K.C. Air Cargo Services, Inc. v. City of Kansas City

523 S.W.3d 1, 2017 WL 892548, 2017 Mo. App. LEXIS 119
CourtMissouri Court of Appeals
DecidedMarch 7, 2017
DocketWD 79786
StatusPublished
Cited by11 cases

This text of 523 S.W.3d 1 (K.C. Air Cargo Services, Inc. v. City of Kansas City) is published on Counsel Stack Legal Research, covering Missouri Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
K.C. Air Cargo Services, Inc. v. City of Kansas City, 523 S.W.3d 1, 2017 WL 892548, 2017 Mo. App. LEXIS 119 (Mo. Ct. App. 2017).

Opinion

James Edward Welsh, Presiding Judge

The City of Kansas City, Missouri, appeals the circuit court’s - grant of summary judgment in favor of K.C. Air Cargo Services, Inc. (KCACS) and the denial of the City’s cross-motion for summary judgment in a declaratory judgment action concerning'the meaning and validity of a clause in a lease agreement between the parties for land at Kansas' City International Airport. The circuit court granted KCACS’s motion for summary judgment, declaring that the clause in question gave KCACS the unqualified right to renew the lease at its election under all circumstances in perpetuity and that the clause created a definite and enforceable mechanism for determining the rental .rate of the renewal. The circuit court also awarded KCACS attor[3]*3neys’ fees based upon its finding of special circumstances.

The City asserts four points on appeal. First, it contends that the circuit court erred in declaring the. lease clause to be a valid and enforceable option to renew because the clause is void ab initio as beyond the scope of authority of the City. Second, even if the clause in the lease is a valid, option, the City claims that the circuit court erred as a matter of-law in declaring that the lease gave KCACS a perpetual option to renew the lease. Third,, the City asserts that the circuit court erroneously declared and misapplied the-law in awarding attorneys’, fees to KCACS. Fourth, the City contends that, the circuit court erred in denying the City’s cross-motion for, summary judgment because the clause in the lease was not an option to renew but was a right of first refusal. We affirm in part and reverse and .remand in part.

When considering appeals from summary judgments, we view the record in the light most favorable to the party against whom judgment was entered, and we afford that party the benefit of all reasonable inferences. ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). The record established that KCACS is a Missouri corporation and that the City is a municipal corporation. KCACS and - the City are parties to a lease for a tract of real property owned by the City and located at the Kansas City International Airport.1 The original lease was entered into on June 18, 1986, but has been amended four times: First Amendment dated September 15, 1987; Second Amendment dated December 28, 1987; Third Amendment dated December 16, 1994; and Fourth Amendment dated January 1, 2015. The lease permitted KCACS to use the leased premises to construct air cargo facilities, including a building and aircraft apron. According to the lease, KCACS .desired to lease the land to construct “certain buildings, facilities and improvements described as the Air Cargo Terminal” “for use by others,”

As a tenant, KCACS constructed substantial improvements on the property, including a single-story shipping warehouse approximately 70,000 square feet in size and an abutting air cargo apron approximately 500,000 square feet in size.2 KCACS acts a sub-landlord on the lease hold, renting warehouse space to subtenants.

As set forth in the First Amendment to the lease, the base term of the lease is for 30 years. The lease provides: “The Lease Term shall commence on October 1, 1987 .., and shall run for a period of thirty (30) years.” The lease also provides this clause, which is at issue in this case:. “At the end of the Lease Term, Lessee shall be given the opportunity to lease the Premises at the then.fair market rental rate or the rental rate which has been offered to the City by another party, whichever is higher.”

On July 17, 2013, KCACS filed a lawsuit against the City alleging that the City was liable for certain physical-damage to the leasehold premises caused by subsurface water migration from City property. KC. Air Cargo Services, Inc. v. City of Kansas City, Missouri, Case No 1316-CV17929 (Jackson Cty. Cir. Ct.). In this litigation, KCACS claimed that the physical damage to the premises had deprivéd it of profit-[4]*4generating opportunities by preventing it from attracting or keeping certain subtenants, and KCACS sought lost profits extending past the expiration of the lease on September 30, 2017. The City filed a motion in limine asking the Court to exclude damages for lost profits allegedly suffered after the expiration of the base term of the lease. The City claimed that the alleged renewal clause in the lease was unenforceable and was “a void lease provision.” In overruling the City’s motion in limine, the circuit court stated that the renewal clause was “sufficiently detailed ,.. enough that it would be enforceable for a period of 10 years,” “so the motion in limine to eliminate that 10-year extension in a damage calculation is overruled[.]” The lawsuit was eventually settled and in connection therewith the Fourth Amendment to the lease was signed by the parties.

Following the settlement of the lawsuit, an article appeared in the Missouri Lawyers Weekly on March 26, 2015, concerning the settlement of the litigation. The article attributed the following statements to Assistant City Attorney Chad Stewart, an attorney for the City in the litigation:

The city doesn’t know if KCACS will be able to renew its lease, even if it wanted to. The city has a good relationship with the company, Stewart said, but that may not be a factor. If the city cut out the middle-man and rented the property directly, instead of the ground lease to KCACS, the city could make back the cost of the settlement in three to four years, according to Stewart.
“[The City] can’t just go out and spend $1.75 million and not make it back,” he said.

Allyssa D. Dudley, City settles with cargo company over water leak, Missouri Lawyers Weekly, March 26, 2015.3

Thereafter, on April 21, 2015, counsel for KCACS sent a letter to the City seeking confirmation that the City would honor the renewal option under the lease. On April 22, 2015, counsel for the City responded by e-mail stating that, since the lease was not ending until 2017, the City had not “made any final business decision” whether it would allow KCACS to renew the lease. The e-mail stated “I am sure someone from the Aviation Department staff will let your client know within a reasonable time prior to the end of the Lease what the City intends to do.”

Shortly after receiving the City’s e-mail, KCACS file its declaratory judgment action with the circuit court requesting a declaration regarding the construction and enforceability of the lease and the renewal option clause. KCACS also claimed that the City’s email response to its inquiry seeking confirmation that the City would honor the renewal option under the lease was inconsistent with the circuit court’s order in the prior lawsuit, which gave KCACS the option to extend the term of the lease. In response, the City filed an answer and an amended answer claiming that the clause was a right of first refusal and that, if the clause were an option to renew, it was void because it violated a 50 year lease term limitation set forth in section 82 of the City’s Charter.

KCACS filed a motion for summary judgment and suggestions on September 11, 2015. KCACS attached to its motion for summary judgment the affidavit of Myron Haith, KCACS President.

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523 S.W.3d 1, 2017 WL 892548, 2017 Mo. App. LEXIS 119, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kc-air-cargo-services-inc-v-city-of-kansas-city-moctapp-2017.