lease,” including property
taxes, except that NW Parkway “shall be responsible for any expense directly
associated with and actually incurred with respect to the concrete walls, concrete slab,
and foundation.” West “acknowledge[d] that the premises [were] in good order and
repair” at the beginning of the lease and specifically agreed to maintain the premises
1
See Black’s Law Dictionary (10th ed. 2014) (A “triple net lease” or
“net-net-net lease” is one “in which the lessee pays all the expenses, including
mortgage interest and amortization, leaving the lessor with an amount free of all
claims.”).
3
at its own expense and to surrender the premises at the termination of the lease in as
good condition as received, normal wear and tear excepted.
The contract (in “Special Stipulation 4”) allowed West the option of
terminating the contract at five year intervals, at the end of the fifth, tenth, and
fifteenth years, provided, inter alia, that, “for said option to be valid and effective,
[West] shall . . . not be in default under any of the provisions of this lease” and that
West shall “provide [NW Parkway] with written notice (90) days in advance of the
end of the [five-year interval].” In the event of such early termination, the lease
provided that West would continue to pay rent for an additional six months and
vacate the premises by the end of that period. The first five-year interval ended July
31, 2009, meaning that the contract required West to give notice on or before May 2,
2009, to exercise the early-termination option, and to vacate by January 31, 2010.
In early 2008, NW Parkway obtained a professional inspection to determine
whether West was maintaining the property. The inspector noted evidence of
ineffective drainage and standing water in areas of the roof, as well as multiple areas
that had been repeatedly patched but appeared likely to leak. The inspector
concluded, “[b]ased on the number of layers of patching material and the deteriorated
condition of the top layer of many patches, the roof is due for replacing” and also
4
recommended certain other repairs. Based on the inspector’s report, NW Parkway
requested in a letter dated February 27, 2008, that West “correct the[ ] deficiencies”
indicated in the report, including by replacing the roof. In a letter dated June 2, 2008,
West asserted that it was NW Parkway’s sole obligation to replace the roof and that
West was obligated only to maintain the roof in as good condition as received. West
did not replace the roof.
In a letter dated July 10, 2008, NW Parkway notified West that it was in default
under the lease for failure “to perform and pay for the required roof and other repairs”
and demanded that West cure the default within thirty days. After thirty days, NW
Parkway notified West that it had failed to cure the default within the time allowed
and that it had therefore lost its “ability to cure [its] default under the Lease” and
“forfeited [its] right to terminate the Lease prior to July 31, 2024 under Special
Stipulation 4[.]” When NW Parkway sent its contractor to the property to replace the
roof and perform other repairs, West denied the contractor access. In a letter dated
August 15, 2008, West stated:
No permission has been granted to NW Parkway to send a roofing
vendor to the premises. Unless there is an agreement to the contrary,
[NW Parkway] has no right to enter upon the premises except with
permission of [West]. . . . As we have stated, West has repaired the roofs
5
as appropriate during the lease term, and, will continue to do so. If [NW
Parkway] removes the existing roof system, it will be impossible for
West to make repairs. It is the tenant’s role under the Lease Agreement
to establish the type of repairs which are appropriate for the roofs, not
[NW Parkway’s] role. If [the contractor] attempts to enter the premises,
it will be turned away.
In October 2008, NW Parkway filed this action, seeking damages and an
emergency restraining order to compel West to allow the replacement of the roof and
other necessary repairs. In November 2008, the trial court granted NW Parkway’s
request for a TRO and enjoined West from interfering with NW Parkway or it
contractors from replacing the roof and repairing the exterior of the buildings. As the
trial court noted, West claimed that the roof did not need to be replaced, referring to
an evaluation performed by a roofing company it had engaged, but failed to present
that company’s report to the court. The court found that West had failed to adduce
any evidence to contradict the evidence presented by NW Parkway that the roof
needed to be replaced. After the court issued the TRO, NW Parkway’s chosen
contractor performed the work; the cost to replace the roof and repair the property
was $384,226. In December 2008, West answered NW Parkway’s complaint and
asserted counterclaims for fraud, negligence, breach of contract, and setoff and
6
requested a declaratory judgment that it was entitled to exercise its right to early
termination.
On December 31, 2008, West sent a letter “to constitute [its] notice of early
termination” pursuant to Special Stipulation 4. By letter dated January 26, 2009, NW
Parkway “rejected” West’s termination on the basis that West was “in breach of the
lease for failing to pay expenses for the replacement of the roof and other repair
expenses[,]” which prohibited West “from terminating the lease as the result of such
failure.” In March 2009, West filed a motion for partial summary judgment on its
request for a declaratory judgment that it was entitled to exercise its right to early
termination. At the same time, while maintaining its position that it was not
responsible for replacing the roof under the lease, West filed a request for leave to
pay into the registry of the court the disputed amount, $384,226, which was the
amount NW Parkway spent to replace the roof and repair the buildings’ exteriors. In
its request to pay the funds into the registry of the court, West stated that it was
seeking to preserve its right to terminate the lease at the end of the first five-year
interval. In April 2009, NW Parkway amended its complaint, seeking $384,226 in
damages for roof-related expenses, among other relief.
7
The trial court heard West’s motion for partial summary judgment on April 23,
2009, less than two weeks before the deadline for giving notice of termination before
the end of the first five-year interval. At the hearing, NW Parkway’s counsel
acknowledged that there was a question of fact whether the roof needed repair or
needed replacement. West’s counsel asked that, because the deadline was
approaching, the court accept the money into the registry of the court so that West
could cure any arguable default and stated, “If there’s something else that we’re
required to do in order to cure this default and exercise our termination right, then,
. . . we want to do that.”
In September 2009, the trial court granted West’s motion for partial summary
judgment, on the basis, inter alia, that West was not in default of the lease because it
did not have an obligation to replace the roof and entered a declaratory judgment that
West was entitled to exercise its right to early termination. The trial court expressly
declined to reach the issues whether West breached the lease or what damages, if any,
NW Parkway could recover. NW Parkway filed a notice of appeal.
While docketing of that first appeal, Case No. A10A1781, was pending, West
acted on the trial court’s ruling that it was entitled to exercise its right to terminate the
lease at the end of the first five-year interval by vacating the property. West tendered
8
possession as of January 31, 2010, and NW Parkway accepted possession, in
compliance with the declaratory judgment “until such time as it could be reversed on
appeal.” Thereafter, NW Parkway transferred utility accounts so that it could keep the
utilities active, took over contracts for custodial services and landscaping, paid
property taxes, tried to find a new tenant, and listed the property for sale.
On March 24, 2011, we issued a decision in Case No. A10A1781 and reversed
the September 2009 declaratory judgment, holding: “[b]ased on the plain language
of the lease, the trial court erred by finding that West was not obligated to replace the
roof and by basing its determination that West was not in default upon this finding.”
NW Parkway, LLC v. Lemser, 309 Ga. App. 172, 177 (2) (709 SE2d 858) (2011), cert.
denied, November 30, 2011. In addition, we concluded that the undisputed evidence
established that, by failing to replace the roof, West failed to comply with one of the
four conditions precedent for the early termination option to apply. Id. at 178 (3).
This failure “constituted default, which prevented West from timely complying with
the terms of the optional early termination clause in order to terminate at the five-year
point.” (Footnote omitted.) Id.
The trial court belatedly ruled on West’s request for leave to pay $384,226 into
the registry of the court and granted the request on August 29, 2012, “nunc pro tunc”
9
April 30, 2009 (after the hearing and before the deadline for notice of early
termination).
In December 2012, NW Parkway sold the property. In the sales agreement, NW
Parkway gave “Warranties and Representations” that “[t]here are no leases . . . in
force or effect that grant to any person whomsoever or any entity whatsoever any
right, title, interest or benefit in or to all or any part of the Property.”
In October 2014, NW Parkway filed a motion for partial summary judgment,
as to its Count 1, roof-related expenses, its Count 2, anticipatory breach of contract,
and West’s counterclaims (fraud, negligence, breach of contract, setoff, and
declaratory relief regarding right to early termination). West also filed a motion for
partial summary judgment, as to NW Parkway’s Count 2, anticipatory breach of
contract, and specifically disputed the components of NW Parkway’s claimed
damages (additional rents, late fees, and contractual attorney fees). On March 12,
2015, the trial court entered an order ruling on the parties’ cross motions for partial
summary judgment. The trial court granted partial summary judgment to NW
Parkway and to West in certain respects and denied their motions as to other issues,
as specified below.
10
1. The trial court denied in part the parties’ cross-motions for summary
judgment on NW Parkway’s Count 2, its claim for breach and anticipatory breach of
the lease agreement, seeking rents accruing after January 2010, expenses, late
charges, interest, and contractual attorney fees.2 This ruling was supported by the
court’s determination that material questions of fact remain regarding whether West
satisfied the conditions for terminating the lease at the end of the first five-year
interval. In particular, the trial court determined that there is a jury question regarding
West’s tender defense, that is, that West’s tender of the roof-related expenses, by
moving to deposit $384,226 into the registry of the court, was sufficient to defeat NW
Parkway’s claim that West breached the lease by failing to replace the roof. An
alternative basis for the denial of summary judgment on NW Parkway’s Count 2 was
the court’s determination that material questions of fact remain regarding whether a
surrender took place as of January 2010, that is, whether NW Parkway took actions
incompatible with the continued existence of West’s leasehold after that date. Both
sides appeal.
2
The trial court’s ruling discussed in Division 2, infra, limits NW Parkway’s
claim for rents to the period January 2010 through December 2012, when NW
Parkway sold the property.
11
We agree with NW Parkway that, as a result of our decision in the first appeal,
the issue whether West satisfied the conditions for terminating the lease at the end of
the first five-year interval has been decided adversely to West. NW Parkway, LLC v.
Lemser, 309 Ga. App. at 178 (3). See OCGA § 9-11-60 (h) (“[A]ny ruling by the
Supreme Court or the Court of Appeals in a case shall be binding in all subsequent
proceedings in that case in the lower court and in the Supreme Court or the Court of
Appeals as the case may be.”); 1H Riverdale, LLC v. McChesney Capital Partners,
LLC, 292 Ga. App. 841, 843-844 (666 SE2d 8) (2008) (After appellate court held that
plaintiffs were not entitled to distribution of profits under an operating agreement,
trial court was precluded from granting defendants’ renewed motion for summary
judgment as to profit distribution.); McLean v. Continental Wingate Co., Inc., 222 Ga.
App. 805, 806-807 (1) (476 SE2d 83) (1996) (After appellate court held that
contractual provision was not unenforceably vague, trial court was precluded from
granting defendants’ renewed motion for summary judgment, on grounds that
provision was too vague to be enforceable.). Accordingly, the trial court’s
determination that there is a jury question whether West satisfied the conditions for
unilaterally terminating the lease at the end of the first five-year interval was
incorrect.
12
With regard to West’s argument that it cured its breach of its obligation to
replace the roof by moving to deposit $384,226, the amount NW Parkway spent on
repairs, into the registry of the court, we agree with NW Parkway that such tender
could not prospectively excuse West’s failure to satisfy its other obligations under the
lease, e. g., payment of rent, given the binding determination that West was not
entitled to terminate the lease at the end of the first five-year interval. Accordingly,
the trial court’s determination that there is a jury question regarding West’s tender
defense was incorrect.
In denying summary judgment on NW Parkway’s Count 2, the trial court also
determined that material questions of fact remain regarding whether NW Parkway’s
conduct in January 2010 resulted in a surrender. As West contends, NW Parkway
took actions that are potentially incompatible with the continued existence of West’s
leasehold after that date, such as paying utilities, service contracts, and property taxes,
all of which were West’s responsibility under the triple-net lease, and listing the
property for sale.3 But NW Parkway has identified evidence, which is undisputed,
3
See Circle K Stores, Inc. v. T.O.H. Assocs., Ltd., 318 Ga. App. 753, 756 (2)
(734 SE2d 752) (2012) (“A surrender of a lease by operation of law may arise from
any condition of facts voluntarily assumed by the parties and incompatible with the
continued existence of the relation of landlord and tenant between them. Where a
landlord exercises a control over the premises inconsistent with the tenant’s right of
13
that, because the trial court’s declaratory judgment ruling allowed West to vacate the
premises and to stop maintaining the property, NW Parkway took those actions in
order to prevent damage to the property.4 There is no evidence that NW Parkway
accepted rent from another tenant or occupied the premises itself and conducted
business operations there.5 Accordingly, the trial court’s determination that there is
occupation, he thereby discharges the tenant from liability for future rent, and a
cancellation or rescission of the contract is thus effected by agreement of the parties,
express or implied.”) (punctuation and footnotes omitted).
4
See Circle K Stores, Inc. v. T.O.H. Assocs., Ltd., 318 Ga. App. at 757 (2) (“To
show a surrender, a mutual agreement between lessor and lessee that the lease is
terminated must be clearly proved.”) (footnote omitted); Sirdah v. N. Springs Assocs.,
304 Ga. App. 348, 351 (1) (696 SE2d 391) (2010) (“The mere taking of the keys to
the leased premises by a landlord does not give rise to an inference that the landlord
accepted surrender of the premises. Likewise, the mere entry upon the premises to
protect the property after abandonment by the lessee will not amount to an acceptance
of a surrender of a lease.”) (citations and punctuation omitted); Erfani v. Bishop, 251
Ga. App. 20, 22 (1) (c) (553 SE2d 326) (2001) (accord); Lawson v. Crawford, 220
Ga. App. 447, 448 (469 SE2d 507) (1996) (Where a tenant abandons leased premises
without the consent of the landlord, “the landlord has the option of (1) terminating the
lease, (2) obtaining another tenant while holding the original tenant liable for any
deficiency that may occur, or (3) permitting the premises to remain vacant while
collecting the agreed-upon rent from the original tenant. . . . A surrender of premises
by a lessee has no legal effect until accepted by the lessor.”) (citation and punctuation
omitted).
5
Cf. Savannah Yacht Corp. v. Thunderbolt Marine, Inc., 297 Ga. App. 104,
111 (2) (676 SE2d 728) (2009) (where lessor forced lessee’s subtenant in possession
to vacate the property, occupied the property itself, and began operating its own
marina and yacht repair business there, lease was terminated by operation of law).
14
a jury question whether NW Parkway accepted West’s surrender of the lease as of
January 2010 was incorrect,6 and the trial court erred in denying NW Parkway’s
motion for summary judgment in this regard. Circle K Stores, Inc. v. T.O.H. Assocs.,
Ltd., 318 Ga. App. 757-758 (2) (734 SE2d 752) (2012); Sirdah v. N. Springs Assocs.,
304 Ga. App. 348, 351 (1) (696 SE2d 391) (2010).
2. The trial court determined that NW Parkway is not entitled to any rents after
December 2012, when it sold the property and expressly disclaimed the existence of
any lease then in force that granted any right, title, interest or benefit in the property
to any person or entity. The trial court accordingly granted West’s motion for
summary judgment on NW Parkway’s claim for rents (Count 2) in part, as to rents
accruing after December 2012. NW Parkway appeals the partial grant of West’s
motion.
NW Parkway contends that it is entitled to collect rent for the entire 20-year
term, despite its sale of the property in the eighth year of the lease, because the lease
“disclaims set-offs or deductions against rent.” Specifically, NW Parkway points to
Paragraph 1, which provides that the base rent of the lease “shall be payable by
6
As explained in Division 2, infra, the record does establish that the landlord-
tenant relationship ended when NW Parkway sold the property in December 2012.
15
[West] in monthly installments on or before the first day of each month in advance
. . . without any prior demand therefore, and without any deduction or setoff
whatsoever, and shall be payable to [NW Parkway].” NW Parkway argues that in
agreeing to base rent being due “without any deduction or setoff whatsoever” West
“knowingly accepted a rent obligation for a term of twenty years” regardless of later
events. Read in context with the “triple-net” stipulation and provisions regarding
West’s obligations to pay the property taxes and other expenses associated with the
property and to maintain the premises at its own expense, however, we conclude that
the modifier “without any deduction or setoff whatsoever” refers to West’s obligation
to bear all expenses associated with the property (with the specified exception of
those incurred with respect to the concrete walls, concrete slab, and foundation). We
find no basis for construing the modifier “without any deduction or setoff
whatsoever” to obligate West to pay rent for a period when NW Parkway lacks legal
ownership of the property with the concomitant ability to provide West possession
and use of the property as a tenant.7 Because the record establishes that NW
7
See OCGA § 44-6-102 (“The grant by one person to another of an estate for
years out of his own estate, with reversion to himself, is usually termed a lease.”); 44-
7-1 (a) (“The relationship of landlord and tenant is created when the owner of real
estate grants to another person, who accepts such grant, the right simply to possess
and enjoy the use of such real estate either for a fixed time or at the will of the
16
Parkway’s sale of the property in December 2012 terminated its landlord-tenant
relationship with West, West’s obligation to pay rent under the lease from that point
to the original termination date of July 31, 2024 necessarily ended. Noble v. Kerr, 123
Ga. App. 319, 319-320 (1) (180 SE2d 601) (1971).8 Accordingly, the trial court did
not err in granting West’s partial motion for summary judgment in this regard.
3. The trial court determined that there are questions of fact regarding whether
the lease’s late-charges provision, Paragraph 27, is an unenforceable penalty and
denied West’s motion for summary judgment on NW Parkway’s claim for late fees
as part of Count 2. West appeals the partial denial of its motion.
grantor.”); Sharpe v. Mathews, 123 Ga. 794, 797-798 (2) (51 S.E. 706) (1905) (The
relation of landlord and tenant arises when a party occupies the land or premises of
another in subordination to the other’s title and with his assent, express or implied.).
8
NW Parkway’s reliance on American Med. Transport Group v. Glo-An, Inc.
235 Ga. App. 464, 466 (1) (509 SE2d 738) (1998), is misplaced. In that case, a lease
provided that in event of default, the landlord could evict the tenant and the tenant
agreed to pay any damage the landlord might suffer by reason of the termination of
the tenant’s possession, such as by inability to relet the premises on satisfactory
terms, and provided that the tenant would pay the specified rent “without deduction
or set off, for the entire term [of the lease].” We held that the lease terms expressed
the parties’ intention to hold the tenant responsible for after-accrued rent even should
an eviction take place, and, therefore, the landlord was entitled to summary judgment
for rent for the lease term remaining after the tenant abandoned the premises without
the landlord’s consent and the landlord was unable to relet the premises. In contrast
to this case, there was no evidence that the landlord ever repudiated the continuation
of the leasehold by selling the property and disclaiming the existence of any lease.
17
Paragraph 27 provides that “there shall be due and payable by [West] to [NW
Parkway], as of the fifth day of each month during the term [of the lease], a Late
Charge in an amount equal to ten percent of all sums which are due and payable
[under the lease] but have not, as of such date, been received by [NW Parkway].”
Another paragraph provided for 15 percent interest to accrue on past due obligations.
OCGA § 13-6-7 provides: “If the parties agree in their contract what the
damages for a breach shall be, they are said to be liquidated, and unless the agreement
violates some principle of law, the parties are bound thereby.” But a provision that
is intended to deter breaches of the contract by imposing a penalty for a breach that
is not a reasonable pre-estimation of damages is unenforceable under Georgia law.
Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. 227, 230 (227 SE2d
340) (1976); Alexander v. Steining, 197 Ga. App. 328, 329-330 (2) (398 SE2d 390)
(1990). In order to resolve whether a provision for damages for breach amounts to
“liquidated damages” under OCGA § 13-6-7, or is an unenforceable penalty clause,
the trial court at the summary judgment level must conduct a tripartite
inquiry according to these standards: First, the injury caused by the
breach must be difficult or impossible of accurate estimation; second,
the parties must intend to provide for damages rather than for a penalty;
and third, the sum stipulated must be a reasonable pre-estimate of the
loss.
18
Morgan Enterprises, Inc. v. Gordon Gillett Business Realty, 196 Ga. App. at 112. At
this stage, the burden is on West to show that the late charge is a penalty as a matter
of law. Id.9 “In cases of doubt, the courts favor the construction [of a contract] which
holds the stipulated sum to be a penalty, and limits the recovery to the amount of
damage[s] actually shown, rather than a liquidation of the damages.” (Citation and
punctuation omitted.) Fortune Bridge Co. v. Dept. of Transp., 242 Ga. 531, 532 (250
SE2d 401) (1978).10
With regard to the first factor, West apparently concedes that the actual
damages caused by a late payment under the lease would be difficult or impossible
to accurately estimate. See Oami v. Delk Interchange, Ltd., 193 Ga. App. 640, 641-
642 (388 SE2d 706) (1989) (In reviewing a late charge in a lease which provided that
9
At trial the burden is on a defaulting party to show that an alleged liquidated
damages provision is actually an unenforceable penalty. Id. In addition, we note that
“trial courts should not ordinarily submit the issue of whether a contract provides for
liquidated damages or a penalty to the jury. This issue should be decided as a matter
of law, unless after applying the usual rules of contract construction, an ambiguity
remains warranting submitting a factual issue to the jury.” (Citations omitted.)
Roswell Properties, Inc. v. Salle, 208 Ga. App. 202, 205 (2) (c) (430 SE2d 404)
(1993), disapproved of on other grounds by Golden Peanut Co. v. Bass, 249 Ga. App.
224, 234 (2) (547 SE2d 637) (2001).
10
See Southeastern Land Fund, Inc. v. Real Estate World, Inc., 237 Ga. at 231
(accord); Caincare, Inc. v. Ellison, 272 Ga. App. 190, 195 (612 SE2d 47) (2005)
(accord).
19
any overdue rent would bear interest from the due date until paid and that the tenant
would pay in addition to interest a service charge of $10 per day, we concluded that
the landlord had shown that the injury that would be caused by late payments, that is,
having to borrow operating funds at the then-market rate, would be difficult or
impossible to accurately estimate “in a market of fluctuating interest rates over a
five-year period,” the period of the lease.).
With regard to the second factor, the parties’ intent to provide for damages
versus a penalty, “we ascertain the intent of the parties by first looking to the
language of the contract. Although the words used by the parties are not conclusive,
they are a significant factor in determining the parties’ intent.” (Citation and
punctuation omitted.) JR Real Estate Dev., LLC v. Cheeley Inv., L.P., 309 Ga. App.
250, 253 (2) (b) (709 SE2d 577) (2011). In this case, we conclude from the words
used by the parties that they could have intended Paragraph 27 either as liquidated
damages or as a penalty. Because West is appealing the denial of its motion for
summary judgment, we must construe all reasonable inferences in favor of NW
Parkway. Id. at 254 (2) (b).
As to the third factor, West contends that the late charge, “a one-time” 10
percent charge, cannot be deemed a reasonable pre-estimate of the probable loss
20
because it is not “adjusted to the length of the tardiness” of the payment. It makes
sense that, where a contractual obligation is the payment of money by a specified
date, liquidated damages for late payment may reflect the time-value of money. See
Oami v. Delk Interchange, Ltd., 193 Ga. App. at 642 (A $10 surcharge for each day
of the tenant’s failure to pay rent was “adjusted to the length of tardiness” and was
a reasonable pre-estimate of the probable loss.). But liquidated damages may also
reflect an anticipated increase to an obligee’s transaction costs. See Krupp Realty Co.
v. Joel, 168 Ga. App. 480, 481 (1) (309 SE2d 641) (1983) (Where a lease provided
for a $50 charge as “additional rent” either when a rent check was returned from the
lessee’s bank without payment, which would cause the agent/owner “additional
expenses for bookkeeping and clerical services,” or when the rent due on the first of
the month was received after the fifth, which would require “additional services” of
the agent/owner, the trial court erred in finding the charge was usurious.).
Based on the foregoing, we conclude that West failed to show that the late
charge is a penalty as a matter of law. Accordingly, the trial court did not err in
denying West’s motion for partial summary judgment in this regard.
21
4. Based on this Court’s holding in Case No. A10A1781, the trial court granted
NW Parkway’s motion for summary judgment on its Count 1, as to liability only,
concluding as a matter of law that West breached the lease by failing to repair or
replace the roofs. West appeals the grant of NW Parkway’s motion. As NW Parkway
contends, however, this issue was resolved in the first appeal.
In that decision, we noted that, although the trial court’s declaratory judgment
stated that it was not “intended to resolve whether West breached the lease agreement
at issue, or what damages, if any, can be recovered for any such breach[,]
[n]evertheless, the legal conclusions reached by the trial court affected NW
Parkway’s rights to recover under the lease.” NW Parkway, LLC v. Lemser, 309 Ga.
App. at 175 (1). In that decision, we determined that West was obligated under
Special Stipulation 3 of the lease to replace the roof and that West “fail[ed] to comply
with the third special stipulation, i.e., fail[ed] to repair the roof[.]” NW Parkway, LLC
v. Lemser, 309 Ga. App. at 177 (2), 178 (3). Because these rulings were binding in
all subsequent proceedings in this case in the lower court, see Division 1, supra, the
trial court did not err in granting NW Parkway’s motion for summary judgment as to
liability on its Count 1.
22
5. The trial court denied West’s motion for summary judgment on NW
Parkway’s Count 3, attorney fees under OCGA § 13-6-11. West appeals the denial
of its motion, contending that, before the first appeal, there was a genuine controversy
about whether it was obligated under the lease to replace the roof and that its tender
of the roof replacement funds into the court registry precludes a claim of bad-faith
performance.
An award of attorney fees and other expenses of litigation is authorized
pursuant to OCGA § 13-6-11, where (1) the plaintiff specially pleads and prays for
such an award, and (2) the finder of fact finds that the defendant acted in bad faith in
the underlying transaction or that, after the transaction on which the cause of action
is predicated, the defendant was stubbornly litigious or caused the plaintiff
unnecessary trouble and expense. “Questions concerning bad faith under this statute
are generally for the jury to decide, and the trial court may grant judgment as a matter
of law on such issues only in the rare case where there is absolutely no evidence to
support the award of expenses of litigation.” (Citation and punctuation omitted.)
Georgia Dermatologic Surgery Centers, P.C. v. Pharis, 323 Ga. App. 181, 184 (3)
(746 SE2d 678) (2013). See Hewitt Assocs., LLC v. Rollins, Inc., 308 Ga. App. 848,
853 (3) (708 SE2d 697) (2011) (accord).
23
This is not such a rare case where there is absolutely no evidence to support the
award of expenses of litigation. For example, however willing West might have
become later in the litigation to pay the amount for the roof replacement into the
registry of the court, a jury could find that West acted in bad faith when it asserted
that it was NW Parkway’s sole responsibility to replace the roof while at the same
time denying NW Parkway access to the property to do so until NW Parkway
obtained a TRO. The trial court did not err in denying West’s motion for partial
summary judgment as to NW Parkway’s Count 3. Georgia Dermatologic Surgery
Centers, P.C. v. Pharis, 323 Ga. App. at 184 (3); Hewitt Assocs., LLC v. Rollins, Inc.,
308 Ga. App. at 853 (3).
6. The trial court denied NW Parkway’s motion for summary judgment on
West’s Count 1, fraud and deception. Specifically, West alleged that NW Parkway
drafted the lease to include an acknowledgment by the original lessee, Worldwide,
that the premises were in good order and repair at the beginning of the lease with
knowledge that the roofs were in fact not in good repair and with the intention that
West rely on the representation in agreeing to assume the role of tenant as part of its
acquisition of Worldwide. NW Parkway appeals the denial of its motion. Under the
24
circumstances presented here, we conclude that the trial court erred in denying NW
Parkway’s motion for partial summary judgment on West’s fraud claim.
Under Georgia law,
[t]he five elements of a fraud claim are: (1) false representation made by
defendant; (2) scienter; (3) intention to induce plaintiff to act or refrain
from acting in reliance by plaintiff; (4) justifiable reliance by plaintiff;
and (5) damage to plaintiff. . . . [A] plaintiff asserting a fraud claim must
show not only that [it] relied on some misrepresentation, but also that
[its] reliance was reasonable.
(Citations and punctuation omitted.) Alvear v. Sandy Springs Toyota, Inc., 332 Ga.
App. 798, 800-801 (1) (775 SE2d 172) (2015). See also OCGA § 51-6-2 (a) (“Willful
misrepresentation of a material fact, made to induce another to act, upon which such
person acts to his injury, will give him a right of action. Mere concealment of a
material fact, unless done in such a manner as to deceive and mislead, will not
support an action.”). “Concealment of material facts may amount to fraud when . . .
the concealment is of intrinsic qualities of the article [at issue] which the other party,
by the exercise of ordinary prudence and caution, could not discover; and
misrepresentation may be perpetuated by acts as well as words, and by artifices
25
designed to mislead.” (Citation omitted.) Batey v. Stone, 127 Ga. App. 81, 82 (192
SE2d 528) (1972).
According to West’s own characterization of the facts, “[t]he lease at issue in
this lawsuit was not negotiated in an arms-length transaction” between NW Parkway
and Worldwide. According to the West executive who led West’s due diligence
process relating to the acquisition of Worldwide, Frank Hanna was “ultimately” the
owner of both NW Parkway, the lessor, and (along with Tye Hanna) Worldwide, the
original lessee. In 2004, when Worldwide executed the lease at issue in this case, it
had already been occupying the property for two years. West’s executive deposed
that, “[b]ecause Worldwide was conducting its business operations in the Building,
West had no reason to suspect that any defective conditions existed in the Building.
West conducted its regular due diligence related to the transaction, but . . . never
toured the facility during a rainfall to determine whether the roof had leaking issues.”
But Worldwide’s facilities manager, who continued in that role after West acquired
Worldwide, deposed that “[p]rior to the acquisition of Worldwide in 2004,
Worldwide’s leadership was aware of the significant problems affecting the low roof
of the Building.” Specifically, part of the roof was replaced in July 2002, and there
26
were a number of leaks, some “significant,” in 2002 and 2003, requiring multiple
repairs.
Although, as the trial court noted, reasonable reliance and due diligence are
ordinarily questions for the jury,11 “[t]he law does not afford relief to one who suffers
by not using the ordinary means of information, whether the neglect is due to
indifference or credulity.” (Citations and punctuation omitted.) Miller v. Clabby, 178
Ga. App. 821, 823 (344 SE2d 751) (1986). When the means of knowledge are at hand
and equally available to both parties, such as inspection of real property to be
purchased, if one party does not avail itself of the means of discovery, it will not be
heard to say later that it was deceived by the other party’s representations or lack
thereof. Id. Where a sophisticated company is in the process of acquiring another
company and assuming that company’s obligations under a 20-year triple-net lease;
under the lease the acquiring company will be responsible for maintenance and
almost all other expenses of the subject property; the acquiring company knows that
the lease was not negotiated in an arms-length transaction; and, the lease includes an
acknowledgment that the property is in good repair, certainly under such
11
See Northwest Plaza, LLC (MI) v. Northeast Enterprises, Inc., 305 Ga. App.
182, 191 (3) (a) (699 SE2d 410) (2010); Miller v. Clabby, 821, 823 (344 SE2d 751)
(1986).
27
circumstances the company is on notice of the need to exercise a significant degree
of diligence in inspecting the premises. NW Parkway’s executive deposed that West
had the opportunity to inspect the property and has identified evidence that roof
problems were known to West’s employees before the execution of the lease. In
rebuttal, West has not identified any evidence that NW Parkway prevented it from
conducting any inspection it desired, nor any evidence that it would not have
discovered the condition of the roof by inspecting them.
Given these facts, we conclude that the trial court erred in denying NW
Parkway’s motion for partial summary judgment on West’s Count 1. Fowler v.
Overby, 223 Ga. App. 803, 805-806 (1) (478 SE2d 919) (1996) (The seller of a parcel
of real property was entitled to judgment on the buyer’s fraud claim on the basis that
the buyer failed as matter of law to exercise due diligence to discover that the
property had been used as a dump; after observing some trash strewn on a portion of
the property, the buyer “was certainly put on notice of the possibility” that there was
other debris on the rest of the property. “Due diligence in such a case would require
a closer inspection than she made of the property,” and there was no evidence that she
was prevented from inspecting property prior to purchase.) (citations omitted); Ben
Farmer Realty Co. v. Woodard, 212 Ga. App. 74, 77-78 (441 SE2d 421) (1994) (The
28
seller of a house was entitled to judgment on the purchaser’s fraud claim on the basis
that the purchaser failed as matter of law to exercise due diligence to discover fire
damage in the attic of the home where she knew the house was in dilapidated
condition, she agreed to purchase house in its “as is” condition, such that she was
obviously on notice to exercise heightened degree of diligence in inspecting house,
the seller did not prevent her from inspecting the attic, and the purchaser failed to
inspect the attic.); Metmor Financial, Inc. v. Jenkins, 199 Ga. App. 885, 886 (406
SE2d 288) (1991) (A lender could not be held liable in fraud to a buyer of a house for
misrepresentations about the condition of the house, where even a cursory visual
inspection of property would have revealed the construction deficiencies to the buyer
and therefore there could be no justifiable reliance on any misrepresentations.).
7. The trial court denied NW Parkway’s motion for summary judgment on
West’s Count 4, gross negligence in NW Parkway’s selection of a vendor to repair
the roofs and in its failure to ensure the roofs were installed properly. NW Parkway
appeals the denial of its motion.
“Gross negligence” is defined as the absence of slight diligence, that is,
that degree of care which every man of common sense, however
inattentive he may be, exercises under the same or similar
29
circumstances. As applied to the preservation of property, the term
“slight diligence” means that care which every man of common sense,
however inattentive he may be, takes of his own property.
OCGA § 51-1-4. In other words, to act with gross negligence is to lack “the diligence
that even careless men are accustomed to exercise.” (Citation and punctuation
omitted.) Johnson v. Omondi, 294 Ga. 74, 78 (751 SE2d 288) (2013). “While
questions of gross negligence and slight diligence are usually to be determined by a
factfinder, courts may resolve them as matters of law in plain and indisputable cases.”
(Citations omitted.) Id.
In this case, West has not identified any evidence that NW Parkway was
indifferent to whether the roofing vendor it selected would do a good job or that it
otherwise acted without even slight care when choosing the roofing contractor. In
addition West has not identified any evidence that NW Parkway acted without even
slight care with regard to the quality of work of its chosen contractor. West simply
states, “[t]he question of whether NW Parkway was grossly negligent is . . . plainly
for the jury.” To oppose a motion for summary judgment, more is required than a bald
30
statement that an issue is generally for the jury.12 Accordingly, NW Parkway is
entitled to judgment as to West’s Count 4, and the trial court erred in denying NW
Parkway’s motion for partial summary judgment in this regard.
Judgment affirmed in part and reversed in part. Phipps, P. J., concurs.
Dillard, Ray and McMillian, JJ., concur in judgment only. Barnes, P.J., and
McFadden, J., concur in part and dissent in part.
12
Where a respondent who will not bear the burden of proof at trial moves for
summary judgment and “points out by reference to the evidence in the record that
there is an absence of evidence to support any essential element of the [claimant’s]
case[,]” the claimant “cannot rest on its pleadings, but rather must point to specific
evidence giving rise to a triable issue.” (Citations and punctuation omitted.) Cowart
v. Widener, 287 Ga. at 623-624 (1) (a).
31
A15A1830. WEST ASSET MANAGEMENT, INC. v. NW
PARKWAY, LLC.
MCFADDEN, Judge, concurring in part and dissenting in part.
Because our prior opinion does not resolve the issue of West’s default, I
respectfully dissent in part. In the prior appearance of this case we reversed the trial
court’s grant of summary judgment in favor of West. The trial court had held as a
matter of law that, regardless of the condition of the roofs, West had no duty to
replace them. The trial court did not reach, among other things, West’s tender defense
or West’s contention that the roofs could have been repaired rather than replaced. So
we did not reach those issues either – nor could we have. It follows that the language
in our earlier opinion to the effect that West’s failure to repair the roofs constituted
default and barred it from exercising the termination clause is not the law of the case.
Consequently, I concur in Division 2 (affirming the grant of summary judgment
to West on NW Parkway’s claim for rent after December 2012), Division 3 (affirming
the denial of summary judgment to West on NW Parkway’s claim for late fees),
Division 5 (affirming the denial of summary judgment to West on NW Parkway’s
claim for OCGA § 13-6-11 attorney fees), Division 6 (reversing the denial of
summary judgment to NW Parkway on West’s fraud claim), and Division 7 (reversing
the denial of summary judgment to NW Parkway on West’s gross negligence claim).
But I respectfully dissent from Division 1 (reversing the denial of summary judgment
to NW Parkway on its claim for breach and anticipatory breach of the lease) and
Division 4 (affirming the grant of summary judgment to NW Parkway on its claim for
roof-related expenses).
1. Law of the case.
Because there has been an earlier appeal in this case, NW Parkway, LLC v.
Lemser, 309 Ga. App. 172 (709 SE2d 858) (2011), our analysis begins with the law
of the case rule. See OCGA § 9-11-60 (h). Contrary to the majority, I would hold that
it is not applicable. “The ‘law of the case’ has been defined as a controlling legal rule
established by a previous decision between the same parties in the same case.”
Modern Roofing & Metal Works v. Owen, 174 Ga. App. 875, 875 (1) (332 SE2d 14)
(1985) (citation and punctuation omitted). Accordingly, the law of the case rule
applies “only when the same issue has been actually litigated and decided.” State v.
Mizell, 288 Ga. 474, 478 (3) (705 SE2d 154) (2010) (citations omitted).
West filed the motion for summary judgment that we reviewed in the first
appearance of this case, NW Parkway, 209 Ga. App. at 172. It sought summary
judgment on its counterclaim for a declaratory judgment seeking the resolution of
2
“questions of law” regarding the terms of the lease. To the extent that it turned on
interpretation of the lease, the matter was a question of law, not fact. See OCGA §
13-2-1 (“The construction of a contract is a question of law for the court.”); Roswell
Festival, L.L.L.P. v. Athens Intl., 259 Ga. App. 445, 447 (1) (576 SE2d 908) (2003)
(“The construction of the provisions of a lease, as with other written contracts, is
generally a matter of law for the trial court to determine.”).
In September 2009, the trial court granted West’s motion, finding that under
the lease, West had no obligation to replace the roofs, and that even if West did have
such an obligation, NW Parkway waived its rights under the lease by accepting
subsequent rent payments from West. NW Parkway, 309 Ga. App. at 174-175. But as
the trial court acknowledged in the ruling now before us, that September 2009 order
“did not adjudicate any facts concerning necessity of replacement. . . .”
We reversed that 2009 opinion, holding that the trial court erred in both
rulings. Our opinion makes clear that we were considering questions of law. We
wrote, as to interpretation of the lease, “NW Parkway argues that the trial court erred
by ruling that West, as a matter of law, had no obligation to repair the property’s
roof.” NW Parkway, 309 Ga. App. at 175 (2) (emphasis supplied). And on the waiver
issue, we wrote that ordinarily, the question of waiver is for jury resolution, but not
3
in the matter before us. Id. at 178 (3). Instead, we held that, as a matter of law, NW
Parkway’s acceptance of rent did not waive its right to reject West’s attempt to
terminate the lease at the five-year mark. Id. at 177-178 (3).
The language by which the majority finds us to be constrained comes near the
end of our analysis. Having held that the grant of summary judgment to West on that
issue could not be sustained on either of the grounds set out in the trial court’s 2009
opinion and viewing the evidence in the light most favorable to NW Parkway as the
nonmovant, we went on to write that West’s “failure to repair the roof[] constituted
a default” that would prevent it from timely complying with the early termination
clause. Id. at 178 (3). Read in light of the scope of the issues properly before us, that
language is correctly understood to mean that the lease could still be in effect and that
NW Parkway’s acceptance of rent was not inconsistent with its intent to insist on
West’s compliance with the conditions precedent for early termination.
The opinion contained no analysis of whether genuine issues of material fact
existed on the issue of default. That issue was not before us. “[A] review of the actual
holding reveals that the . . . court never resolved the issue whether” West was in
default. Hicks v. McGee, 289 Ga. 573, 578 (2) (713 SE2d 841) (2011). Consequently,
the law of the case rule does not apply to resolve the issue of whether West was in
4
default. Compare Choate Constr. Co. v. Auto-Owners Ins. Co., 335 Ga. App. 331
(779 SE2d 465) (2015) (prior appellate holding regarding existence of genuine issues
of material fact, which precluded summary judgment to one party, was law of the case
in subsequent appeal of denial of summary judgment to another party).
I therefore turn to the trial court’s grant of summary judgment to NW Parkway
on its claim for roof-related expenses, the ruling at issue in the majority’s Division
4, and to the trial court’s denial of both parties’ motions for summary judgment on
NW Parkway’s claim for breach and anticipatory breach of the lease, the ruling at
issue in the majority’s Division 1.
2. Roof-related expenses.
In its Division 4, the majority affirms the trial court’s grant of summary
judgment to NW Parkway as to liability on its claim for roof-related expenses. The
majority holds that the issue of whether West breached the lease by failing to repair
or replace the roofs was resolved in the first appeal. As detailed above, our prior
opinion did not resolve the issue of whether West breached the lease. It simply held
that, under the terms of the lease, West was obligated – when necessary – to repair
and replace the roof. And in the opinion now before us, the trial court acknowledged
that questions of fact remained as to “whether, and to what extent the two roofs could
5
have been repaired rather than replaced or. . . whether the lower roof was defectively
constructed or would have lasted to the conclusion of West’s tenancy.” Accordingly,
I would reverse the trial court’s grant of summary judgment on this issue.
3. Breach and anticipatory breach.
The trial court denied the parties’ cross motions for summary judgment on NW
Parkway’s claim for breach and anticipatory breach of the lease, identifying disputed
issues of material fact. In Division 1, the majority accurately summarizes the fact
issues identified in the trial court’s ruling.
[That] ruling was supported by the court’s determination that material
questions of fact remain regarding whether West satisfied the conditions
for terminating the lease at the end of the first five-year interval. In
particular, the trial court determined that there is a jury questions
regarding West’s tender defense, that is, that West’s tender of the roof-
related expenses, by moving to deposit $384,226 into the registry of the
court, was sufficient to defeat NW Parkway’s claim that West breached
the lease by failing to replace the roof. An alternative basis for the denial
of summary judgment on NW Parkway’s Count 2 as the court’s
determination that material questions of fact remain regarding whether
a surrender took place as of January 2010, that is, whether NW Parkway
took actions incompatible with the continued existence of West’s
leasehold after that date.
6
Notwithstanding all of that, the majority finds us constrained to reverse by the
language of our prior opinion. I would affirm. Whether West breached its obligation
to repair or replace the roof is a question of fact. And as detailed above, that language
is not the law of the case and we are not bound by it. Even if West breached the lease,
whether its tender was sufficient to cure the breach, prevent default, and allow it to
invoke its right to early termination depends – as the trial court held – on disputed
questions of fact.
I am authorized to state that Presiding Judge Barnes joins me in concurring in
part and dissenting in part.
7