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KC Air Cargo Services, Inc. v. The City of Kansas City

Court of Appeals of Missouri, Western District, Second Division

July 16, 2019

KC AIR CARGO SERVICES, INC., Appellant-Respondent,

          Appeal from the Circuit Court of Jackson County, Missouri The Honorable Sandra Midkiff, Judge

          Before Thomas N. Chapman, P.J., Mark D. Pfeiffer, and Cynthia L. Martin, JJ.


         K.C. Air Cargo Services, Inc. (KCACS) appeals the judgment of the Circuit Court of Jackson County, Missouri, ruling that special circumstances did not exist in this case to justify an award of attorneys' fees in its favor. The City of Kansas City, Missouri (the City) cross-appeals, arguing that, in ruling on whether KCACS had successfully exercised an option to renew the lease contained in the parties' real estate contract, the circuit court exceeded our mandate in a related appeal. We affirm the judgment as modified by this opinion.

         Facts & Procedural History [1]

         KCACS is a Missouri corporation and the City is a municipal corporation. In 1986, the City and KCACS entered into a contract under which the City agreed to lease a tract of land to KCACS at the Kansas City International Airport. The base term of the contract was to expire in September 2017. During the base term, KCACS constructed improvements on the tract, including a shipping warehouse and an abutting air cargo apron. KCACS acts as a sub-landlord on the tract, leasing warehouse space to sub-tenants. The parties' lease agreement contained the following clause: "At the end of the Lease Term, Lessee shall be given the opportunity to lease the Premises at the then fair market rental rate or the rental rate which has been offered to the City by another party, whichever is higher."

         In 2013, KCACS sued the City, arguing that it was liable for physical damage to the leasehold caused by subsurface water migration. In its lawsuit, KCACS sought damages for lost profits occurring after the expiration of the base term of the lease. In response, the City moved in limine to exclude evidence of such damages, arguing that the alleged renewal provision was unenforceable and "a void lease provision." The circuit court overruled the City's motion, finding that the clause was "sufficiently detailed ... enough that it would be enforceable for a period of 10 years," "so the motion in limine to eliminate that 10-year extension in a damage calculation is overruled[.]" This lawsuit was eventually settled by the parties.

         In April 2015, counsel for KCACS sent a letter to the City, reminding the City that the circuit court had rejected its argument regarding the unenforceability of the renewal provision and requesting confirmation that "the City [would] honor the renewal option if KCACS elect[ed] to exercise its right to extend the Lease." In response, counsel for the City emailed counsel for KCACS, stating that the City had not made a "final business decision" about whether to extend KCACS's lease and indicating that the City would let KCACS know what it intended to do closer to the expiration of the base term.

         In May 2015, KCACS filed a Petition for Declaratory Judgment, seeking a declaration that the disputed clause was enforceable and gave KCACS an option to renew the lease at its sole discretion. In September 2015, KCACS filed a motion for summary judgment, asking the circuit court to declare that the renewal provision was valid and enforceable for either a single 30-year term or in perpetuity. The City filed a response and counter-motion for summary judgment, arguing that the disputed clause was actually a right of first refusal (rather than a renewal option) and that, if the clause were an option to renew, it violated a 50 year lease term limitation set forth in the City's Charter.

         In March 2016, the circuit court sustained KCACS's motion for summary judgment, finding that the renewal clause was enforceable and that it granted KCACS a right to renew the lease in perpetuity. The judgment allowed the parties to "submit further briefing on the issue of whether special circumstances support[ed] an award of attorneys' fees in this case, and if so, [in what amount]." KCACS thereafter filed a motion for attorneys' fees and costs and the City filed suggestions in opposition. The circuit court granted KCACS's motion, finding as follows:

[B]ased on the facts set forth in the Court's prior Order and Judgment and discussed at length in KCACS' papers, the Court finds special circumstances for the award of attorneys' fees stemming from the lack of substantial grounds for the City's position, the improper interference with KCACS' property rights, the shifting position of the City on the meaning and interpretation (if any) to be given to the disputed renewal provision of the Lease, and the apparent financial motivation for the City's actions.

         The circuit court awarded KCACS its attorneys' fees and costs in the total sum of $69, 444.80.

         The City appealed the circuit court's judgments. On appeal, we held that the renewal provision granted KCACS the opportunity to renew the lease once for an additional 30-year term at the expiration of the base term, but not in perpetuity. We further held that the circuit court did not have before it "sufficient facts for it to declare that special circumstances existed to award attorneys' fees to KCACS." K.C. Air Cargo Servs., Inc. v. City of Kansas City, 523 S.W.3d 1, 13 (Mo. App. W.D. 2017) (K.C. Air Cargo I). We therefore remanded the case (1) "for the circuit court to enter judgment stating that any right of renewal by KCACS is for only one additional term[, ]" and (2) to conduct "further proceedings to determine whether special circumstances existed [for the award of attorneys' fees], giving the parties the opportunity to present evidence." Id.

         On remand, the circuit court held a hearing on the issue of attorneys' fees. At the hearing, KCACS submitted testimony and evidence indicating that the parties' dispute concerning the renewal clause had caused KCACS's negotiations with a potential subtenant to stall. Further evidence was adduced that the City had not told KCACS about a leak in a subsurface water line in the vicinity of KCACS's leasehold. Through the deputy director of its aviation department, the City testified that it did not consider the disputed provision to be a renewal clause, but a right of first refusal. The deputy director testified further that the City was not motivated by greed, spite, or hatefulness in its refusal to treat the provision as an option to renew. Following the hearing, KCACS submitted an updated claim of its attorneys' fees and litigation expenses, asserting that the total amount was at that time $152, 456.01.

         The circuit court ruled (1) that sovereign immunity barred KCACS's claim for attorneys' fees, and (2) there were no special circumstances that would justify an award of attorneys' fees. The circuit court also found that KCACS had ...

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