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LLC v. Fran's K.C. Ltd.

Court of Appeals of Missouri, Western District, First Division

August 9, 2016

FRAN'S K.C. LTD, ET AL., Appellants.

         Appeal from the Circuit Court of Jackson County, Missouri Honorable Robert Michael Schieber, Judge

          Before: Anthony Rex Gabbert, P.J., Thomas H. Newton, and Alok Ahuja, JJ.

          Thomas H. Newton, Judge

         Fran's K.C. Ltd., Mr. Hak Joon Kim, and 1482111 Ontario Inc. (Collectively Fran's) appeals a judgment denying their request for a jury trial, awarding liquidated damages, awarding late charges, and awarding attorney fees. Fran's entered into a lease agreement with Kansas City Live Block 139 Retail, LLC (KC Live) for premises in the Kansas City Power & Light District. The lease contained provisions addressing the payment of rent, liquidated damages, late charges for past due rent, and the payment of attorney fees in case of litigation. Mr. Kim and 1482111 Ontario Inc. are guarantors on the lease. The issues on appeal include claims of trial court error in denying Fran's request for a jury trial, awarding liquidated damages and late charges to KC Live, and awarding attorney fees to KC Live. We affirm in part and reverse in part.

         Factual and Procedural Background

         Appellant, Mr. Kim, owns and operates a few Fran's Restaurants in Canada. Respondent, KC Live, is a Cordish Co. entity that functions as a landlord for tenants within the Kansas City Power & Light District. After meetings between representatives for Fran's and KC Live, KC Live provided a letter of intent with potential lease terms to Fran's. This letter included a three-year corporate guaranty and a rolling guaranty of one year's base rent for the fourth and fifth year. Mr. Kim had indicated that he would not sign a personal guaranty.

         In February 2009, Fran's, as a tenant, and KC Live, as a landlord, executed a ten-year lease for the premises. At this time, Mr. Kim also signed a guaranty unconditionally guaranteeing the prompt and full payment of all rent and performance of all obligations under the lease by Fran's. By a notice of possession, KC live notified Fran's that the 120-calendar day fixturing period began on February 26, 2009. Under section 321 of the lease, the rent commencement date was June 27, 2009, the day after the start of the fixturing period. Fran's opened on October 15, 2009. On May 5, 2010, the parties signed a lease amendment negotiated in response to a dispute between the parties with respect to: (a) the rent commencement date; (b) the date Fran's actually opened; (c) whether Fran's was required to pay liquidated damages under the terms of the lease for the period of time between the rent commencement date and the date Fran's actually opened; and (d) whether KC Live was required to pay Fran's the full lease incentive payment in light of Fran's failure to open on time.

         Under section 201(d), Fran's agreed to pay minimum rent for the first year of the term in the amount of $217, 920 annually and $18, 160 monthly. For each following lease year the minimum rent increased by the greater of (i) the increase in the Consumer Price Index or (ii) two and one-half percent (2.5%) cumulatively. Under section 301, Fran's also agreed to pay additional rent which includes a common area maintenance charge, taxes, promotional charges and extra charges/uncontrollable common area maintenance. In section 2605, the lease addresses the protocol for recovery and compensation of late rent. In addition, section 2602(vii) addresses the procedure if Fran's failed to conduct business on the premises for more than three (3) consecutive business days. The lease also requires that, if KC Live filed suit against Fran's for any reason, Fran's would pay KC Live its reasonable attorney fees and costs for litigation, which are stipulated, "if suit is for past due Rent and/or money damages, " to be not less than fifteen percent (15%) of the monies awarded to KC Live.

         KC Live sent Fran's notices of default on April 1, May 25, July 24, October 18, November 17, and December 15, 2011, and January 11, and February 22, 2012. As of March 10, 2015, all appropriate credits were awarded to Fran's, leaving Frans's with an outstanding balance of $3, 596, 557.89 owed to KC Live under the Lease. After a September 2012 bench trial, KC Live was awarded possession of the premises. To re-let the premises in first-class rentable condition, KC Live had to give the subsequent tenant a $400, 000 tenant finish allowance and permission to use the trade fixtures left on the premises by Fran's. In September 2013, KC Live filed its first amended petition, which included causes of action for breach of the lease and breach of the guaranty. Fran's, answer and counterclaim to KC Live's petition included causes of action for fraud in the inducement, negligent misrepresentation, breach of the lease, and conversion. Following a March 2015 bench trial, the trial court entered judgment against Fran's, jointly and severally, in the amount of $3, 596, 577.89. The trial court also determined that KC Live was entitled to attorney fees and costs under the terms of the parties' lease and awarded KC Live attorney fees and costs in the amount of $863, 706.70. This appeal follows.

         Legal Analysis

         In the first point, Fran's argues that the trial court erred in denying its request for a jury trial because the jury trial waivers in the lease and guaranty do not apply to the tort claims asserted in its counterclaims.

         "The interpretation of a lease agreement is a question of law, to which the general rules of contract construction apply." Langdon v. United Restaurants, Inc., 105 S.W.3d 882, 887 (Mo. App. W.D. 2003). "We review the language of a lease de novo" to give effect to the parties intentions. Stratman v. Wagner, 427 S.W.3d 915, 919 (Mo. App. S.D. 2014); "The intent of the parties is to be based upon the terms of the contract alone and not on extrinsic evidence unless the contract language is ambiguous." Langdon, 105 S.W.3d at 887.

         The right of a jury trial is a constitutionally guaranteed personal right that may be waived. Malan Realty Inv'rs, Inc. v. Harris, 953 S.W.2d 624, 625-26 (Mo. banc 1997).

         Section 37 of the lease states:

To induce landlord and tenant to enter into this lease, landlord and tenant each hereby waive any right to a trial by jury of any or all issues arising in any action or proceeding between landlord and tenant or their successors, assigns, personal or legal representatives and heirs under or in connection with this lease or any of its provisions. This waiver is knowingly, intentionally and voluntarily made by landlord and tenant, and landlord and tenant each acknowledge that neither landlord nor tenant nor any person acting on behalf of landlord or tenant has made any representations of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. Landlord and Tenant each further acknowledge that he, she or it has had the opportunity to discuss this lease with legal counsel.

         Fran's argues that its first two counter claims asserting fraud in the inducement and negligent misrepresentation do not arise under the lease. Fran's relies on a series of arbitration cases for support. Specifically, Fran's relies on Missouri & Northern Arkansas Railroad Co., Inc. v. Branson Scenic Railway, Inc., 3 S.W.3d 869, 871 (Mo. App. S.D. 1999), stating that for a claim to be related to a contract "it must, at the very least, raise some issue the resolution of which requires a reference to our construction of some portion of the…[c]ontract." The court, however, also explained that, to determine if the claim was "in connection with" the language of the arbitration agreement, the analysis "requires an examination of the connection between the …claims and the …[a]greement to determine if the claims raise some issue that requires a reference to or construction of some portion of the [a]greement." Id. The court concluded that no connection existed between the claims and the agreement because "[n]one of the pleadings make any reference to the Operating Agreement." Id. Here, Fran's provides numerous facts that relate directly to the lease in a section titled "Facts Applicable to All Counts." The facts from this section are also expressly incorporated into the Fraud in the inducement and negligent misrepresentation counts. In addition, paragraphs 28-29 and 52-53 of Fran's counterclaim allege that one of KC Live's misrepresentations was a personal assurance by Blake Cordish that Mr. Kim's personal guarantee would not be required as a lease condition. The only way the truth or falsity of Cordish's assurance could be determined would be by reviewing the terms of the lease and associated documents.

         Fran's counterclaims also contain detailed allegations that KC Live engaged in a "predatory leasing scheme" that involved enticing a new tenant to agree to exorbitant rent and other oppressive lease terms, making misrepresentations to the prospective new tenant concerning potential revenues, ousting the new tenant after the inevitable failure of its operation, and then renting the space (including the prior tenant's build-out and installed fixtures) to a new entity, which was often a Cordish affiliate. Fran's answer expressly alleged, in both its fraudulent inducement and negligent misrepresentation counterclaims, that the misrepresentations at issue were part of this "predatory leasing scheme." Fran's contention that KC Live engaged in a "predatory leasing scheme" necessarily required review of the terms of the lease, and Fran's offered expert testimony at trial to substantiate its claim that the lease terms were unreasonable and oppressive.

         The circuit court's resolution of the fraud and negligent misrepresentation counterclaims required reference to the terms of the lease in an additional respect. In its judgment, the circuit court found that Fran's had no right to rely on any alleged pre-contractual misrepresentations by KC Live, because the lease contained provisions attesting that KC Live had made no representations, and that Fran's had "satisfied itself of all its concerns, if any, by ...

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