HDRE Business Partners Ltd. Group, L.L.C. v. Rare Hospitality International, Inc.

484 F. App'x 875

Opinions

PER CURIAM:

Footnotes

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The main issue in this appeal is whether an assignment of a purchase agreement was intended to novate a lease agreement. The district court held that the parties’ intent to novate the lease was clear from the assignment, and it granted summary-judgment to the Defendant-Appellee RARE Hospitality International (“RARE”). Plaintiff-Appellant HDRE Business Partners Limited Group, L.L.C. (“HDRE”) appeals. Reviewing the district court’s judgment de novo, Langhoff Props., LLC v. BP Prods. N. Am., Inc., 519 F.3d 256, 260 (5th Cir.2008), we conclude that the parties’ intent presents a fact issue, and we therefore REVERSE the district court’s judgment.

In February 2008, HDRE and RARE executed a lease agreement whereby HDRE agreed to lease to RARE commercial property that it did not yet own so that RARE could operate a restaurant on the property. This arrangement was permissible under Louisiana law. The lease contained a feasibility period that afforded RARE sixty days to walk away from the agreement if it determined that the property was not suitable for its purposes. The lease also provided that HDRE would acquire title to the property within thirty days of RARE obtaining necessary building permits. HDRE separately entered into a purchase agreement with Stirling Bossier, L.L.C. (“Stirling”) to buy the property that was the subject of the lease agreement. Both the feasibility period of the lease and the closing date of the purchase agreement were extended several times as the parties’ engaged in negotiations.

On May 5, 2008, before the feasibility period was set to expire on May 9, RARE notified HDRE’s principal Wesley Dingier that it would prefer to buy the Stirling property rather than lease it. RARE asked if HDRE would assign HDRE’s right to purchase the property to RARE, but RARE did not expressly exercise its right to terminate the lease agreement. HDRE agreed to the assignment request, and on May 16, 2008, HDRE, RARE, and Stirling executed an assignment agreement giving RARE the right to buy the property. The assignment provided that if RARE closed on the transaction and acquired the property, it would pay HDRE a fee of $210,000, which represented compensation for the assignment and reimbursement of certain deposits and expenses. Similar to the original lease agreement, the assignment also allowed RARE to terminate the agreement if it did not obtain internal corporate approval for the purchase within a specified time.

When RARE did not obtain corporate approval, it notified HDRE and Stirling on May 28, 2008, that it would not be going forward with the purchase. HDRE then sought enforcement of the original lease agreement and instituted this action for breach of contract after RARE claimed that the lease had been novated. The district court granted RARE summary judgment, holding that the assignment was a novation of the lease. HDRE now appeals.

A novation is “the extinguishment of an existing obligation by the substitution of a new one.” La. Civ.Code Ann. art. 1879. “The most important factor in determining whether a novation has been effected is the intent of the parties.” Scott v. Bank of Coushatta, 512 So.2d 356, 360 (La.1987). “[A] novation may occur where the intent of the parties, the character of the transaction, the facts and circumstances surrounding the transaction and the terms of the agreement reveal a desire to effect a novation.” Id. The parties’ intent to extinguish an existing obligation “must be clear and unequivocal. Novation may not be presumed.” La. Civ.Code Ann. art. 1880. Therefore, the burden of proving a novation is borne by the party asserting it. Scott, 512 So.2d at 360 (citing Placid Oil Co. v. Taylor, 325 So.2d 313 (La.Ct.App.1975)).

In this ease, HDRE argues that the district court erroneously granted summary judgment and ignored its evidence that it did not intend for the assignment to novate the lease agreement. RARE argues in response, and the district court held in part, that the assignment was a novation because it could not coexist simultaneously with the lease agreement. The district court believed that the intent to novate was clear from a “four-corners” analysis of the documents, and that once HDRE assigned its right to buy the Stirling property it could not also be a party to the lease insofar as the lease required HDRE to have good title to the property. We disagree with the district court’s analysis.

As an initial matter, the assignment agreement does not address the issue of novating the lease agreement, and other evidence in the record controverts a finding of novation. Specifically, deposition testimony from both Wesley Dingier and HDRE’s attorney, Cody Cowan, disputed that HDRE intended to substitute the assignment agreement for the lease agreement. They explained that HDRE agreed to assign its right to purchase the property because RARE agreed to pay an assignment fee if the transaction was complete, but that HDRE also believed that if the transaction did not go through, the original lease would act as a “safety net” for HDRE. In other words, HDRE had conditional protection for the assignment. If RARE purchased the property, HDRE would receive the assignment fee, thereby obtaining a profit and reimbursement of costs; but if RARE did not purchase the property, HDRE could fall back on the original lease for compensation because RARE had never exercised its right to terminate the lease under the feasibility provision.

The district court believed that HDRE was already on notice that RARE had changed its mind about leasing the property, but the record shows only that RARE notified HDRE that it preferred ownership of the property over the original lease agreement. As noted above, the evidence does not show an unequivocal termination of the lease agreement by RARE, and Dingier testified that RARE never advised him that it wanted to terminate the lease. The district court disregarded the depositions of Dingier and Cowan as “self-serving,” but their testimony about HDRE’s intent provided an explanation for how the lease and assignment could simultaneously coexist, and it contradicted RARE’s position on novation. Thus, the testimony about intent presented a fact issue.

Furthermore, we do not believe that the character of the transaction here made it “inconceivable” that the parties intended for the lease agreement to survive the assignment. See Placid, Oil, 325 So.2d at 317 (finding a novation where it was inconceivable under the facts of that case for the parties to have intended for an earlier obligation to continue without mentioning that fact). Initially, HDRE had proposed that RARE pay $210,000 immediately upon HDRE’s execution of the assignment. Under that arrangement, the fee would have covered HDRE’s non-refundable purchase deposit that had been paid to Stirling. But in subsequent negotiations, HDRE agreed to condition the fee on RARE’s completing the purchase. Because this conditioning of the assignment fee risked loss of HDRE’s purchase deposit if RARE did not complete the purchase, it is consistent with Dingier and Cowan’s testimony that HDRE believed that the lease agreement remained as a viable alternative to recover its costs. Moreover, it is also plausible that RARE desired to leave the lease agreement in place as a hedge in case its efforts to purchase the property were unsuccessful. That would explain why RARE never terminated the lease during the feasibility period.¹ We conclude that an intent to novate is therefore not clear and unequivocal here. See La. Civ.Code Ann. art. 1880.

The district court was also incorrect in holding that the lease required HDRE to have good title to the property. Under Louisiana law, “[a] lease of a thing that does not belong to the lessor may nevertheless be binding on the parties.” La. Civ.Code Ann. art. 2674. The lease specifically contemplated that at the time of execution HDRE did not have title to the property and that HDRE would have a defined period in which to obtain title.

Similarly, the district court incorrectly determined, as an alternative to its holding on novation, that the purchase assignment made it impossible for HDRE to perform its obligation under the lease. The Louisiana doctrine of impossibility will not extinguish an obligation unless performance under the contract is absolutely incapable of occurring. See Payne v. Hurwitz, 978 So.2d 1000, 1005 (La.Ct.App.2008). The assignment agreement may have reduced the possibility of HDRE’s performance but it did not render HDRE absolutely incapable of acquiring the property for purposes of the lease after RARE declined to continue with the purchase.² See id. (“[T]he mere fact that such performance has been made more difficult or more burdensome by a fortuitous event” does not relieve an obligor of the duty to perform.).

As alternative bases for affirming the district court, RARE raises two issues. First, it argues that the lease agreement should be considered extinguished by the doctrine of confusion, pursuant to which a lease will cease to operate “when the lessor’s interest and the lessee’s interest are consolidated in the same person.” In re Dibert, Bancroft & Ross Co., 117 F.3d 160, 171-72 (5th Cir.1997); see also La. Civ. Code Ann. art. 1903. “For confusion to occur the same person must acquire the full and perfect ownership of both sides of the obligation by a conveyance which is translative of title.” Langley v. Police Jury of Calcasieu Parish, 201 So.2d 300, 305 (La.Ct.App.1967) (internal quotation marks omitted). RARE never purchased the Stirling property and therefore never assumed the qualities of both lessor and lessee.

Second, RARE argues that it may not be held liable for breach of contract because HDRE itself breached the lease agreement by failing to obtain a surety bond. See La. Civ.Code Ann. art. 2013 (“When the obligor fails to perform, the obligee has a right to the judicial dissolution of the contract or, according to the circumstances, to regard the contract as dissolved.”). We are unpersuaded, however, because the terms of the lease specifically required that RARE give HDRE written notice of any breach and thirty days in which to cure a default before allowing RARE the option of declaring the lease terminated. Although RARE contends that HDRE was aware of the breach of the surety clause, it does not point to sufficient evidence of written notice and declaration that the lease was terminated for reason of the breach. Therefore, summary judgment is not appropriate on this basis.

This case presents an unusual set of circumstances among these commercial parties but we conclude that competing evidence as to the intended effect of the assignment on the lease agreement, as well as a reasonable explanation for the coexistence of those two obligations, created a fact issue as to the parties’ intent. It was error for the district court to disregard Dingler’s and Cowan’s testimony at the summary judgment stage when all inferences are to be resolved in favor of HDRE. The district court’s judgment is therefore reversed and the cause remanded for further proceedings.

REVERSED and REMANDED.

Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th Cir. R. 47.5.4.

1

. We acknowledge that HDRE would have lost its purchase deposit under the lease agreement had RARE exercised its right to terminate the agreement during the feasibility period. That possibility may bear on the credibility of HDRE’s explanation for entering into the assignment, but it does not remove the fact issue to be decided by the factfinder.

2

. The district court also held in the alternative that because a separate legal entity known as HDRE Business Partners Limited had actually entered into the purchase agreement with Stirling, and that entity never transferred its rights to the plaintiff — i.e., the HDRE limited liability company — HDRE never held a right to lease the property, and RARE could not have breached the lease agreement. The parties agreed in the district court, however, that the name of the entity on the purchase agreement had been a mistake and should have had no effect on the litigation. In fact, at all times, every interested party in the property, including Stirling as the seller, treated HDRE as the real party in interest despite the name on the purchase agreement. Stirling’s acceptance of HDRE as the real purchaser is evident because its grant of extensions on the purchase agreement, and the assignment agreement, all named HDRE as the party at issue. In light of these circumstances, we conclude that the incorrect name on the purchase agreement is not outcome determinative. Cf. Reynaud v. Bullock, 195 La. 86, 196 So. 29, 34 (1940) (holding that contracts may be reformed when a mutual mistake or error fails to account for the parties' true intent).