Martha Gabriela, LLC, a Delaware limited liability company v. Barranca, LLC, Green Mill Restaurants, LLC

• Court: Court of Appeals of Minnesota
• Decided: July 14, 2014
• Docket: A13-2297
• Status: Unpublished

Opinion

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2012).

STATE OF MINNESOTA IN COURT OF APPEALS A13-2297

Martha Gabriela, LLC, a Delaware limited liability company, Appellant,

vs.

Barranca, LLC, et al., Defendants,

Green Mill Restaurants, LLC, Respondent.

Filed July 14, 2014 Affirmed Connolly, Judge

Anoka County District Court File No. 02-CV-12-7052

Thomas F. DeVincke, Michael A. Putnam, Malkerson Gunn Martin LLP, Minneapolis, Minnesota (for appellant)

Gerald H. Fornwald, Winthrop & Weinstine, P.A., Minneapolis, Minnesota (for respondent)

Considered and decided by Schellhas, Presiding Judge; Peterson, Judge; and

Connolly, Judge. UNPUBLISHED OPINION

CONNOLLY, Judge

On appeal from the district court’s order granting summary judgment in favor of

respondent Green Mill Restaurants LLC, appellant argues that (1) it should have been

awarded summary judgment on its breach-of-contract claim against respondent-guarantor

and (2) the record does not show the existence of a fact question regarding the

reasonableness of appellant’s re-letting of the leased premises. We affirm.

FACTS

Appellant Martha Gabriela LLC owns commercial real estate. On February 12,

1999, appellant’s predecessor-in-interest entered into a lease agreement with Barranca

LLC (Barranca) for restaurant space located in the Shoppes at Riverdale Commons in

Coon Rapids. The lease term extended through 2014. After entering the lease, Barranca,

a Green Mill franchisee, began operating a Green Mill restaurant in the leased premises.

On June 1, 2011, appellant and Barranca entered into a second amendment to the

lease agreement (the second amendment). The second amendment’s term began on

June 1, 2011 and ended on May 31, 2021. By executing the second amendment, the

parties agreed to forgive certain late rent payments and to revise the term and rent rates in

the lease. Under the lease and second amendment, Barranca was obligated to pay

appellant $9,277.75 for rent on the first of each month in addition to its proportionate

share of property taxes, assessments, and maintenance costs.

The lease provides that “any failure by Tenant to pay Rent or make any other

payment required to be made by Tenant hereunder within five (5) days from the date such

2 payment is due” is a material default and breach of the lease. It also provides that

appellant can waive a default without losing the ability to declare a subsequent default:

The failure of either Landlord or Tenant to insist upon strict performance by the other of any of the covenants, conditions, and agreements of this Lease shall not be deemed a waiver of any subsequent breach or default in any of the covenants, conditions and agreements of this Lease.

As consideration for the second amendment, Barranca’s principals, Daniel Hunt

(Hunt) and Franklin Kuhar (Kuhar), provided a personal guaranty equal to 24 months of

rent, or $339,000. On June 14, Green Mill provided appellant with a corporate guaranty

providing for the payment of 12 months of rent, or $169,500. Under the corporate

guaranty, Green Mill’s maximum liability reduced with each monthly rent payment made

by Barranca.

In June, July, and August of 2011, appellant credited Barranca’s rent because

Barranca was remodeling the leased space at its own expense. Barranca remained liable

for its share of property taxes, assessments, and maintenance costs, but failed to make

those payments. Barranca’s obligation to pay full rent under the second amendment

began in September 2011. On September 1, appellant granted Barranca a $5,000 rent

credit to account for delays in the construction and build-out process. Barranca paid

4,277.75 in September 2011,1 full rent from October 2011 to May 2012, and partial rent

in June 2012. Most of these payments were made after the fifth of the month, but

appellant accepted them without objection and credited Barranca’s account. Appellant

never assessed Barranca a late fee when it received payment after the fifth of the month.

1 $9,277.75 rent minus the $5,000 rent credit.

3 By July 2012, it became clear that Barranca’s business was failing. On July 27,

Green Mill paid appellant two payments totaling $43,060.60. It informed appellant that it

deemed the payments to be full and final satisfaction of the amounts owed under the

corporate guaranty based on the amount of rent appellant accepted from Barranca.

Appellant responded that Barranca’s prior rent payments did not reduce Green Mill’s

obligations under the corporate guaranty. But appellant provided Green Mill with a

ledger indicating that Barranca’s obligations under the second amendment were current

through August 2012, including Green Mill’s payment of $43,060.60. The ledger

actually showed an overpayment of $5,000, which appellant reimbursed to Green Mill.

On August 29, Barranca stopped conducting business in the leased premises. The

next day, appellant sent Barranca a letter notifying it that ceasing business operations in

the leased premises was a “default under Article 15 of the lease.” Barranca had 30 days

to cure the default or else it would face termination of the lease. On September 6,

appellant sent Green Mill, Hunt, and Kuhar a letter providing notice that Barranca was in

default of its obligations under the lease, by virtue of its failure to pay its share of rent,

property taxes, operating expenses and other charges for the month of September 2012.

The letter did not mention any other payment-related defaults.

On September 7, appellant commenced an eviction action against Barranca. On

November 5, appellant filed this civil action alleging breach of lease by Barranca, breach

of the individual guaranty by Hunt and Kuhar, and breach of the corporate guaranty by

Green Mill. Appellant moved for summary judgment, and respondents filed cross-

motions for summary judgment. The district court denied appellant’s motion and granted

4 Green Mill’s motion for summary judgment. It found that Green Mill did not owe

anything on the corporate guaranty. This appeal follows.

DECISION

A district court shall grant summary judgment “if 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 either party is entitled

to a judgment as a matter of law.” Minn. R. Civ. P. 56.03. “On appeal from summary

judgment, we must review the record to determine whether there is any genuine issue of

material fact and whether the district court erred in its application of the law.” Dahlin v.

Kroening, 796 N.W.2d 503, 504-05 (Minn. 2011).

I.

Appellant first argues that it “is entitled to summary judgment on its breach of

contract claim against Green Mill,” because Barranca defaulted on the lease from June

2011 to September 2011, which fixed Green Mill’s liability to the maximum principal

amount of $169,500. We disagree.

“[A] lease is a form of a contract.” Metro. Airports Comm’n v. Noble, 763

N.W.2d 639, 645 (Minn. 2009). A guaranty is also a contract. Loving & Assocs., Inc. v.

Carothers, 619 N.W.2d 782, 786 (Minn. App. 2000), review denied (Minn. Feb. 13,

2001). “When the language is clear and unambiguous, we enforce the agreement of the

parties as expressed in the language of the contract.” Dykes v. Sukup Mfg. Co., 781

N.W.2d 578, 582 (Minn. 2010). “Unambiguous contract language must be given its plain

and ordinary meaning.” Noble, 763 N.W.2d at 645. “A contract is ambiguous if its

5 language is reasonably susceptible to more than one interpretation.” Id. (quotation

omitted).

“The construction and effect of a contract presents a question of law.” Brookfield

Trade Ctr., Inc. v. Cnty. of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998). Where no

material fact dispute exists, the interpretation of a contract is an appropriate topic for

summary judgment. Id. In considering a motion for summary judgment, courts “read

contract terms in the context of the entire contract and will not construe terms so as to

lead to a harsh and absurd result.” Id.

A. Satisfaction of the corporate guaranty

Based on the plain language of the corporate guaranty, Green Mill guaranteed

payment of $169,500, which is one year of rent owed to appellant under the second

amendment. The Green Mill corporate guaranty provides:

Notwithstanding any other provision of this Guaranty to the contrary, Guarantors, collectively, shall be jointly and severally liable for (i) One Hundred Sixty-nine Thousand Five Hundred and No/100 Dollars ($169,500.00) (the “Maximum Principal”), plus (ii) any and all costs of collection and interest on the sum described in clause (i) at the per annum rate of the lesser of (a) the greater of eight percent (8%) and two percent (2%) in excess of the prime rate as reported in the Wall Street Journal and (b) the maximum rate permitted by law from and after demand in payment by Landlord. Guarantors’ liability hereunder shall reduce over time such that Guarantors’ joint and several liability for the Maximum Principal shall be reduced by one twelfth (1/12th) for each Lease Month of the Renewal Term (as defined in the Amendment) that Tenant has not defaulted under the Lease.

(Emphasis added.) The maximum principal amount owed was therefore reduced with

each of Barranca’s monthly rent payments. The corporate guaranty further states,

6 In the event that Tenant has not defaulted under the Lease by the end of the first Lease Year of the Renewal Term, Guarantors shall have no further liability hereunder.

Appellant argues “the district court incorrectly reasoned that since [appellant]

received $169,500.00 in payments, Green Mill had no further liability.” We disagree.

The lease agreement between appellant and Barranca states that “any failure by Tenant to

pay Rent or make any other payment required to be made by Tenant hereunder within

five (5) days from the date such payment is due” is a material default and breach of the

lease. The district court concluded that Green Mill satisfied all of its obligations under

the guaranty and granted summary judgment in its favor. It found that “Green Mill

guaranteed Barranca’s performance under the Lease up to the maximum amount of

$169,500 . . . . It is undisputed that as of July 27, 2012, [appellant] has accepted more

than $169,500 from Barranca and Green Mill and had not yet declared one default under

the Lease.”

Green Mill’s obligations under the corporate guaranty decrease for every month

that Barranca does not default, or every month Barranca pays rent. Green Mill paid

appellant $43,060.60 on July 27, 2012, and informed appellant that it considered the

payments to be full and final satisfaction of the amounts owed under the corporate

guaranty. At that time, appellant provided a payment ledger indicating that Barranca’s

obligations under the second amendment were current through August 2012 and that

Green Mill had overpaid in the amount of $5,000. After Green Mill requested that this

amount be refunded, appellant acquiesced. This action is contrary to appellant’s

7 argument that Green Mill was jointly and severally liable for the maximum principal

amount of the corporate guaranty at that time.

But appellant argues that Barranca’s rent payments from September 2011 to June

2012 do not reduce Green Mill’s maximum principal obligation under the corporate

guaranty because those payments were made after the fifth of the month, which is a

material breach and default of the lease. We disagree.

“An implied right to cure exists in situations where cure is possible.” DeRosier v.

Util. Sys. of Am., Inc., 780 N.W.2d 1, 6 (Minn. 2010); see also Oak Glen of Edina v.

Brewington, 642 N.W.2d 481 (Minn. App. 2002) (tenant’s 17 late payments did not

constitute a default where the payments were subsequently made because all defaults

were cured). Here, there is no question that Barranca defaulted on several rent payments.

Under the terms of the guaranty, appellant was not required to give notice of that default

to Green Mill. The guaranty states:

In the event of a default by Tenant under this Lease, LL shall endeavor to give to Guarantors written notice of such default, provided that LL’s failure to give such notice to Guarantors shall not result in the release of Guarantors from its obligations hereunder or otherwise affect such default or Guarantors’ obligations hereunder, and shall not result in any liability of LL to Guarantors, provide any defense to Guarantors hereunder or extend any time periods applicable hereunder, but further provided that any cure periods granted to Guarantors hereunder shall not commence to run until LL provides to Guarantors such notice. Guarantors shall have the right to cure any defaults of Tenant until the expiration of any grace or cure periods which may be provided to Tenant to cure such defaults hereunder.

8 Nevertheless, appellant received the full rent amount it was entitled to under the

second amendment; it received $43,060.60 from Green Mill and $140,650.92 from

Barranca. Appellant accepted several late rent payments from Barranca without

objection and appellant’s tenant ledger showed that it never assessed Barranca late fees

when it received payments after the fifth of the month. We conclude that Barranca’s

defaults were subsequently cured when it made late rent payments that were accepted by

appellant. These late payments reduced Green Mill’s maximum obligation under the

corporate guaranty. Consequently, we conclude that the district court did not err by

granting summary judgment to Green Mill based on the language of the guaranty.

B. Waiver

Appellant argues that the “district court also erroneously found that [appellant]

should be estopped from enforcing Green Mill’s guaranty liability arising from

Barranca’s defaults because [appellant] failed to ‘declare’ a default in response to

Barranca’s untimely lease payments.” We disagree.

The district court found that “[b]y silently accepting late payments and failing to

declare a default until September 2012, [appellant] waived its right to declare any

defaults by Barranca prior to September 2012.” “Waiver is a voluntary relinquishment of

a known right.” Pollard v. Southdale Gardens of Edina Condo. Ass’n., Inc., 698 N.W.2d

449, 453 (Minn. App. 2005). “The party alleging waiver must provide evidence that the

party that is alleged to have waived the right possessed both knowledge of the right in

question and the intent to waive that right.” Id.

9 The lease states, “The failure of either Landlord or Tenant to insist upon strict

performance by the other of any of the covenants, conditions, and agreements of this

Lease shall not be deemed a waiver of any subsequent breach or default in any of the

covenants, conditions and agreements of this lease.” (Emphasis added.) This language

indicates that there is an ability to waive certain obligations under the lease; either party

could waive the other party’s default without jeopardizing its ability to declare a

subsequent default.

Appellant accepted Barranca’s rent payments for June 2011 through August 2012

without objection. Even though these payments were late, appellant did not notify

Barranca or Green Mill that it considered these late payments to be a breach of the lease.

It also did not charge Barranca late fees for the late rent payments. Moreover, when

appellant provided Green Mill with a tenant ledger, it showed that Barranca was current

in its obligations under the lease through August 2012. In fact, appellant first provided

written notice that Barranca was in default for failure to pay rent on September 6, 2012.

This notice only identified Barranca’s “failure to pay . . . for the month of September

2012,” as a default under the lease.

But appellant argues that “any defense of waiver is expressly carved out of the

Green Mill Guaranty.” Although appellant is correct that the corporate guaranty provides

that “Guarantors shall not be released by any act or thing which might, but for this

provision of this instrument, be deemed a legal or equitable discharge of a surety, or by

reason of any other waiver, extension, modification, forbearance or delay or other act or

omission by LL,” the issue in this case is not whether any of appellant’s acts constitute a

10 waiver of the guaranty obligations, but rather, whether appellant waived Barranca’s

defaults under the lease, thus reducing Green Mill’s maximum obligation under the

corporate guaranty. For example, the guaranty contains the following language:

No Failure on the part of LL to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by LL of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy and power hereby granted to LL or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by LL at any time and from time to time.

The lease does not contain similar language that limits the tenant’s defense of waiver.

Had the lease contained such language, appellant’s argument would be more persuasive.

By accepting Barranca’s late payments without objecting or declaring a breach,

appellant waived its right to declare those payments in default. Under the explicit terms

of the guaranty, Green Mill’s liability was released by 1/12th for each lease month of the

renewal term that the tenant had not defaulted under the lease, and one year had passed

without a declaration of breach. Green Mill has satisfied its obligations under the

Guaranty. Consequently, we conclude that the district court did not err by denying

appellant’s motion for summary judgment.

II.

Appellant next argues that “there is no material issue of fact regarding

[appellant’s] efforts to re-let the premises—nor did Green Mill ever raise the issue

below.” We disagree. The district court concluded that there is a genuine issue of

material fact as to whether appellant acted in a commercially reasonable manner in re-

11 letting the premises. It found that “Barranca has placed material facts in dispute as to

whether [appellant’s] refusal to re-let the premises . . . was commercially reasonable.”

In August 2012, Hunt and his partner, Alan Peterson, organized a group of

investors to take over the leased premises. On August 28, they met with representatives

of Mid-America Real Estate Minnesota LLC, who was serving as the property manager

and agent for appellant. They proposed an agreement where Barranca’s interest in the

lease would be assigned to a new tenant who would pay more rent than Barranca. Their

proposed agreement also provided that any investor with an interest greater than six

percent must provide a personal guarantee, similar to that required under the second

amendment.

Appellant’s agent indicated that it would require investors with less than six

percent interest to provide a guaranty. Additionally, it provided that the spouses of

interested parties must be included as guarantors. Appellant also required that the

guaranties last the entire ten-year lease term. Hunt provided a counteroffer and proposed

two-year diminishing guaranties from two potential investors and cross-guaranties from

all other shareholders. Appellant responded by seeking two-year rolling guaranties and a

letter of credit in favor of appellant for the entire lease period. The parties’ negotiations

ceased without reaching an agreement.

In his affidavit, Peterson stated that appellant’s demands were not reasonable and

indicated that he is working on a comparable project where the landlord is not requiring a

guaranty. In contrast, appellant submitted affidavits stating that Hunt’s investors were

unable to provide appellant with adequate credit for the deal to move forward and

12 outlining the marketing efforts taken to re-let the premises. There are no facts in the

record indicating whether appellant has been successful in re-letting the premises.

Because on this record, there are material facts in dispute as to whether appellant’s

actions were commercially reasonable, we conclude that the district court properly denied

Affirmed.