spirt v pike - msj order - april 2, 2014

IJJtDI)Q l18tJ l(fn

c ~~ IJ OFfA IN THE UNITED STATES DISTRICT COURT h~f 4yt Q

FOR THE NORTHERN DISTRICT OF GEORG~pound$ S 7 (J ATLANTA DIVISION ~lt 11

~~i)~

~~fSPIRIT MASTER FUNDING LLC a lltyCl~

Delaware limited liability company

Plaintiff CIVIL ACTION NO 112-CV-0026o-AT

v

PIKE NURSERIES ACQUISITION LLC a Delaware limited liability company and ARMSTRONG GARDEN CENTERS INC a California corporation

Defendants

ORDER

This case arises out of an alleged breach of a commercial leasing agreement

and various other obligations stemming from the leasing agreement It is before

the Court on Defendants Motion for Summary Judgment [Doc 171] Plaintiffs

Motion for Summary Judgment [Doc 188] and Plaintiffs Motion for Oral

Argumentt [Doc 236] The Courts rulings are set forth below

The case before the Court represents a contractual dispute of biblical

proportions In the beginning Spirit and Pike agreed to a thirteen-year Master

Lease (with the right to extend for an additional fifteen years) for an Edenic array

of garden centers across the metro-Atlanta area Believing the financial gain

from the five other properties in the property package would be so fruitful Pike

1 In light of the extensive briefing on the pending motions the Court finds that oral argument is unnecessary Accordingly the Court DENIES Plaintiffs Motion for Oral Argument [Doc 236]

Case 112-cv-00260-AT Document 241 Filed 033114 of 52

made a calculated risk and took a bite out of the poisonous apple that was to be

the Tucker Property Pike subsequently realized it had perhaps bitten off more

than it could chew Giving way to temptation Pike eventually attempted to

disrobe itself of certain obligations under the lease In turn feeling exposed and

misled by Pikes actions Spirit brought the instant suit

I STANDARD FOR CROSS-MOTIONS FOR SUMMARY JUDGMENT

Summary judgment may only be granted when 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 summary judgment as a matter of law FED R CN P

56(c) The purpose of summary judgment is to pierce the pleadings and to

assess the proof in order to see whether there is a genuine need for triaL

Matsushita Elec Indus Co Ltd v Zenith Radio Corp 475 US 574 587 (1986)

(quoting the Advisory Committees note to FED R CIV P 56) [The] party

seeking summary judgment always bears the initial responsibility of informing

the district court of the basis for its motion and identifying those portions of the

[record before the court] which it believes demonstrate the absence of a genuine

issue of material fact Celotex Corp v Catrett 477 US 317 323 (1986) The

burden then shifts to the non-movant to establish by going beyond the pleadings

that there is indeed a genuine issue as to the material facts its case Thompson v

Metro Multi-List Inc 934 F2d 1566 1583 n16 (11th Cir 1991) Chanel Inc v

2

Case 112-cv-00260-AT Document 241 Filed 033114 Page 2 of 52

Italian Activewear ofFla Inc 931 F2d 1472 1477 (11th Cir 1991) A dispute of

material fact is genuine [only] if the evidence is such that a reasonable jury

could return a verdict for the non-moving party Anderson v Liberty Lobby

Inc 477 US 242248 (1986) see also Matsushita 475 US at 587

When ruling on the motion the Court must view all the evidence in the

record in the light most favorable to the non-moving party and resolve all factual

disputes in the non-moving partys favor Welch v Celotex Corp 951 F2d 1235

1237 (11th Cir 1992) Ryder Intl Corp v First Am Natl Bank 943 F2d 1521

1523 (11th Cir 1991) The Court must avoid weighing conflicting evidence

Liberty Lobby 477 US at 255 McKenzie v Davenport-Harris Funeral Home

834 F2d 930 934 (11th Cir 1987) Nevertheless the non-moving partys

response to the motion for summary judgment must consist of more than

conclusory allegations and a mere scintilla of evidence will not suffice Walker

v Darby 911 F2d 1573 1577 (11th Cir 1990) Pepper v Coates 887 F2d 1493

1498 (11th Cir 1989) But where a reasonable fact finder may draw more than

one inference from the facts and that inference creates a genuine issue of

material fact then the court should refuse to grant summary judgment Barfield

v Brierton 883 F2d 923 933-34 (11th Cir 1989) (citation omitted)

The standard of review for cross-motions for summary judgment does not

differ from the standard applied when only one party files a motion but simply

requires a determination of whether either of the parties deserves judgment as a

matter of law on the facts that are not disputed Am Bankers Ins Grp v United

3


States 408 F3d 1328 1331 (nth Cir 2005) The Court must consider each

motion on its own merits resolving all reasonable inferences against the party

whose motion is under consideration Id The Eleventh Circuit has explained

that [c]ross-motions for summary judgment will not in themselves warrant the

court in granting summary judgment unless one of the parties is entitled to

judgment as a matter of law on facts that are not genuinely disputed United

States v Oakley 744 F2d 1553 1555 (nth Cir 1984) Cross-motions may

however be probative of the absence of a factual dispute where they reflect

general agreement by the parties as to the controlling legal theories and material

facts Id at 1555-56

II FACTUAL BACKGROUND

Plaintiff Spirit Master Funding LLC (Spirit) is a Delaware Limited

Liability Company with its headquarters in Scottsdale Arizona Spirit is a real

estate investment trust Its primary business is providing funding to companies

by purchasing those companies properties typically retail businesses and

leasing the properties back to the companies on a long-term basis Pike

Nurseries Acquisitions Holding LLC (Pike) is a limited liability company

organized for the purpose of acquiring owning and operating retail garden

centers under the name Pike Nurseries pursuant to a Master Lease with Plaintiff

Spirit

The Pike Nurseries business was started by Pete Pike in 1958 as a plant

nursery business that currently consists of more than a dozen retail stores in

4


Atlanta Georgia and Charlotte North Carolina The Pike Family purchased the

118031 acre nursery property at 6100 Lawrenceville Highway Tucker Georgia

(the Tucker Property) in approximately 1973 In 1973 and 1981 respectively

the Pike Family constructed a sales center (the Retail Building) and a

wholesale center (the Wholesale Building) on the Tucker Property In the midshy

1980S large greenhouse structures were built adjacent to the Retail and

Wholesale Buildings

The Pike Family operated the Pike Nurseries business until April 2004

when it was sold to Roark Capital GroupPike Nursery Holdings LLC (PNH)

In June 2004 PNH entered into a sale-leaseback transaction with Plaintiff

Spirit As part of this transaction Spirit purchased six nursery properties and

then immediately leased the six properties back to PNH under a long-term

(through June 30 2021) master lease agreement (See 2004 Master Lease

Agreement) The six properties included 1) 4020 Roswell Road in Atlanta

Georgia (the Buckhead Property) 2) 2955 Holcomb Bridge Road in Alpharetta

Georgia (the Holcomb Bridge Property or Alpharetta Property) 3) 2900

Johnson Ferry Road in Marietta Georgia (the East Cobb Property) 4) 5795

State Bridge Road in Alpharetta Georgia (the Johns Creek Property) 5) 3431

Ernest W Barrett Parkway in Kennesaw Georgia (the West Cobb Property)

and 6) 3985 Holly Springs Parkway in Holly Springs Georgia (the Holly Springs

Property) Subsequently in November 2005 Spirit entered into a second saleshy

leaseback transaction with PNH to purchase the Tucker Property The PNH

5


master lease was amended to include the Tucker Property2

In November 2007 PNH filed for bankruptcy In early 2008 Defendant

Armstrong Garden Centers Inc (Armstrong) a large retail nursery company

began exploring whether to purchase certain assets of the Pike Nurseries

business out of the PNH bankruptcy On February 1 2008 PNH asked the

bankruptcy court for authority to sell assets to assign its lease agreements Spirit

filed an objection to the proposed sale based on PNHs intention to sever

properties from the PNH -Spirit master lease and assign an unspecified

undefined portion but not all of its leasehold rights3

In early 2008 ArmstrongsPikes President and CEO Michael Kunce

briefly visited all the Pike Nurseries stores including the Tucker Property In or

around February 2008 Kunce visited Spirits headquarters in Scottsdale

Arizona to negotiate the lease for the Spirit-owned properties Kunce first met

with Spirits board of directors and indicated that he would be interested in

assuming the leases for all the Pike Nurseries properties except for the Tucker

Property under the condition that there would be a rent reduction (Kunce Dep

at 50 May 29 2013) Subsequently Kunce met with Spirits senior real estate

representative to further discuss Defendants purchase of the Pike leases (Id at

50-51) Mr Kunce testified that the negotiations centered around the fact that

2 The Tucker Property is one of the oldest and largest properties owned by Spirit 3 Spirit asserted that PNH had agreed that the master lease constitutes an unseverable and single lease of all but not less than all of the [Spirit] Properties (Ex 20 Spirits Objection to Motion For Authority) Spirit noted that there is a single term for the Spirit Lease Properties and the Debtor is obligated to perform all the unseverable obligations as Lessee throughout the Lease Term without any allocation or apportionment of such obligations among the Spirit Lease Properties (Id)

6


Defendants considered the Tucker Property a brand killer and did not want

the Tucker Property [because] it was not usable as a retail operation due to the

condition of both the property and the buildings4 (Id at 52) Spirit refused to

exclude the Tucker Property from the bankruptcy sale and informed Kunce that it

was an all or nothing deals (Id at 52-53) Kunce ultimately agreed to include

the Tucker Property under the condition that Spirit loan Defendants $13 million

to rebuild the retail portion of the property6 (Id at 53)

On February 20 2008 Armstrongs Board of Directors approved the

acquisition of certain assets of PNH and the formation of Pike Nurseries

Acquisition LLC (Pike) to operate the business A proposed Asset Purchase

Agreement executed by Kunce on behalf of Armstrong was submitted to the

bankruptcy court in conjunction with a PNH motion for approval to sell its assets

out of the bankruptcy estate including PNHs interests in the Spirit leases

The Asset Purchase Agreement provides that

All buildings machinery equipment and other tangible assets constituting the Property and used by Seller primarily in the conduct of the Business are in fair or good operating condition and repair reasonable wear and tear excepted are usable in the ordinary course of business and are adequate and suitable for the uses to which they are being put except as expressly described in this Agreement and the Exhibits hereto None of such items requires any repairs or replacement except for maintenance in the ordinary course of

4 Mr Kunce testified that Defendants did not want to lease the Wholesale Building because they were not in the wholesale business (Kunce Dep at 53) However Mr Kunce informed Spirit that Mr Pikes son Gary Pike wanted to buy the wholesale division Spirit refused to split the retail and wholesale portions of the Tucker Property and instead insisted that Defendants sublease the wholesale portion of the property (ld) 5 The parties negotiated to exclude the Holly Springs Property 6 Kunce testified that he came up with $13 million as an estimate of what in his experience it would cost to rebuild (ld at 53)

7


business or such other repairs or replacements which are not material individually or in the aggregate in nature or cost

(Asset Purchase Agreement Ex 23 sect 510) The Asset Purchase Agreement

provides that it is an AS IS Transaction stating in relevant part

BUYER [ARMSTRONG] ACKNOWLEDGES THAT BUYER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE PHYSICAL CONDITION OF THE PROPERTI AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE PROPERTI AS BUYER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE PROPERTI EXCEPT FOR ANY REPRESENTATIONS OR WARRANTIES EXPRESSLY SET FORTH IN SECTION 5 OR ELSEWHERE IN THIS AGREEMENT BUYER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS ACCORDINGLY EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT BUYER WILL ACCEPT THE PROPERTI AS IS WHERE IS and WITH ALL FAULTS

(ld sect 7)

On February 25 2008 Armstrong formed Defendant Pike Nurseries

Acquisition LLC for the purpose of acquiring owning and operating retail

nurseries acquired out of the PNH bankruptcy On February 28 2008

Defendant Pike Nurseries entered into an Amended and Restated Master Lease

Agreement (the Master Lease) for an initial lease term of 13 years pursuant to

which Pike Nurseries agreed to lease six properties from Spirit including the

Buckhead Property the Holcomb Bridge Property the East Cobb Property the

Johns Creek Property the West Cobb Property and the Tucker Property The

parties also entered into a separate Amended and Restated Lease Agreement (the

Wholesale Lease) for the Wholesale portion of the Tucker Property with an

8


initial lease term of five years Pike subleased the wholesale portion of the Tucker

Property to Gary PikePremier Investments and Consulting Inc (Premier) for

$200000 per year from March 3 2008 through March 3 20137 After the

bankruptcy court approved the sale on March 3 2008 Pike assumed all rights

and liabilities of PNH under the Asset Purchase Agreement Master Lease and

Wholesale Lease In conjunction with the execution of the Leases Armstrong

executed Unconditional Guaranties of Payment and Performance relating to

Pikes various obligations under the Leases for the benefit of Spirit

Spirit and Pike characterize the Master Lease as a triple net lease pursuant

to which Pike as the tenant is responsible for paying rent taxes insurance

maintenance and repair and all other obligations relating to the properties The

Master Lease contains the following provisions relevant to the parties contract

dispute

sect 7 Rentals To Be Net to Lessor The Base Annual Rental payable hereunder shall be net to [Spirit] all Costs and obligations of every kind and nature whatsoever relating to the Properties except for Lessors Taxes (as defined below) or other taxes shall be performed and paid by [Pike] (See also sect 8 (Taxes and Assessments) sect 10 (Insurance)

sect 12 Compliance With Laws Restrictions Covenants and Encumbrances A Compliance [Pikes] use and occupation of each of the Properties and the condition thereof shall at [Pikes] sole cost and expense comply with all Legal Requirements with respect to the Properties in either event the failure with which to comply could have a Material Adverse Effect

7 In December 2010 Pike informed Spirit by letter that Pikes subtenant (Gary PikePremier) on the wholesale portion of the Tucker Property had gone out of business but indicated that despite this event Pike would live up to its lease obligation and make up the $200000 bull per year sublease obligation

9


Legal Requirements means the requirements of all present and future laws which may be applicable to [Pike] or to any of the Properties or to the use manner of use occupancy possession operation maintenance alteration repair or restoration of any of the Properties even if compliance therewith necessitates structural changes or improvements or results in interference with the use or enjoyment of any of the Properties (Ex A Defined Terms)

Law(s) means any statute code ordinance rule regulation policy requirement (Ex A Defined Terms)

sect 13 Condition of Property Maintenance [Pike] hereby accepts the Properties AS IS and WHERE IS with no representations or warranty of [Spirit] as to the condition thereof The Properties shall be kept in reasonable condition consistent with past practices and [Pike] shall at all times at its own expense maintain repair and replace as necessary the Properties including all portions of the Properties whether or not the Properties were in such condition on the Effective date [of the Lease]

Properties means those parcels of real estate legally described on Exhibit B attached hereto all rights privileges and appurtenances associated herewith all buildings fixtures and other improvements now or hereafter located on such real estate whether or not affixed to such real estate (Ex A Defined Terms)

sect 14 Waste Alterations and Improvements [Pike] shall not commit actual or constructive waste upon the Properties During the Lease Term Lessee shall not alter the exterior structural plumbing or electrical elements of the Properties in any manner without the consent of the Lessor which consent shall not be unreasonably withheld or conditioned

sect 15 Indemnification [Pike] shall indemnify protect defend and hold harmless [Spirit] from and against all Losses caused by incurred or resulting from [Pikes] use and occupancy of the Properties whether related to its original design or construction latent defects alterations maintenance use by [Pike] or any Person thereon supervision or otherwise or from any breach of default under or failure to perform any term of provision of this Lease

Losses means any and all claims liabilities obligations

10


damages Costs diminutions in value of whatever kind or nature (Ex A Defined Terms)

sect 18 Condemnation and Casualty C Total Condemnation and Total Casualty In the event of a Condemnation of all or substantially all of any of the Properties (a Total Condemnation) or a Partial Condemnation in either event that results in Lessee making a good faith determination that the restoration and continued use of the remainder of such Property as a Permitted Facility would be uneconomic or a Casualty of all or substantially all of any of the Properties (a Total Casualty) or a Partial Casualty in either event that results in Lessee making a good faith determination that the restoration and continued use of such Property as a Permitted Facility would be uneconomic then in such event (ii) Option To Terminate Lessee shall have the right to terminate this Lease with respect to the applicable Property by notice (the Termination Notice) given to Lessor upon the Total Condemnation or Total Casualty but not later than thirty (30) days after the Total Condemnation or Total Casualty as applicable

Condemnation means a Taking andor Requisition (Ex A Defined Terms)

Taking means (a) any taking or damaging of all or a portion of the Properties (i) in or by condemnation or other eminent domain proceedings pursuant to any Law general or special or (ii) by reason of any agreement with any condemnor in settlement or or under threat of any special condemnation or other eminent domain proceeding or (iii) by any other means or (b) any de facto condemnation (Ex A Defined Terms)

Requisition means any temporary requisition or confiscation of the use or occupancy of any of the Properties by any Governmental Authority civil or military whether pursuant to an agreement with such Governmental Authority in settlement of or under threat of any such requisition or confiscation or otherwise (Ex A Defined Terms)

The Master Lease also provided for a rent reduction on all six properties

from $190710000 to $151010000 and included a term for optional financing

of up to $13 million to rebuild the Retail Building at the Tucker Property with

11


the conditions that 1) the construction had to begin within 18 months and be

completed within 36 months and 2) any amount borrowed from Spirit would be

repaid to Spirit during the lease term8

In February 2009 due in part to an economic downturn Pike requested a

2 year rent reduction of 20 In response Spirit offered to grant Pike rent

forbearance in exchange for elimination of the $13 million financing obligation

After some back and forth between the parties Pike and Spirit entered into two

Lease Supplements on May 25 2009 In exchange for the forbearance periods

under the Lease Supplements Pike agreed to pay Spirit $629167 in

supplemental monthly rent payments under the Master Lease from July 1 2011

through and including June 1 2016 and agreed to pay Spirit $238095 in

supplemental monthly rent payments under the Wholesale Lease from July 1

2011 through and including March 1 2013 On the same day Pike and Spirit

entered into an Amendment to the Master Lease (Lease Amendment)

eliminating Spirits $13 million funding obligation under section 43 of the

Master Lease

Prior to the execution of the Lease Supplements Pike never took advantage

of any part of the $13 million optional financing or undertook to rebuild or

8 In September 2008 Pike requested that the $13 million loan be reallocated for use on both the Holcomb Bridge and Tucker Properties rather than solely for the Tucker Property Kunce proposed that $400000 of the $13 million in financing would be allocated to the Tucker Property to rebuild the greenhouses repave the parking lot and remodel the Retail Building Kunce proposed that the remainder of the $13 million in financing would be allocated to the Holcomb Bridge Property for structural mechanical and electrical improvements to replace the greenhouses to replace the parking lot and to complete a major remodel including the roof bathrooms siding floor ceiling and office Spirit approved Pikes request to reallocate the $13 million in available financing

12


remodel the Retail Building on the Tucker Property Nor did Pike ever undertake

a rebuild or remodel of the Retail Building on the Tucker Property at its own

expense after the removal of the 13 million optional financing provision pursuant

to the Lease Supplements9

In December 2009 Pike wrote to inform Spirit that [i[n our present

financial situation and the cancelation of the financial improvement package

from Spirit our plan is to close the entire facility [which is falling apart] in three

years when our lease is up on the major portion of the propertyl0 (Ex 48)

In early 2011 Pike closed off part of the Retail Building due to the

condition of certain parts of the building including the roof On January 19

2011 Pike informed Spirit that the Tucker retail store was increasingly losing

money each year and was no longer a viable operation Pike reported that it

would be closing the retail operation effective June 30 2011 after the spring

season In late February 2011 Pike stopped operating its retail business out of

the Retail Building and brought a mobile trailer to the Tucker Property to serve

as an office Pike closed the Tucker store at the end of July 2011 After a

Gwinnett County Building Inspector red tagged the Retail and Wholesale

9 Pike did however undertake extensive renovations on the Buckhead Property Kunce testified that Pikes decision to remodel the Buckhead store was because it was one of Pikes higher performing stores and because there were some life safety issues posed by the condition of the building at the time (Kunce Dep at 140-141) Pike decided to undertake a major remodel of the Buckhead store because it would provide the greatest return on the investment (Kunce Dep at 346-347 June 28 2013) As part of the Buckhead store renovation Pike took the building down to the studs and essentially rebuilt the building and greenhouse (Kunce Dep at 252 May 29 2013) Pike made capital expenditures in the amount of $950977 on the Buckhead store from 2008 to 2011 10 The Court assumes Pike was referring to the Wholesale Lease that had an initial lease term of 5 years

13


Buildings as unsafe for occupancy in August 2011 Pike notified Spirit of its intent

to terminate its lease of the Tucker Property due to a Total CondemantionTotal

Casualty on the property and unilaterally decreased its rent payments under the

leases

Spirit filed suit on January 25 2012 for breach of the lease agreements

lease supplements and guaranties and breach of the implied covenant of good

faith and fair dealing seeking accelerated rent payments on all six properties and

immediate possession of the five remaining propertiesll Pike filed counterclaims

on October 4 2012 for breach of contract breach of the covenant of good faith

and fair dealing setoff and recoupment

III DISCUSSION

Spirit seeks summary judgment in its favor and against Defendant Pike on

its claim for breach of contract (Count 1) and its request for an order of

dispossession pursuant to the Lease Agreements (Count 3) and as against

Defendant Armstrong for breach of the Guaranties12 Pike seeks summary

judgment in its favor on Plaintiffs breach of contract claim on the basis that Pike

exercised its right of early termination in good faith as a result of the Total

Condemnation of the Tucker Property Alternatively Pike seeks summary

judgment that (1) the accelerated rent provision in the Master Lease is

11 On September 19 2012 the Court dismissed Spirits claims in Count 3 for an order of dispossession under OCGA sect44-7-50 and Count 4 for declaratory relief (See Doc 31) Plaintiff subsequently fIled an Amended Complaint on November 14 2012 12 Armstrong does not dispute that it executed Unconditional Guaranties of Payment and Performance as to Pikes obligations under the Leases (See Defs Resp SMF 38)

14


unenforceable as a matter of law and (2) that Plaintiffs claim for breach of the

implied covenant of good faith and fair dealing fails as a matter of law

A Spirits Motion for Summary Judgment

1 Count I Breach ofLease Agreements and Lease Supplements

Spirits first argument on summary judgment is that Pikes attempted

termination of the Master Lease was improper as a matter of law in light of

undisputed facts and Pikes multiple breaches of its obligations under the plain

language of the Lease Agreements13 Spirit asserts that the Master Lease14

expressly allocates to Pike full complete and sole responsibility for maintenance

and repair taxes insurance and all Costs and obligations of every kind and

nature whatsoever relating to the Properties (Leases sectsect 7 8-15) Spirit relies on

multiple lease provisions to support its assertion that Pikes conduct in general

violated the express terms of the parties Lease Agreements including

(1) Spirit makes no representation or warranty as to the condition of the [properties] (Leases sect 13)

(2) Pike accepts the properties AS IS and WHERE IS (ld)

13 Spirit also relies on Georgia law regarding the obligations of a lessor under an estate for years which this Court determined on the motion to dismiss was applicable to the leases at issue See OCGA sect 44-6-105 (A tenant for years is liable for all repairs or other expenses which are necessary for the preservation and protection of the property) Evans Theatre Corp v De Give Investment Co 52 SE2d 655 658 (Ga Ct App 1949) ([I]n an estate for years where the owner of such estate is to all intents and purposes the owner with unqualified possession such improvements and repairs necessary to preserve the buildings on the premises comprising such estate and prevent their decadence as well as to prevent their condemnation should be made by the lessee or owner of the estate for years not only under the provisions of the lease but under the proper construction and application of [OCGA sect 44-6-105]) 14 The Wholesale Lease contains identical provisions regarding Pikes obligations related to the Wholesale Building

15


(3) Pike leases the properties subject to all Legal Requirements (including any existing violations thereof) and the condition of the Properties as of the Effective Date (Id sect 2 emphasis added)

(4) Pike is obligated at [Pikes] sole cost and expense to comply with all Legal Requirements with respect to the Properties including all present and future statutes codes ordinances and other laws even if compliance therewith necessitates structural changes or improvements (Id sect 12 Ex A Defined Terms Legal Requirements Laws (emphasis added))

(5) Pike bears responsibility for all costsexpenses associated with maintaining repairing or replacing any portion of the properties as necessary-including all buildings fixtures and other improvements (Id sect 13 Ex A Defined Terms Properties)

(6) Pike is required to keep the properties in reasonable condition whether or not the Properties were in such condition on the Effective Date of the lease (Id sect 13 (emphasis added))

(7) Pike is prohibited from committing any actual or constructive waste on the properties (Id sect 14)

(8) Pike is obligated to indemnify and hold Spirit harmless from any claims liabilities obligations damages of whatever kind or nature and other losses incurred by or resulting from lessees occupancy of the properties whether relating to its original design or construction latent defects alteration maintenance [or] use by Lessee or any Person thereon (Id sect 15 Ex A Defined Terms Losses)

(9) Pike upon termination is required to leave all of the Properties in good and working condition and repair inside and out (Id sect 27)

Under Georgia15 law the parties to a commercial lease such as the one at

issue in this case are free to contract as to their various responsibilities for

repair maintenance and improvements Baird v Kelley16 551 SE2d 810 812

15 The parties lease agreements contain a choice of law and forum selection clause providing that Georgia law applies to any disputes arising under the agreement 16 In Baird the court found The language of this lease read as a whole manifestly expresses the intent of the parties that the landlords obligations would be limited to the specified areas of

16


(Ga Ct App 2001) (citing Sewell v Royal 248 SE2d 165 (Ga Ct App 1978)

Colonial Self Storage amp v Concord Properties 249 SE2d 310 (Ga Ct App

1978) Browning v FE Fortenberry amp Sons 206 SE2d 101 (Ga Ct App

1974)) In ascertaining the intention of the parties the Court must look to the

lease contract in its entirety in view of the facts and circumstances concerning

the situation to determine the parties intent with regard to the repairs and

improvements at issue Id Shippen v Ga Better Foods 54 SE2d 704 (Ga Ct

App 1949) See also Peachtree on Peachtree Investors v Reed Drug Co 308

SE2d 825 (Ga 1983) (holding that construction of a contract is governed by the

intent of the parties as expressed in the entire contract) OCGA sect 13-2-2(4)

a Pikes alleged failure to maintain the property in reasonable condition repair the roofon the Retail Building and comply with all Legal Requirements relating to the use ofthe Properties

Section 13 of the Lease Agreements (Doc 188-7 Doc 188-2) provides

Condition of Property Maintenance Lessee [Pike] hereby accepts the Properties AS IS and WHERE IS with no representation or warranty of Lessor [Spirit] as to the condition thereof The Properties shall be kept in reasonable condition consistent with past practices and Lessee [Pike] shall at all times at its own expense maintain repair and replace as necessary the Properties including all portions of the Properties whether or not the Properties were in such condition on the Effective Date

(Doc 188-7 at 27 Ex 30) Spirit asserts that the condition of the roof on the

Retail Building at the time the parties entered into the Leases is immaterial for

maintenance And because Baird accepted the property as being in good condition for the purposes of the lease and agreed that he would be responsible for complying with the applicable city ordinances with no charge to the landlords for any improvements he bore the responsibility of bringing the property in compliance with the requirements of the City 551 SE2d at 812

17


purposes of summary judgment because the terms of the Leases are clear Pike

accepted the Tucker Property AS IS WITH ALL FAULTS and regardless of

whether it was in reasonable condition (Leases sect 13) Spirit contends that Pike

failed to undertake adequate repairs despite knowing that the roof of the Retail

Building required major substantive repairs or replacement and even obtained

bids for repair andor replacement in 2010 and 201117 Rather according to

Spirit Pike allowed the roof to deteriorate to the point that it made the building

unsafe for occupancy and then petitioned Gwinnett County to red tag the

property in order to avoid its obligations under the Leases

Pike argues in response that there are issues of material fact as to whether

Pike repaired the Retail Building roof in accordance with the terms of the Lease

Agreements which preclude summary judgment in Spirits favor According to

Pikes interpretation of the Lease provisions the condition of the Tucker Property

at the time Pike entered into the Lease Agreements is relevant to the viability of

Spirits breach of contract claim Pike asserts that the condition of the Tucker

Property at the time it acquired the Leases out of bankruptcy in 200818 defines its

rights and responsibilities under the Lease Agreements which require that [t]he

Properties shall be kept in reasonable condition consistent with past

17 The Wholesale Building also suffered from maintenance and repair issues including a partially collapsed roof 18 The Court rejects Pikes argument that this claim is really one that should have been brought against Pikes predecessor PNH related to the condition of or repair and maintenance practices at the Tucker Property Such a claim would be barred by the Bankruptcy Courts order that [PNHs] lienholders and creditors including Spirit were forever barred and enjoined from pursuing any claims against Pike Nurseries that were related to claims they might have brought against [PNH] (Ex 25 at 10 9)

18


practices and Lessee shall at all times at its own expense maintain repair and

replace as necessary the Properties (emphasis added) Thus in order to

determine whether Pike Nurseries repaired and maintained the roof consistent

with past practices Pike contends the Court must determine what those past

practices were Because the scope of repairs required by the Lease Agreements is

defined by the past practices at each property Pike asserts that the condition and

maintenance of the Tucker Property before Pike acquired the Leases is critical to

any determination in this case

Pikes interpretation of its obligations under sect 13 of the Leases runs afoul of

the express language of the lease See eg City ofJonesboro v Clayton Cnty

Water Auth 222 SE2d 76 80 (Ga Ct App 1975) (A cardinal contractual

construction rule is to examine the document as a whole in order to ascertain the

intention of the parties as to anyone part) The four words Pike focuses on shy

consistent with past practices - must be read in conjunction with the whole

paragraph of which it is a part as well as with the contract as a whole When

read in conjunction with the remainder of Section 13 it is clear that Pike (1)

accepted the Properties AS IS and WHERE IS with no representation or

warranty of [Spirit] as to the condition of the Properties (2) was obligated

under the Lease to keep the Properties in reasonable condition and (3) was

obligated at [Pikes] own expense [to] maintain repair and replace as

necessary the Properties including all portions of the Properties whether or

19


whether or not the Properties were in such condition on the Effective

Date of the Leases (sect 13) (emphasis added)

Furthermore Section 13 cannot be interpreted as Pike suggests as

superseding all other repair and maintenance provisions without being in total

conflict with the other provisions of the Lease such as (1) the requirement that

Pike pay all Costs and obligations of every kind and nature whatsoever relating

to the Properties and the buildings on the Properties (sect 7) (2) the requirement

that Pike comply with all present and future statutes codes ordinances and

other laws even if violations existed in 2008 and even if structural changes or

improvements are necessary that would interfere with Pikes use and occupancy

of the Properties (sect 12) and (3) the requirement that Pike not commit actual or

constructive waste upon the Properties (sect 14)

The Georgia Court of Appeals holding in NW Parkway LLC v Lemser is

especially instructive The Lemser Court held that a lessee under a commercial

20-year triple net lease agreement was obligated to replace a roof that had

deteriorated during the lease term pursuant to provisions in the lease agreement

providing that Lessee shall be responsible for and pay directly on a timely basis

all expenses for the entire property and building of any nature whatsoever

during the term of this lease and Lessee shall at its own expense and all times

maintain the Premises in good clean and safe condition 709 SEd2d 858

861 (Ga Ct App 2011) The Court held that the limitation requiring the Lessee

to surrender the Property at the termination of the Lease in as good condition as

20


received normal wear and tear excepted when read in conjunction with the rest

of the contract did not absolve the lessee of its responsibility for roof

replacement that became necessary during its tenancy because roof

replacement fell within the normal meaning of all expenses for the entire

property and building of any nature whatsoever during the 20-year lease term

Id

Similarly in Evans Theatre Corp v De Give Inv Co the Court of Appeals

held that a lessee under a commercial lease granting an estate for years19 was

required to bear the cost of structural changes and repairs necessary to comply

with city fire and building safety code ordinances

The owner of the estate for years is in absolute control with certain contractual duties all consonant with its ownership and unqualified possession of the premises for the period of the estate for years It appears therefore that it was the intention of the makers of this lease when the estate for years was created that the duty of compliance with all ordinances and public laws as to structural changes in the buildings on the premises in order to meet the requirements of municipal and State laws as to safety and fire prevention relative to buildings was intended to be and was placed on the owner of the estate for years the lessee Moreover in an estatefor years ofthe nature involved where the owner of such estate is to all intents and purposes the owner with unqualified possession such improvements and repairs necessary to preserve the buildings on the premises comprising such estate and prevent their decadence as well as to prevent their condemnation and destruction as fire hazards and unsqfe buildings and as a nuisance should be made by the lessee or owner of the estatefor years not only under the provisions of the lease but under the proper construction and application of [OCGA sect 44-6-105] providing that

19 (See Order on Pikes Mot to Dismiss Doc 31 at 12-14 (finding that the Master Lease grants Pike an estate for years))

21


A tenant for years is bound for all repairs or other expense necessary for the preservation and protection of the property

52 SE2d 655 658 (Ga Ct App 1949) (emphasis added)

The Court finds that the only reasonable construction of sect 13 when read in

conjunction with the entire contract is that Pike was not required to keep the

Properties in like-new or nearly-new condition but rather was required to keep

the Properties in reasonable condition whether or not the Tucker Property was in

reasonable condition in 2008 See Capitol Funds Inc v Arlen Realty Inc 755

F2d 1544 1549 (nth Cir 1985) (interpreting similar contract provisions in a

triple net lease and holding that that the most reasonable and logical

interpretation of the exception for obsolescence and ordinary wear and tear is

simply that the tenant is not required to keep the premises in like-new or nearly

new condition but rather is required merely to keep it serviceable and in good

repair Assuming for example that at the start of the lease the premises was

newly painted [the tenant] would not be obligated to repaint it annually or to

repaint simply because the paint had begun to fade Nor would [the tenant] be

required to replace serviceable equipment such as furnaces or air conditioners

merely because they are no longer in like new condition or because more efficient

models are available Of course [the tenant] would not be obligated to replace

where repair would be sufficient It is clear however that under the terms of the

contract when viewed as a whole [the tenant] has assumed responsibility for

maintaining the premises in a serviceable [] condition)

22


b Pikes maintenance and repair measures from 2008 to 2011

Pike asserts consistent with the Lease provisions that it maintained the

condition of the Tucker Property during from 2008 to 2011 in a similar manner

to that of the propertys prior owners According to Pike the roof of the Retail

Building on the Tucker Property has leaked since the time Pike assumed the lease

in FebruaryMarch 2008 Mr Kunce testified that during his 2008 visit to the

property prior to the bankruptcy sale he did not personally see any leaks because

it was a sunny day although there were buckets on the floor of the retail facility

(Kunce Dep at 97) During the visit Mr Kunce also noticed rust in the metal roof

decking and broken stress truss members (Id at 98-99) Mr Kunce further

testified that he understood that the roof had always leaked and that the prior

owners had always patched the leaks when they were discovered (Id at 96-97)

Mr Kunce continued with the patch repair efforts and did not undertake

extensive efforts to repair the building or replace the roof because he planned on

demolishing and replacing the building within a year of the lease purchase in

2008 (Id at 100-101)

Jeff Todd Pikes Facilities Maintenance Manager since 2005 testified that

he performed maintenance on the Retail Building roof and patched leaks with a

rubber roll-on product called Kool Seal (Todd Dep at 6 10-12 April 9 2013)

Mr Todd testified that once a year the roof would have a small leak and the

maintenance team would patch it (Id at 51) Mr Todd frequently went up on

the roof to patch the leaks and to remove debris from the roofs surface (Id at

23


10) In February 2010 Mr Todd obtained an estimate from AampW Contracting for

repair of the leaking Retail Building roof2o and submitted it to his boss Alan

Holcombe21 (ld at 27-28) Mr Todd testified that leaks occurring in 2010 had

caused the metal decking to rust a bit in certain areas and that the top layerouter

membrane had so many leaks that the roof was gone (ld at 30) The

estimates provided by AampW in 2010 did not include replacement of any of the

existing metal roof decking22 Mr Todd never received approval from Pikes

senior management to proceed with the estimated repair work (ld at 28)

In December 2010 Kunce forwarded to various members of Pikes staff a

document entitled Projects to be Completed Before Spring 2011 listing Install

new roof on Tucker garden shop Mr Kunce testified that this document was

simply a wish list and that no decision had been made to replace the roof

In January 2011 Mr Todd obtained a second estimate for roof repairs

from AampW Contracting (ld at 38) Mr Todd testified that he noticed deflection

in the metal roof decking around this same time after a snow storm resulted in

accumulation of water and snow on the roof (ld at 43) Mr Todd observed that

pieces of the metal roof decking had fallen off into the store after the snow began

to melt (ld at 44-45) During AampWs inspection in January 2011 the project

manager who prepared the repair estimates Ian Bryson observed that the

20 The estimate contained 3 repair options ranging in price from $411515000 to $4887800 (Todd Dep Ex 82) 21 Alan Holcombe was Pikes Executive Vice President and General Manager at the time and reported directly to CEO Mike Kunce 22 Two of the estimates included installation of oriented strand board (OS8) wood sheathing installed over the metal roof decking to ensure the strength of the roof decking as needed prior to installation ofa new exterior membrane

24


roofing system had experienced significant deterioration since his February 2010

inspection and that the metal roof decking had rusted through and failed in

several places The January 2011 repair estimate submitted by AampW included

removal and replacement of the rusted portions of the roof decking (an estimated

1500 sq ft) for a total of $3075450 (Id at 38-39 Ex 82) Mr Todd again

forwarded this estimate to Mr Holcombe but never expressly discussed the

repair work (Id at 39) Mr Todd is not aware of Pike ever having hired a

roofing contractor to make repairs to the roof (Id at 13)

Mr Todd testified that the condition of the Retail Building specifically the

roof deteriorated from March 2008 to July 2011 (Todd Dep at 252 April 10

2013) Mr Todd acknowledged that the leaks continued to get worse and that

adequate repairs were never undertaken to the point where by the time the store

closed in 2011 there were leaks throughout the center beam of the roof

throughout the building and he no longer felt safe going up on top of the roof

(Id at 252-253) Pike admits that after the roof deflected in the winter of 2010shy

2011 the roof of the Retail Building posed a safety concern

According to Spirit although Pike attempted minor repairs including

patching and sealing the condition of the roof of the retail building deteriorated

significantly during the term of Pikes lease of the Tucker Property from 2008 to

2011 Spirit relies on the Declaration of Adam Gallagher an assistant store

manager at the Tucker Property from May 2004 to October 2004 and store

manager from July 2007 to November 2008 and July 2010 through February

25


2011 (See Gallagher Dep Ex 57) Gallagher joined the company in May 2004

shortly after Roark CapitaljPNH acquired the business from the Pike family

Part of Gallaghers duties included facilities maintenance Gallagher attested that

PNH performed repairs and maintenance as necessary to keep the Tucker

Property and the buildings on the property in good condition during its time of

operation However according to Gallagher after Defendant Pike took over the

company in February 2008 repair and maintenance at the Tucker Property came

to a grinding halt As the store manager Gallagher submitted repair requests to

district-level management relating to maintenance issues Although Pike

authorized and performed some minor repairs most of Gallaghers maintenance

andor repair requests (including those relating to the roof) were ignored

According to Gallagher Pike resisted putting much money into repair and

maintenance efforts at the Tucker Property from the outset There were early

discussions about remodeling but nothing was ever done







the Retail Building and had a mobile trailer brought to the Tucker Property to

serve as an office Prior to bringing the trailer to the Tucker Property Kunce

26


instructed Pike Executive Vice President and General Manager (Alan Holcombe)

to go to Gwinnett County and ask that they come to the Tucker Property for an

inspection of the building for a new certificate of occupancy (Holcombe Dep at

226) Mr Holcombe spoke with several individuals in the Fire Marshalls office

but they were unresponsive to the request because Pike already had a certificate

of occupancy (ld at 226-227)

On March 14 2011 Pike informed its landlords including Spirit that one

of its buildings had been condemned and that Pike would be closing the Tucker

Property in June 2011 Mr Kunce testified that he was referring to the Retail

Building on the Tucker Property even though it had not been condemned at that

time (Kunce Dep at 270-271) Mr Kunce further explained that it was [his]

belief that the - the property was structurally unsound because of the structural

problems with the roof the structure the wall and it was going to be condemned

And I jumped the gun and said it was (ld at 271)23 On June 14 2011 Pikes

Vice President of Merchandising and Store Development Michael Chapman

applied for a Commercial Building Permit for the Retail building with Gwinnett

County and scheduled a fire inspection for the following day Mr Chapman

testified that the application he submitted was to obtain a new certificate of

occupancy On June 15 2011 a Gwinnett County Fire Inspector Tommy

23 On March 30 2011 two weeks after Kunce advised Spirit of the buildings alleged condemnation Pike entered into a real estate listing agreement for the entire 11-plus acres of the Tucker Property which included both the wholesale and retail portions of the site Pike represented and warranted in the listing agreement that there were no pending or threatened condemnation actions and that the Tucker Property has no known significant or material latent defects

27


McCullers inspected the Tucker Property and reported that it had failed the

inspection due to the lack of exitemergency lights in the main building over all

the doors The inspection report further indicates that a certificate of occupancy

will be issued upon addressing all deficiencies on this report

After making the decision to close the Tucker store Pike hired an engineer

to inspect the Retail Building When Pike retained Mr Bell Kunce told him that

he had an issue with a building that he was leasing that he was not able to

occupy due to County requirements not allowing him to occupy and that Pike

needed to have [the County] red-tag the Retail Building and that doing so

would require action on behalf of the landlord to give [Pike] relief (Bell Dep at

931) Bell inspected the Retail Building on July 11 2011

On July 15 2011 Kunce visited with Sean Hufford at Spirits office in

Scottsdale Arizona Kunce informed Spirit that the roof of the Retail Building at

the Tucker Property had collapsed in January 2011

Mr Bells inspection report dated July 182011 addressed the condition of

the Retail Building structure Mr Bells report noted that the major deficiency in

the structure was the condition of the metal roof decking which he observed to

be rusted through in many areas Mr Bell indicated that due to the poor

condition of the metal roof decking its ability to resist lateral forces was

compromised Given the condition of the metal roof decking and its associated

deficiencies Mr Bell concluded that the structural integrity of the building had

been affected and the building was not safe for occupancy The report did not

28


address the condition of the roofing membrane

The next day on July 19 2011 Pikes Executive Vice President and General

Manager Alan Holcombe informed its employees bye-mail that the Tucker store

would be closing on July 31 2011 The memorandum stated that Tucker [is] one

of the most expensive sites to lease Currently there are no tenants on the

property to help us subsidize the lease amount That in combination with

declining sales at the store in recent years is what led us to the decision to close

the store On July 20 2011 Pike requested a 20 rent reduction from Spirit

stating Due to the above [financial information provided to Plaintiff] we feel it

would be in both the interest of Spirit and Pike Nurseries to work out a plan to

keep Pike from going into liquidation24 Also on July 20 2011 Pike sent a letter

from Kunce via e-mail to Gwinnett Countys Acting Director Planning amp

Development stating that Pike was forced to close its business at the Tucker

Property on July 31 2011 Kunce reported that the roof of the Retail Building had

partially collapsed in February and requested that the county take action to red

tag the building Kunce enclosed Jack Bells inspection report and requested

that action be taken as soon as possible Kunce also spoke with Gwinnett

Countys Fire Marshall suggesting that if the county ordered the building to be

demolished then perhaps it could be used as a fire training exercise

24 On August 19 2011 after analyzing Pikes financial data Spirit declined Pikes request to modify the Leases in order to reduce the rent In an email Kunce responded

Too bad You just inherited a mess and lost millions I will be too busy to do anything with Tucker Besides the lease was cancelled You cant lease a retail condemned facility The federal bankruptcy judge will decide the issue separately from the other leases So told by our attorney I cant stop it now

(Ex 90)

29


Pike permanently closed the Tucker retail business on July 29 2011 Spirit

learned in July 2011 that Pike had not made an insurance claim for the damage to

the roof from the January 2011 winter storm At Spirits request Pike submitted

an insurance claim on the roof of the Retail Building to Firemans Fund on or

about August 11 2011 This was the first time Pike notified its insurance company

about the roof at the Tucker Property The claim was subsequently denied in

part due to its untimeliness

On August 18 2011 Kunce represented to Spirit that the Retail Building

would be Red Tagged (condemnation) by Gwinnett County and that the County

usually requires demolition within sixty days On August 18 2011 Kunce also

reported to Spirit that the roof of the Retail Building had collapsed during a

record breaking ice and snow storm in the middle of January He stated that

Pike had locked all the gates and that if either building were to burn down it

would be a blessing for Spirit On August 18 2011 Spirit contacted Gwinnett

County stating Mr Kunce indicated that he will be receiving a condemnation

notice related to the Tucker Property Spirit wanted to know if this was true and

to understand the nature of the condemnation Bryan Lackey from Gwinnett

County responded that Mr Kunce had requested that the [Retail] building be

examined for consider[ation] of condemnation but that the inspection had not

yet occurred

On August 22 2011 Gwinnett Countys Fire Inspector Fredrick Anderson

inspected the Tucker Property Following his inspection he reported that Pike

30


Nurseries [was] seeking fire recommendation for approval to demolish building

Structures on the property structurally intact (Ex 91) Mr Anderson testified

that during the conversation with one of Pikes executives during the inspection

he was told that the reason why [the County] was called was because [Pike] felt

that the building was unsafe structurally and he pointed out a few areas of that

building that were unsafe structurally and that he wanted me to perform an

inspection to determine how safe that building would be to occupy (Anderson

Dep at 31-32)

Chief Building Inspector for Gwinnett County Todd Herget inspected the

Tucker Property on August 22 2011 The buildings were vacant at the time of the

inspection On August 24 2011 the County issued a Stop Work OrderRed Tag

for both the Retail and Wholesale buildings stating unsafe for occupancy until

structural repairs are made amp permitted or building demolished25 Mr Herget

relied in part on Mr Bells report to determine that the Retail Building was

unsafe for occupancy because the roof was structurally unsound

Following the issuance of the red tag on August 24 2011 Kunce wrote to

Spirit

As per the condition of the lease agreement we are immediately notifying Spirit Financial of the Following Monday the Chief Building Inspector visited the Tucker properties

25 Pike admits that it did not make repairs to the Wholesale building from 2008 to 2011 to the extent repairs were required because Pike Nurseries did not use the Wholesale building for its operations and repairs to the Wholesale building were the responsibility of the sublessee After Pikes subtenant vacated the Wholesale Building Pike discovered that the roof at the back of the building was collapsing As the building was no longer being used Pike propped it up with some beams and made no other efforts to repair any roof leaks in the Wholesale Building

31


along with the Fire Marshall After further consulting with the Head of the Building Department they Red Tagged condemned both buildings and required the owner to demolish both buildings within 60 days

(Ex 96) On August 25 2011 Chief Building Inspector Todd Herget issued a

letter to Kunce as follows

Dear Mr Kunce At your request I conducted an inspection of the [Pike Nurseries 6100 Lawrenceville Highway Tucker (Gwinnett County) Georgia] business on August 22 2011 The purpose of the inspection was to assess the condition of the structures located on the property Your request indicated that you were forced to close the business on July 31 2011 due to a partial loss roof collapse In addition you provided a damage assessment from a licensed structural engineer (attached) After performing an inspection of both buildings I concur with the engineers [sic] report and have posted the structures as unsafe for occupancy

Please be advised that the buildings can no longer be occupied until the buildings are repaired or the structures are demolished If you choose to repair the buildings plans must be approved permits issued and inspections completed prior to receiving authorization to occupy the structures

(Ex 97) Gwinnett County provided Spirit with the Countys August 25 2011

letter to Kunce bye-mail on August 29 2011 noting that [a]t this time no

citations for action are being issued by the County nor are any time tables being

set (Ex 99)26

Regardless of the condition of the Tucker Property at the time of Pikes

assumption of the Leases Pike was obligated to keep the Properties [including

the Buildings] in reasonable condition and at [Pikes] own expense maintain

26 On November 10 2011 Gwinnett County issued two Compliance InspectionDamage Structure Assessment Reports one for each building at the Tucker Property detailing various code compliance failures

32


repair and replace as necessary the Properties including all portions of the

Properties] (sect 13) The Court finds that no reasonable fact-finder could

conclude that Pikes stop-gap band-aid efforts at repairing the leaks in the roof of

the Retail Building satisfied its obligations under the Master Lease Rather than

taking advantage of the optional financing for the planned renovationrebuild of

the Retail Building that Pike negotiated as a material term of its deal to purchase

the Pike nursery properties out of bankruptcy Pike elected to take a rent

forbearance Nor could any reasonable fact-finder conclude that Pike kept the

Tucker Property in reasonable condition27 Pike declined to undertake the

extensive repairs of the tattered outer roof membrane and the rusted metal roof

decking requested by its Facilities Manager after pieces of the roof began falling

into the store and the Store Manager was forced to close off half of the retail

facility Pikes minimal patch effects ultimately led to the partial collapse of the

roof and posed a safety hazard to its employees and customers

Spirit asserts that Pike failed to maintain the Tucker Property in

compliance with Gwinnett County Property Maintenance Ordinance sect 14-3232

requiring that

Roofs of buildings shall be maintained so that they are structurally sound and in a safe condition and have no defects which might admit rain or cause dampness in the interior portions of a building

27 Spirit contends that Pike additionally breached the Leases by failing to maintain the Wholesale portion of the Tucker Property in reasonable condition or otherwise perform any repairs replacements or ensure compliance with county ordinances and other laws As it is undisputed that the Stop Work OrderRed Tag issued by the County also applied to the Wholesale Building the Court finds that Pike failed to comply with the identical obligations under the Wholesale Lease

33


The Gwinnett County inspector who issued the Red Tag testified that the issuance

of the Stop Work OrderRed Tag confirmed that the buildings on the Tucker

Property were not in compliance with all legal requirements See Baird v

Kelley 551 SE2d 810 812 (Ga Ct App 2001) (holding that a commercial lessee

was responsible for renovations required after the city building inspector

determined the leased buildings did not comply with fire code where the

applicable lease terms provided that Lessee agreed to comply with all rules

orders ordinances and regulations of the City County and State in which the

property is located)

Pike asserts that

although Section 13 defines Pike Nurseries generally applicable repair obligations Section 18 [Total Condemnation] specifically defines Pike Nurseries rights if it is deprived of the use or occupancy of anyone of the properties [W]hen a provision specifically addresses the issue in question it prevails over any conflicting general language Woodys Steaks LLC v Pastoria 261 Ga App 815 818 (2003) Thus the specific provisions of Section 18 prevail over the general provisions of Section 13

(Response Br at 18) However these provisions must be read in conjunction

with Section 15s indemnification provision and Section 12S requirement that

[Pikes] use and occupation of each of the Properties and the condition thereof

shall at [Pikes] sole cost and expense comply with all Legal Requirements

[including any statute code ordinance] which may be applicable to [Pike]

or to any of the Properties or to the use manner of use occupancy possession

operation maintenance alteration repair or restoration of any of the Properties

34


even if compliance therewith necessitates structural changes or improvements or

results in interference with the use or enjoyment of any of the Properties (sect 12

Ex A Defined Terms) The Court finds that there is no provision in the Lease

that would allow Pike to ignore its maintenance and repair obligations and allow

the property to deteriorate to the point that the local governing code enforcement

authority declares the Property unsafe for occupancy so that Pike could seek to

terminate the Lease under a theory that the Countys action constituted a

condemnation See Evans Theatre Corp v De Give Inv Co 52 SE2d at 658

(holding that a lessee in an estate for years is responsible for making

improvements and repairs necessary to preserve the buildings on the premises

comprising such estate and prevent their decadence as well as to prevent their

condemnation and destruction as fire hazards and unsafe buildings where the

provisions of the lease require the lessee to comply with all city ordinances and

public laws applicable to [the] leased premises and to hold harmless the owner

from all costs expenses and liability on account of thereof)

c Pikes alleged wrongful termination ofthe lease on the Tucker Property pursuant to sect 18(C)for Total CondemnationTotal Casualty

On August 29 2011 Pike through its legal counsel notified Spirit by letter

of Pikes intention to terminate its lease of the Tucker Property pursuant to

Section 18C(ii) of the Master Lease certifying that the Tucker Property under the

Master Lease had suffered a Total Condemnation or Total Casualty (Ex 100)

Section 18(C) of the Master Lease provides that Pike has an option to terminate

35


the Master Lease if after the occurrence of a Total Condemnation the lessee

determines in good faith that restoration and continued use of the remainder of

the property would be uneconomic The lease defines Condemnation as a

Taking andor Requisition (Ex A Defined Terms) Taking is defined as (a)

any taking or damaging of all or a portion of the Properties (i) in or by

condemnation or other eminent domain proceedings pursuant to any Law

general or special or (ii) by reason of any agreement with any condemnor in

settlement or or under threat of any special condemnation or other eminent

domain proceeding or (iii) by any other means or (b) any de facto

condemnation (Ex A Defined Terms) Requisition is defined as any

temporary requisition or confiscation of the use or occupancy of any of the

Properties by any Governmental Authority (Ex A Defined Terms) Spirit

asserts that the Countys Red Tag did not constitute a Condemnation under

Section 18 and therefore Pikes attempted termination was in breach of the

Leases

Inspector Herget testified that the purpose of the Stop Work OrderRed

Tag was to provide notification that [the buildings were] not fit for

occupancy We dont want anyone moving into it and opening up a business

(Id 122)28 At the time the Stop Work OrderRed Tag was issued the buildings

were vacant (Id at 122-23) Mr Herget testified that if the buildings had been

28 Spirit also relies on Mr Hergets testimony that the Stop Work OrderRed Tag was not a condemnation However as the Court must determine whether the Countys action constituted a Condemnation as defined by the Leases the Court makes its findings independent of Mr Hergets characterization of the Stop Work Order


occupied the County would have gone with a different method The effect of

Stop Work Order was to prevent Pike from re-occupying the space until the

remedies specified were complied with (ld at 123)

The County Stop Work OrderRed Tag issued by the County for the Retail

and Wholesale buildings expressly states unsafe for occupancy until structural

repairs are made amp permitted or building demolished29 The subsequent letter

sent by the County to Pike on August 25 2011 provides as follows

Dear Mr Kunce

At your request I conducted an inspection of the [Pike Nurseries 6100 Lawrenceville Highway Tucker (Gwinnett County) Georgia] business on August 22 2011 The purpose of the inspection was to assess the condition of the structures located on the property Your request indicated that you were forced to close the business on July 31 2011 due to a partial loss roof collapse In addition you provided a damage assessment from a licensed structural engineer (attached) After performing an inspection of both buildings I concur with the engineers [sic] report and have posted the structures as unsafe for occupancy


Pike argues that because the Stop Work OrderRed Tag prohibited Pike from

using or occupying the Buildings until repairs were made or the Buildings were


37


demolished the Countys action constituted a Requisition of the use and

occupancy of the Tucker Property

The Court finds that the Stop Work OrderRed Tag did not amount to a

Condemnation under Section 18 of the Leases No formal condemnation or

eminent domain proceeding was instituted by the County with respect to the

Tucker Property Nor did the issuance of the Stop Work OrderRed Tag

constitute a de facto taking The Court acknowledges that if the County had

deprived Pike of the absolute use of all or any portion of the property such an

exercise of governmental authority over Pikes right to use and occupy the

property could amount to a de facto taking However that is not what occurred

here

The Court cannot ignore the evidence that Pike invited the County to red

tag the building after it had ceased operation of the Tucker store and vacated the

property Although the Red Tag prohibits the future use of the buildings until

they could be brought into compliance with the Countys requirements that they

be safe for occupancy (due to the partial roof collapse in both buildings) the

Countys action was not a Requisition of Pikes use or occupancy of the

Property Rather the Countys act of red tagging the buildings simply required

Pike to make necessary repairs to the building in order to come into compliance

with the countys ordinances Section 12 of the Leases contemplates such a

temporary interference with the use and occupancy of the Properties requiring


Pike to undertake repairs and maintenance necessary to comply with all Legal

Requirements related to the use of the property as discussed above

d Pikes alleged breach ofthe rental payment provisions ofthe Leases

Spirit asserts that by unilaterally reducing its rent payment by 17 Pike

has failed to pay the full rent due from January 1 2012 to the present in breach of

its obligations under sect 4 of the Leases and the Lease Supplements3o Spirit

further asserts that Since January 1 2012 Pike has failed to make its rental

payments by Automated Clearing House (ACH) as required by Section 4 of the

Leases Section 4D of the Master Lease provides that

All Rental and other Monetary Obligations which [Pike] is required to pay hereunder shall be the unconditional obligation of [Pike] and shall be payable in full when due without any setoff abatement deferment deduction or counterclaim whatsoever other than as expressly provided herein Upon execution of this Lease [Pike] shall establish arrangements whereby payments of the Base Monthly Rental are transferred by Automated Clearing House Credit initiated by [Spirit] from an account established by [Pike] to such an account as [Spirit] may designate

(sect 4(D)) Pike responds that (1) it reduced the rent payments by the amount Pike

deemed attributable to the Tucker Property and continued to make rent

payments for the remaining five properties under the Master Lease and (2)

compliance with Section 4(D)s requirement that payments be made by ACH is

impossible because Spirit controls all payments made by ACH such that Pike

30 Section 4 of the Leases provides that Pike shall pay its Base Monthly Rental when due and payable without notice or demand and defines Base Monthly Rental as 112 of the Base Annual Rental of $151000000 which is calculated as $12583333 per month (sect 4 Ex A Defined Terms)

39


cannot pay reduced rent by ACH Because the Court found that Pike wrongfully

terminated the Leases with respect to the Tucker Property the Court finds that

Pike has breached its rental payment obligations under the Lease

Finally Spirit asserts that Pike failed to timely pay its January 2012

supplemental lease payment when due on the first of the month and that no

notice or opportunity to cure is provided by the Lease Supplements Pike does

not dispute that the January 2012 supplement payment was made on January 12

2012 Rather Pike argues that the late payment did not constitute a breach

under sect 3 of the Lease Supplements because Spirit did not provide notice and

waived the defaults As Plaintiff correctly points out the notice provision of sect 3

only applies during the forbearance period which ended on June 30 2010 (See sect

3) Section 8 of the Lease Supplement provides that the failure of [Pike] to pay

or perform any obligation [J when and due pursuant to this Lease Supplement

shall without further notice of any kind be an Event of Default (sect 8) Thus

the Court finds that Pikes failure to timely remit its January 2012 lease

supplement payment constituted a default of the Lease Supplement The Court

further finds that Spirit did not waive the default by accepting the late payment in

light of the anti-waiver provision in the Lease Supplements requiring any waiver

to be signed in writing and confirming that acceptance of any amount less than

the full rent due would not be deemed a waiver Spirit formally notified Pike that

by accepting partial payments it was not waiving any rights under the Leases

40


2 Count III Spirits Entitlement to Lease Remedies

Having devoted the bulk of its summary judgment motion to the merits of

its breach of contract claim Spirit pays short shrift to its request for summary

judgment that it is entitled to exercise all of the various remedies for default set

forth in the Leases Therefore the Court cannot at this juncture determine

whether Spirit is entitled to all of the contract remedies available (whether

concurrently successively or in any combination as the Leases specify) in the

event of Pikes default The Court thus declines to enter summary judgment as to

Count III at this time The Court will conduct a conference with the parties to

address whether Plaintiffs remedy claims including its entitlement to

accelerated rent and repossession of all five properties should be tried before a

jury or before the Court at a bench trial pursuant to the Waiver of Jury Trial

provision in sect 37 of the Master Lease31

3 Spirits Request for Summary Judgment as to Pikes Counterclaims and Affirmative Defenses32

In response to Spirits filing suit after Pike terminated its lease on the

Tucker Property Pike asserted counterclaims for breach of contract (Count 1)33

breach of the covenant of good faith and fair dealing (Count 2) setoff (Count 3)

31 The Court notes that Pike made a demand for jury trial as to all claims in its Answer and Counterclaim 32 In light of the Courts finding that Pike breached its Lease Agreements with Spirit and Pikes failure to present any argument why its affirmative defenses survive summary judgment the Court GRANTS Spirits motion for summary judgment as to Pikes affirmative defenses 33 In support of its breach of contract claim Pike asserts that Spirit fail[ed] to comply with andor interfere[ed] with Pike Nurseries rights under sections 16 18 and 20 of the Master Lease and Supplemental Tucker Lease and that Pike has suffered damages in an amount to be proven at triaL

41


and recoupment (Count 4)34 Spirit correctly characterizes Pikes counterclaims

as alleging that Spirit breached the Lease Agreements by (1) disagreeing with

Pikes purported termination of the Tucker portion of the Master Lease (2)

improperly demand[ing] that Pike pay money that was not owed (3)

improperly threaten[ing] to repossess the other properties subject to the Master

Lease and (4) post[ing] false [default] notices at the properties3s Spirit seeks

summary judgment with respect to Counts 1 and 4 of Pikes counterclaim

arguing that the claims for breach of contract and recoupment are effectively the

same cause of action See OCGA sect 13-7-2 (Recoupment is a right of the

defendant to have a deduction from the amount of the plaintiffs damages for the

reason that the plaintiff has not complied with the cross-obligations or

independent covenants arising under the contract upon which suit is brought)

OCGA sect 13-7-13 (Recoupment may be pleaded in all actions ex contractu

where the plaintiff is liable to the defendant under the same contract If the

damages of the defendant exceed those of the plaintiff the defendant shall be

awarded the amount of such excess from the plaintiff) Spirit also asserts that

Pikes setoff claim (Count 3) should be dismissed as a matter oflaw

34 In support of its recoupment claim Pike asserts that Spirit has not complied or has deliberately failed to comply with the cross-obligations or independent covenants arising under the Master Lease or Supplemental Tucker Lease and that Pike is entitled to recoupment and to have a deduction from the amount of any damages awarded to Spirit in an amount to be proven at trial 35 Spirit maintains thatPikes claims must fail because there are no provisions in the Leases that (1) require Spirit to defer to Pike as to the validity of Pikes purported termination (2) preclude Spirit from noticing lease defaults absent Pikes agreement that such action is justified or (3) that prohibit Spirit from pursuing litigation or (4) that prevent Spirit from exercising remedies prescribed by the Leases

42


The doctrine of setoff permits a defendant to set off its liability to a plaintiff under a contract by amounts owed to the defendant on an entirely different cause of action on which the plaintiff was liable to the defendant Solid Waste Mgmt Auth of Crisp Cnty v Transwaste Servs Inc 543 SE2d 98 99 (Ga Ct App 2000) Recoupment is proper where both parties rely on the same contract and set off [is proper] where they urge different contracts Byrom v Ringe 63 SE2d 235 241 (Ga Ct App 1951) Because Pikes counterclaims rely solely upon the Leases and do not urge different contracts the setoff claim is duplicative and improper

(Br Supp Mot Summ J at 31 n 38) Finally Spirit seeks summary judgment as

to Pikes claim in Count 4 for breach of the covenant of good faith and fair dealing

because a claim for breach of the implied covenant must be accompanied with a

valid breach of contract claim (See Doc 31 at 9 Order on Mot Dismiss)

Pike responds that there are substantial issues of material fact that

preclude judgment on its counterclaims including (1) whether Pike breached the

Lease Agreements and (2) whether Pike properly terminated the Lease

Agreements Having found that Pike did in fact breach the Lease Agreements

and did not properly terminate the Lease on the Tucker Property the Court

therefore finds that no genuine issues of material fact exist that preclude

summary judgment in Spirits favor as to each of Pikes counterclaims

43


B Pikes Motion for Summary Judgment36

1 The Accelerated Rent Provision in the Lease Agreements is not Unenforceable as a Matter ofLaw

In the event of default both the Master and Wholesale leases (Leases)

provide Plaintiff with a range of damages that it can exercise alone or in

combination with one another (sect 20B) Inter alia Plaintiff may (1) reenter and

take possession of the Properties to the extent not prohibited by law (2) relet

the Properties but to the extent required by applicable Law Lessor shall have no

obligation to relet the Properties and (3) to accelerate and recover from Lessee

all Rental and other Monetary Obligations due and owing and scheduled to

become due and owing under this Lease (See id sect 2oBCii) (iv) (v))

Defendants argue that the accelerated rent provision in sect 2oB(v) is an

unenforceable liquidated damages clause (Br SUpp Mot Sum J Doc 171-1 at

15-21) Plaintiff responds that lease acceleration provisions are enforceable so

long as they are explicit and unequivocally express the parties intent (PI Mot

Opp Doc 223 at 14) Plaintiff also argues as sect 20B expressly set forth an

accelerated rent provision and Defendants and Plaintiff agreed actual damages

would be difficult or impossible to ascertain the provision is generally

enforceable (Doc 223 at 14-15)

In Georgia an enforceable liquidated damages provision must meet three

requirements (1) damages must be difficult to calculate (2) parties must intend

36 Having found above that Pike did not properly terminate the lease on the Tucker Property the Court DENIES Pikes Motion for Summary Judgment as to this portion of Plaintiffs breach of contract claim

44


to provide for damages rather than a penalty and (3) the provision must be a

reasonable estimate of the probable 10ss37 Southeastern Land Fund Inc v Real

Estate World Inc 227 SE2d 340 343 (Ga 1976) Defendants do not challenge

the compensatory intentions behind the provision and Plaintiff contends the

Leases meet this requirement (See Doc 171-1 at 15-21 Doc 223 at 18 amp n22

Reply Supp Mot Sum J Doc 234 at 13) The remaining issues before the court

are whether damages were difficult to calculate and whether the provision

provides a reasonable estimate of Plaintiffs probable loss

a Difficulty Calculating Damages

Defendants first contend the accelerated rent provision (ARP) IS

unenforceable because Plaintiffs damages are not difficult or impossible to

calculate (Doc 171-1 at 16) Defendants argue two facts in the present case

evidence Plaintiffs ability to accurately calculate its damages (1) the common

law method of calculating damages for breach of a lease is strikingly similar to

the ARP in the disputed contract and (2) Plaintiff proffered an expert Dr

Carson who testified he accurately calculated Sprits anticipated damages38 (ld

37 See also OCGA sect 13-6-7 (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) Natl Emergency Servs Inc v Wetherby 456 SE2d 639 641 (Ga Ct App 1995) (holding liquidated damages provisions should not be subject to stringent scrutiny) 38 Defendants contention that because Plaintiff has presented an expert witness to calculate reasonable discount and future rental rates (the necessary components to find total losses) damages are per se not difficult to calculate But see Joyces Submarine Sandwiches Inc v California Public Employees Retirement System 395 SE 2d 257 259-260 (Ga Ct App 1990) ( It is clear that the actual amount of total percentage rent lost could only be proved with great difficulty if at all through the testimony of economists accountants or other expert witnesses and that percentage rent lost would be difficult to prove since the loss might represent a

45


at 17-18) In response Plaintiff points out that the parties agreed in writing that

damages would be difficult to calculate (Doc 223 at 14)

Defendants assertion that the damages for breach of the Lease Agreements

is not difficult to calculate because the accelerated rent formula is strikingly

similar to the remedy available at common law39 is unsupported by any legal

authority To the contrary Plaintiff asserts [t]he fact that the law provides a

measure of damages for such a breach does not mean that the damages are not

difficult or even impossible to estimate with any accuracy Big Lots Stores Inc

v Gray Highway Partners LLC No Civ A 505-cV-147CAR 2006 WL 692347

at 2 (MD Ga Mar 15 2006) (finding liquidated damages provision for

competing business restriction satisfied first prong of enforceability test despite

existence of common law measure of damages where parties would have to

consider complex factors including accessibility traffic patterns growth

forecasts aesthetic appeal and prestige to determine property value)

Accordingly this argument is unavailing

Plaintiff further counters that Georgia courts routinely find commercial

lease damages inherently difficult to calculate (Doc 223 at 16) Cherry

Farms LLC v Saulat Enters Inc No 409cV043 2009 WL 2848855 at 2-4

diminished increase rather than an overall or individual loss Therefore [] the injury to the percentage profits of the other tenants caused by Joyces not operating and the resulting loss to the retirement system would be difficult or impossible to estimate accurately) 39 (Doc 1-1 at 22 sect 2oB(v) Doc 1-2 at 18 sect 2oB(v)) (calculating damages due under sect 2oB(v) as the present value of all outstanding rent less the present value of the fair market rental rate) Peterson v Pe Towers LP 426 SE2d 243 246-47 (Ga Ct App 1992) (finding where a liquidated damages provision is unenforceable the correct measure of damages is the future rent due less the fair rental value of the premises over the remainder of the lease)


(SD Ga Sept 2 2009) (damages difficult to calculate for commercial lease with

ten years remaining) Nobles v Jiffy Mkt Food Store Corp 579 SE2d 6365-66

(Ga Ct App 2003) (finding common law method of calculating damages in a

breach of lease generally difficult to calculate) Peterson 426 SE2d at 246

(determining future market conditions for the remaining year-and-a-halfterm on

lease sufficiently difficult to calculate)

The Georgia Court of Appeals explained

Although the amount of damage for a breach of the lease is easily stated in theory a concrete estimation of damage is not always easily made when the action seeks to collect immediate lump sum damages in the form of accelerated rent on a lease breached with a substantial amount of time remaining in the term In [that] case determining the fair market value of the balance of the lease term may require a difficult assessment of future market conditions

Peterson 426 SE2d at 246

Defendants rely on a breach of contract decision voiding a liquidated

damages clause that imposed a $2 per inch diameter fee for timber unnecessarily

cut or destroyed Thorne v Lee Timber Products Inc 279 SE2d 521 (Ga Ct

App 1981) The court reasoned the clause was unenforceable as the parties were

able to accurately distinguish merchantable timber from nonmerchantable to

assess their actual loss through a procedure precisely designed for such a

valuation Id at 523 However as Plaintiff correctly highlights (Doc 223 at 17)

the court cautioned [i]t is important to distinguish damages which are difficult

to accurately determine in monetary terms from those damages which can be

accurately established albeit via a complicated procedure Id The Court finds

47


that the facts of the present case are easily distinguished from Thorne40 Instead

of a tangible fungible good whose value can be assessed at a fixed point in time

the instant case involves a lease for real property in six different locations over

the course of thirteen years requiring a significantly different analysis Here

both the common law and the contract require the estimate of damages to be the

future rent due less the fair rental value of the premises over the remainder of the

lease41 Georgia law recognizes that estimating future market rental rates

requires analysis of future property values easily subject to fluctuating valuations

resulting from unforeseen and unpredictable factors making it difficult to ascribe

monetary values Peterson 206 Ga App at 593 ([DJetermining the fair market

value of the balance of the lease may require a difficult assessment of future

market conditions to calculate the future rental value of the premises and the

probability of reletting for the full remaining term) see also Nobles 579 SE2d

at 65 (finding difference in rent due and fair market rental value per se difficult to

calculate)42 Accenting the difficult calculus in the present case Defendants

40 Defendants also rely on Summerhill Neighborhood Dev Corp v Telerent Leasing Corp 528 SE2d 889 (Ga Ct App 2000) However the contract in that case was for a lease of goods and the court made its ruling based on Georgias version of the UCC 41 Both Plaintiff and Defendants correctly note Georgia law requires courts in assessing the difficulty in calculating damages to look at how difficult it was to calculate damages at the time the contract was entered into Adams v D amp D Leasing Co ofGa Inc 381 SE2d 94 96 (Ga Ct App 1989) ([I]f a liquidated damages provision is enforceable at the time of original entry into the underlying contract it is not thereafter rendered unenforceable by the passage of an arbitrary period of time) 42 Dispositive in Peterson was that the lease had a year-and-a-half remaining on the term Id Under Adams however it seems courts should focus on the length of the lease itself rather than the length of time remaining on the lease See Adams 381 SE2d at 96 ([I]f a liquidated damages provision is enforceable at the time of original entry into the underlying contract it is not thereafter rendered unenforceable by the passage of an arbitrary period of time) see also Cherry Farms LLC 2009 WL 2848855 at 2-4 (length of time remaining on lease is a


concede the parties dispute the value of both the reasonable discount rate and

the process by which future rental rates should be calculated (Doc 171-1 at 18

ns) see also Liberty Life Ins Co v Thomas B Hartley Constr Co Inc 2S8

Ga 808 (1989) (finding damages difficult to calculate where determining market

value would be subject to varying expert opinions)43

b Reasonable Pre-Estimate ofProbable Loss

Defendants further argue the liquidated damages clause is unenforceable

because it does not reasonably estimate Plaintiffs probable loss Rather

Defendants contend that sect 20(B) is manifestly unreasonable and oppressive

because it will give Plaintiff accelerated rent (sect 20B(v)) and possession of the

premises without a requirement to relet (sect 20BCii) Civ)) (ld at 19-21)

In response Plaintiff asserts that Defendants admission that the

acceleration provision is strikingly similar to the remedy at common law

demonstrates the provision is a reasonable estimate of its probable loss (Doc

223 at 18) Additionally sect 20B is not manifestly unreasonable because in

addition to an award of accelerated rent and possession of the premises it

deducts the future market rent for the remainder of the lease from total damages

and reduces the accelerated rent to present value complying with Georgia

enforceability requirements (Id at 19-20)

major indicator an injury will be difficult to estimate) In the instant case the Master and Wholesale leases had initial terms of thirteen and five years respectively (Doc 1-1 at 1 sect 3 Doc 1-2 at 1-2 sect 3) Defendants terminated the lease in late 2011 leaving approximately ten and two years remaining on the Leases (Doc 171-1 at 5-7) Using either method to measure difficulty the length of the Leases in this case exceeds both as an indicator of difficult damages 43 In their reply Defendants all but abandon this argument (Doc 234 at 13)

49


The parties to a lease agreement may contract in advance to hold the

lessee liable for rent even after an eviction deducting therefrom only the

amounts recovered by the lessor from reletting the premises Peterson 426 SE

2d at 245 (citing Bentley-Kessinger v Jones 367 SE2d 317 (Ga Ct App 1988)

and Hardin v Macon Mall 315 SE2d 4 (Ga Ct App 1984)) Where an

acceleration provision allows the landlord to retake possession it is enforceable

when the damages calculation gives [the tenant] credit for the future value of

the premises as required under Georgia law Cherry Farms 2009 WL

2848855 at 1 3-4 (finding similar provision valid) see also Peterson 426 SE

2d at 246 (noting that where a landlord has the authority to both retake

possession of a property and collect a present lump sum award of future rent like

sect 20(b) of the Master Lease the accelerated provision is enforceable if it

considers both the future rental value of the premises and the likelihood of

reletting)

The provision at issue here accounts for the future rental value of the

premises (See sect 20B(v) (Plaintiff may recover the present value of the total

Rental other Monetary Obligations and other benefits which would have

accrued under this Lease [that] exceeds the present value of the rent

and other benefits that would accrue to Lessor at the fair market rental rate for

the balance of the Term)) Such a provision eliminates the need for any

predictions on reletting by simply assuming that the premises will be rented

out at fair market value See Cherry Farms LLC 2009 WL 2848855 at 4 see

50


also Peterson 206 Ga App at 593 Cf Nobles v Jiffy Mkt Food Store Corp 579

SE2d at 66-67 (holding accelerated rent provision unenforceable as it failed to

calculate damages based on the future rental value of the premises and the

likelihood of reletting)

The Court finds sufficient evidence in the record to conclude that the

accelerated rent provision is an enforceable liquidated damages provision

Accordingly the Court DENIES Defendants Motion for Summary judgment on

this ground

2 Count II Spirits Claim for Breach ofthe Implied Covenant ofGood Faith and Fair Dealing

Contrary to Pikes argument on summary judgment Plaintiff has

sufficiently pled its claim for breach of the implied duty of good faith and fair

dealing in Count II as previously held by this Court on Pikes Motion to Dismiss

(See Doc 31 at 6-10) Therefore Pikes argument which would require Plaintiff

to show an independent duty and injury outside of the contract to state a claim

for breach of an implied covenant is misplaced (Doc 171-1 at 21-25) To

support this assertion Pike wrongly relies on case law setting forth these

requirements as necessary to establish ex delicto claims See Brock Built LLC v

Blake 686 SE2d 425 432 (Ga Ct App 2009) ServiceMaster Co LP v

Martin 556 SE2d 517 522 (Ga Ct App 2001) Where however the breach

complained of is simply the neglect of a duty such as is expressly [or impliedly]

provided by the contract itself the action will be construed and treated as one

51


brought ex contractu Dept of Transp v APAC-Georgia Inc 456 SE2d 668

671 (Ga Ct App 1995) (emphasis added) (internal quotations and citations

omitted) see also Clark v Aarons Inc 914 F Supp 2d 1301 1308 (ND Ga

2012) ([TJhe implied covenant of good faith and fair dealing is a doctrine that

modifies the meaning of all explicit terms in a contract preventing a breach of

those explicit terms de facto when performance is maintained de jure (quoting

Alans ofAtlanta Inc v Minolta Corp 903 F2d 1414 1429 (11th Cir 1990)))

Having found Pike breached its obligations under the express contract

provisions Spirits claim in Count II is DISMISSED AS MOOT

IV CONCLUSION

For the foregoing reasons the Court GRANTS IN PART and DENIES

IN PART Spirits Motion for Summary Judgment and DENIES Pikes Motion

for Summary Judgment as set forth herein

IT IS SO ORDERED this 31st day of March 2014

~e~~=United States District Judge

52


made a calculated risk and took a bite out of the poisonous apple that was to be

the Tucker Property Pike subsequently realized it had perhaps bitten off more

than it could chew Giving way to temptation Pike eventually attempted to

disrobe itself of certain obligations under the lease In turn feeling exposed and

misled by Pikes actions Spirit brought the instant suit

I STANDARD FOR CROSS-MOTIONS FOR SUMMARY JUDGMENT

Summary judgment may only be granted when 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 summary judgment as a matter of law FED R CN P

56(c) The purpose of summary judgment is to pierce the pleadings and to

assess the proof in order to see whether there is a genuine need for triaL

Matsushita Elec Indus Co Ltd v Zenith Radio Corp 475 US 574 587 (1986)

(quoting the Advisory Committees note to FED R CIV P 56) [The] party

seeking summary judgment always bears the initial responsibility of informing

the district court of the basis for its motion and identifying those portions of the

[record before the court] which it believes demonstrate the absence of a genuine

issue of material fact Celotex Corp v Catrett 477 US 317 323 (1986) The

burden then shifts to the non-movant to establish by going beyond the pleadings

that there is indeed a genuine issue as to the material facts its case Thompson v

Metro Multi-List Inc 934 F2d 1566 1583 n16 (11th Cir 1991) Chanel Inc v

2
























3











facts Id at 1555-56










Spirit



4








Wholesale Buildings
















5






















6


















7






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52
























3











facts Id at 1555-56










Spirit



4








Wholesale Buildings
















5






















6


















7






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52











facts Id at 1555-56










Spirit



4








Wholesale Buildings
















5






















6


















7






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52








Wholesale Buildings
















5






















6


















7






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52






















6


















7






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52


















7






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52






(ld sect 7)











8














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52














dispute




9









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52









10










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52










11

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52

















Master Lease




12




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52




















13





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52





leases







III DISCUSSION










14


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52


















15













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52













16


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52


















17





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52





















18























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52























19
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52
























20







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52







Id







21























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52























22

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52

















2008 (Id at 100-101)







23






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52






















24
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52
























25
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52
























26






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52






















27
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52
























28























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52























(Ex 90)

29





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52





















yet occurred



30









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52









Dep at 31-32)









Spirit



31










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52










set (Ex 99)26





32


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52


















requiring that



33











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52











Pike asserts that









34























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52























35
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52
















Leases















Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52









Dear Mr Kunce






37












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52












here




























39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52


















39























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52























40




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52




















41




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52




















42














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52














43























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52























44



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52



















45









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52









































47







































49















reletting)









50









this ground














51











IV CONCLUSION






52







































49















reletting)









50









this ground














51











IV CONCLUSION






52















reletting)









50









this ground














51











IV CONCLUSION






52









this ground














51











IV CONCLUSION






52











IV CONCLUSION






52


spirt v pike - msj order - april 2, 2014

Documents