Tri-City Associates, L.P. v. Belmont, Inc.

#27449-a-LSW

2016 S.D. 46

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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TRI-CITY ASSOCIATES, L.P., Plaintiff and Appellant,

v.

BELMONT, INC., a
South Dakota Corporation
and JOSEPH Z. ERBA, Defendants and Appellees.

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APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA

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THE HONORABLE ROBERT A. MANDEL
Judge

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MARK F. MARSHALL of
Bangs, McCullen, Butler,
Foye & Simmons, LLP
Rapid City, South Dakota Attorneys for plaintiff
and appellant.

STAN H. ANKER
JORDAN D. BORDEWYK of
Anker Law Group, PC
Rapid City, South Dakota Attorneys for defendants
and appellees.

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CONSIDERED ON BRIEFS
ON NOVEMBER 30, 2015
REASSIGNED
FEBRUARY 17, 2016
OPINION FILED 06/01/16
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WILBUR, Justice (on reassignment).

[¶1.] In this second appeal, Tri-City Associates, L.P. argues that the circuit

court erred when it entered a judgment in favor of Belmont, Inc. In Tri-City

Assocs., L.P. v. Belmont, Inc. (Tri-City I), we had reversed and remanded the case

for the circuit court to enter “findings of fact and conclusions of law on the effect of

Belmont’s failure to give notice of breach and an opportunity to cure.” 2014 S.D. 23,

¶ 24, 845 N.W.2d 911, 918. We did so because the circuit court did not address

whether Belmont’s claims were barred for Belmont’s failure to follow the notice-and-

cure provision in the parties’ written lease. We stated that the “court’s failure to

address the notice-and-cure issue is problematic because some courts have

concluded that the failure to abide by a notice-and-cure provision precludes judicial

relief.” Id. ¶ 22. On remand, the circuit court entered supplemental findings of fact

and conclusions of law. It interpreted the notice-and-cure provision to allow for

substantial compliance and found that Belmont substantially complied. It also

found that Tri-City had actual notice of its material breaches and an opportunity to

cure. Alternatively, the court concluded that, by bringing suit against Belmont, Tri-

City repudiated any intention to perform its obligation under the lease and made

futile the requirement that Belmont strictly comply with the notice-and-cure

provision. It entered a judgment in favor of Belmont. Tri-City appeals. We affirm.

Background

[¶2.] Tri-City owned and operated the Northgate Shopping Center in Rapid

City, South Dakota. It entered into a written lease agreement with Belmont in

April 2006 for unfinished commercial space. The unfinished commercial space

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required substantial initial construction work before the lease was to begin on

August 1, 2006. A “work letter” attached to the lease allocated the initial

construction work between Tri-City and Belmont. The lease also contained a

provision that required Belmont to give written notice to Tri-City of any alleged

breach and give Tri-City the opportunity to cure any breach within 30 days. 1 Under

the terms of the lease, Belmont could not avail itself of the remedies available under

the terms of the lease at law or in equity until Tri-City had been afforded the

opportunity to cure.

[¶3.] The parties experienced considerable difficulties in completing the

terms of the lease. Tri-City proposed to move the start date of the lease to January

15, 2007. Belmont did not respond to the requested modification. Ultimately, Tri-

City did not deliver the premises to Belmont on August 1, 2006, in the condition

required under the lease and did not complete its allocated initial construction

work.

1. The provision reads as follows:
Landlord shall be in default under this Lease upon . . . (b) the
failure of Landlord to observe, keep or perform any of the other
terms, covenants, agreements or conditions contained in this
Lease on the part of the Landlord to be observed or performed
and such failure continues for a period of thirty (30) days after
written notice by Tenant to Landlord or, if such failure is not
reasonably susceptible to cure within thirty (30) days, then
within a reasonable period of time so long as Landlord shall
have commenced to cure such failure within such thirty (30) day
period and shall thereafter diligently pursue such care to
completion. Tenant may not exercise any remedies available to
it under this Lease, at law or in equity until Landlord has been
afforded the cure periods described in this Paragraph 48 and
any Lender shall have been given notice and afforded the cure
periods described in Paragraph 30 above.

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[¶4.] After Belmont did not pay rent for the first few months of the lease,

Tri-City served Belmont with a notice of default under the lease. A month later,

Tri-City served Belmont with a notice to quit and vacate and, in April 2007, sued to

evict Belmont. Belmont answered and asserted that Tri-City materially breached

the lease, which Belmont asserted relieved it of its duty to pay rent. Then, in

October 2007, Belmont counterclaimed for damages for Tri-City’s failure to perform

under the terms of the lease. Tri-City responded to Belmont’s counterclaim that

Belmont agreed to accept the premises “as is.” Tri-City also argued that Belmont

failed to provide Tri-City with written notice of Tri-City’s alleged breach and did not

give Tri-City an opportunity to cure as required by the notice-and-cure provision in

the lease.

[¶5.] After a court trial on April 23-24, 2013, the court issued findings of fact

and conclusions of law. It found that Tri-City breached the lease by failing to

complete the required initial construction and deliver the premises in broom clean

condition. To the court, Tri-City’s breach constituted a material breach because Tri-

City’s “failures and delays defeated the very object of the Lease[.]” The court

concluded that Tri-City’s material breaches excused Belmont’s duty to pay rent and

excused Belmont’s “default of the terms and conditions of the Lease[.]” The court

held that “because [Belmont’s] actions are excused,” Tri-City “is not entitled to

damages.” However, the court concluded that Belmont “suffered substantial losses

because of [Tri-City’s] material breach” and awarded Belmont a judgment against

Tri-City in the sum of $89,220.67. The court also awarded Belmont reasonable

attorney’s fees and costs because the terms of the parties’ lease allowed for such an

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award to the prevailing party. The court did not enter any findings of fact or

conclusions of law regarding the effect of lease provision requiring Belmont to give

Tri-City written notice of default. Tri-City appealed to this Court.

[¶6.] On appeal, Tri-City did not dispute that it materially breached the

parties’ lease. It asserted that “Belmont’s defense and counterclaim were barred as

a matter of law by: (1) the lease provision in which Belmont accepted the premises

as is, and (2) Belmont’s failure to give Tri-City notice of its alleged breach and an

opportunity to cure.” Tri-City I, 2014 S.D. 23, ¶ 8, 845 N.W.2d at 914. From our

review of the parties’ agreement, we concluded that “[a] harmonious reading of all

provisions reflects that the as is clause did not abrogate Tri-City’s post-execution

obligations to perform initial construction and to deliver the premises in broom

clean condition.” Id. ¶ 14. We, however, remanded the case because the circuit

court did not address the effect of the notice-and-cure provision on Belmont’s

counterclaim. We directed the court on remand to enter “findings of fact and

conclusions of law on the effect of Belmont’s failure to give notice of breach and an

opportunity to cure.” Id. ¶ 24.

[¶7.] On remand, the circuit court did not take additional evidence. It

issued supplemental findings of fact and conclusions of law. The court ruled that

“[t]he intent of the notice and cure provision of the Lease was to provide a breaching

party with notice that it is in breach of the lease and provide that party with an

opportunity to cure the breach.” The circuit court held that Belmont “substantially

complied with the ‘notice-and-cure’ provisions of the Lease,” that Tri-City “had

actual notice that it was in breach of the Lease,” and that Belmont “provided [Tri-

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City] with an opportunity to cure the breach.” Alternatively, the court concluded

that “[b]y filing suit against [Belmont] for possession of the premises, [Tri-City]

repudiated the Lease and any intention to perform under the Lease.” The court

held that Tri-City’s “repudiation of the lease absolved [Belmont] of any obligation to

provide [Tri-City] notice of breach and opportunity to cure breach as [Tri-City] had

made its intention not to perform under the Lease unequivocal.” The court again

entered a judgment in favor of Belmont for damages, plus interest, attorney’s fees,

and costs.

[¶8.] Tri-City appeals and raises the following issue for our review: Did the

circuit court err as a matter of law by entering a judgment in favor of Belmont?

Standard of Review

[¶9.] We review both the circuit court’s conclusions of law and its

interpretation of the contract de novo. Tri-City I, 2014 S.D. 23, ¶ 9, 845 N.W.2d at

915 (citing Poeppel v. Lester, 2013 S.D. 17, ¶ 16, 827 N.W.2d 580, 584).

Analysis

[¶10.] Tri-City asks this Court “to view the issue on remand within the

appropriate context”—that Tri-City’s default, if any, was not material. Tri-City

then directs this Court to multiple failings and defaults by Belmont under the terms

of the lease. Tri-City also claims that the circuit court’s findings “do not identify

with specificity the breach of contract of which Belmont complains.” In Tri-City’s

view, the court’s “failure makes it difficult, if not impossible to determine whether a

breach occurred and if so whether the breach was material.”

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[¶11.] This appeal does not concern whether Tri-City materially breached the

parties’ lease. This is because Tri-City did not appeal the circuit court’s ruling that

Tri-City materially breached the parties’ lease in Tri-City I. The breaches, as we

recognized in Tri-City I, occurred because “Tri-City did not complete its allocated

portion of the initial construction” and did not “deliver the premises in broom clean

condition by August 1, 2006.” Id. ¶ 3.

[¶12.] This appeal concerns whether the circuit court erred when it entered a

judgment in favor of Belmont. On this issue, Tri-City argues that Belmont’s duty to

provide written notice of the alleged breach is a condition precedent to Belmont’s

counterclaim. Tri-City avers that the plain language of the parties’ lease requires

written notice and an opportunity to cure and “[n]either this Court nor the circuit

court has the power to rewrite the parties’ Lease.”

[¶13.] It is undisputed that Belmont did not give Tri-City written notice of

Tri-City’s default. But the parties did not hinge Belmont’s right to exercise its

judicial remedies under the lease on whether Belmont gave Tri-City written notice

of breach. Rather, the lease restricted Belmont’s right to recover on whether Tri-

City had been afforded the cure periods described in the lease. The lease provision

provides: “Tenant may not exercise any remedies available to it under this Lease, at

law or in equity until Landlord has been afforded the cure periods described in this

Paragraph 48[.]” The cure period is 30 days. And, here, it is undisputed that

Belmont did not attempt to exercise its legal remedies until months after Tri-City

repudiated the lease by filing its lawsuit against Belmont for possession of the

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premises and damages. At that point, written notice to Tri-City affording Tri-City

an opportunity to cure would have been futile.

[¶14.] This Court recognizes that “[t]he law does not require futile acts.”

Adrian v. McKinnie, 2004 S.D. 84, ¶ 16, 684 N.W.2d 91, 99. Other courts have held

that futility applies in the context of compliance with a notice-and-cure provision.

Giuffre Hyundai, Ltd. v. Hyundai Motor Am., 756 F.3d 204, 209 (2d Cir. 2014);

AAMCO Indus., Inc. v. DeWolf, 250 N.W.2d 835, 840 (Minn. 1977); Duncan v.

Woodlawn Mfg., Ltd., 479 S.W.3d 886, 897 (Tex. App. 2015); Cheung-Loon, LLC v.

Cergon, Inc., 392 S.W.3d 738, 745 (Tex. App. 2012). For example, the Texas Court

of Appeals recognized that repudiation of a lease indicates “the futility of a demand

for performance” of the notice-and-cure provision. Cheung-Loon, 392 S.W.3d at 745.

Indeed, “[w]here the breaching party has abandoned the contract and evidenced a

clear and unequivocal intent not to complete the contract, a cure notice is not

required.” 5 Bruner & O’Connor Construction Law § 18:15.

[¶15.] Here, Tri-City’s suit against Belmont for possession of the premises

and damages indicates that it would be meaningless to require Belmont to provide

Tri-City written notice affording the cure period. Tri-City repudiated any intention

to perform under the lease, excusing the requirement that Belmont strictly comply

with the notice-and-cure provision. The circuit court did not err when it entered

judgment in favor of Belmont.

[¶16.] Both parties move for appellate attorney’s fees under SDCL 15-26A-

87.3. Their motions are accompanied by separate verified, itemized statements of

legal services rendered. Belmont seeks $8,286.35 in attorney’s fees, sales tax, and

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costs. Tri-City seeks $7,452.70 in attorney’s fees, sales tax, and costs. The parties

do not dispute that the prevailing party is entitled to recover reasonable attorney’s

fees and costs under the terms of the lease. The specific provision provides that “the

prevailing party in such action or proceeding shall be entitled to recover the

reasonable fees of its attorneys and other costs of suit and its costs and attorney’s

fees in collecting any judgment or award,” if “any action or proceeding is brought by

any party to enforce or interpret the provisions of this Lease, or if any other action

or proceeding is brought arising out of or relating to this Lease[.]” Because Belmont

is the prevailing party, we award its requested fees.

[¶17.] Affirmed.

[¶18.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and KERN,

Justices, concur.

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